Former Enron executive Andrew Fastow’s testimony this past week offered a fascinating window into the pressure cooker at the top of a major public company. Sure, greed was a major factor that drove senior executives at Enron. But the weight on the back of the senior managers at Enron to deliver short-term results should not be overestimated.

When you run a public company “you have a gun to your head.” That’s how Micky Drexler, former chief executive of Gap Inc. and Ann Taylor Stores describes the day-to-day life in a public firm.

BusinessWeek recently featured Drexler and a flock of senior managers who have fled public companies for the shores of private equity. “CEOs are freer to do the tough but necessary things to repair companies for the long term, with less focus on quarterly results and placating public shareholders…,” reports BusinessWeek (Feb. 27, 2006 edition).

Fastow’s revelations in court brought to my mind the remarkable story of David Sokol, whom I interviewed in my last book, Saving the Corporate Soul. For most of the 1990s, Mr. Sokol was the CEO of CalEnergy, an Omaha-based energy company.

A serious managerial challenge confronted Mr. Sokol in January 1998 when–in the throes of the Asian financial crisis–the government of Indonesia renounced a major contract with CalEnergy. Half a dozen U.S. competitors, Enron among them, also suffered project cancellations.

Mr. Sokol received the bad news from Jakarta on Friday. “Neither the analysts nor investors wanted to hear the bad news,” Mr. Sokol told me. “They urged us to find a way to hide the event or cover it up with positive announcements about new deals,” he added.

Rejecting their counsel, Mr. Sokol opted for candor. He announced first thing Monday morning an $87 million write-off on two large geo-thermal projects, both of which were nearing completion. He anticipated the fall-out from Wall Street would be muted since the casualties would hit evenly across the energy industry. But to his shock not one of his competitors revised their numbers. Wall Street hammered CalEnergy’s stock while the share prices of his competitors held up reasonably well.

One year later Mr. Sokol reached the end of his patience with the public market. Several analysts advised CalEnergy’s management that it needed to announce more deals; otherwise, the company would not be viewed positively on Wall Street. Mr. Sokol replied that the company was doing all of the business that it could handle. Their reply: “You don’t have to make good deals. What you need is deal velocity.”

Fed up with the transaction game, Mr. Sokol put his own money up front and recruited a small group of investors to take the company private in 1999. CalEnergy’s president joined him as well as Warren Buffett–it was Berkshire Hathaway’s first foray into utilities sector. By the end of the year, CalEnergy had become MidAmerican Energy, and its revenues had soared to $4.1 billion.

Mr. Sokol’s story highlights how tough it can be for an executive to stay principled when pressure is applied to pump up the firm’s stock price.

The majority of corporate executives are not so brave or visionary according to a recent study conducted by Campbell Harvey and John Graham of Fuqua and Shiva Rajgopal of the University of Washington.

Asked if they would pursue a positive net value project if it meant missing the earnings-per-share estimate for the quarter, 59 percent of financial executives admit that they would kill the project.

Equally troubling, 78 percent of executives admit they would forego real value in order to meet their earnings targets.

In my experience, once senior managers become obsessed with short-term results, it’s almost impossible to have a meaningful discussion about treating their workers as valued partners, or delivering real customer service, or pursuing an environmentally sustainable plan.

But it’s now obvious that the short-term focus is forfeiting real financial value for the public firm. In other words, it’s not just socially responsible business advocates that should be concerned about the structure of our public markets.

I cannot improve on Benjamin Franklin’s observation: “A little neglect may breed mischief: for want of a nail the shoe was lost; for want of a shoe the horse was lost; and for want of a horse the rider was lost.”

David Batstone is president of Right Reality ( and executive editor of Sojourners ( This article was published originally in the weekly WAG e-newsletter. Click here to subscribe.

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