A CEO’s moral stand

D. Michael Lindsay writes: It seems that every week we hear of a C.E.O. who earned millions from a golden parachute after demonstrating poor business judgment or cutting thousands of jobs with no financial downside for executives. These stories feed the fires of the Occupy movement growing all over the world.

But on Tuesday, we heard something different. American Airlines, once the largest airline in the United States, declared bankruptcy. This is not surprising news for the beleaguered airline industry; what is different is what is emerging from the wreckage. Gerard J. Arpey, American’s chief executive officer and chairman, resigned and stepped away with no severance package and nearly worthless stock holdings. He split with his employer of 30 years out of a belief that bankruptcy was morally wrong, and that he could not, in good conscience, lead an organization that followed this familiar path.

Things have been tough for the so-called legacy carriers since the Airline Deregulation Act of 1978, as they have been pulled in opposing directions by customer demands for lower fares and labor demands for higher wages. The events of 9/11 further shook up the industry, closely followed by the oil crisis and the recent recession.

Since Congress deregulated the industry, it has been common for airlines to claim bankruptcy and regroup under the temporary shelter provided by Chapter 11. Continental filed in 1983 and 1990, United in 2002, US Airways in 2002 and 2004, and Delta and Northwest in 2005. In each situation, bankruptcy gave the airlines the chance to cancel their debt, get rid of responsibility for employee pensions and renegotiate more favorable contracts with labor unions.

For a long time, Mr. Arpey voiced his opposition to bankruptcy, but the airline struggled because of it. “Our bankrupt colleagues all made net profits, good net profits last year, and we didn’t,” Mr. Arpey told me a few months ago. “And you can mathematically pinpoint that to termination of pensions, termination of retiree medical benefits, changes of work rules, changes in the labor contracts. That puts a lot of pressure on our company, not to be ignored.”

Over the last eight years, I have interviewed hundreds of senior executives for a major academic study on leadership, including six airline C.E.O.’s. Mr. Arpey stood out among the 550 people I talked with not because he believed that business had a moral dimension, but because of his firm conviction that the C.E.O. must carefully attend to those considerations, even if doing so blunts financial success or negates organizational expediency. For him, it is an obligation that goes with the corner office.

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One thought on “A CEO’s moral stand

  1. delia ruhe

    Quite right. The US and its gung-ho capitalist allies are drowning in a sea of their own corruption.

    I remember my jaw hitting the floor when the airlines were deregulated. How could they expect to pay for and maintain multi-zillion dollar machines while flying customers anywhere in the world for a hundred bucks? Stupid, stupid, stupid.

    I had a taste of the consequences of that on my last trip, a flight from Australia to Vancouver. We had to change planes twice because of “mechanical failure”, and one of those unscheduled stops involved an unexpected landing on US soil. That’s when I met the boys from Homeland Security who treated me to everything short of a full body-cavity search.

    I have not set foot on an airplane since.

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