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The Buck Stops at the Top

Recent news coverage showed Ken Lay, the former CEO of Enron, being led away in handcuffs. Finally - years after Enron's collapse - Lay faces charges for what happened when he was at the helm. As is so often the case in such circumstances, the CEO pleads innocence: he knew nothing about what his underlings were doing. Bosses like Lay always seem to feel fully responsible for their companies' successes - how else could they justify their exorbitant compensation? But the blame for failure - whether commercial or criminal - always seems to lie elsewhere.

America's courts (like Italy's courts in the case of Parmalat) will make the final judgment over criminal and civil liability under existing law. But there is a broader issue at stake in such cases: to what extent should a CEO be held responsible for what happens under his watch?

Clearly, no CEO of a large corporation, with hundreds of thousands of employees, can know everything that goes on inside the company he or she runs. But if the CEO is not accountable, who is? Those below him claim that they were just doing what they thought was expected of them. If they were not following precise orders, they were at least responding to vague pro forma instructions from the top: don't do anything illegal, just maximize profits. The result, often enough, is a climate within which managers begin to feel that it is acceptable to skirt the edges of the law or to fudge company accounts.

Even though a CEO cannot know everything, he or she is still ultimately responsible for what occurs in the company they run. They choose their subordinates, so it is their responsibility to ask the hard questions about what is going on under their watch. More importantly, it is their responsibility to create a climate that encourages, or discourages, certain kinds of activities. Simply put, it is their responsibility to be true leaders.