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I N S T I T U T E • F O R • L A W AND E C O N O M I C S

PETERSON OFFERS BOTTOM-LINE SOLUTIONS TO IMPROVE CORPORATE ETHICS

Pete Peterson didn’t come riding in on a white horse. It just seemed that way. Peterson, head of a group formed to address corporate abuses and scandals, delivered a blistering critique of American business but an equally uplifting prescription for renewal.

Drawing on recommendations from The Conference Board’s Commission on Public Trust and Private Enterprise, which he co-chairs, Peterson said he believes corporate ethics will improve if directors base executive compensation on performance, if companies require senior managers and directors to hold onto stock and give notice when they intend to sell, and if firms make ethics an enduring part of company culture.

In a talk last November, Peterson, chairman of The Blackstone Group, a global investment and advisory firm, said public trust in corporations and management is at an all-time low. He traced this plunge in workplace confidence and America’s corresponding economic decline to issues of inequity, wrongdoing, and bad leadership. Citing examples, he said CEOs earn 531 times the average worker’s salary, adding that large stock holdings tempt management to manage earnings for short-term personal gain.

One look at the big picture reveals why corporate misbehavior matters. Peterson, former Secretary of Commerce, said foreign investment (America receives $500 billion in capital from abroad) depends on confidence in the U.S. economy and capital markets. On a smaller scale, people don’t want to work for corrupt companies. Despite his gloomy assessments, Peterson sees light at the end of the balance sheet. “There’s already been a sea change in corporate governance … Boards are now much more involved than they were a year ago.”

 
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