Let's talk about why Corporate America is so hated by the Rest of America.
After all, Newt Gingrich just seized on that mood to snatch South Carolina away from Mitt Romney in the Republican primary campaign. That feat should surprise nobody, first considering how stiff and strained Romney always appears to be in front of working-class audiences—but also, critically, considering just how much animus these working-class audiences have toward the corporate elite.
The corporate elite, by the way, would be you, your bosses in the CEO suite, and your bosses in the boardroom.
Two items caught my eye last week that capture why the middle class hates Corporate America so much. Both center on corporate governance: the strategic decisions directors make to steer their employees and operations to various goals, and not all of them wise ones. Governance failures in the boardroom are one pay-grade above the more practical problems compliance officers usually face, I know—but also remember that to implement decisions about governance, you make further decisions that affect policy, compliance, and risk management. What's more, those decisions about policy, compliance, and risk management often constrict the decisions directors can make about governance.
Allow sloppy thinking to infect any of those decisions and you end up with bad consequences for many people, most of whom had no say how those decisions were made. And that's how you get to the nasty, fearful mood fueling the Gingrich campaign.
The two items? Most notable was the bankruptcy of Eastman Kodak, an old icon of American success that limped into bankruptcy court last week. Let's be honest: Kodak went bankrupt because it failed to latch onto the digital photography explosion that emerged in the 1990s. Worse, it over-promised retirement benefits to legions of retirees, and those liabilities made Kodak unattractive to businesses (3M Corp., for example) that might otherwise have acquired it away from the grave.
Kodak estimates that its pension fund is 86 percent funded, with $4.9 billion in assets to cover $5.6 billion in benefits due to retirees. Those assets will be protected during the bankruptcy reorganization, yes, but Kodak can (and probably will) try to shed its responsibility for that $700 million difference. Who will cover that gap? The Pension Benefit Guaranty Corp., supported by the U.S. taxpayer. We won't even get into the healthcare benefits promised to retirees. Kodak will shed those costs entirely, forcing retirees to go onto Medicare (see U.S. taxpayer, above) or drop health insurance entirely.
Poor decisions made by Kodak's board; consequences for the public far and wide.
The less visible news item last week was a payment that American Airlines, also in bankruptcy, made into the pension fund for its retirees—or more precisely, the payment American didn't make. The airline was due to pay $100 million into its pension plan last week; it provided only $6.5 million. Many see that as a precursor to American dumping its pension obligations onto the PBGC (see U.S. taxpayer, above). For its part, American says it ignored its pension payment to save cash. American currently has about $4 billion in cash reserves.
Poor decisions made by American's board; consequences for the public far and wide.
By no means am I saying that compliance, audit, and risk officers should start rushing into the boardroom, warning directors that if they end pension benefits while in bankruptcy the company will be despised by millions. That's not your job. Moreover, directors already know how that decision unfolds. The equation is easy: bankruptcy + termination of retirement benefits = public dismay.
What is the compliance, audit, and risk officers' job is to contemplate how all the smaller decisions build into larger framework that helps—or hinders— corporate governance. Could that be something as prosaic as the financial reporting executive arguing for a change in how pension contributions are calculated, and liabilities reported? Sure. But that role also encompasses questions of executive compensation, employee conduct, product safety, and much more. I hesitate to wade back into the fire-fight over auditing a company's strategic risks, but yes, that's part of it too. Especially if you want to avoid bankruptcy.
When senior corporate leaders fail at that task—the task of weaving all these threads of policy and performance into one cohesive, logical, ethical whole—that's when you get Newt Gingrich and his army of middle-aged, middle-skilled voters lashing out at Mitt Romney, Barack Obama and pretty much anyone else with the whiff of “corporate elite” about them. It's not good for either party, and it's not good for the nation.
But sometimes, as I see the tales of mis-governance filling headlines every day, I wonder whether the corporate elite is asking for it.