THE BLOG
04/09/2014 07:27 am ET Updated Jun 09, 2014

The CEO as a Public Official

Multiple lives are lost in a tragedy that makes the national news. Early reports suggest that mismanagement, perhaps even criminal negligence, may have been a factor. A contrite leader promises transparency, launches a full investigation and meets with victims' families. A man with a national reputation for integrity and efficiency is brought in to advise on a process to handle claims allowed under a fund to be established for family members. Key figures are called to testify before Congress.

If this sounds like it could have been President Bush after Hurricane Katrina or President Obama after the Gulf Oil spill, to a considerable extent it was. But it was also Mary Barra, the CEO of General Motors, after revelations that a faulty ignition switch led to 13 deaths when it turned off while the car was on the road, thus rendering powered systems (e.g. steering, brakes, air bags) inoperable.

Barra also testified before the House and Senate and held several press conferences. "GM has civic and legal responsibilities..." Barra told a House panel. At times, she called GM's actions -- which included knowing about the problem as early as 2001 and failing to fix it -- "unacceptable" and "troubling." "I am deeply sorry," she said. In a related interview, Ken Feinberg, who managed the 9/11 and Gulf Oil spill compensation funds, said he had been hired by Barra "to take an independent, objective look at what is in the public interest, in the victims' interest, in G.M.'s interest -- and to consider all the options."

If none of this sounds particularly surprising, that is a measure of how far our expectations of government officials have come to characterize our demands on the leaders of corporate America -- and how far at least some of those leaders are willing to go to meet those demands. Barra's acknowledgment that she has "civic" not just legal responsibilities and that she needs advice from Feinberg on what is in the "public interest," means that, at least for her, she is willing to take on many of the same responsibilities as if she was the head of a major government agency.

Of course, there is still a line that separates public and private. Congress doesn't get to vote on GM's budget (though it may well demand explanations for what GM spent or failed to spend). For certain, the financial health of GM and its stock price are very important metrics (indeed, preserving both no doubt encouraged Barra to respond the way she did). But Barra's actions also suggest that the "bottom line" in her company is measured not just in dollars but in public trust, and, as she put it in her testimony, the need for GM to "do the right thing."

Barra is not representative of all corporate chieftains. In the same week she testified, officials of Caterpillar found themselves defending their practice, according to a Senate panel, of shifting profits to a subsidiary in Switzerland, whose dramatically lower tax rate saved the company an estimated $2.4 billion. Just a few days before that, Brian Moynihan, CEO of Bank of America, got an 89 percent pay boost (from $7.4 to $14 million). His employees did not fare so well.

Yet, Barra may be an example of what we will increasingly see -- and expect. In the world of social media, the World Wide Web, and a 24/7 news cycle, private sector leaders can neither isolate their companies nor control the expectations that govern how they need to behave. They cannot isolate their images from the glaring light of public scrutiny. Still further, multinational corporations, given both their wealth and the nature of their businesses, can have dramatic impacts on the economy, environment, health (and health care), and politics of nations and the world. In this respect, they have the equivalent of their own domestic and foreign policies. They no longer -- and no longer should expect to -- hide behind the private/public sector dividing line. The private sector is not so private anymore.

This has implications not just for how corporations respond in a crisis but for how they view their role in the world. The notion that corporations should exercise "social responsibility" is not new. Supporting charitable work, being environmentally friendly, and avoiding the abuse of foreign workers are good things to do, but the belief that being socially responsible consists primarily of finding ways to do good for society as long as it does good for the corporation at the same time needs some fresh thinking. Ethical corporate behavior will sometimes require doing the right thing at the expense of the firm. As efficiency is not the primary criterion for making decisions in government, so it must not be for making some decisions in the private sector.

The notion that corporate leaders are increasingly "public officials" also has implications for how they are trained, selected, and rewarded. Skills that we think of as essential for government officials - building public trust, handling hostile media, meeting public expectations and civic responsibilities, managing public crises (including empathy with victims), testifying before Congress, and anticipating public reactions to organizational and personal practices and habits -- will increasingly be associated with the success (or failure) of private sector presidents and CEOs. Just ask Tony Hayward, CEO of Gulf Oil, who lasted just a few weeks when he appeared tone deaf to the public outcry about oil gushing into the Gulf of Mexico in 2010, telling a reporter that: "There's no one who wants this thing over more than I do, I'd like my life back."

Historically, corporations are creations permitted, supported, and regulated by laws under the belief that their actions will serve the public interest. In recent years, we have tended to make the assumption that a rising corporation lifts all boats -- it creates jobs, wealth, and thus improves society. That assumption invites questioning when the growth of jobs does not match the growth of profits, the wages of workers do not rise with the wages of executives, and corporate risk-taking leads to public environmental and economic disasters (rescued with taxpayer funds).

A healthy, vibrant private sector is essential to society. We need to preserve corporate entrepreneurship, agility, and efficiency. The goal should not be to use regulation and oversight to strangle its ability to function. Yet if private sector leaders don't do a better job of using the skills and accepting the ethical responsibilities of public officials, calls to rein them in will increase. Mary Barra may be the canary in the coal mine for private sector CEOs.