The Newsletter

So the stock market goes up 500 points in a day on Wednesday. That's supposed to make us feel better. Up is better than down, of course, but I found the move unnerving. Does anyone really know what is going on?

Maybe it was the return of the greed factor — that sense developed in the late 1990s that we all somehow deserved double-digit increases in stocks. It says something about the current climate when one of the reasons given for the huge jump Wednesday was the footage of Adelphia executives being led away in handcuffs, accused of looting the cable company.

Let's hope the scene also means we are at the end of the CEO celebrity period as well. CEOs were recruited in the late 1990s like rock stars. Companies went for style over substance, hoping that some hotshot from outside could do better than seasoned executives.

In the Pacific Northwest we have been spared the excesses so far. Why? I'm not sure. Perhaps it is our relative isolation from Wall Street. Perhaps it is the way the Northwest has developed — it is populated by business executives at all levels who have made it elsewhere yet chose the Northwest for its lifestyle. The list is a long one.

The Pigott family has led Paccar for decades with a quiet stewardship that could serve as a model for any company. Bill Gates regularly gets criticized for the aggressive nature of his company, but let me quietly point out the philanthropic Gates Foundation is worth more than $24 billion.

Expeditors, Esterline, Safeco, Nordstrom, even newcomers such as Howard Schultz at Starbucks seem to get it. These companies and others make community, employees, the environment, and global issues from coffee to AIDS a part of what they are about.

So perhaps it is no surprise that a Northwest executive with a great view of the Thea Foss Waterway in Tacoma also has a strong view of what is happening these days on Wall Street.

An office high above the Tacoma waterway would not seem to provide much of a window on Wall Street. But when the company is Frank Russell and the executive is Mike Phillips, that's exactly what you get.

If you think about it, it makes sense. The Frank Russell Co. is deeply involved with investing, markets, companies and how they are run. It offers mutual funds to individuals. It advises huge corporate pension funds. It helps foreign governments manage assets. It trades daily on stock and bond markets. Its Russell indexes help measure what is happening in the market.

A conversation with Phillips is comforting, at least for ordinary people. An "ex-Brit" who has become a U.S. citizen, he has a broad, worldly view of things. After talking with him, you get the feeling things will be OK, at least in the long run.

Less comforting are his views on corporations and the executives who run them. Changes are needed in the way companies are managed if there is to be an end to the corporate excesses that have created the Enrons and WorldComs that have so eroded confidence in corporate America.

Phillips sees two big changes in corporations these days compared with the past. Corporations no longer have the same values most people do, and chief executive officers now have too much power, using it in ways that are not in the best interests of companies.

"Most of us want a good job, a roof over our heads, to be able to provide for our families," Phillips said. "But we also care about other things — our communities, families, the environment."

Modern public corporations have changed, becoming limited in their values to a single mantra, maximizing value for shareholders and, by extension, for themselves.

It creates an ethical structure where companies think only of maximizing share price and believe in "mere compliance" with rules and regulations. "Companies now will do only what they have to do," Phillips said.

Minimum compliance leads to maximum problems. Companies trying to skirt the edges of what's right too often slip over the edge. The past few months have been littered with examples of corporations that have slipped over that line.

CEOs have too much power, Phillips believes, born of the bull market when executives could apparently do no wrong. It was not always so. Public companies used to have a strong proprietor's role. "Executives took a passionate interest in the fate of the company," he said.

The modern public company has lost much of that, Phillips believes. Executives with options focus on the short term. Shareholders increasingly are institutional — if they don't like a company they just sell the stock.

Workers become "factors of production," not employees sharing a common goal. Boards of directors are too weak to control companies. Options change how a company is run, from one that is run as if by an owner to one that is run by a powerful CEO with his own agenda.

"What we need to do," Phillips said, "is to allow companies to become more value-oriented." That means changes such as putting employees ahead of maximizing return for shareholders. But the changes are needed if the companies are to survive.

"The problem is management," Phillips said. "They need to tell shareholders that what they are doing may not maximize return but perhaps will make the company more sustainable. More management has to be willing and courageous to say that."

Recent stock-market woes reflect what is happening, Phillips believes. The market, for example, is beginning to regulate companies by penalizing them greatly when they are involved in wrongdoing.

What about the stock-market declines?

Part of it is the "bubble," which created "massive inconsistencies in value." The market overshoots often, going much too high at one end and then much too low at the other. We're at the other end, Phillips said, with many of the classic signs of a bottom.

Has something fundamental changed? Did Sept. 11 change things? Is the market so low that it will affect the economy?

Consumers could pull back, Phillips said, but that will not create a downward spiral. The U.S. economy is just too vibrant with low inflation, high productivity and an "intrinsic efficiency" that will keep it going.

Phillips recalls the terrorism in London in the 1970s from the Irish Republican Army. Even terrorism begins to get factored in.

"Americans are too strong to let it affect them," Phillips said. "People are not going to be intimidated by the odd bomb going off. Terrorism is not a huge risk but a new risk."

There is no quick fix for all this. Corporations must be courageous. They have to be more than "merely compliant" with rules and regulations. Values must return to the boardroom. Institutions need to view their ownership of stock as proprietors, not just shareholders, and hold companies accountable.

Russell seems to walk the talk. The Securities and Exchange Commission has begun to require mutual-fund companies to disclose whether their independent directors are investing money in the funds they oversee. Russell has instituted a requirement that each independent director invest at least $67,000 — the equivalent of one year's compensation — in the company's funds.

Stephen H. Dunphy's columns appear Tuesdays-Fridays and Sundays. Phone: 206-464-2365. Fax: 206-382-8879. E-mail: sdunphy@seattletimes.com. More columns at www.seattletimes.com/columnists.