The greatest governance need: the restoration of trust requires a renewal of ethical standards in corporate America. Directors need to be out in front on this--doing what is right, not just what is legal or possible.

• Author: Koppes, Richard H.
• Position: Ethics and Accountability

IN A SPEECH LAST YEAR to the graduating class at St. Anseim's College in New Hampshire, Dennis Kozlowski, then-CEO of Tyco International, said: "You will be confronted with questions every day that test your morals. Think carefully, and for your sake, do the right thing, not the easy thing." Oh, if only he had listened to his own words and done the right thing.

Unfortunately, too many of corporate America's leaders in the last year seemed shockingly out of touch. Enron opened the Pandora's box of this corporate crisis, exposing all sorts of evils. A seemingly endless stream of bad news alleging widespread management negligence and malfeasance has chipped away at the trust vital to our free-market system.

The shock of these events on investors and the public at large has been unprecedented. All these headlines, and unfolding drama, certainly got the attention of everyone in America, even George Bush. I knew my specialty had "arrived" when the President of the United States himself started talking about corporate governance! Fifteen seconds into his July speech before Wall Street last summer, the President said: "At this moment, America's greatest economic need is higher ethical standards -- standards enforced by strict laws and upheld by responsible business leaders." He called on businesspeople to uphold "the value of our country" more than a dozen times before he finished that speech.

Kirk Hanson, executive director of the Markulla Center for Applied Ethics at Santa Clara University in California, recently boiled down the Enron scandal to this: "Enron was the collapse of a large company that was touted as the company of the future! There was massive fraud, greed on an unparalleled scale, and unrestrained conflicts of interest. The board and audit committee were asleep as executives escaped with their wallets intact. And the employees -- the human assets - suffered tremendously."

Lots of blame to go around

So who is to blame for this lack of corporate ethics? I'll offer a few observations.

First, far too many executives in the go-go economy of the '90s were much too greedy and richly rewarded to the excess. And many of these CEOs didn't put their money where their mouths were. They championed a new capitalism in which the rapid exploitation of the Internet and other technological breakthroughs would soon enrich executives. Main Street investors and workers were encouraged to plow their retirement savings into their employers' stock. But the zeal of those CEO champions, many of whom benefited from intimate knowledge of industry and company conditions, did not stifle their instincts for self-preservation. They made their stock-market killings not long before the revelry ended...