C O M M E N TA RY
Who’s Gonna Combat Corporate
Misbehavior? Us!
BY FRED REICHHELD
With the confirmation of William H. Donaldson as
SEC chief in February, the pressure is on. Tapping the
respected president of the New York Federal Reserve,
William McDonough, to head up the new accounting
oversight board is just the beginning. Donaldson will
also need to move quickly to show real progress in
cleaning up corrupt business practices.
It will be tempting for the new regulatory team to
concentrate on prosecuting a few more high-profile
CEOs, but it should consider an alternative path—a
path of reform like the one that has helped to transform
New York City from a menacing place fraught with
crime into a vibrant metropolitan center.
When Rudolph Giuliani recruited
William J. Bratton to become New York
City’s Police Chief in 1993, crime had
climbed to unprecedented levels. Bratton could have
spent all of his resources targeting high-profile crime
bosses and drug kingpins. Instead, he went after
smaller crimes that had become commonplace in New
York City. Giuliani and Bratton calculated, astutely,
that rampant small violations foster the conditions
that give rise to harder offenses. Many New Yorkers
had tuned out the screaming graffiti walls and shattered glass. Eventually, they then came to accept the
inevitability of more serious crimes.
Giuliani and Bratton adopted a strategy of re-engaging New York’s citizens—and it worked. Crime fell
between 60% and 70% during Giuliani’s tenure as
mayor, as a result of focusing enforcement activities on
smaller, measurable offenses.
THE RED
APPLE
Securities regulators can empower
stakeholders across American
industry by standardizing a simple
reporting process.
MWORLD SUMMER 2003
American Management Association
Tracking this data in a rigorous, computerized report card
called CompStat, police and citizens could assign responsibilities and gauge progress.
CORPORATE So where is the parallel with fighting
CORRUPTION corporate corruption? The broken win-
dows and graffiti of the corporate world
start with dishonest advertising, unreliable service, dinners interrupted by phone marketers and misleading
pricing. It escalates to duplicitous stock research analysis, unrealistic growth projections and company earnings trajectories that defy reason. In our failure to register these transgressions, we become complicit, to a
degree, and the police might as well stay home.
When corporate citizens become apathetic about
unethical practices, when they see no practical way to
blow the whistle on objectionable behavior, then minor
lapses will fester and conditions will turn ripe for major
malfeasance among corporate chiefs.
Donaldson’s biggest challenge will be to re-engage
all of us, in part by convincing us that these abuses will
be tracked and resolved. One model worth considering
is the approach developed by eBay to tame the wilderness of the Internet.
The online marketplace asks its 49.7 million registered
buyers and sellers to rate one another for honesty and
integrity. Participants also grade the company on how
well its service reps live up to corporate commitments for
timely attention, problem-solving and follow-through.
By publishing these ratings, eBay has created a self-policing community in a most challenging environment.
Securities regulators can similarly empower stakeholders across American industry by standardizing a
simple reporting process. Let customers and employees
rate companies, one to ten, on statements that sum up
sound practices and ethical relationships. MW
Fred Reichheld is a fellow at Bain & Co. and author of
Loyalty Rules! How Today’s Leaders Build Lasting
Relationships (Harvard Business School Press, 2001). This
article first appeared in The Daily Deal, April 2003.
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