Integrity Matters
September 28, 2005
Prosecution of corporate criminals offers
hope
Question: (E-204)
Dear Jim:
With more and more convictions for corporate bigwigs,
do you see integrity on the upswing?
Response:
Not yet, though I haven't given up hope.
More convicted felons are being forced to pay fines
and serve prison sentences. A few have publicly apologized,
though it's unclear whether their contrition is sincere
or just good theater.
My realistic side says this law enforcement fad will
lose steam, as it has before, only to reappear when too
many sleazy operators are exposed.
Punishing a few crooks tends to reassure people, but
human nature suggests that another batch of financial
criminals will be ready when opportunity presents itself.
Today's financial and legal evildoers oversee pyramid
schemes complete with stock manipulations, insider trading
and frivolous lawsuits.
Major corporations have paid hundreds of millions in
fines to the federal Securities and Exchange Commission.
In addition, there have been large settlements in connection
with federal securities class-action fraud suits and
state derivative suits.
In theory, at least, any monetary recovery in a federal
securities class-action lawsuit should be divided among
shareholders to recover personal investment losses caused
by the misleading disclosure. But all too often, such
awards enrich plaintiffs' attorneys and very little is
divided among those who've been directly harmed by irresponsible
and criminal corporate officers.
In federal and state cases, the actual corporate wrongdoers
- the officers of the organizations - often don't pay
the fines or admit to wrongdoing, and insurance companies
pay the judgments.
That doesn't warm my heart very much. But a friend
of mine is an example of how things can turn out differently.
Recently, shortly after being hired by a public company,
he uncovered accounting irregularities and promptly informed
the board of directors' audit committee and the firm's
independent auditors. The company reported its own subsequent
internal investigation to the SEC, and several senior
officers of the company were fired. Immediately, the
company adopted significant changes in its accounting
and internal control procedures.
Yes, one person can make a difference. He was and is
a whistle-blower.
He knew his actions would indict his fellow executives
and members of the board. He persevered.
Throughout the year-long ordeal, the whistle-blowing
chief financial officer maintained the highest level
of integrity.
He was uncompromising in rooting out the problems.
He challenged those in charge, even though his own position
was on the line, all the time.
He wanted to do the right thing for shareholders, employees
and himself. He is the only remaining senior corporate
officer still with the company. Obviously, integrity won
the day.
