Business is back (cont.)

By Geoff Colvin, Fortune senior editor-at-large

Do CEOs get any credit for piloting their companies through a truly miserable stretch? On the contrary: While companies as a class have rebounded in public esteem, CEOs generally have not. "Business still has a lot of power, but CEOs are still under attack, and that's not stopping," observes EMC chief Joseph Tucci. "It's not that business is bad, but CEOs seem greedy and bad."

The uncomfortable reality, in fact, is that while business is out of the doghouse, it wouldn't take much for it to get sent back. Example: Last year's Hewlett-Packard spying mess was ugly for sure, but it's hard to believe that it would have been the subject of congressional hearings in an environment other than this one. Imagine the effect of a few similar cases. Or a few more instances of egregious pay could convince the public that companies are hopelessly corrupt, little more than piggy banks for the few men and women who claw their way to the top.

If companies want to avoid another historic shellacking, they must do more than just learn the lessons of the last war. They must use their painfully regained respectability to meet radically new challenges to their reputations. Adding to the pressure on everyone in business, companies are caught in a new tension that makes respectability harder to maintain. It's the conflict, now stronger than ever, between pleasing shareholders and pleasing other players like governments, pressure groups, and consumers.

Shareholders' demands are more powerful because shareholders have changed. Most shares are now held by institutions - mutual funds, pension funds, foundations - and managed by professional money managers whose only job is to make the portfolio perform. They can't afford to tolerate losers.

From the opposite direction, groups pushing other agendas - mostly related to the environment and labor - have seen an alluring chance to jump on companies in their beaten-down state, and much of business's new respectability has come from its efforts to please those groups and the consumers who support them.

That's not the story line companies like; they prefer to claim they're finding new business opportunities cleaning up the environment, for example. Sometimes it's true. GE's Immelt likes to say that "green is green," which it is for GE's businesses that purify water or produce electricity more efficiently. But it's hard to say that Nike and Levi Strauss are finding new profit opportunities in monitoring labor practices through their global supply chains, as they now feel compelled to do. Sometimes being a do-gooder pays, but sometimes it just keeps a company in the game in a more demanding world.

Employee and retiree health care will be another minefield for companies. Cutbacks in benefits are the overwhelming trend, and it won't reverse. As America ages, people may find it easier to lash out at companies, which are visibly cutting benefits, than at government for failing to add benefits as fast as they'd like.

And then there's the volatility of the stock market. As companies cut pensions as well as medical benefits, Americans are more reliant than ever on their 401(k)s, mutual funds, and other investments. Yet those investments are way too skimpy on average. So a prolonged slide in the market would hurt millions of people in a big way, and the experience of last time says they'd blame business.

No one knows how trouble will unfold next time. But we know for sure that eventually something will spin fortune's wheel, and business will be in a rough spot. Some believe CEOs will get another case of hubris. Or maybe we'll have a new rash of corporate crime. Business historians say scandals occur on roughly a 15-year cycle. That's apparently how long it takes for businesspeople to forget the pictures of managers in manacles and orange jumpsuits. So brace yourself around 2016.

But that's some way off, and what worries companies right now is definitely sufficient unto the day. Business is back, but in a new way in a new world. It isn't glamorous the way it was. It isn't America's hero. The public regards it skeptically but is again willing to listen. American business collectively has been to hell and back, and as usual that journey has probably done some good.

During the tech bubble, companies were seen as wealth factories. Then they were dens of iniquity. Now, with luck, if they achieve what they're trying, they will be neither--they'll be responsible citizens earning an honest buck for long-suffering shareholders. And who, inside or outside business, would object to that?

Jia Lynn Yang contributed to this article. Top of page