What motivates rich, powerful CEOs to commit corporate fraud?

What motivates rich, high-powered CEOs of prominent public companies to unnecessarily risk everything, against all logic and ethical principals? What drives them to commit unspeakable acts that defraud companies of billions of dollars? And what can we do

What do Bernie Ebbers, Walter Forbes, Martin Grass, Dennis Kozlowski, Sanjay Kumar, Ken Lay, Joe Nacchio, John Rigas, Jeff Skilling, and Sam Waksal all have in common?

They were all CEOs of prominent public companies, convicted of big-time corporate fraud and sentenced to lengthy prison terms. They were all also fabulously wealthy (we're talking hundreds of millions of dollars and up) when they committed their crimes.

Who among us hasn't asked themselves, what would I do with $100 million? You get all kinds of whimsical answers to that question, but one thing you never hear is, "I'm going to risk the money, my family's well-being, and my freedom to be a high-powered CEO and defraud thousands of shareholders."

That's because nobody thinks that way and these ten CEOs were no exception. Nevertheless, they risked their careers, families, reputation, wealth, power, everything. And for what? What motivates rich, high-powered CEOs to unnecessarily risk it all against all logic and ethical principals?

Maybe it isn't even about motivation. Perhaps there's something deeper going on here, something in their circuitry that's hard-wired for exceptional success followed by devastating disaster. Or is it just probability? Maybe x% of highly successful, super-wealthy CEOs of prominent public companies will turn out to be dysfunctional crooks.

Why should we care? What's done is done, right? Take your medicine and get on with it. Not exactly. As stakeholders in our companies - shareholders, employees, managers, officers, and directors - it behooves us to develop some understanding of what motivates these types of individuals. After all, they influence the lives and investment portfolios of millions.

Moreover, they may be the ultimate train wrecks - they had it all, risked it all, and lost it all - which is fascinating in itself. But we can't just scoff at them the way we do Paris Hilton, Britney Spears, or Lindsay Lohan; the cost of their crimes wasn't just some time in the slammer, a month in rehab. Hundreds of billions of dollars in investment capital, hundreds of thousands of jobs and pensions were lost in these scandals.

And in the name of what? Let's see if we can get some answers. And I challenge you, especially the shrinks, behaviorists, and people who've worked and spent time with folks like these, to weigh in.

Is it greed that motivates them? That would seem obvious. Corporate America has often been characterized as the ultimate land of greed; why shouldn't the folks at the top be the greediest of all? Well, I could be wrong, but the fact that they risked considerable wealth tells me it's not that simple. Besides, greedy and selfish describes most of us. I get the feeling that no amount of money, or power, or anything, would have fulfilled the needs that made them commit these acts. No, I don't think it was about the money.

Could it be arrogance? Sam Waksal of ImClone described himself as such in an interview after his conviction. Perhaps all that power and money made these CEOs feel invincible, untouchable, above the law. And maybe they got caught because, on some level, they knew what they were doing was wrong and wanted to be punished for it. While makes sense on the surface, I'm not sure it goes deep enough to explain such egregious behavior. It just doesn't pass the smell test as a primary cause.

Maybe we're missing the obvious. Maybe they're just plain stupid. Yeah, right. These people didn't just fall off the turnip truck. Look at Computer Associates, Enron, ImClone, Qwest, Tyco, WorldCom. These CEOs built huge, successful companies. I don't buy that any of them were anything but brilliant businessmen.

Could they be evil? You know, I'm not even sure I even know what evil is. I have to believe that Saddam Hussein was evil; how else could he have murdered and tortured all those people. Perhaps we can judge evil by the relative magnitude of the actions. With respect to the CEOs, we're not talking about torturing cute little puppies or murder or anything like that. So I don't accept that any of these people are innately evil or that evil explains their behavior.

Are they delusional? Now that sounds like a no-brainer. Bernie Ebbers of WorldCom was a milk man / gym teacher / motel owner who somehow thought he had the capability to run a telecom giant. That sounds delusional to me. And delusions lead to irrational behavior, right? That could explain much of it. Also, if you've ever heard any of their trial speeches, there was plenty of rationalizing going on there. Denial is a powerful thing.

Narcissisticpsychopaths? Now that's got a ring to it. Since most of these folks maintained their innocence to the end, it implies a lack of objectivity or a mental wall that prevented them from seeing how their actions affect others. It sure sounds like they were internally focused and lacking in empathy, a dead giveaway for narcissism.

At his sentencing in 2005, John Rigas of Adelphia said, "In my heart and in my conscience, I'll go to my grave really and truly believing that I did nothing but try to improve the conditions of my employees." Ironically, his employees (and shareholders) suffered the most from his actions, but somehow, he couldn't see that.

Of course, we can simply lump CEOs that defraud their companies into a group and call them dysfunctional. But to me that just describes the result, not the cause. The fact is that each of these men functioned, and not just normally, but exceptionally, until their issues - whatever they were - caught up with them.

I'm not a shrink, but I can't help but conclude that these folks seem to suffer from serious personality disorders. Call them delusional, narcissistic, psychopathic, sociopathic, whatever. The real question is, is there a way to recognize the signs before things begin to unravel, before it's too late?

In terms of prevention, the only thing that's been done to date is the enactment of the Sarbanes-Oxley Act of 2002. And while SOX had some positive aspects, the tax on every public company is simply too high. Moreover, it's not clear that SOX would have prevented these types of scandals.

I could be wrong, but I think dysfunctional corporate executives - whatever drives them - are a fact of life; I don't think you can simply legislate them away. As for early detection and minimizing their impact, that, I'm afraid, is up to us - America's employees and shareholders. What say you?

 

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