For more than a year, U.S. investors, politicians, and government officials outraged by a string of corporate abuses have made their voices heard. Share prices have suffered, CEOs have been ousted, seemingly stricter reporting legislation has been passed, and companies have been investigated and prosecuted.

Yet, for the most part, America’s CEOs have been silent. But Donald Keough, the retired President and COO of the Coca-Cola company, and now chairman of the board of Allen & Company, Inc, a New York investment banking firm, is speaking up.  Keough traced the events that set the stage for Enron during the 2003 Kenneth Cole Leadership Forum held earlier this year at Emory University.

“Depending on which poll you read, 70% to 90% of the American public believes that the leaders of American business are greedy, untrustworthy and disconnected from their associates, their shareholders and reality.  That’s what they think of us.  And as somebody who’s spent his life in that world, I resent it and it scares me,” Keough told a capacity crowd gathered at the forum.

He admits there are flaws in the system and that there is greed, but he doesn’t believe it is pervasive or crippling.  “Free enterprise with all of its flaws… delivers an unequalled combination of rising living standards, attractive opportunities, and technology improvements by the hour.  And a handful of miserable cheaters cannot destroy this great system,” Keough contends. “There’s more that’s right than wrong.  There’s more that’s good than bad.  The brand name of American capitalism has been damaged but not destroyed…. (If) there are parts of that system that need fixing, well then let’s see to it that they get fixed.”

Keough believes the stage was set for “this mess” in the stagnant 1970s when corporations tried to get stocks to move upward.  “I was part of a country that from 1970 to 1980 had a compounded return of 1% in the stock market.  In the words of one business school professor, ‘We got itchy and began to move from managerial capitalism, where you’re running the business, to investor capitalism where you’re worried about the stock,’” he said. Control of the corporation shifted from faceless managers to charismatic CEOs and CFOs. 

“Then in 1982, what happened—this bull market, this raging bull, the biggest in our history came…18 years.  We began to let these analysts out of the front yard into the front door into the vestibule into the living room into the kitchen to help us ‘cook the food,’ and then finally into the bedroom for a little pillow talk,” said Keough. “These analysts were no longer there just to see how we were doing, they were there to suggest what we might do and it happened to company after company after company.  In my time, up until the big bull market, CFOs were basically tough, smart and mean.  Their basic responsibility was to test every dollar coming in and going out to see if it were real. You could always count on the CFO to go into the CEO and say, ‘Let me give you the unvarnished truth:  good, bad, or indifferent,’” Keough explained. 

“As the stock market began to soar, and as we let the street into our bedrooms, slowly but surely… the office of the CFO became the center, it became the profit center.  To me, that was the final act of destroying the credibility of many of American businesses,” he said.        

“Everybody got carried away and didn’t want too many facts,” said Keough.  “Managers, investment bankers, analysts, lawyers, directors, individual investors, everybody was focused on the goal to increase the price of a company’s stock now.” It wasn’t about value, said Keough, “But the illusion of value.”

“So let’s be honest in this room--trust, values, haven’t been particularly hot subjects in Washington over these last years,” said Keough.  “Take all the pressure for short-term gains, stir in speed and complexity, ambition, moral relativism, top it off with just a plain old scoop of greed, and you have a recipe for potential disaster.”

How to fix it?  Keough says steps are being taken.  Congress recently passed the Sarbanes-Oxley bill, and the New York Stock Exchange and Nasdaq have enacted new rules that will make it much more difficult for future Enrons and WorldComs to develop sly accounting habits. 

“This isn’t just one of those things that’s happening, it’s a watershed change. The show-and-tell board meetings are just about over.  I don’t think you’ll find many directors voting for things they don’t understand,” noted Keough, who has served on the boards of Columbia Pictures, The Washington Post Company, USA Networks, McDonald’s Corporation and YankeeNets, LLC, H.J. Heinz, Berkshire-Hathaway, and others.  “I don’t think that being on a board is going to be easy in the future, and I can also state that no matter what new regulations come in, there will always be somebody who’ll find a loophole.  That’s why you and I need to be very vigilant and that’s why business schools need to be guardians of the validity of the truth of American business.”

Keough says corporate leaders must set the tone.  “Trust begins with the leaders of each company,” he said.  “At great companies, the leaders want to tell the truth to everybody that they are associated with—warts and all.  And I believe most of the companies in this country do that.  It’s been said that the corporation has no soul.  Let me tell you something, it’s up to its leaders to give it a soul.”

And while CEOs may not be out championing their cause on cable news shows, Keough says they are working diligently behind the scenes. “Most business leaders are not going to hide under their desks waiting for this to blow over.  They’re seeking ways to renew and revitalize.  Not only our markets, but to get peoples’ trust back in our system,” he said.  “I’m an absolute optimist about America and an optimist about what’s going to happen in the future.” 

The Kenneth Cole Leadership Forum examined critical factors affecting the public trust: ethics, faith, values and action.  Presented by the Emory Office of University-Community Partnerships, the annual conference is the capstone event for the Kenneth Cole Program in Community Building and Social Change. Funded in part by Emory alumnus Kenneth Cole, chairman, CEO and creative director of Kenneth Cole Productions, the two-day Forum brings together scholars, community leaders, and students to explore issues affecting the well being of American people and their communities.

Economist Jeffrey Rosensweig, associate dean of corporate relations at Emory University’s Goizueta Business School, officiated the afternoon session which featured Keough and Russell Hardin, an expert on trust and its less well-received twin, distrust. Rosensweig summarized the thoughts of many: “Trustworthiness is a good that we find to be in too short supply this year for many and sometimes simple reasons. We desire more trust, stronger foundations on which to rest our trust, and we affirm and seek to build greater trust in our families, in our institutions, and in our society,” he said.

So what are these things called trust and distrust?

“It’s not the trust that’s in decline by itself, but trustworthiness,” said Hardin. “In effect, trust and trustworthiness are issues that have become important only in modern times….“Trust and trustworthiness are modern ideas –due to the fact that modern life thrusts us into diverse networks, as opposed to living in closed communities,” observed Hardin, the author of six books, including Trust and Trustworthiness, and an academic who teaches political science at Stanford University and politics at NYU.  He also co-chairs the Russell Sage Foundation Working Group on Trust.

To explain, Hardin contrasted our way of life today with that of life in the 11^th Century French village of St. Germain.  Since the church of St. Germain kept very good records, there is a wealth of data about the 80 people who inhabited this village.  Hardin used one villager, “Beaudeau,” to illustrate.

Beaudeau knew only 79 people in his lifetime. “He knew all those people in a way that you and I know no one, except for perhaps our families if we stayed where are our families are,” said Hardin. “Everything he consumed was produced by him and his family and the rest was produced by the people in that village.”  Only salt and spices may have changed hands more than twice. 

In this closed community, “there is full knowledge of virtually everything everybody in the village does. There is also a coherent set of rules that people have to follow and they get sanctioned directly and immediately for going astray from those rules,” explained Hardin.

That didn’t guarantee compliance in Beaudeau’s village, but it did raise the cost of non-compliance.  “At the extreme, somebody who really cheated in the village had to leave; they would be exiled from the community,” said Hardin.

In contrast, the complex lives we live today consist of many relationships that are specific to a particular area of our life, or networks, as Hardin calls them. Because these networks have very little overlap, trust and trustworthiness have developed as a way of maintaining these relationships. Distrust has also emerged as a natural causative ingredient to this mix.

“We’re not like Beaudeau. We have interactions with hundreds and thousands of people and some of whom we don’t have rich enough interactions with to be able to trust them, so in fact we have probably more distrust and non-trusting relationships by far than we used to have,” Hardin said.

Because of this, Hardin cautions us not to jump to conclusions about distrust being a bad thing.  According to Hardin, distrust isn’t evil; it’s part of the bargain of leading a richer, more diverse modern life.  The more complex our lives become, the more distrust may become a part of our lives. 

“To claim that rising distrust is bad is to miss the point.  If we’re going to have more trust relationships, we’re going to have the opposite side of that coin, or distrust.  Rising trust, in fact, is a good thing in our lives,” said Hardin.  “Therefore, a rise in distrust—as sort of a necessary complement—is essentially good.”  

(June 2003)