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The Culture of Corporate Corruption

In my talk at #sxsw yesterday, I talked about a culture of corporate corruption that has been an enabler for the breakdown of our economy. (Specifically, I talked about my experience at the Stanford Directors College some years ago, in which I expected to learn about how to be a good director of a public company, guidance on how best to look out for the interests of the shareholders, and instead was treated to session after session about director liability and how to cover my ass.)

There were a couple of great illustrations of this breakdown of business morality in today's New York Times. The first, and most striking, was Andrew Ross Sorkin's piece about bankers not disclosing conflicts of interest in M&A deals (one example was of a Goldman Sachs banker who owned a significant shareholding in a company being acquired by the company whose interests he was supposedly representing), and the complicity of law firms in whitewashing these conflicts.

The other was about the potential failure of prosecutors to be able to hold MF Global for raiding customer funds in a last-minute attempt to prop up their firm.

http://www.nytimes.com/2012/03/13/opinion/nocera-is-mf-global-getting-a-free-pass.html?_r=1

These are two of many examples of the pervasive corruption of values that came to a head in the financial crisis of 2008, but has still not resulted in the kind of reforms that we need.

We need a shareholder revolt with a focus on good corporate governance. Thomas Jefferson once said that for liberty to flourish, government should fear the people. There is a parallel notion corporations should fear their shareholders. Right now, corporate leaders continue to act like aristocrats before the French Revolution.
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I agree that the corporate culture of greed and self-interest is anathema to productive society. I think it is important to remember that every member of a corrupt corporation is also an individual citizen, and it is not corporate culture that is the problem, but our societal culture. We will have to change our expectations and actions as a society, and hold each other to bear on these issues, before corporate culture can change.
 
Do not you think it's all pointless? It happens everywhere around the world, with corporations and governments alike. Maybe we will all be saved by love? When love becomes Not For Sale, wealth seekers get deprived of love and somehow, the world reaches equilibrium and not destroys itself and the planet.
 
Is there something like the "saint florian principle" in English? This looks like a fine application of it: don't beat the executives but their lawyers.

In Germany the "Sankt Florians Prinzip" is based on an ironic prayer which asks Saint Florian to spare ones house in a fire and offering the neighbors house instead....
 
I agree with +Tod Hansmann to an extent -- behavior in the executive suite is a reflection of societal norms. But remember, corporate chieftains have always been a bit above the law--go back and look at the outrageous goings-on in the roaring 1890s. Good (and free) fictional depictions of this era include The Octopus, The Titan, and, later, Upton Sinclair's work.

As Gordon Gecko once said, greed is good; greed works. Unfortunately, greed spurs people to do things that are dishonest, unethical, sometimes very harmful to others. It's a basic law of human nature. Clearly, the survivors of our primitive past were the ones who cheated, and so cheating is pretty much baked into our DNA.

We've spent the past 3000 years or so developing religio-ethical systems to counteract our basic selves, and so there is a framework for training our children to rise above their primal instincts and act selflessly. To the extent that we've succeeded, we've built societies that are livable.

Trying to build ethical behavior into our species is an ongoing project that probably will take another 10,000 years to complete.
 
The trouble with a shareholder revolt for most of these companies is all the big shareholders tend to either be individuals complicit in the lapses of ethics and directly benefiting from a lack of transparency and corrupt culture or institutional investors who whitewash everything for much the same reasons. Thus we don't have a 'true' shareholder environment as most shares are managed through individuals and institutions who themselves benefit from the culture or held by individuals who for various reasons from lack of education to apathy do not exercise their rights as shareholders.

Not to mention all the companies that run share systems that deliberately prevent shareholders from exercising any kind of influence on the company governance by using 'non-voting stock offerings' (News Corp for a prominent example)

What exists is less a matter of shareholder democracy and more a culture and regulatory framework of corporate feudalism.

Until there is regulatory change that truly engages and empowers independent shareholders and shareholder rights this will continue.
 
It's all relative; in a Capitalist society there will be some level of corporate corruption along with a good deal of government corruption; as you move towards greater government say and power (e.g., more Socialist) most countries have seen government corruption sky rocket to the moon.
 
Why don't we take the markets back? I suspect, based on not much evidence but a hunch, that individuals are no longer big players in the markets (if they ever were), that institutional investors and funds are the players. The anecdote about a wolf discussing the dinner options with a sheep comes to mind.

As with politics, where dollars count more than votes (there are more of them), were is the individual in all this? We created these systems of markets and governance but no longer control them.
 
That was a good read - this is why it blows my mind when those on the right call for less regulation ..we can't even enforce the regulations we have now
 
I think the root of the problem is not these major corruption incidents, but the idea that as a society we have come to accept a limited level of personal responsibility and ethical grey areas. Historically when cultures start to accept the small ethical transgressions that they begin to slide down the slippery slope.
 
that was a good read the shareholders need to wake up and make a stand these absurd things even go to the boardmembers as well just puppets some of them. A wake up call indeed.
 
I like to frame the issue in terms of "long-term gain vs short-term reward" rather than corruption, because so many people are happy to say things like 'there will always be dishonest people'. Well, I'd like everyone to be honest, but more practically, I'd rather they didn't do any long-term harm to my portfolio (or my community) in the name of a couple of fiscal quarters' worth of temporary good numbers. I believe that there are enough companies out there under the influence of individual investors (even if that influence means 'voting with our feet') that we can help capitalize the 'good guys'. But this will mean taking our eyes off short-term numbers and making a bit of effort to understand the workings of each investment.
 
+Tim O'Reilly will your talk at SXSW be able to be viewed online? I'm asking because I'd love to link it. I think there should be more good available sources for people to learn what it means to engage in good corporate citizenship. It would be good to highlight that there are successful people out there who also feel that running a company isn't just about understanding liabilities or avoiding them through crafty litigation. That kind of message could be awesome.
 
John Lieske i agree with your view people need to be tutored on good corporate citizenship.
 
If we step back to reflect, the author of the article lives in a different culture than that of the lawyers he was writing about. That's probably obvious. But we should not be surprised, even if we are disappointed, that the dominant factor is not the individual lawyers but the culture in which they operate. Rarely do individuals within a given culture change that culture - these persons are called prophets and are normally killed literally, or figuratively - silenced.

It seems to me that it is the role of the press to bring to light the failed cultures, however, the press itself has become a culture unto itself and equally flawed. So what are we left with - the stuff we are doing here on + is at least one step. Other suggestions - how can our various cultures in decline be turned around to promote what is good rather than to support was is wrong?
 
Dick Ross what is your suggestion where do you think we should start from to adress these concerns.
 
I think that corruption needs to be revealed and fought wherever it occurs in society. +John Gusiff above makes an excellent point that shifting society from private sector control to government control simply increases the opportunities for corruption in government. What's really needed is smaller, more transparent, more decentralized power across the board, so that there's less at play in any given organization (be it private or public), and so that the organization is easier to monitor by honest citizens. Along these lines, it's worth pointing out that the only reason many corporations are as large as they are is precisely because government has colluded with the company to make it so - consider the auto or banking bailouts: if they weren't bailed out, the typical market response would have been to go through bankruptcy, split the companies up, and keep or sell the profitable pieces.
 
"Fixing the Game" by Roger L. Martin - is a solid look at how the drive to maximize shareholder value has so distorted corporate culture. My personal beef is that the compensation plan for most executives incorporates such immense amounts of stock options... This creates an incestuous relationship whereby they become major or majority stock-holders - so whose interests are they looking out for? Not the consumers of their product or service and not their employees.
 
<ridiculousness >Here's how to fix Corporate corruption and make people pay for the financial crisis: bring back dueling. I predict civility and honesty would rule the day. I also predict the boards and executive suites would be inundated with challenges. </ridiculousness>

At least start throwing some pies in faces. If the justice system won't, or can't, get these guys let's embarrass them!

Kony has had a light shown on him, let's drag all the amoral, antisocial people out of the dark places. Evil flourishes by hiding in the dark places. It shrivels in the light.
 
"shareholder value", as measured by "stock price", is a skewed measure. Fundamental values - cash? assets? cash flow? - need to become the target...
 
Not to forget the 401(k) scam which makes employees' savings work against them by putting it under control of investment managers who game the system in the interest of capital owners, not workers. Institutionalized corruption.
 
+memory nyangari Lawrence Lessig argues that what is need are "root strikers," by that I think he means attacking the very source of the problem. In government, he argues it is the corrupting source of money. For me there are two perspectives one is the immediate or short term and the other, obviously, is the long term. Because of my background, I have focused on the long term. I am looking for those on + who might be interested in a longer cycle analysis than is represented by the issue brought up correctly in my opinion on the corrupting history of the corporate legal world.
 
The emphasis on quarterly results/market guidance is part of this, such that it changes the focus of the business from long-term growth and survival to avoiding negative press through missed expectations. Rewarding executives for meeting those goals, rather than vesting them in long-term (1-5+ years out) results, doesn't help.

And executive compensation seems disconnected from, well, anything. Looking at the top 25 (male) CEOs recently, I saw annual salaries of $25MM to almost $90MM. Even if people fail, they never seem to walk away empty-handed, either. Seems like the risk of any real consequence goes down, the higher you climb. If people are cut loose, they seem to be treated pretty well, much more so than people down the ladder.

+Tracy Hall I agree on the skewed measure. What can be used that can't be gamed? For example, Apple posts record profits each quarter, has a huge market cap and share price over $500. They seem sound in every respect. Is there a competing example of a company that is doing well but doesn't post headline-making numbers? Or one that is posting good numbers but isn't as strong? Maybe some new metrics are where we could start, something that factors in values that don't appear on the P&E or balance sheet but that matter all the same.
 
+Christoph Maier is right, much of the problem stems from 401(k). The market is infused with massive amounts of cash from workers' retirement plans, yet remains comparatively flat as compared to inflation. As the Baby Boomer generation retires, the market will crumble with people withdrawing money to fund their retirement. Gen X and Gen Y who are putting their money in will quickly see that their investment in 401k is purchasing fools gold.
 
Lawyers co-enable an awful lot of corporate malfeasance. The legal profession should have stronger ethical oversight, enforced with the power to at least suspend someone's license, if not impose fines. If lawyers knew they potentially face jail time for being an accessory to malfeasance, they would have an incentive to moderate their behavior.
 
I'm not as eloquent or learned as many of you are on this subject, but here's my two cents and a question.
It seems like there are too many fingers in too many pies. The corporate execs, lawyers, 401ks, officials in government, and lobbyists seem to be frequent bedfellows, further weaving and strengthening some of our biggest problems. They are at the top of the food chain, they make all the rules, and they call all the shots. I hear from the news, blogs, and multiple other sources how corrupt it all is and everyone agrees that it needs reformation of one form or another. But that's all talk.

My question to ALL of you is this: How can I, as a lower-income citizen, do something to curb this devaluation of our society and government? Would my voice even be heard over the sound of the corporate machine?
 
+Chris Aultman It's no longer the single voice of a lonely low income person. Social networking has the ability to affect massive change based on the popularity of ideas. It's a world-wide echo chamber, and it is much more difficult to manipulate than TV, Radio or Print media. Two examples from very recent history are the backlash against Komen for a Cure when they decided to discontinue funding of breast cancer screening at Planned Parenthood and Rush Limbaugh's exodus of advertisers and sponsors.
 
Another problem not mentioned (at least I did not see it) is that these types of crimes go "underpunished" in essence, these people steal trillions of dollars (or euros) out of the economy yet the punishment is a few billion dollars (or euros). The "punishment" is simply a cost of business. If the laws could clearly be written that state the punishment is at least 4 times the amount stolen AND the officers of the company who approved it go to prison regardless of the payment. And if the officers cannot be pinned down to who had approved it, they all go to prison. The fear of punishment does curtail (not eliminate) crime.
 
It's likely the same Americans that questioned the wisdom of crushing small Muslim countries that are now questioning the integrity of the oligarchy at the top of our capitalist system.
 
+Greg Hookey Actually we can pound just about any country, not only Muslim. Why single them out?
 
Because killing people is much easier when you're convinced that they don't pray to the same god. </sarcasm>
 
The markets on wall street have far too much of an effect on real things in main street. I say separate the speculators and their wall street gambling from the real world. When wall street suffers, why should that cause economic chaos to spread through the real world?! Let them have their giant Casino, but leave the real things alone. For instance, they should never have been allowed to gamble with people's homes, for God's sake! The only thing that matters in gambling is statistics, data. Why should their speculative gambling in the international stocks, bonds, and money markets be allowed to effect the rest of us? Did you know someone wants to create a new speculative market system based on political candidates? People will place bets on who wins what seat or position in government. Elections? Haha, that's just for show. The Real political goings on are fixed, manipulated, and controlled by someone else. We The People no longer have a real voice in anything anymore, not even our dollars really have an effect on things, because we need these corrupt systems too much. You can't fix a broken leg by twisting it like a pretzel, but you can learn to live without the leg at all. I say we do some major cutting!
 
We're all taught that any religion other than our own is the wrong/bad religion. Apples are apples and oranges are oranges. Only if we accept that different people in different parts of the world are, well, different but not necessarily bad, can we work together as a whole toward more unified ideals. There will always be extremes in every facet; even my own - even your own. The vocal minority isn't always be best voice to be heard, but it is the most often. It's good to keep that in mind before passing judgement on anyone else.
 
All people who encourage murder or war based on religion are bad people. The religion itself may lend itself to murder or war, the way Christianity has for centuries.

The majority of people in America are employed by small and medium businesses, less than 500 employees. The next largest segment are employed by Federal, State and local governments. Big business contributes the least to overall employment, but has the loudest voice in politics. Kill the major multinational corps, and there may be more jobs and more expensive goods at the local supermarket. The upside is that there'll be a lower chance of lead poisoning from China.
 
+Chris Aultman Buddhists aren't taught that. I don't remember that from my Jewish education, either. These days, most Christians other than fundies are pretty accepting of other denominations, even of non-Christian religions. The Muslims are not.

As an experiment, buy 10 bibles and try to bring them through customs in Riyadh, Saudi Arabia. Before you go, make sure you have put all your affairs in order, set up your last will and testament, etc.

By the way, what's this got to do with the topic?
 
I'm calling for all out war on war itself! Kind of like turning chaos against itself. Yes, we must do battle against the very concept of battle! coughs sniffles Uhm... I don't know how to do that though. I know, let's make some cake, and eat it too! :) But, seriously, War is pure evil, it literally creates Hell on earth. There should never be a reason to go into war. If war comes, like a tsunami slamming into you, or an earth quake rattling you around, you must be able to deal with it, but you must not Seek It Out. Like wanting to put your head in a wild lion's mouth, who in their right minds would do that?!
 
There is a heck of a lot of warfare talk in Christian religion. Put on the Armor of God, Wield the Sword of Truth, etc. etc. War is ingrained in us, our culture is full of it, it's hard to ignore it. How many times have you done "battle" in heavy traffic? How do we "battle" disease? Our language and culture is so full of fighting and warfare references and thinking that it's impossible to even Think without it creeping in, it seems. Oy vay, I'm so bored... I must battle my boredom with, uh... I know, I'll finish reading my Battletech book!!
 
What is war? Is it just one fight? No. It is many fights, strung together, for the same reason, against the same things, or people. So, if protecting your family requires you to fight again and again and again, then, yes, that's war. Is it always necessary? Nope, not really. Not if both sides really understood each other and tried to compromise and live with each other. How many unnecessary and stupid wars have people fought throughout history? Can they even be counted?! I dunno, I just know I want to go read my Battletech book now.
 
Ah, but it wasn't necessary to go to Afghanistan and kill civilians to protect America. It wasn't necessary to kill Iraqis or topple their government to protect America. If you're a good Christian then you believe in compassion for the meek, not crushing them under your heel. We could have enacted legislation to legally buy opium from Afghan farmers and convert it to modern medicines which are still in use today, instead of forcing them to illegal markets. Legitimizing and regulating the industry would have cut the profits out from under the Taliban and boosted the quality of life for their population at the same time.
 
America is the one building bombs that blow people to kingdom come. We spend the same percentage of our GDP on military that developing nations do, except we have the highest GDP in the world. We'd be better off being a compassionate world citizen than we are being the world's bully. I bet far fewer people are radicalized to terrorism by the Clinton Foundation donating seed and farm equipment than are by an insane soldier killing 16 people, 11 of whom were women and children.
 
+Winter Colby OK, tell them to stop ramming planes into our towers, and we'll stop bombing their terrorism training camps.

That said, Iraq was a mistake and the U.S. should have stayed out (even in '91).

That said, the U.S. military tries really hard to avoid civilian casualties and for the most part they have achieved this goal. If we didn't care about civilian casualties then both wars would have been over years ago.
 
Last I heard mf global executives were being allowed multi-million dollar bonuses. the collusion goes far beyond lawyers and executives to include government at all levels and the very agencies that are expected to police corporations and their activities.

a slightly different subject is the way corporations and government create "consumer traps" that ensnare people in unrealistic debt that ruins lives for the sake of economic profit. a couple examples are ; the birth industry that takes advantage of peoples need for medical help during pregnancy and the student loan industry, that traps young people just getting started in adult life with urealistic debt that they are stuck with forever. It seems to be a business paradigme to create financial traps supported by the government.

The US legislature still has not criminalized insider trading by its members, even though, guess what, insider trading is illigal for everyone else and since when did our senetors and house members become above the laws of the country? About the same time that executives did I would guess.
 
+Terry Traub Neither the Taliban nor the Afghan people rammed planes into the our skyscrapers. They did protect OBL, but they didn't expect he'd get a fair trial from us. It would seem that was an accurate assumption. The US Military does a great job, and I respect our men and women in uniform. That said, when the best, most expensive tool in your toolbox is a hammer . . .
 
That is so true this government is braking down from what they do for rich CEO's and company's
 
As long as corporate directors sign on on deals like this:
"Outgoing New York Times CEO Janet Robinson received an exit package worth $23.7 million after presiding over an eight year tenure that saw the company's share price fall by 80 percent. The company's net earnings over the past four years were $3 million. In addition to her exit package, Robinson earned a $1 million annual salary."
what hope dare we have?
 
Gosh Tim, I think you have actually found the right nail to hammer! The question that follows is what kind of revolution is necessary to create ecconomic reform! I can only put forth what seems evidentl, a need to address the priorities of life rather than the desires arising from the illusions of personal advantage.

Clearly when we acknowledge the code of transactions as being more important than the lives abused by those codes we have already made the mistake of bowing to misrepresentations rather than realities that are mirepresented. When we conceede that what we believe should be acknowledged regardless of how things actually exist we conceed power to credit rather than the credit holder - but it is not the the representation or misrepresentation we should be concerned with.

Reform of this system would require that we dismiss the illusion that anything so fragile and maliable as information can be secured from corruption by far more tangible influences of life. The theory that value should be assigned to information is as ancient as the idea of money itself and therein lies the true problem. Money is no more than information and so all ecconomic information is money to include all information related to monetary exchange. Consequently our identities are also currency and nothing more.

If we change the way we do business then we should also change the way that we distribute identities - that is issue credit as an identity divorced from whatever individual may hold it. Accounts need to be divorced from personal identities used as the medium of exchange and individuals should be free to exchange identities like currency. It seems we have to dispose of the mistaken idea that any identity can be presumed to have a title because all that truly belong to life or an annonymous individual holding that currency.

Let's just admit we are all identity thieves trading in resources that truly cost us more to maintain than they are worth. You may quote me on all that also!
 
+Terry Traub I don't know what ethical structures are in place for lawyers in business but as the saying goes, who watches the watchmen? As with the example of the CEO of the NYTimes presiding over an 80% decline in share value over 8 years and still walking out with $24MM, where is the accountability?

We have seen plenty of cases over the past 10 years of companies engaging in practices that were found to be illegal: how likely is it that no attorney saw those activities?
JD Mo
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Saddy you cant teach ethics to people.
 
Fortunately there is no need for ethical standards in the pure heart of a compassionate individual and it is this characteristic embrace of human compassion that we should look for in choosing how the wreckage of ethical systems will be repaired or discarded as seems essential to the ecconomic health of any culture! To put it another way we can not expect compliance with ethical standards while our educational institutions continue for the sake of ecconomic convenience to give credentials as often to rogues and cheats as to honest scholars of business.
 
What hapoened to the MF Global missing customer fund? Is stone walling still working?
 
Oddly I got a random call about a claim I supposedly filed dealing with MF Global; and I assumed this was a scam, having to the best of my recollection never dealt with that firm.
 
Am I right in the understanding that historically, the cycle has worked a bit like this?:

Abuses continue until a common revolt and total collapse of the economic system. Then the hue and banner of morality is adopted (At least for a time) by the masses after their guilty excess. Then the economic system resets itself, usually at the expense of those in the lower half of the economic system and the cycle begins anew.

Shouldn't the question really be: What kind of new economic system do we create and implement that short circuits this destructive process and creates prosperity for all who continually and meaningfully contribute?
 
I heard the whoosh of two slam-dunks hit the net! We are getting to the point where we recognize the problem but do we realy think we can identify the solution? Hummm! Traditional thinking about the implementation of ethical professional standards and practices was alwaysed based on a presumption that the integrity of any collective group would be maintained in perpetuity by the personal committments of its members. What it that presumption is bases on wishful thinking!
There are two flaws in that ointment!

1st we have to review the idea that there is an ecconomic basis for personal commitments to corporate morality because however advantageous they might be - they still depend on an individuals capacity to sacrifice personal time and energy to protect the integrity of the corporate soul. Back when buisness moved at a slower pace there was no shortage of time or energy to invest in protection of moral integrity - but you must conceed that has changed! Most corporate charters do not create a chair for the corporate chaplain on the Board of Directors and so the burden falls on other board members to justify any resistance to the increasingly selfesh demands of stockholders.

2nd we have to question the idea that stockholders are as genuinely concerned with the moral conduct of business as social activists would have us believe! I might wish that most stockholders would take the time to thouroughtly investigate the potential consequences of their investments but the truth is they expect that to be done by their brokers who have even less time and energy to meet that expectation than stockholders demand! Moreover - when these demands are expressed by the minority of concientious personal investors their demands are usually dismissed because larger group investors earn brokers bigger commissions with less concern about the morality of profit taking!

The situation has become so difficult that some people are starting to think that only thier clergy should be trusted to make investments on behalf of their congregations and that leads to the main question! "Who we would accept as the moral authority to represent stockholder interest in the integrity of corporate souls?"
 
The more we need to "compete" for a limited amount of jobs the more there will be people left "behind" and not able to make a living doing what they dream to do...based on the current standard of living. We need to change our concept of "needing what we want" into a more community focused "wanting what we need" kind of education (young and old alike). Bless you all! Jeff
 
In Denmark we've had a recent spur of odd cases by badly run Boards. The recruitment process into them seems to be based on "the best qualified" applicants, except people don't apply for Boards they're appointed. The end result being the old grey men recruit younger versions of themselves to run things.

Would be interesting to hear +Lawrence Lessig s take on this, but not sure if he's mainly focusing on government corruption these days.
 
We seem to be deluded into thinking that there is some magical property governing us, it's our choices each day that make us who we are.  If 'we' (the majority by populace) keep looking at the problem as if it is happening to us...then 'they' (the majority by economic control) will continue to be in "Power".  We ARE the government and it shows in our community's...we CAN be accountable for our actions by being honest and if we don't know how...our neighbors who do know how will help us.  Teach the children to love each other and we probably won't be trying to take advantage of each other.  Love You All!
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