The verdict on business: presumed guilty
(FORTUNE Magazine) – IN A MEMORABLE SCENE FROM P.G. WODEHOUSE, BERTIE Wooster enters an antique-silver shop in London and encounters Sir Watkyn Bassett, a judge who believes, mistakenly, that he had at one time found Bertie guilty of bag-snatching. After Bassett leaves, Bertie examines a silver cow creamer and moves toward the door to examine the hallmark in the light. On his way, he trips over the shop cat and shoots out the door, still clutching the cow creamer, and runs straight into Bassett--to whom the situation seems all too clear. "Police!" he yells, and Bertie decides, sagely, one must say, that running is a wiser course than trying to explain.
American companies and executives today are in a situation much like Bertie's: presumed guilty. Of course, plenty of genuine guilt by a few companies supports that attitude. The past three years of business scandals apparently have a long way yet to run, with the latest installment, the Marsh & McLennan imbroglio, likely to bring forth plenty more insurance-industry dirt. But even after three years, the number of companies implicated is minuscule. The problem for the vast majority of ordinary companies and businesspeople is that they're paying the price for the bad boys' behavior, being increasingly distrusted by the public simply because they're in business.
The effect is that all kinds of business activity are suddenly seen in a new and suspect light. Sometimes it's perfectly innocent, like stumbling with the cow creamer. Sometimes it's unsavory but within the rules. Most of it is behavior that has been common for ages--but, seeing it now through scandal-tinted lenses, the general public, and sometimes the SEC or Eliot Spitzer, is shouting, "Police!" Recent examples:
> Offshoring. When we look back on 2004, we will marvel at how hiring people in other countries came to be viewed as a grave ethical breach. Check the label on your laptop, clothes, running shoes, kids' toys, or thousands of other products, and you'll confirm what everyone knows: that American companies have been offshoring for decades, and American consumers like it. Yet somehow, this year, hiring people to answer phones in Bangalore became evil. In light of our prodigious and long-standing appetite for foreign labor, that attitude couldn't have developed without a newly dark view that companies are amoral at best, and more likely heartless and thieving.
> Pharmaceutical pricing. Could someone please remind us what's new here? Big Pharma charges what the market will bear in the U.S.--always has. Those prices are much higher than in other countries, where they're controlled by law. But did it make sense for John Kerry to rail during the campaign that these companies are making billions "on the backs of American consumers"? After all, as Malcolm Gladwell pointed out recently in The New Yorker, when drugs go off patent they actually cost much less here than anywhere else in the world, as they have for years. Yet pharmaceutical companies have taken a hammering --partly an election-year phenomenon, but it couldn't have happened if the public weren't prepped to believe most companies are very, very bad.
> Pension accounting. The SEC recently requested information from Boeing, Delphi, Ford, General Motors, and Northwest Airlines, apparently to see if they use pension-accounting practices to manage earnings. Let me make a few guesses: (1) At least some of them do; (2) it misleads investors; (3) it's all within the rules. There's definitely potential for abuse here. That's been obvious for 30 years. Not by chance is now the moment when the SEC has finally decided to take action.
> Executive pay. Any attempts to restore sanity to executive pay over the decades have always stopped at the courthouse door. Leave us out of it, judges have said. But the Disney-Eisner-Ovitz trial underway in Delaware breaks the pattern. It's true that the facts in that case are extraordinary, but it's significant that only in today's atmosphere has a major executive-pay dispute finally made it to trial.
Lots of businesspeople are trying to figure a way out of this mess. The answer isn't encouraging. Trust is quickly lost and slowly won, and we're in the slowly winning phase now. Bertie Wooster, in case you were wondering, eventually gets back on Sir Watkyn Bassett's good side, but it takes almost 200 pages. For American business, with Eliot Spitzer and the SEC in overdrive and the trials of Skilling, Lay, Ebbers, and Scrushy, and the retrial of Kozlowski and Swartz, still to come, rewinning public trust will take much longer.
GEOFFREY COLVIN, senior editor at large of FORTUNE, can be reached at email@example.com. Watch him on Wall $treet Week With FORTUNE, Friday evenings on PBS.