Remarks of Secretary of Labor Elaine L. Chao
Dean’s Welcome to the Class of 2004
Harvard Business School
August 23, 2002
"Leadership and Values"
It’s great to be back
at Harvard Business School. It
seems like ages ago that I was sitting where you are.
Actually, it was ages ago.
You’re lucky to
have a formal Orientation. When I
attended HBS, we had a different kind of introduction to HBS.
I remember arriving
on campus the day before classes were to begin.
I was so excited to have been accepted at HBS that I had my parents with
me. After moving into my dorm room,
we spent the rest of the day touring Boston and enjoying the beautiful HBS
campus. When I finally returned to
my dorm at 10:30 pm, waiting in my mailbox were three cases for the next day,
the first day of class! That was my Orientation. And,
there are other changes as well.
As I look out over this incoming class, I see more women and more
diversity.
I’m particularly pleased that more women are discovering the
excitement and challenge of being a business leader.
When I was here, women comprised about 19% of the entering first year
class. Today, it’s nearly double
that.
I understand there are a lot more international students in the class as
well. As America is competing in a
global marketplace, the presence of international students is a welcome addition
to everyone’s learning experience.
First, I want to say this: all of you are about to embark upon the most exciting two years of your lives. HBS was certainly among the two most rewarding and exciting years of my life (And I’ve had a pretty interesting life!
Since leaving this
campus, I have seldom found as exciting an environment as the one I experienced
at HBS. There is such electricity
in the air here, such an awareness of each individual’s potential and such
optimism about future expectations.
When I graduated from Harvard Business School, I joined Citibank in New
York City for the princely annual salary of $25,000, the median salary for my
graduating class that year.
I was excited about the future but couldn’t quite see the path ahead of me. There were many classmates who seemed far smarter than I was, who came from better socioeconomic backgrounds, who seemed so much more confident and articulate. I sometimes wondered if I would be able to compete and if and how I would be able to find my place in the world.
But in a nutshell, my life and career have turned out to be so much more interesting and exciting than I ever could have imagined. I have had the unique experience of having led complex organizations in the private, non-profit and public sectors.
What I have come to appreciate is that leaders are not necessarily those who seem the smartest, the most intellectual, or the most confident. Let me hasten to add that I am by no means the definitive expert on leadership. I like to think of myself as a perpetual student of the art of leadership. I am still working to improve and be a better leader every day. The good news is that everyone can become a better leader with practice.
I’ve found that true leadership draws its source from core values such as character, integrity, personal courage and a commitment to ideals.
Some of the best leaders I have seen are humble individuals who possess
great empathy for others. They have
the ability to motivate and inspire and can utilize these skills to forge a
consensus toward a common vision.
In the next two years, the basis of everything you will learn is the American free enterprise system. That system, which has given so much to so many, is in crisis today. It is under attack because of the actions of an unscrupulous few, some of whom graduated from our nation’s top business schools.
Even the best education with the finest teachers will not produce the kind of leaders we need unless their leadership is grounded by strong moral principles and values. That’s why the Leadership and Values Initiative you are kicking off today is so important and so very timely.
You have all seen the headlines. Major U.S. companies have collapsed because of corporate dishonesty. Billions of dollars in market capitalization have disappeared. Millions of investors have seen their investments drop significantly. Thousands of workers have lost their jobs. And millions of Americans have lost their retirement security.
That tragedy was compounded by avarice. We have learned that the same executives who bankrupted companies and cheated shareholders enriched themselves with corporate assets before bailing out. Other transactions—like huge insider loans; special purpose entities; off balance sheet financings pushed to the limit and beyond—were cleverly concealed with the help of creative accounting devices.
Enron was just the beginning -- then came Global Crossing, Tyco, Adelphia and WorldCom. There were so many restatements of earnings that you still need a scorecard to keep up with them. No wonder the market is reeling!
But it’s not reeling because of any so-called economic crisis. After all, interest rates are the lowest in decades. Home and automotive sales remain strong. Productivity continues to rise. Inflation is low and we have had three straight quarters of positive growth.
What’s really driving the current financial jitters is a crisis in confidence. Our country has lost confidence in the business leaders who once epitomized success in the boom decade of the 1990’s.
President George W. Bush, a Harvard MBA himself, has said: “There is no capitalism without conscience; there’s no wealth without character. We need men and women of character who know the difference between ambition and destructive greed.”
>As the President also
said so emphatically as he signed corporate governance reforms into law
recently, “…free markets are NOT a jungle in which only the unscrupulous
survive.”
Government can play a
role in this crisis through regulation and enforcement.
The front pages in recent days show in shocking detail what can happen to
executives accused of malfeasance.
Adelphia
Communications Chief John Rigas and his two sons were led away in handcuffs—in
public view-- from their New York apartment in July to face criminal and
civil fraud charges. They could
serve 30 years in prison if found guilty of secretly looting the company’s
assets as it slid into bankruptcy.
Tyco’s former chief executive, Dennis Kozlowski, is facing criminal tax evasion charges connected with his corporate perks: his $13 million painting, multimillion dollar New York City apartment and his $6,000 shower curtain. He’s the brunt of nightly talk shows. His reputation is in tatters.
And just this week, former Enron executive Michael J. Kopper pleaded guilty to securities fraud. The government will force him to disgorge $12 million in the first criminal case stemming from Enron’s collapse.
And Martha Stewart-- if indeed she did attempt to take advantage of a few thousand shares of ImClone stock—has risked her own reputation and put her entire company’s survival in jeopardy for a couple of hundred thousand dollars.
White-collar crime can lead to jail time and public disgrace.
I wonder what these people would do if given the chance to relive their lives? Would they take the same steps over again? Was it worth it?
So what if they have millions of dollars? Many are still young and vigorous. What will they do with the rest of their lives when their calling card—their good name—is linked with the one of the greatest scandals in our country's financial history?
Some may dare to argue that the situation is unfair—that investors should have been more sophisticated, that it was just creative accounting, that everyone was doing it, that they weren’t at fault or they were just the ones who got caught.
Regardless of these excuses, this is only the beginning.
If the corporate sector doesn’t clean up its act, the government and Congress will do it for them. There is still a flood of corporate governance proposals pending before Congress—not all of which are rational or make sense.
Several bills, for example, would limit the amount of stock employers can match in 401 K accounts. Another bill would even limit the amount of employer stock in ESOP’s. Go figure that one out!
But as important as laws, accountability and enforcement are, there is an intangible element to this crisis that only individuals can address.
We must encourage the development of principled leadership. And the best place to start is right here, with you.
Harvard Business School, under the leadership of Dean Clark, has taken a major step in the right direction by creating a Leadership and Values Initiative.
He understands that ethics is the practical application of character. And only character can help us resist some of the temptations that are out there.
Paul Volcker, former Chairman of the Federal Reserve, noted that some of the best mathematical minds of the new generation turned to financial engineering to hide risk from the public. As a result, many public balance sheets and income statements were filled with incomprehensible numbers that few could understand.
That kind of opaqueness undermines the very foundations of a free and open economy and society. At the President’s economic summit in Waco, Texas, ethicist Michael Novak noted that our whole free enterprise system is built upon trust, honesty and clarity about the facts.
If these ethical principles are violated, the public’s trust will be violated. And when the public loses its trust and confidence—the bottom line suffers. The market has shown that it will not tolerate any perception of corporate misdeeds.
But there is more to it than just the dollars and cents of the bottom line. People’s lives and futures will depend upon the decisions many of you will make as corporate leaders.
In addition, our country has undergone an investment revolution. Nearly half of all Americans own stock. Widespread stock ownership has many benefits. It allows ordinary Americans to share in the wealth created by good, solid companies.
But this trend also means that when companies fail today, the toll in human suffering extends far beyond job loss. It shakes the foundations of retirement security for millions of Americans.
I am concerned about this because the Labor Department is the regulatory watchdog for many of the nation’s retirement plans. Retirement security is not just another issue to me. Safeguarding people’s pensions is one of my top priorities as the U.S. Secretary of Labor.
That’s one of the reasons I was looking forward to speaking with you today. As the head of one of the most far-reaching regulatory departments in Washington, I know the limits of government regulation. In a democratic society, our institutions—public, private and non-profit-- are only as good as the character of the people who run them.
Each one of you has an extraordinary opportunity and obligation to help turn around the crisis in confidence we face today. You are the future business leaders of our country. You can and must lead by example.
If the attacks of September 11th taught us anything, is it not to mistake money for character. The heroism of the so-called “ordinary” person in our darkest hour is what rescued others and made Americans proud. As the economist Robert Samuelson noted, “Money measures creativity, ambition, effort—perhaps luck. Character, though more intangible and sometimes not easily recognized, is priceless.”
The future of the free enterprise system depends upon how you manage this most precious asset, which is not revenue, but public trust and confidence.
The American free enterprise system has brought us the highest standard of living in the world. You will have a major role in safeguarding its promise of opportunity and hope for millions of Americans and others around the world.
As some of you may know, I came to the United States from Asia when I was eight years old, not speaking a word of English. My father had left three years before my mother and myself, to forge a new life in this country for us. My parents and so many others came because of their trust and confidence in the promise of opportunity in America and the basic decency of its people.
The old adage-- that you can make it in America with just talent and hard work-- it not just a slogan. It is the story of millions of Americans repeated across our country every single day.
If
this country is to remain a beacon of hope for so many others seeking a new and
better life, we must maintain the highest levels of honesty, transparency and
accountability. Trust in our
leaders is equally important in government, the private and the non-profit
sectors.
I know this from my
own professional experience.
About a decade ago, I was recruited to help turn around the United Way of America, the premier charitable organization in America whose good work was jeopardized by scandal and executive wrongdoing. 64.1% of the American public at that time had heard about the scandal.
Restoring financial integrity to the organization’s basic business practices was just the beginning and the easy part. The most difficult task was rebuilding trust and confidence—both inside and outside the organization. That work is still going on today.
Six years ago the National Association of Securities Dealers— parent company of the NASDAQ Stock Exchange—was cited by the Securities and Exchange Commission for engaging in monopolistic trading practices. I was asked to be on the newly reformed NASD board.
Both experiences taught me that trust and moral authority are a leader’s—and an organization’s-- most precious resources. Compromising these assets can cripple even the most prestigious humanitarian organization. Without trust and moral authority, an organization has no long-term future.
I know there have been heated discussions on this topic. For what it’s worth, let me say I believe a company has many stakeholders. First and foremost are shareholders—no question. But they’re not the only ones. Others include employees, customers, suppliers and the community in which a company does business.
A company cannot grow and succeed in the long term if it fails to pay attention to these other stakeholders.
I also believe that all organizations have a “soul.” All organizations have their own spoken and unspoken cultures. Transforming the culture of a complex organization is one of the hardest tasks to accomplish. Yet without a culture of integrity, accountability and transparency, no organization can succeed in the long term.
There are some in Washington and elsewhere who believe the free enterprise system has little merit. Unfortunately, the economic events of the last nine months have increased their numbers and strength. They believe that if an organization is a profit-making venture, its leaders must have raped, pillaged and cheated to achieve these results.
Those of us who believe in the free enterprise system have a responsibility to lead our organizations with integrity, transparency and accountability. And we must develop an organizational ethos and culture that embraces these values.
As future business
leaders of America, if not you—then who?
We are depending upon you. Help
lead the way.
Thank you.
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