It’s been just over two years since erstwhile WorldCom CEO Bernie Ebbers was sentenced to 25 years in prison. And last month, former Qwest CEO Joe Nacchio was sentenced to six years for 19 counts of insider trading, to start immediately (he’s appealing, but not likely to prevail, and in any event faces further investigation by the Securities and Exchange Commission).
Nacchio had sold Qwest stock ahead of investors after learning the company would miss its financial goals, thereby affecting the value of employee pensions and 401(k) investments. As U.S. District Court Judge Edward Nottingham put it, Nacchio was guilty of “overarching greed.” Nacchio’s also liable for a $19 million fine and forfeiture of $52 million in illegally acquired assets.
What’s most noteworthy about Nacchio’s sentencing, though, is not its severity — it’s the ho-hum response it garnered. After all these years, CEO malfeasance is pretty much just more of the same. After all, it’s not like criminal CEOs are particularly rare these days: In addition to Ebbers, Tyco’s ex-CEO Dennis Kozlowski got eight years for improper use of company funds. Enron CEO Jeffrey Skilling got 24 years for lying to investors, and former chairman Ken Lay died before he could get sentenced for his role in the Enron debacle.
Nacchio’s sentencing is just one more brush stroke in the panorama that showcases execs as greedy, arrogant and often downright criminal. And that’s a real shame — not because it’s (necessarily) inaccurate, but because trust in the fairness of the system is what’s critical for financial markets to work. It’s the fuel that funds the economic engine we all earn our livings from.
As I wrote a few years back, the most serious aspect of these crimes is the destruction of public trust. By creating an atmosphere in which leaders can’t be trusted, criminal CEOs damage not only shareholders, employees and customers, but the entire legal and economic structure. As James Stewart wrote: “Violations of the law are not victimless crimes. When [they occur], our confidence in the underlying fairness of the market is shattered. We are all victims.”
Stewart’s right. “Paper” crimes have real consequences — and to some extent, we’re all victims. As I write this, global markets are experiencing a liquidity crisis — in other words, banks are afraid to make loans, and people who need cash can’t get it — in no small part because folks have lost confidence in the people and entities who financed the recent real-estate bubble. And one explanation for the increasing popularity of private equity firms is a loss of confidence in the fairness of the public markets.
When criminally greedy CEOs are caught and punished, they and their families suffer. But when public trust is diminished, we all lose. And sending the guilty to jail doesn’t bring back the trust.
Johna Till Johnson is president and senior founding partner at Nemertes Research, an independent technology research firm. She can be reached at johna@nemertes.com.
