Impact On Stock Price For Merging In An All-Stock Deal Failed Corporate Leadership – Lessons in Corporate Greed

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Failed Corporate Leadership – Lessons in Corporate Greed

Corporate greed has recently dominated the headlines in the United States. The list of fallen and disgraced Chief Executive Officers and Chief Financial Officers is long and alarming, and the stories emerging from the rubble of major corporations are quite disturbing.

How did this all come to pass?

What were the causes?

Who failed to lead?

What happen to teaching ethics?

Ethics is now being taught in the classrooms in the Graduate Schools of Business throughout American and now the world. It is too little and a very late. The paradox is at those same Graduate Schools of Business, is that less than two decades ago the MBA classes were hearing and learning all the benefits, executive “perks,” tricks of the boardroom, and the tales of “big bucks”, war stories of corporate raiders, merger and acquisition mega-millionaire and billionaires, and king’s ransom “golden parachutes.”

It should not surprise anyone that having Ivan Bosky bragging about his lucrative deals that they were making a lack of morals virtue and coveting all the toys and “perks.” The world of the immoral world of greedy CEO is full of 100 foot yachts, 10,000 sq. ft homes with tennis courts, media rooms, and ten car garages, immorality and affairs, appropriate goal for a senior executive, expected behavior, and mandatory for all successful CEO’s.

For the Ivan Bosky to be invited to deliver a major lecture to all the MBA students of one of the most prestigious Graduate Schools of Business with the unbelievable message: “GREED IS GOOD!” is beyong belief in an institution of higher learning. Universities are supposed to develop are leaders, not our blunders.

It is as sad but telling comment on the state of our collective lack of moral integrity which the popular movie, WALL STREET, had actor Michael Douglas, as Corporate Raider Gordon Geeko, which he portraited as a rich tycoon of industry. In the movie, Gordon Geeko is presented as a powerful deal maker with no morals. Geeko in the movie uses actual quotes and close paraphrases the soon to be indicted, fined, and jailed Ivan Bosky message “GREED IS GOOD!” It is very sad comment that that same message was delivered to the world and all the hopeful employees who now knew that it was OK to steal, lie, and cheat!

The events of the last ten years reveal a material flaw in the moral fabric of some previously well-respected corporate leaders. The ever-present pressure of the next quarter’s profits, and the push to increase “earnings per share” and drive up the stock price have caused some senior executives of American firms to ignore the fundamental morals of honesty, especially if the news is bad. Unfortunately, some of the corporate executives began to believe their own press kits, lost their moral compasses, and fell victims to the disease of corporate greed. All of the executives whose behavior is described above have failed to demonstrate “moral virtue” or live a life consistent with basic honesty, the simple basic laws of the Old Testament’s, “Ten Commandments.”

Just as we hopefully raise our own children by those three great teachers, “example, example, and example,” we must demand that our leaders and other key role models provide the “right example.” Moral virtue has been sadly lacking in these top executives in major American publicly traded corporations. In order to build trust, Americans must require that our corporate and political leaders demonstrate by every action, thought, and deed that they stand for honesty and integrity. The leaders described above failed to be trustworthy. These fallen executive have demonstrated failed leadership.

Let’s stroll through the recent corporate crime scene and the results of preaching in the Ivy Halls in the MBA classrooms that in fact making money regardless of the cost to other and that “Greed is Good!” to the MBA students and entire the world that has unfolded from teaching the “Seeds of Greed.” The combined losses from corporate fraud, corporate greed, job losses, and Federal Government bailouts are climbing daily into the dozens of Trillions of Dollar.

The totals only continue to grow, and the economic problems they create materially adversely effect the stability of the stock market. The true tragedy is the devastation to millions of individual investors’ finances and the personal havoc to the employees who lose not only their jobs but their retirement all at the same time.

Even the watchdog New York Stock Exchange (NTSE) has had a scandal. Retiring Chairman Dick Grasso’s infamous multi-million dollar retirement package, approved by the NYSE Board of Directors, shocked everyone when the over $139.5 million payout package deal became public knowledge.

The senior executives at Enron have become an icon of corporate greed, massive fraud, dishonesty, unethical behavior, and failed leadership. Andrew and Lea Fastow have fallen from grace, plea bargained, and have been convicted. Andrew, Enron’s former CFO, will begin to start his 10-year sentence for securities and wire fraud as soon as his multi-millionaire heiress wife, Lea, completes her one-year prison term for insider trading of Enron stock in her family charity. Lea Fastow, along with Enron senior executives Kenneth Lay, the (now deceased) founder and former Chairman of Enron, Jeffery Skilling, the former President and CEO of Enron, and Richard Causey, Chief Accounting Officer of Enron, all denied any wrongdoing. The juries have tried them and found them guilty, guilty and guilty.

Enron’s Kenneth Lay, Jeffery Skilling, and Richard Causey all arrogantly refused to plea bargain with federal prosecutors, or admit their guilt. All three of them are now tried and convicted on a variety of criminal charges including securities fraud, bribery, collusion and conspiracy to commit fraud, wire fraud, filing false financial statements, and many more. In addition to the criminal charges pending, there are civil lawsuits from investors and employees who have lost billions in the fall of Enron.

The late Kenneth Lay continued to proclaim his innocence of any criminal acts at Enron, even after his conviction. He additionally claimed that he, the founder and former Chairman of Enron, was unaware of the Enron financial details. Yet before the United States Senate Committee Lay instead of testifying he took “the Fifth” The conclusion must be drawn that Lay knows he is guilty of multiple criminal acts. He was clearly not willing to admit his guilt before the United States Senate Committee.

Enron is, unfortunately, just part of the long list of corporate greed plaguing America in the 21st Century. Bernard Ebbers, former CEO of [MCI] WorldCom Inc., was indicted and convicted on charges of conspiracy, securities fraud, and making false regulatory filings. The Prosecutors allege and it was successfully proven to the jury that Ebber’s was the ring leader in an $11 billion accounting fraud.”

Flamboyant and extravagant former CEO of Tyco International Ltd. L. Dennis Kozlowski and his ex-Chief Financial Officer Mark Swartz are both about to head back to Federal Court for a retrial. Kozlowski has been dubbed the poster boy for corporate excess. He was convicted on a number of criminal charges including stealing $600 million from Tyco Corporation, and it’s shareholders..

Kozlowski’s exploits with women and wild spending are all detailed in the book, Testosterone Inc: Tales of CEOs Gone Wild (Byron, 2004). He portrays Kozlowski, along with Jack Welsh, former Chairman of General Electric, “Chainsaw” Al Dunlap of Sunbeam, and Revlon’s Ron Pearlman, as having feet of clay and the morality of rock stars – drunk on power and driven by sex, greed, extravagance, and glamour.

Richard Scrushy, founder and former Chief Executive Officer of HealthSouth Corp, is another in the list of CEOs who deny any wrongdoing. He was acquitted on the criminal charges of financial improprieties. But, William Owens, former Chief Financial Officer of HealthSouth, and four other HealthSouth former CFOs have all plead guilty.

Scrushy was accused of helping overstate the company’s earnings by nearly $3 billion from 1996 to 2003. Scrushy was indicted by a federal grand jury on 85 counts of fraud, money laundering, and other offenses. He faced 650 years in prison and $36 million in fines on those charges.

At Scrushy’s trial, Leif Murphy, a former HealthSouth Vice President, who worked in the firm’s treasury department and is not charged with a crime, provided damaging testimony about Scrushy. Murphy testified that Scrushy had gotten very angry and Scrushy had yelled at Murphy when Leif Murphy challenged Scrushy on the release of false financial information. Not withstanding the fact that Scrushy’s string of four Chief Financial Officers where convicted or plead guilt, Scrushy was found not guilt of all criminal charges.

The government also was seeking $278 million in forfeitures from Scrushy, who has proclaimed “I am an innocent man” many times, including in his interview on CBS’s “60 Minutes” on October 26, 2003. His lawyers somehow managed to get him off on these criminal charges related to major fraud at HealthSouth, only have Richard Scrushy get convicted on charges multiple counts of bribery and his now in prison.

At Fannie Mae, the career of well-respected CEO Franklin Raines came to an abrupt end when the Office of Federal Housing Enterprise Oversight forced a very resistant Fannie Mae Board of Directors to oust Raines. Raines, Fannie Mae’s Board, and his supporters insisted that he wasn’t culpable for the misuse of obscure accounting standards. But his friend thoughts were rejected and his testimony was not accepted as the full truth by the SEC, the U. S. Congress, or the public.

Raines rose from being a poor kid from Seattle to graduate from Harvard, earn a Rhodes scholarship, and becoming White House Budget Director, before being tapped to be the CEO of Fannie Mae. Now Raines’ lucrative severance package (“early retirement”) has become a new issue of contention. There have been well documented cases of massive fraud, mismanagement, and accounting mistakes at Fannie Mae during Raines’ tenure as CEO.

While Raines has never been convicted of perpetrating or approving the fraudulent accounting, there was a major uproar over his severance package when the news broke that he had apparently been negligent in overseeing accounting functions at Fannie Mae. Yet somehow amazingly, the then fallen and sacked Franklin Raines (after the US Government took over and bailed out Fannie Mae) became a “financial advisor” to then US Presidential Candidate, US Senator Barrack H. Obama,

In this post-Enron, post-WorldCom, and post-Tyco world, the rules are being enforced on the playing fields of corporate America. Even one of the largest and most profitable insurance companies in the world, American International Group Inc. (AIG), has had a serious bout with both the Securities & Exchange Commission and the U. S. Justice Department, starting back several years ago.

The financial problems and fraud at AIG really began in 2001 (or maybe even earlier), but took three years for SEC securities regulators to catch it. In 2004, the SEC informed AIG that it was exploring filing securities fraud charges against it for their non arms length relationship with PNC Financial Services Group Inc. and what the SEC call a pattern of helping PNC hide their underperforming loans, starting clear back in at least 2001.

The full impact of the seeds of greed sown earlier this decade and subsequent misdeeds have resulted in the major disaster at AIG, which has now been unveiled in 2008 and 2009. Now, the failing of AIG has resulted in the Federal Government Bailout is costing American’s Billions and Billions of Taxpayer Dollars.

The list of the indicted and fallen corporate leaders is long and growing. In August of 2003 it was reported that story of the misdeeds of Adlephia’s John Rigas, and two of his sons failed came to light. They were indicted and convicted of defrauding Adlephia Communications Corp. of $2.5 billion.

One of the lessons that these leaders should have learned and lived was basic ethics or morals. The Sarbanes-Oxley Act of 2002 [H. R. 3763], passed by the United States Congress on January 23, 2003 and immediately signed into law by President George W. Bush.

From a basic moral, maybe even a religious perspective, the Sarbanes-Oxley Act would not have been necessary if corporate executives had just lived the “Ten Commandments,” or at least just three of them: “Thou shalt not steal,” “Thou shalt not covet,” and “Thou shalt not bear false witness.”

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