After the collapse of Enron and WorldCom, you wouldn't think transatlantic tycoons were well-placed to offer advice over here, or anywhere for that matter. But Carly Fiorina has been booked up by the CBI to speak at their conference, and she'll tell UK businesses how to manage their reputations after last year's financial scandals.

She is billed as America's most powerful business woman and gets a million dollar salary from Hewlett Packard which she runs.

She spoke exclusively to Newsnight's Business Correspondent Paul Mason on what went wrong with American capitalism.

PAUL MASON:
Hewlett Packard makes everything from printers and PCs, to the computers that run space ships and stock exchanges.

Carly Fiorina, the first-ever woman boss of a top US company, took control in 1999. Mission: reinvent the company.

Last year she launched the biggest merger in IT history, with rival company, Compaq. A bitter court battle followed with the families of the original Mr Hewlett and Mr Packard. She won, but at the cost of much recrimination.

Finally, last week, the company released unexpectedly good results that some see as the beginning of an economic upturn. It all leaves her with a "to do" list that any big corporate boss would share.

Carly Fiorina, corporate governance is now a big buzz word across business after the Enron scandal. How big a practical priority is it for a company like Hewlett Packard?

CARLY FIORINA:
(CEO, Hewlett Packard)
Well, it's a very important priority and actually it has been a very important priority long before Enron. I think what Enron did, however, and what the subsequent legislation in the United States has done, is it's caused us to take an even deeper look at the practises that we have inside our company.

MASON:
You're here to talk about managing reputational risk. Do you accept that the whole free market system took something of a hit on its reputation after Enron, WorldCom and the other accounting scandals?

FIORINA:
Absolutely. I mean there's no question that all of corporate business took a hit when you saw these appalling revelations. And frankly, they are absolutely appalling. And every time one happened - and I thought to myself, as I know millions of other did - "There can't be another one this bad", there's another one. So when you layer an Enron, and a Tyco, and a WorldCom one after another, of course business reputation took a hit. And I think it's appropriate that in such an environment CEOs and boards take a really long look inside and make sure that we remain comfortable with our practises and our procedures. And I think it's appropriate as well that some legislation occurred.

MASON:
Do you think the regulatory environment in America has changed far enough, too far, just about right to actually address these issues?

FIORINA:
Well, I think it's certainly changed. I worry that we have gotten into the minutia of the form and perhaps forgotten about the larger items of substance. I think, for example, one of the things that happened in the '90s, and this was a - lot of people participated in this - we forgot some substantive things like, profit matters, cash flow matters. And people got very caught up in a situation in which "Maybe companies don't have to be profitable, maybe they don't have to generate real cash flow or maybe we don't really have to focus on total share and return." That was an environment that was created by lots of people, not just companies. So I think if we are returning now to an environment where people say , "You know what, a balance sheet matters, cash flow matters, profit matters, and yes, integrity matters" as well as all the minutia of Sarbanes-Oxley, integrity matters. That's what I mean by substance.

MASON:
OK, I must ask you about this, because I think you'd admit that in the mind of the general public the sort of jadedness with corporate America is finance, it is the hype of dotcom, but there's another element and that's Chief Executive remuneration. My cuttings have you down at earning something like $80,000 a day.

FIORINA:
I make $1 million a year, that's my salary.

MASON:
OK, so a bit less than that then. OK. How can anybody with worth that, no matter how talented or how tight the market for top talent, how can anybody be worth that?

FIORINA:
Well, I think, if you look at the scale of executive pay you would find that I am paid quite low down on that scale. Now I'm not suggesting that $1 million a year is not real money. It is real money. On the other hand, if you compare that to the excesses that have been reported that are frankly, completely unjustifiable. I understand why people are angry. I think the key is that pay has to be based on performance. Point number one. And clearly there were cases where that did not occur. And I think secondly, pay scales have to be consistent from an entry level employee in a company all the way up to the CEO. The variable portion of my pay, which is most of it, is based upon very clear performance metrics and, in fact, when we missed those performance metrics in the first part of the downturn, I didn't get paid that proportion. As is true with our employees.

MASON:
Turning now to the merger. It's the biggest merger in IT history. They have a history of going wrong. You're doing it in the middle of a downturn. It's a roller coaster, but deep down at the very core of the process, how is it going?

FIORINA:
Actually, it hasn't been a roller coaster at all. If you look at what we said we were going to do, and we've been very explicit about what we were going to do by when. We've met every milestone. We were very explicit when we announced the merger in September 2001 over what people could expect. We have since upped the figures in terms of class savings. We were very explicit about what we would do the day we launched the company, we accomplished every one of those goals.

MASON:
What's the biggest challenge from the point of view of you as the CEO at the top of the whole process? What consistently pops up at the top of your "in tray" out of all the issues that are involved in this merger?

FIORINA:
Well, I think for us, we went into this merger understanding that it was to your point, a very large integration challenge and we knew that we were going up against history. That meant that we were going to manage the details of this integration incredibly carefully. And we have been managing the details of integration incredibly carefully. So I guess the answer to your question is every day it is about the details of execution.

There appears to be some stability in key markets. Not improvement yet, but stability. For example, we've seen the European market stabilise in the last month or so. We've seen the US market stabilise. Not improving yet, but stable. We do not expect a robust recovery in IT spending in 2003. I would describe it as a muted recovery. Maybe 2% to 3%. That's our best guess. And, of course, if there is war in Iraq, frankly it's very hard to predict the outcome of that.

MASON:
Risk averse are not words that come to mind when we think about you in particular. How much of this behaviour is Carly Fiorina, how much of it is just given by what you need to do to run a major IT company?

FIORINA:
I think transformation requires risk taking. And I think frankly as well, business success in any industry requires risk taking.

MASON:
Carly Fiorina, thank you very much.

This transcript was produced from the teletext subtitles that are generated live for Newsnight. It has been checked against the programme as broadcast, however Newsnight can accept no responsibility for any factual inaccuracies. We will be happy to correct serious errors.