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The Growing Importance of CEO Communications

CEOs need to realize that the risk profile of the business environment has dramatically changed.
By Merrie Spaeth |
illustration by John Lang

Business leaders are suffering from an epidemic of tin ear, failing to understand how key audiences will react to words or actions and the damage they can cause. Prevent tin ear by listening to, and following, the right advice. It could save your job.

The most notorious recent example of this malady is now-former Merrill Lynch CEO John Thain, who spent $1.2 million to redecorate his office. Expenses included a $1,405 trash can, $87,000 for a rug, and $35,000 for the purchase and installation of a toilet bowl. Thain then allegedly demanded a $30 million bonus after his business unit lost billions in one quarter following its acquisition by Bank of America. Finally, Thain went skiing in Colorado during the announcement of fourth-quarter losses. 

It was only last November that AIG caught flak for saying it wouldn’t pay bonuses since it was being rescued by taxpayers—only to be caught giving “cash awards” and “retention bonuses” to thousands of employees and asking them to keep them secret. 

The Merrill and AIG executives failed to understand that the risk profile of their environment had changed drastically. The Washington Post ran an in-depth analysis of AIG; “The Beautiful Machine” explained how the company depended on mathematical computer models of exquisite sophistication and complexity. The head of the company’s financial-products division, which created untold riches but then total devastation, said, “The models suggested that the risk was so remote that the fees were almost free money.”

Computers miss certain kinds of risk that are much harder to quantify, though. The overall business environment changed as everyone jumped on board. And when problems started, the greater environment of trust fractured. Inside information (like the redecorating expense) was leaked to the public, as were admonitions to keep “retention” payments secret. Now the public and their elected officials care a great deal.

Closer to home, former AMR chief Don Carty discovered in 2003 how an altered environment changes what information gets out and how people react to it. Carty did not disclose a plan that gave bonuses to executives, including more than $1 million for himself, after the company persuaded employees to agree to layoffs and pay cuts to prevent bankruptcy. AMR’s unions were outraged, and so was the company’s board.

Outside compensation consultants hired by boards of directors, frequently at the direction of the chairman/CEO, can lead a CEO astray. Ostensibly objective, the consensus of these boards for some years has been to peg top corporate salaries to the second quartile of compensation for similar jobs. This has had the effect over a decade of simply pushing up the C-suite compensation scale. American corporate compensation is much higher than in other countries, and when there is a chasm between executive compensation and what ordinary people make and feel, there’s trouble ahead, particularly when C-suite inhabitants appear not to know or care.

So, it’s back to the issue of listening to the right people. This is the ultimate leadership responsibility, and it falls squarely on the CEO’s shoulders. Warning: the environment has changed. Clean out those tin ears. Put in place people to provide tough feedback. Or your problem won’t be a tin ear; it will be a tin cup.

Spaeth is one of the country’s leading communications strategists. After serving as President Ronald Reagan’s director of media relations, she founded Dallas-based Spaeth Communications in 1987. She is also a lecturer at Southern Methodist University’s Cox School of Business.

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