Corporate Scandals and Leadership

With the death of Kenneth Lay and the pending sentencing of fellow convicted Enron executive Jeffrey Skilling for conspiracy, fraud, lying and manipulating stock prices, one of the last of the major corporate scandals that appeared at the turn of the millennium seems to be slowly coming to an ugly end. The demise of Enron resulted in the loss of jobs, pensions and wealth in the form of stock ownership for tens of thousands of employees and investors. We won’t know Skilling’s sentence for a few months, but that news won’t change much.

Arthur Anderson, once one of the most trusted public accounting firms, is now a shadow of its former self. Martha Stewart has done her time in federal prison, and is in the process of recreating herself and her business. Her talk show appearances, where she claims not to understand why she was convicted and is now moving on, thinking about positive things, sounds good at midnight, but less convincing in the light of day.

Bernard Ebbers, the “Telecom Cowboy,” former head of WorldCom, has begun his 25-year sentence. And Dennis Kozlowski, flamboyant mastermind of Tyco’s skyrocketing growth, too serves his time. His assets are being sold to pay off his debts, as will those of Lay and Skilling in the near future. Banks who supported their efforts have also reached settlements. Lay and Skilling’s lawyers have filed suit to claim their $30 million in legal fees.

These cases of corporate corruption call for some reflection. All involved leadership at the highest levels of corporate finance, management and governance. All involved CEOs of publicly held corporations, receiving extraordinary compensation in the form of cash, stocks, options and bonuses. The answer “greed” does not satisfy.

Consider Stewart’s case. Within 10 minutes of receiving a call telling her that insiders were selling off their stock, she placed an order to sell hers. But remember that she had once worked as a stock broker, and was on the board of directors of the New York Stock Exchange. And consider Ebber’s defense—“I didn’t know what was in the financial statements.” The jury did not find it believable.

Kozlowski’s expensive habits and grandiosity are well known (the $6,000 shower curtain, the nude ice sculpture), as are Lay’s. In reports of the trial we heard of $200,000 birthday cruises, more than a dozen cars in the garage and the $30-plus million in property he kept while selling off rapidly declining stock. At his trial he explained, “We had realized the American dream and were living a very expensive lifestyle…the type of lifestyle where it was difficult to turn off the spigot.” (Let it go that the American dream is usually stated as the opportunity to choose how we will spend our lives, financial stability, if not security, and the chance for our kids to do better.)

Now consider another portrait of corporate leadership. Jim Collins in his justly acclaimed book Good to Great outlined the qualities of what he called “Level 5 Leadership.” Great leaders, he said, “channel their ego needs away from themselves and into the larger goal of building a great company.” They “channel ambition into the company,” and “apportion credit for the success of the company—to other people, external factors, and good luck.” He concludes his analysis with a statement that underlines its remarkable character: “we were not looking for Level 5 Leadership in our research, or anything like it, but the data was overwhelming and convincing.”

The contrast between these cases of criminal leadership and what Collins and his researchers found is striking. On the one hand we see oversized egos manipulating corporate positions and wealth in pursuit of their “lifestyle,” while losing a sense of reality and value and any discipline of desire.

On the other we hear of leaders whose humility and sense of reality leads them to understand that they are a part of an organization, an economic and political system and a larger culture, all of which contribute to their good fortune. Their desire or ambition is for the success of an organization they know to be the result of the creative work of many, perhaps hundreds or thousands, of the luck of the market, the stability of a legal and financial system and the moral depth of a culture.

Somewhere in the drama of the corporate scandals, trials and their aftermath, and among the unsought conclusions of those who consider how organizations succeed and fail, is a lesson for us.

Stephen Varvis, Ph.D., is director of business and civic relations at Fresno Pacific University. He teaches business ethics, is a member of the history faculty and served as university business manager for several years.