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Corruption and the Internet go-go days

Industry watcher John Dickinson writes that we can learn from history to understand how financial jealousy can become the basis for stupid business decisions taken by otherwise smart executives.

The big computer technology names listed on the Nasdaq have so far steered clear of the fraud and corruption investigations threatening to take down some of their formerly high-flying brethren on the New York Stock Exchange.

That's no accident.

Technology businesses achieved stupendous financial growth over the course of the last decade. Unlike the shenanigans that went on at places like Enron, this was accomplished on merit and the concomitant rise in revenue and stock prices was perfectly aboveboard. But if you want to understand what motivated the behavior of the executives now being carted off to jail, it pays to start with a closer look at the culture that defined high-tech's go-go era.

We should learn from history and understand how jealousy can easily become the basis for stupid business decisions taken by otherwise smart executives.

Even before Silicon Valley made high-tech growth stocks a topic of kitchen table conversation across America, fast-paced financial growth marked the computer industry. Mention the likes of Digital Equipment, Data General and Wang and you evoke a picture of fast-growing stocks, well-paid executives driving company cars and flying about the world on first-class tickets paid for by the company. When the silicon gold rush later ushered in a new crop of companies south of San Francisco, the only difference was that the execs occupying the leather seats in the front of the airplane were quite a bit younger.

While that made older rust-belt executives more than a little jealous, it also planted seeds that later came to fruition during the greed-driven executive grab-fest of the Internet era. As we now know, unrealistic promises of economic and social transformation fed the stupendous climb of overhyped Internet stocks. When those empty promises were seen for what they were, the entire sector folded like pup tents in a hurricane.

After it was all over, those promises had transformed a lot of young start-up mavens into young rich people. It's easy to argue that something close to stock fraud was the order of those days, but the truth is more complex. If you or I buy a stock based on hyped up promises and the stock price ultimately falls, shame on us. Shame also on the executives and brokers and analysts who made the empty promises. But no crime was committed--or at least none that law enforcement agencies have so far uncovered.

It's easy to argue that something close to stock fraud was the order of those days, but the truth is more complex.

Still, the Internet execs who flaunted it when they had it served up an image of fin de siecle decadence that sent otherwise sober guys in gray flannel suits into flights of fancy about how to get in on the action. In some cases, their envious appetites led them to break the law by cooking the books. If the growth performance of their companies was just normal and their stock prices remained more or less flat, believe me, it was easy for them to think that way. After all, money flows into executive pockets just the same, right?

This shouldn't signal a green light to arrest the Internet executives who retired at the ripe old age of 32. But just as emotional jealousy can lead to stupid social decisions, we can learn from history to understand how financial jealousy can become the basis for stupid business decisions taken by otherwise smart executives.

And what about those more-or-less traditional high-tech executives at companies like Intel, Apple, Sun, and Oracle and Microsoft? My hunch is that they are clean because they achieved their growth the old-fashioned way--they earned it. And considering the ugly scars that handcuffs can produce, it's likely gonna stay that way, too.