Executives of Internet companies are four times more likely to have a questionable or criminal past than their low-tech counterparts, according to a study by Kroll Associates, a global business investigations and intelligence firm.
Nearly 40 percent of senior managers at Internet companies had less than squeaky-clean background checks--such as criminal convictions or connections to organizations such as gambling rings or the mafia. By comparison, executives of non-Internet companies have been found to have questionable backgrounds only 10 percent of the time, according to Kroll.
Of the 70 background checks Kroll conducted on Internet companies' top executives, directors and consultants, 27 had been charged with, or connected to, white-collar crimes. Abuses included Securities and Exchange Commission violations, insurance fraud, undisclosed bankruptcy and ties to the Russian mafia.
The study may come as no surprise to people who follow Internet executives, many of whom have infamously grabbed the limelight in recent years.
Former Infoseek executive Patrick J. Naughton, who was once arrested for allegedly soliciting sex on the Internet from an FBI agent posing as a 13-year-old girl, was found guilty last year of possessing child pornography. A Los Angeles jury failed to reach a verdict in the December trial on two other felony charges that Naughton used the Internet and crossed state lines to have sex with a minor.
Pixelon, a streaming media start-up in San Juan Capistrano, Calif., fell on tough times in May after its founder spent more than $12 million on an over-the-top Las Vegas launch party last fall shortly before admitting he was a fugitive of the law.
Pixelon's Michael Fenne, as the founder was known, surrendered to Virginia authorities in April on charges that he bilked about $1 million from elderly investors in the late 1980s. Fenne was a convicted embezzler who also went by David Stanley.
It's easy to speculate on one cause of dot-com dereliction: Many Internet executives come into wealth and power at relatively young ages, fueling their abandon and ability to overindulge.
But youthful exuberance can't shoulder all the blame. A dozen of the executives in the study who didn't clear the background check were senior managers or seasoned board members brought in for their ostensible credibility or networking contacts, according to Kroll.
"I think what it shows is that people are moving very quickly in the last few years and didn't sort of pause and say, 'Do we know these folks?'" said Betsy Blumenthal, the study's author.
Robert Hogan, a professor of psychology at the University of Tulsa, believes the study pinpoints a difference between straight-edged corporate America and the more risk-seeking executives of Internet start-ups. Hogan described typical dot-com chiefs as "people who are real aggressive, who are willing to take chances, who are willing to roll the dice, break rules."
Hogan also noted that many dot-com leaders started as scrappy entrepreneurs--a stark contrast to many of the polished, business school graduates and button-down ladder climbers likely to control the helm of giant corporations. Hogan's research shows that entrepreneurs are considerably more audacious and adventuresome than people who toil for large corporations.
"There is a huge difference between an entrepreneur and someone who climbs the corporate hierarchy at Bank of America or General Motors," Hogan said. "In a corporation, it has to do with conscientiousness and rule following. And the name of the game in entrepreneurship is to break the rules."