Harold Tinkler, chief ethics and compliance officer for Deloitte & Touche LLP, told an audience of professors and MBA students that corporate decisions should not be based solely on stock price and that this practice is harmful to sound, sustainable corporate stewardship.
In a speech titled “Ethics in Business: The Heart of the Matter,” given to the Darden Graduate School of Business Administration “First Year – First Week” MBA program at the University of Virginia, Tinkler said, “In my experience with public companies, the overemphasis – in fact, it is more like a fixation – on the short-term stock price and quarterly earnings reports has led to shallow, short-term thinking about management performance. This emphasis on short-term earnings has continued to grow over the years, and it’s an unhealthy trend.”
He continued, “What I observed in the latest wave of business scandals was that the companies that got into the most trouble were largely those whose CEOs promised to keep up the double-digit growth. It was unrealistic and unsustainable given the economic downturn, the competition they were facing and the realities of the economic cycles. But once they had committed themselves to those kinds of gains, the pressure on the organization and the individuals within the organization just got worse with every quarter. In the long run, it is a no-win situation; it’s a scenario that tempts people to game the system.”
Tinkler also called for a redefinition of good management, saying, “Executives are under tremendous pressure. Many of their incentive systems – their compensation and bonus schemes – are still tied to hitting that quarterly target. I have always said, ‘tell me how someone gets paid and I will tell you how they will behave.’ We need to redefine good management and that includes how management is compensated.”
While Tinkler would not give the corporate system in the United States a perfectly clean bill of health, he did note that he has seen meaningful progress since the adoption of the Sarbanes-Oxley Act of 2002.
“I’ve been in the boardrooms of our publicly held clients, and I believe that the response to the business scandals, which includes statutory reform, new policies on financial reporting and stricter regulatory requirements, all have made a real difference in the way public companies are now governed.”
Tinkler also provided advice to the MBA students that he hoped would be applied to their processes in evaluating future employers.
“In addition to the usual criteria, I believe that the ethical culture of an organization should also be on your short list. I believe it is critical to your ultimate job satisfaction and to your sense of self-worth. I can only hope that you will find an organization that has a handsome exterior with all the bells and whistles, including a great salary and prestige but also has ethical values at its heart.”