March 28, 2024

Op-Ed Contributor: At American Airlines, a Departing C.E.O.’s Moral Stand

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.

When we discussed the prospect of bankruptcy at American he spoke with an almost defiant tone of the company’s commitment to its employees and holders of its stock and debt. “I believe it’s important to the character of the company and its ultimate long-term success to do your very best to honor those commitments,” he said. “It is not good thinking — either at the corporate level or at the personal level — to believe you can simply walk away from your circumstances.”

But after being the only major airline with a net loss last year and with dismal prospects ahead, American joined the rest of its major competitors when the board declared bankruptcy. The board requested that Mr. Arpey stay on, but as he wrote to American’s employees, “executing the board’s plan will require not only a re-evaluation of every aspect of our business, but also the leadership of a new chairman and C.E.O. who will bring restructuring experience and a different perspective to the process.”

Mr. Arpey may be the only airline C.E.O. who regarded bankruptcy not simply as a financial tool, but more important, as a moral failing. In a day and age of outrageous executive compensation and protest movements justifiably angered at the self-serving nature of the 1 percent, it is refreshing to see a C.E.O. leave a position with honor even as he loses a long-fought battle.

Protesters at Occupy Wall Street are mad because, to them, financial considerations are inherently moral. It is a troubling commentary on American business that perhaps the last C.E.O. who agreed with them no longer calls the shots for one of the nation’s most venerable companies.

D. Michael Lindsay, the president of Gordon College, is writing a book about executive leadership.

Article source: http://feeds.nytimes.com/click.phdo?i=88a969ba3eeeb35cd3c15522973ea1b9