Southwest’s Kelly Emphasizes
Integrity in Lyceum Presentation
By Rob Meyer
Gary Kelly, BBA ’77 and CEO of Southwest Airlines, told McCombs accounting students that integrity—not rules or legislation—should be the guiding principle behind successful businesses.
His comments came Nov. 8 during a Lyceum Speakers Series presentation.
“It’s like being caught in a drive-by shooting,” said Kelly, regarding the regulatory fallout from high-profile scandals such as Enron, Tyco and WorldCom.
“Sarbanes-Oxley in particular has imposed a tremendous burden on corporate America and certainly on Southwest Airlines,” he said.
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Kelly believes the
costs associated with implementing the new regulations will hurt the ability
of American firms to compete in the global marketplace.
“We have a tendency to believe that the U.S. is the best, and that we will always be the best,” Kelly said. “But our public markets in the United States do compete with other countries’ markets. And if you talk to companies they will tell you that the U.S. marketplace is becoming less competitive because of some of these severe restrictions under Sarbanes-Oxley.”
The accounting process is now enormously complex, Kelly said. “One of my pet peeves is that it is rules based. Rules create loopholes, and human nature is to exploit those.”
Kelly maintained throughout his talk that integrity should be the main focus for business. “Ultimately it is all about integrity. You can’t legislate integrity. You can’t force human behavior.”
Kelly cited several examples from his own 20-year career at Southwest where integrity and doing the right thing was what motivated Southwest, which has been profitable for 33 consecutive years—unheard of in an industry known for its financial troubles.
“Character isn’t created in a crisis,” Kelly said. “Character is revealed in a crisis.”
The practice of backdating stock options for executives is an issue garnering attention from many critics of corporate malfeasance.
“We stipulated all the way back in 1991 that on a set date every year we would issue the stock option grants, so that it would withstand scrutiny,” Kelly said. “Was there a rule that told us to do that? No. Did we see other companies do that? No. It was just common sense. That is an example of what I'm talking about with integrity.”
Another example from Southwest’s history came after the events on 9/11 when the federal government shut down the airlines for three days and uncertainty about the future of the industry loomed heavy.
“We were the only airline not to announce layoffs that week and not to use our employees as pawns,” Kelly said. “We could have downsized and taken that opportunity to wring more profits out or get more costs out of our system. We also didn’t go back to our employees and demand pay cuts or cut their benefits or take their retirment plans....When it is all said and done for me that is that kind of thing I will be most proud of.”
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