What is an Ethical CEO?

“What constitutes an ethical CEO?” is a question with many layers. This is because a corporate CEO has multiple stakeholders who have divergent goals and, therefore, different opinions. I examine how the ethical behavior of a CEO is judged by shareholders, customers and employees—drawing from my experience as a CEO—and I offer insights into how leaders can care for the interest of all their stakeholders.

My career as a CEO (actually a co-CEO) was at an institutional broker-dealer, Greenwich Capital, and spanned the go-go years of 1999-2006. At our peak in 2006, we had a workforce of 1,250 and were generating pre-tax profit of $1,000,000 per employee. Like all our competitors, the 2008 credit crisis took a toll on the firm. Today, the historic Greenwich Capital business operates under the Royal Bank of Scotland corporate umbrella.

SHAREHOLDERS

The one aspect of being a CEO that most stakeholders agree on is summed up by the statement, “To do good, you must first do good.” At a minimum, this means that a company must remain solvent to satisfy its obligations.

Left to their own devices, however, many shareholders would follow the path of maximizing short-term profits to the detriment of the long-term health of their businesses. The fact is, however, that most successful companies invest significant amounts of capital to ensure their employees and customers are happy and treated well. Ensuring that these investments are made is an important responsibility of an effective and ethical CEO.

As with all issues of corporate governance, however, this should not be left to the good instincts of CEOs. Boards of directors should look to structure the compensation plans for their CEOs and senior management teams that align their personal interests with the long-term interests of the company.

CUSTOMERS

In most businesses, it’s easy for customers to express their pleasure or displeasure with the ethics of a CEO or company—they can buy more or less of its product or service. Historically, however, customers rarely were aware of the ethical/unethical behavior of a CEO or company.

While the information age has changed this somewhat, nevertheless, a 2014 survey by Trade Extensions, the online sourcing and optimization specialists in the U.K. and U.S., found that consumers ranked their #1 issue in purchasing decisions as: price (40 percent), value (30 percent) and quality (16 percent)—with ethical behaviors lagging behind at 2 percent.

So, while in some circumstances customers are important watchdogs, our economic system generally does not operate in a way that consumers play a preeminent role in enforcing ethical corporate behavior.

EMPLOYEES

This is the aspect of ethical corporate behavior that is nearest and dearest to my heart. In part, this is because Wall Street is still very much a “people business,” so effectively managing employees is a huge component of a CEO’s job. More specifically, I was lucky that the founder of Greenwich Capital, Ted Knetzger, was a remarkably generous and ethical professional.

When I first met Ted, what surprised me most was how he spoke about wanting to help his employees realize their “hopes and dreams.” At this point I was 30 years old and had worked at two big Wall Street firms, and I had never heard anyone, much less a CEO, speak about such things.

Previously, when I had heard my bosses or CEOs discuss goals, it had always revolved around what employees should do for our customers or shareholders—not what the company should do for them. Ted’s priority was to make sure that the management of Greenwich Capital took great care of its employees, and if that was done properly, the employees would take great care of the firm’s customers and shareholders.

The result of this radical orientation was that, for the eight years I was co-CEO of Greenwich Capital, we were perennially ranked by the 100 largest institutional fixed income clients in the world as the #1 broker-dealer for U.S. treasuries and mortgages. And Greenwich’s pre-tax profit per employee was nearly three times that of Goldman Sachs. Most importantly to Ted, the hopes and dreams of many of Greenwich Capital’s employees were realized.

SUMMARY

This short article is not intended to be an exhaustive examination of corporate ethics. I do, however, hope that it shines a light on the importance of management focusing on taking care of its employees.

There’s an old expression that states, “Charity begins at home.” Similarly, I believe that, “Ethical corporate behavior begins with the treatment of employees.” Happily, my experience is that this approach is also the best way to look after the interests of all the stakeholders.