Commerce without morality: The tale of 2 CEOs

"America's greatest economic need is higher ethical standards, enforced by strict laws and upheld by responsible business leaders."
George W. Bush, July 8, 2002

Bernard Ebbers, Ex-WorldCom chief executive, was sentenced to 25 years in prison for his role in orchestrating the biggest corporate fraud in the nation's history last week.

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Ebbers was convicted in March for his part in the $11 billion accounting fraud at WorldCom that was the biggest in a wave of corporate scandals at Enron, Adelphia, HealthSouth, etc., etc.

"Completely bizarre" is how Ebbers described his situation to CNN. Legal experts said the sentence, effectively a life term for the 63-year-old, is the longest ever for a CEO found guilty of committing corporate crimes while running a Fortune 500 company.

A few bad apples vs. the Cockroach Theory

If you're an optimist, you could say these trials, plea bargains and admissions show that the system is correcting itself and things are getting better. The problem is new scandals keep arising.

When the Enron scandal broke three years ago, optimists argued we were dealing with only "a few bad apples." Instead, it turns out, Enron was an example of the Cockroach Theory: if you see one cockroach, a whole nest is undoubtedly lurking nearby.

Just as we started trying to stamp out old scandals – the trials of former Credit Suisse First Boston star investment banker Frank Quattrone and former Tyco Chairman Dennis Kozlowski got under way – a whole new bunch of roaches sprang out of the wall:

• In 2004 alone, Forbes reports that Wall Street firms paid over $4.5 billion in fines;

• A former top hedge-fund trader, Steven Markovitz, copped a plea to making improper "market timing" trades with mutual funds;

• Alliance Capital became the fifth fund manager to admit allowing such trades;

• Prudential Securities (now Wachovia) and Merrill Lynch canned employees for improper fund trading;

• JPMorgan Chase paid $25 million to settle charges that it violated rules covering initial public offerings of stock.

The mutual-fund scandal involving firms like Strong, Janus, Bank of America and Bank One is still expanding and could turn out to be the most disturbing of all – worse than even Enron and WorldCom. Yet some funds like Vanguard, American and Fidelity seem untouchable. Hmm … perhaps we should send out for more bug spray.

In the 1987 movie "Wall Street," Gordon Gecko proclaimed "greed is good." Gecko represented one of Wall Street's most celebrated traders – a modern spokesmen for the notion that "commerce without morality" pays.

But in Adam Smith's classic "Wealth of Nations," the 18th century Scottish moral philosopher proclaimed that self-interest leads to the common good only if most people in society have internalized a general moral law as a guide for their behavior.

So corporate immorality is not a Democrat or Republican issue, it's a moral crisis. Yet some business people become so blinded by greed they will risk anything, including family, disgrace and prison time, if it means adding to their financial holdings.

Here's the lesson: It's not wise for us to put our trust in someone who could, if ethically or morally challenged, ruin us financially. All people are capable of moral lapses, and therefore we must be eternally vigilant.

Saved by a prayer?

Also in the news last week – in sharp contrast to Ebbers' 25-year sentence – the government dropped plans to retry Richard Scrushy, the fired HealthSouth Corp. CEO acquitted of directing a $2.7 billion fraud back in 2002.

"God is good," Scrushy said on the courthouse steps after the verdict on June 28, 2005.

A recent Washington Post article, "The Lord and Richard Scrushy," makes a good point, illustrating the power of prayer:

[Scrushy] left his suburban evangelical church and joined a predominantly black congregation in a blue-collar neighborhood. He bought a half-hour of local TV for a morning prayer show featuring himself and his wife, and frequent guest spots by black ministers. He had a prayer group praying for him every day at the trial. All this was in Birmingham, Ala., where HealthSouth was located and where the trial occurred.

Cynics have suggested that Scrushy and his advisers might have been trying to influence the local jury with these tactics. Why can't a man turn to God in his moment of trial (or, indeed, in his actual criminal trial) without being accused of ulterior motives? Scrushy prayed, and his prayers were answered.

One can only hope Mr. Scrushy has indeed "seen the light."

Violating the most basic commandments such as "Thou shalt not steal" and "Thou shalt not lie" should be minimum requirements of those we entrust with our hard-earned money – or we will surely pay the consequences later. Welcome to the brave new era of corporate transparency, accountability – and morality! Thank you, Sarbanes-Oxley.

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