Twilight of the Corporate Gods
"Old truths have been relearned; untruths have been unlearned. We have always known that heedless self-interest was bad morals; we know now that it is bad economics. Out of the collapse of a prosperity whose builders boasted their practicality has come the conviction that in the long run economic morality pays."
- Franklin D. Roosevelt (Second Inaugural Address, January 20, 1937)
In August of 2002 I received a politely phrased notice from my cable company, Adelphia, addressed to "Dear Valued Customer" announcing that my monthly cable fee would be increasing. The letter explained that, "like other businesses, Adelphia constantly faces increases in operational expenses such as wages, specialized training for our employees, utilities, fuel, insurance, equipment...." Missing from the missive? any mention of another operational expense that no one at Adelphia seemed to happy to discuss. During the unfortunate latter days of his reign, former CEO John Rigas had borrowed $3.1 billion from the company and spread the money around like seed on a sun-scorched lawn. His own lawn, of course. he spent $13 million to build a golf course in his backyard, $150 million to buy the Buffalo Sabres hockey team, $65 million to fund a venture capital group run by his son-in-law, thousands to maintain his three private jets, and $700,000 for a country-club membership. It's a wonder my bill's not going up a million dollars a month. I just hope Adelphia's subscribers aren't also paying for his bail.
In the super-heated nineties we were told repeatedly that the "democratization of capital" and unparalleled increases in productivity would level the playing field and produce unprecedented gains in everyone's standard of living. Well, far from closing the vast gap between the haves and the have-nots, the lunatic excesses and the frenzy of fraud perpetrated by our high-flying corporate chieftains have left America's 401(k)s and pension plans in ruins and more than 8 million people out of work. Meanwhile, despite the much vaunted Corporate Responsibility Act and the highly publicized round up of a few of the most heinous offenders, the awful truth is that the corporate tricksters have pillaged the U.S. economy and gotten away with it. They're still living in their gargantuan houses, still feasting on their wildly inflated salaries, and engorging themselves on staggering sums of stock options, while the rest of America tries to figure out how to rebuild for retirement. or send a kid to college on a worthless stock portfolio.
Ask yourself, Which America do you live in?
Do you live in a $90 million mansion in Bel-Air like Global Crossing founder and chairman Gary Winnick, financed by the cleverly timed sale of more than $730 million worth of stock in the now bankrupt telecom giant? Or do you have a house like Stephen Hilbert's in Carmel, Indiana, with a personal basketball court that's a full-sized replica of Indiana University's Assembly Hall? (Hilbert -- an avid Hoosiers fan as you may have guessed -- built the house during his disastrous tenure as CEO of Conseco, an insurance company whose stock dropped off the S&P 500 in the summer of 2002.)
Maybe you prefer to kick back, like former Tyco CEO Dennis Kozlowski, on beautiful Nantucket? Sea Rose Farm, Kozlowski's $5 million island spread, features magnificent ocean views, massive fireplaces, a resident chef, a four-bedroom guesthouse, and two seaside cottages -- the cutely named "Sequin" and "Edward Cary" -- each valued at an additional $2 to $3 million.
Or maybe you don't even bother with a house. Maybe you live on a yacht like Sakura, the 192-foot, five-deck, $10 million floating mansion owned by Oracle CEO Larry Ellison. Or the aptly named Aquasition, which you took off the hands of former WorldCom CEO Bernie Ebbers after the company he led hid more than $7 billion in losses and scuttled its stock. Or maybe these are just too small-time for you. If that's the case, try out Kozlowski's $25 million, 130-foot historic sloop Endeavour, which costs the Tyco tycoon $700,000 a year to maintain.
Or are you one of those corporate titans who has so many million-dollar residences scattered around the globe that you have trouble settling down? Perhaps you'd rather shuttle between homes on your corporate jet. Or is even that too restrictive? When General Electric's retired CEO Jack Welch got fed up with his fleet of cramped corporate jets, he did what any self-respecting capitalist idol would do. He went out and bought a couple of much larger Boeing 737-700s. His allergy to baggage claim is said to be so extreme that even in retirement GE kept a plane at the ready for his impulsive wanderings. Only after the arrangement was made public in his divorce filings did Welch agree to pay $2 million a year to reimburse GE for the jet and a few other perks.
How do you make the most of a long weekend? Instead of planning a backyard barbecue, do you take off for an afternoon at a beach halfway around the world, say in Fiji or Bora Bora, courtesy of your generous shareholders? Or do you line up a golf date with the president of the United States?
Why not jet off to a sunny spot closer to home like Bermuda or the Cayman Islands? CEOs like Joe Forehand of Accenture and Herbert Henkel of Ingersoll-Rand can go there and still claim they're on the job because their companies are technically headquartered in these centers of high finance with warm tropical breezes and no taxes.
How about a little extra spending money? Are you crafty enough to line up the special kind of financing that netted Bernie Ebbers $408 million in loans? Hey, why bother with a nosy bank when you can just write yourself a check for a few hundred million from your very own corporate kitty, at no or extremely low interest? And if you can't pay it back, maybe your company will let you slide for a few months or years or even forgive the whole thing like E*Trade did with CEO Christos Cotsakos' $15 million loan? After all, you're the boss.
And what would happen if, God forbid, you caught a few bad breaks and were forced out of your job? Are you confident that even if you really messed up and not only lost all the company's money but also lost thousands of other people their jobs, you'd still walk away with millions of dollars in bonuses and options and an extremely generous annual pension payment?
If you answered yes to any of these questions, you live in a very special suburb of America: "CEO-ville." It's a cushy, exclusive enclave that has broken away from the rest of the Republic, where the motto is "Land of the free, home of the off-shore tax shelter." The currency is emblazoned with the inscription, "In God and crooked accountants we trust," and the Declaration of Independence includes the phrase: "all men are endowed by their creator with certain inalienable rights, that among these are stock options, golden parachutes, and the reckless pursuit of limitless wealth."
In all likelihood, though, you're living in the other America, the one 99.9999% of the country has to make do with. The one in which a record-breaking 1.5 million filed for bankruptcy between March 2001 and March 2002. The one in which investors have lost nearly $9 trillion since March 2000 and retirement assets lost 11% of their value -- $630 billion -- over roughly the same period.
How did this divisive and anti-democratic tale of two Americas come to pass? How did the impossibly rich upper crust get impossibly crustier? How did we allow the haves to have so insanely much while the rest of America got stuck with the bill? What did our fearless corporate leaders do to deserve such excessive pay and perks, and severance packages, as they laid off hundreds of thousands of hardworking Americans, and magically made trillions of dollars in pension plans and small investor shareholdings disappear?
It's not just that corporate America corrupted the watchdogs that were supposed to be guarding the public interest by feeding them under the table. While it is true that federal regulators, overseers, accountants, and the corporate boards were only too happy to lick the hands that fed them, corporate corruption will not just be chased away by a better-trained pack of Dobermans.
Most of us live our lives according to a set of generally accepted rules. Some are actual laws, which we may or may not be happy with -- who likes paying taxes? -- but which we follow anyway. Others are moral conventions governed by our sense of decency. We relinquish our seat to an elderly woman on a crowded bus. We hand back the extra money when a cashier gives us too much change. We don't gamble away our kids' allowance in the office football pool. And although we're ambitious, we don't cheat people just to speed up our own rise to the top.
A small group of Americans isn't happy with this arrangement. Not content to conduct themselves according to a code of fair play that allows more than ample opportunity for hard-working, talented, or just plain lucky people to prosper -- even to become very rich -- they've created their own set of rules that defy logic, violate basic decency, corrupt commerce, and laugh in the face of the laws and regulations established to protect the rest of us. These are the standards that comprise the Code of the Crooked CEO. It's a code of dishonor that rewards unprecedented avarice with gargantuan wealth and ensures a lifestyle of appalling excess -- where "keeping up with the Gateses" means that having too much is never enough.
Whenever gang members mow each other down in inner-city shootouts, we are subjected to endless speculation about the root causes of their behavior. Was it a family breakdown, the absence of a father figure, the scourge of crack cocaine, the rising illegitimacy rate, or the collapse of religious values? Watching the latest installments of Must CEO TV -- disgraced corporate execs carted off in handcuffs or robotically taking the Fifth in front of congressional committees -- I find myself asking the same question: What led these men (and, Martha excepted, they are all men, though one suspects that behind more than a few avaricious men stand greedy women) to do the despicable things they did?
How could they show such wanton disregard for the well-being of so many? What makes them tick -- and what made them into ticking financial time bombs? Perhaps instead of the usual talk-show pundits, it would be more useful to convene a roundtable discussion on the subject featuring Dr. Freud, Dr. Jung, and Dr. Phil. Call it "The Three Doctors."
I'd love to hear what these legendary explorers of the human psyche would make of the likes of John Rigas, Dennis Kozlowski, Bernie Ebbers, Sam Waksal, and those Three Horsemen of the Enron Apocalypse, Ken Lay, Jeff Skilling, and Andy Fastow. Were they, as some armchair analysts have theorized, kids who grew up with no love in their lives, now desperately trying to fill the inner void with money and material possessions? Were they suffering from reckless grandiosity? Grotesque delusions? Sheer madness?
In Without Conscience, renowned criminologist Dr. Robert Hare identified the key emotional traits of psychopaths. Included in what he called "The Psychopathy Checklist" were: the inability to feel remorse, a grossly inflated view of oneself, a pronounced indifference to the suffering of others, and a pattern of deceitful behavior.
Could there be any better example of a person with a grandiose -- and sociopathic -- sense of entitlement, of feeling that the rules that mere mortals live by don't apply to him, than John Rigas? He thought nothing of "borrowing" $3.1 billion dollars from his shareholders so he and his sons could live like sultans -- even though they were already fantastically rich, by anyone's definition, before raiding the company coffers.
If you're wondering what the inability to feel regret or shame looks like, take a good look at Dennis Kozlowski. He may have cost Tyco shareholders $92 billion in market value, and he may be facing criminal trials for tax fraud and for looting $600 million from the company, but "Deal-a-Day Dennis" refused to let a few unfortunate details like these stop him from shamelessly hosting a lavish and boisterous Fourth of July bash -- only one month after his art fraud scheme was revealed -- at his magnificent spread in Nantucket and aboard his antique racing sloop.
Whether it was a last hurrah or just excess as usual, Kozlowski spared no expense to guarantee that a good time was had by all. A legion of private security guards protected the cases of vintage wine and other goodies being delivered to the yacht, which sat on a mooring that costs Kozlowski $1.5 million a year. After a sail on the Endeavour, one eyewitness reported that "he cruised back into port at the helm -- like he was a conquering hero." Unwilling to try his guests' sea legs further, Kozlowski next conquered a lavish repast at the elegant White Elephant restaurant, from which he watched the island's annual fireworks display. And just to show what a stand-up guy he is, Kozlowski stood a round of drinks for everyone at the restaurant's bar. And why not? It's not like it's his money.
You'd be hard pressed to find a man more willing to play fast and loose with the truth than that indefatigable social climber Dr. Sam Waksal. He didn't just lie about big things like the prospects of FDA approval for his company's cancer drug, Erbitux. No, Waksal lied even when there was nothing to gain from the deceit: he claimed he was 52 when he was actually 54, that he was raised in Toledo, Ohio, when he grew up in nearby Dayton. Either way, he's a middle-aged Middle American, so why the subterfuge?
As for Jeff Skilling, who abandoned Enron's sinking ship with his $100 million stock option lifejacket, he exhibits the psychopath's complete lack of remorse, unable to admit wrong-doing. Instead he continues to insist he "made the right decisions." During the nineties, America fell under the spell of the corporate kingpins, putting a premium on charismatic CEOs who looked good on the cover of Business Week or being interviewed on Squawk Box (although many also mainstreamed themselves with appearances on Larry King or even The Tonight Show). It was the era of the rock star CEO. Time magazine even chose two businessmen -- Amazon's Jeff Bezos and Intel's Andy Grove -- as its Person of the Year in two of the past five years.
It turns out, of course, that far too many of these preening, pampered, overpaid, egocentric corporate American Idols were good on the tube or glad-handing Wall Street but tended to overlook mundane little things like where to list assets and where to list liabilities on a balance sheet.
The off-the-chart CEO extravagances would be a tad easier to stomach if they had been paid for with money earned as reward for superior performance. But they weren't. Many of these superstar executives were not even good at what they were overpaid to do. In fact, some were downright atrocious -- to say nothing of felonious. But however much they ravaged their companies' bottom line, it never seemed to affect their own annual haul.
Consider the case of former Ford CEO Jacques Nasser, who was rewarded with millions in stock and cash despite an awful 34-month reign that left the carmaker's revenue in a nosedive and 35,000 workers out of a job. It's hard to imagine that Ford could have done worse if they'd just made decisions by letting a monkey flip a coin.
In fact, the CEOs' lust for excess has been indulged at the direct expense of the pyramid of workers below them. The very system that the CEOs have taken advantage of depends upon the premise that the other America follows the other code -- the one based on laws and morality. The scandals at Enron, Arthur Andersen, Global Crossing, Tyco, WorldCom, Xerox, Qwest, Merrill Lynch, and the rest have exposed a brutal disregard in the boardroom for the fate of those in the office cubicles or on the factory floor.
Against all odds, Kozlowski, Waksal, Rigas, and Fastow are actually being criminally prosecuted. But that doesn't happen very often, because most CEOs and their Praetorian Guard of lawyers, accountants, and advisors are smart enough not to break the law. They don't have to.
The mad stampede of greed that coincided with the waning of the bull market and the bursting of the loony tunes tech balloon would not have been possible without an unholy alliance between the CEO class and their buddies on Capitol Hill. For a small fee, payable at the beginning of each election cycle -- some call such fees "political donations"; others, less concerned with semantics, political correctness, and charges of slander, call them "legal bribes" -- corporate mandarins can purchase an all-access pass guaranteeing a sympathetic look the other way from our so-called public servants. Sure, for a few weeks last summer, when the WorldCom bomb made them fear for their political lives, our political leaders actually passed a set of reforms. But don't be fooled. Both political parties have a richly vested interest in corporate corruption.
The hustling salesmen known as stock "analysts," and their unindicted co-conspirators, the handsomely attired and blow-dried anchors of the cable business news channels, hardly held CEOs' feet to the fire. Glaring disparities in compensation, along with an all-you-can-eat menu of ultra-cushy CEO perks -- golden parachutes, interest-free loans, options with obscene returns -- were not only tolerated but winked at. And why should the average American have begrudged the CEOs their fabulous pay packages? After all, we thought they were working hard for their money. When stock prices and corporate values were flying so high, why should small-stake stock punters not believe that high-priced executives were worth their inflated salaries, their personal jets, and their shareholder-funded mansions?
Now, of course, we know the appalling truth.