Rebuilding Trust in Corporate America

Remarks to the Economic Club of Detroit
Rick Priory
Chairman, President and CEO
Duke Energy

Thank you, J.T. Battenberg (presiding officer, Economic Club of Detroit). I appreciate the opportunity to spend some time with you all this afternoon, so thank you for inviting me. This is a much better invitation than some energy company CEOs are receiving these days!

Today I’m going to speak about the torch of business, the role it has played in lighting the path of human progress, and trusting the hands that carry it forward. These are topics that I feel passionately about—and they are issues that deserve a champion in a cynical and business-wary world.

In the aftermath of Enron and other corporate casualties of aggressive accounting, at a time when investors are still smarting from the dot-com rise and fall, some of the investing public has lost faith in business. The breach of trust is deep and wide. We can agree or disagree on the cause and culprits, but there’s no sugar-coating the current state. Business today is suffering from a crisis in confidence. This is no wake-up call; it’s a screeching red-alert.

Shareholder confidence is at an all-time low. A recent issue of Fortune includes an article titled “Dirty Rotten Numbers” that pulls no punches in describing the vengeful wrath of investors who feel betrayed and misled. The cost to investors—in terms of stock market losses—has been tremendous. And investors are ready to fight back—with the muscle of their portfolios.

When asked to rate their confidence level in various American institutions, only 28 percent expressed either a great deal or quite a lot of confidence in big business. Especially confounding to me is the fact that we ranked below TV news (34 percent), and only slightly higher than Congress (26 percent)!

That research was conducted a year ago, well before the current spate of corporate bankruptcies and the accompanying furor regarding corporate culpability.

A number of organizations have tested public opinion more recently, and the results are alarming:

Seventy-five percent of respondents to a recent Gallop poll believe that practices similar to those alleged at Enron occur at most or some other large corporations! Less than 20 percent believe such practices occur at few companies, and only 1 percent believe that no other companies are guilty of the charges confronting Enron.

In another poll, 70 percent of respondents think that the accounting and other practices that led to the collapse of Enron are widespread in other corporations, and not isolated instances limited to one company.

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Let’s move from public polls to pop culture: If you’re a parent or grandparent, you may have seen a popular animated film titled Monsters, Inc., nominated for an Academy Award this year. Monsters, Inc. is in the energy business, and they generate power by frightening children and capturing their screams to use as fuel. I’m sure you can predict my reaction to this flick—even before I tell you that the CEO is a five-eyed, crab-like creature named Waternoose! Now, business expects tough treatment at the hands of Congressional subcommittees and 60 Minutes, but when Disney vilifies my line of work, it’s a whole new world!

Suffice it to say, the currency of public trust in corporate America has been devalued.

That erosion of trust is more troubling to me than market volatility or the inevitable down cycles of the economy. The stock market spirals north and south. Businesses live through booms and busts. Our economy recedes and rebounds. But when those who invest their dollars and confidence in our companies begin to doubt our word and question our integrity, we risk far greater—and more lasting—loss. In my view, the investing and consuming public is the ultimate regulator of any business. We operate only with their license and consent. And when trust is broken or compromised, we all suffer.

Please don’t mistake my passion for pessimism. I believe strongly in the power of business to do good. I believe in the constructive potential of open markets. And I believe that the combination of the two creates a positive social force—a force that has already done tremendous good—and holds even greater promise.

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The torch of business has inspired our world for centuries. From Thomas Edison’s invention of the light bulb that sparked my industry, to the innovations that have ties to businesses right here in the Motor City—the combustion engine, Henry Ford’s introduction of the assembly line, safety advances and fuel efficiency gains—the torch of business has lit the way of progress.

The working laser led to fiber optic communications and new and better forms of surgery. The single-chip microprocessor is at the heart of today’s trillion-dollar technology industry. Ultrasound technology allows expectant parents—and grandparents-to-be, like myself—an early and reassuring glimpse of the wonder that awaits. And the discovery of the human genome opens up promising new vistas to cure disease and extend life.

These are just some examples of the magic that comes from business at its best.

We are inventors; innovators; problem solvers and pioneers. Business and business people have helped energize economies, improve the standard of living, and satisfy the needs and fulfill desires of generations. The competitive, resourceful spirit of business is our greatest attribute.

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Businesses at their best are also far more than profit machines—they become the means through which we interact with and give back to the world. Communities, schools, health and human service organizations, the arts and culture—all are touched and often guided by the generous hand of business.

In the early 1900s, our company’s founder, Buck Duke, envisioned a series of electric generating facilities along the Catawba River to energize the textile communities of North and South Carolina. He recognized the power of the Catawba’s flowing water to electrify the mills and bring prosperity to the region; but he also envisioned far greater value than turbines and textile mills could produce.

Buck Duke referred to his plan as a “grand design,” and it truly was. By the turn of the century, it was clear that hydroelectric power had great potential in fueling the region’s economic growth. But the “grandness” of his design was more than profits and power.

Buck Duke set aside a substantial portion of his company stock to create a charitable trust to benefit communities in the region. As his business prospered, his trust grew into the Duke Endowment, which since 1924 has committed $1.7 billion to education, health care and spiritual life in the Carolinas. His legacy also includes Duke University, and a proud tradition of giving generously to the communities we serve.

I know that examples of corporate responsibility abound here in Detroit as well. The city was built—and revitalized—with the leadership and support of business.

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Your companies, like mine, give deeply. That fact was never more apparent than in the days following the tragedy of September 11.

The grief we all shared was immediately followed by outpourings of corporate generosity—and the determined pledge to help rebuild and recover. Business dollars and volunteers were directed toward relief efforts, and support of those most directly affected.

Just six days after the attack on the World Trade Center, the bastion of American business, the New York Stock Exchange, reopened. Moreover, on that opening day, the Exchange handled the largest volume ever in its history—2.3 billion shares. It wasn’t a return to business as usual, but rather, business rising to the unusual and the extraordinary—rising to aid a country in crisis.

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So when I consider the capacity of business to do good, I am convinced that we will weather the crisis of confidence we face today. And we won’t just survive: Business, along with those we serve and the markets in which we operate, will be stronger for the experience.

Rebuilding a systemic breach of trust won’t be an easy course, but it is the right course—and the right time.

The ancient Greeks used the term “kairos” to refer to moments of time ripe for fundamental change in principles and process. Today, business stands on the brink of kairos. We have a unique opportunity to learn and grow from the challenges that confront us. This is the time when businesses, as the torchbearers of progress and hope, science and technology, social and community responsibility, need to rebuild the foundation of public trust.

And this is my opportunity to offer some thoughts on what we must do to restore trust and confidence:

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1. First, businesses much acknowledge the breach.

Your company may be—and probably is—squeaky clean. But this isn’t the time to get defensive or point fingers.

None of us wants to take heat for problems outside our own organization—and certainly not for negative perceptions beyond our control. But in today’s environment, public opinion is painted with a broad, sweeping brush. When one company stands charged, we are all considered guilty until proven otherwise.

Those of us in the nuclear industry learned that lesson 20 years ago in response to the accident at Three Mile Island. It was dramatically clear to us then, and today, that our industry is only as strong as its weakest link. When news of the reactor cooling system accident at Three Mile Island spread, it didn’t matter that Duke Power’s plants had operated reliably and without incident. Every nuclear operator suffered from the crisis—and every nuclear operator would be responsible for moving the industry beyond the accident.

The nuclear industry couldn’t afford to wait for government to set standards. Regulation inevitably lags behind the knowledge inside an industry, and experience has proven that industry-established standards are usually more rigorous than those imposed from outside the business sector.

The industry needed to step forward to promote the highest levels of safety, reliability and excellence. And we did, creating the Institute of Nuclear Power Operations, or “INPO,” which every nuclear utility in the U.S. voluntarily joined, and continues to support today.

Through INPO, the aftermath of TMI brought a torrent of constructive change and improvement throughout our industry. Today, our plants are safer, our operating personnel are better trained, our emergency plans are better tested and the exchange of ideas and experience among the industry is much more open and productive. Bad things can happen to good companies. It’s how you respond that matters.

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2. Next, we must open the windows and clear the air.

Companies like yours and mine must make meaningful strides toward increased financial disclosure and transparency. Even accounting professors and PhDs have trouble deciphering today’s complex financial statements and earnings reports. For individual investors and employees, the task is near impossible.

We’re seeing a push to lift the veil of complexity and corporate-speak from our financial reporting, and that’s a good outcome. The investing public deserves—and should demand—reliable information, candor and accountability. They need to be able to understand a business’ basic measures of success and failure. And they need to be able to trust and verify the validity of the information they’re provided.

At Duke Energy, we’ve always provided financial depth and detail—and we’re improving on that. We are working to provide greater context and clarity around our accounting practices, risks and exposures. We are sharing the information that is important to investors.

This is no easy job, and in the midst of annual report production season, I’m sure many companies are working hard to raise their level of disclosure. But I will also note that simply providing reams of data doesn’t constitute transparency or adequate disclosure. On the contrary, the details can make your business appear more opaque than ever.

It is incumbent upon us to disclose the information people need to make well-informed investment decisions. We need to do that in plain, simple language. I expect that as we move forward, we’ll get a clearer picture of what level of detail is desired and valuable. In the meantime, we must be proactive in making our earnings more visible, our financial reporting more transparent, and the characterization of our business more credible than ever.

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3. Third, we must all be accountable for the actions and impacts of our business.

When the Titanic sank in 1912, there was a lesser known cruise ship, the Californian, just 20 miles away. The ship’s proximity meant that it could have saved the 1,500 lives that were lost—and changed the course of history.

Unfortunately, the Californian did not respond to the Titanic’s distress signals—because the radio dispatcher was not on duty at the time. You know the moral of the story: We can’t afford to be asleep at the switch. We must be responsive, vigilant, and alert—to the state of our own ship, the course of others, and the sea changes around us.

If you’re the captain of the ship, you must be at the helm—and make sure that all hands are on deck. We must be accountable for our actions, our knowledge, and the role we play in setting ethical standards.

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4. Fourth, we need to think beyond today.

Warren Buffett once said that “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.” That five-minute reputation rule is especially pertinent in today’s fast-moving environment, in which we must make quick, five-minute decisions that may affect us for years to come.

We must consider ethical conduct at every decision point in our business, and think through the reputation risks of projects and deals just as we weigh capital and other risks. Principled, ethical conduct must supercede economic expedience. And we must look beyond the narrow view of corporate self-interest, focusing more broadly on sustainable, social good.

Ethical dilemmas are hard to spot at times—like the snake in the grass you don’t notice until you’ve been bitten. We often don’t recognize the ethical quandary until the decision point has passed. That’s another reason for giving careful, considered deliberation to the decisions we make today. In the courts of law and public opinion, we don’t have the benefit of hindsight.

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5. Next, we must de-code ethics for our employees.

I expect that every major U.S. company, particularly those doing business internationally, has ethics programs and codes of conduct in place. Duke Energy certainly does, and we are proud of the program, systems and measures we have in place. So when I propose de-coding ethics, I’m not suggesting doing away with all the good work that’s been done. Instead, we must take codes of conduct off the walls and out of their frames and begin the hard work of ensuring that ethical conduct is a personal accountability—not just a corporate platitude.

We must model integrity in our actions and in our leadership. Employees must know that they have the right—the obligation—to question decisions or practices that concern them. Our doors must be open to those employees, and we must be willing to listen and respond to those quiet cries of conscience.

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6. And finally, practice humility.

I mentioned the term kairos earlier, and there’s a second Greek term that is fitting to our discussion, and that is hubris, or overbearing, over-reaching pride. That pride has led to the downfall of the once mighty, and is being named as a contributor to the current breakdown in public confidence.

We’ve all seen examples of arrogance, over-confidence and a sense of superiority—in individuals and in organizations. And that pride, that hubris, tends to create great chasms of mistrust and ill-will. It makes you lose touch with your stakeholders, distorts your perspective and judgment, and diminishes your ability to understand, relate to and feel compassionate toward others. I find arrogance to be an unattractive trait in individuals; in organizations that rely on the trust and good will of their publics—it is absolutely toxic.

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Openness. Accountability. A practical, principled approach to business. A long view of actions and decisions. A sense of shared responsibility. Humility. In my opinion, those are the elements of building trust—and trust is the flame that fuels the torch of business.

That torch is in good hands. It is in your hands. Strong, able, caring, human hands. Because contrary to current opinion and cartoon characters, business people are not monsters, ogres, rogues or robber barons! We are men and women of conscience and character. We work hard and care deeply. We have tremendous capacity to do good—and to do better.

The mandate that we share today is rebuilding, restoring, re-pledging our trust with the publics we serve. We must work hard, speak with candor, and deliver on our word to replace shadows of doubt with the light of our torch.

Thank you.