In the Crosshairs: The Chief Executive Officer
WHEN IT COMES TO THE CHIEF EXECUTIVE OFFICER, let's start with something on which we can all agree. The life of a public company CEO has not gotten any easier. Now it's not enough to grow the business, deliver stellar quarterly results, be an effective public spokesperson, look good at roadshows, protect the environment, and ensure a nonhostile workplace. Now the CEO has to serve as the foremost guardian of integrity of the company's financial reporting system.
The key phrase here is “integrity of the system.” As a practical matter, there is simply no way that a public company CEO can be completely knowledgeable as to what is behind every single number in a company's financial statements. Nonetheless, every quarter the CEO must certify that he has reviewed his company's financial report, that it is not false or misleading, and that the financial statements fairly present the company's financial condition. As frightening as the prospect may be, the CEO as a practical matter has no alternative but to rely on the system by which the financial information is generated. That means that, while the CEO can obviously rely on subordinates, he has got to have a pretty good grasp of the financial reporting system and how well it is working.
In today's financial reporting environment, moreover, the repercussions of transgressions are severe. From the perspective of the SEC, when financial misreporting takes place, it is the CEO who ...