There’s a wonderful quote at the beginning of James Stewart’s classic book Den of Thieves: “At the most basic level, American capitalism has flourished because everyone, rich and poor alike, has seen the marketplace reward merit. 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 was writing about insider trading by Wall Street arbitrageurs, crooks like Michael Milken, Ivan Boesky, Martin Siegel and Dennis Levine, who trashed public companies for fun and profit. The book was published in 1991, back in the more innocent days when CEOs were good guys who delivered value to customers and created wealth for employees and shareholders.
But Stewart’s main point still holds: Lying and cheating about finances are not victimless crimes. The casualty of such behavior is trust – trust that the folks in charge are behaving ethically, that they’re telling the truth about what’s going on in their companies and markets. When trust goes, it gets replaced with expensive and onerous regulations, such as Sarbanes-Oxley (SOX) – and that hurts all of us.
Every CIO I’ve spoken with lately laments the toll that SOX is taking on their companies – billions of dollars that could have been spent on technology innovation, market growth or serving customers, now is going to prove that the CEO isn’t a crook.
Blame Bernie.
Bernie Ebbers – and CEOs like him, the Gary Winnicks and Ken Lays – didn’t just take down companies, bankrupt employees and shareholders, and kick the stuffing out of entire industries. They also saddled American businesses with expensive regulatory overhead that will depress growth for decades.
And that’s regardless of whether Ebbers is found guilty of the specific crimes for which he’s on trial in Manhattan. (He’s charged with conspiracy, securities fraud and filing false financial reports.) Even if the man walks, the consequences remain.
It’s no secret that I hope he doesn’t walk. I hope someday Ebbers takes his final breath in jail (he faces a maximum sentence of 85 years). Yes, that sounds harsh, even unfair. Ebbers’ lawyers argue that he’s a victim, not a conspirator. Sure, they say, stuff happened “on Ebbers’ watch,” but all the really bad crimes were committed by someone else.
I’m sorry, but I come from a military family. According to the U.S. Navy, a ship captain bears all accountability for events that occur on the ship. Even if there was no possible way for the captain to know about – let alone prevent – a crisis, the ultimate outcome is the captain’s responsibility.
That’s what it means to be in command. If you can’t take the responsibility, you aren’t worthy to serve.
That’s the truly tragic consequence of Ebbers’ misbehavior: We have to assume the people in charge of any public company aren’t worthy to serve, that they’re cheats, frauds and crooks. And so we need expensive and cumbersome regulation to protect ourselves against crimes they might never commit.
