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If the names of the alleged schemers at Enron and Global Crossing ended in a vowel, the pack of them might be cooling their heels in federal detention centers awaiting trial and trying to make bail so steep even Bill Gates couldn't post it. All the while, a posse of prosecutors would be compiling a list of racketeering charges longer than a line of limos at a Mafia wedding.
Of course, there are two reasons that's not going to happen. The first is that these are preppie MBAs with Porsche bank accounts and hired lawyers whose hourly rate could feed a family of four for a month. The second is that their hides have likely been saved by the high-tech executives of Silicon Valley and their Washington lackeys, er, lobbyists.
If the portfolio-bruising dot-com bust wasn't reason enough to detest all those myopic Internet "visionaries," here's one more. Concerned about lawsuits brought by investors who grew tired of getting burned on high-flying stocks, the high-tech industry got behind passage of a law in 1995 that, among other things, went a long way toward protecting corporate executives from prosecution under the Racketeer Influenced & Corrupt Organizations Act (see BW Online, 2/11/02, "Enron Shareholder Suits? Not So Fast").
SERVING SOFT TIME. RICO, as it is fondly called, was designed to snare mobsters running crime families, especially those who traffic in drugs and violence. But its value as a tool against those who would systematically hype stocks and bilk investors (and employees) is obvious. At least it must have been to the geeks who ended up lifting billions out of the wallets of American investors with little or no return.
Even without RICO, someone in the Enron scandal may be "going to the pokey," as House Energy & Commerce Committee Chairman Billy Tauzin has suggested. But, if it is proved that laws were broken, a few white-collar convicts eventually sleepwalking through a couple of years of minimum-security time and a lot of community service is hardly enough to bring justice to the alleged victims in this case.
Guilt or innocence aside in the Enron case, what is needed to deter greedy executives and restore the confidence of investors in the stock market game are harsh new consequences for high-level managers whose shenanigans -- or ineptitude -- take a company down. The fact is that the top brass of big corporations continues to be paid compensation packages so outlandish they would embarrass Anna Nicole Smith -- even in the face of drooping stock prices, failed visions (think AT&T), and gross mismanagement.
WHERE IT REALLY HURTS. It's time to bring radical accountability to the executive suite in the only language the gimme-guys of Corporate America understand: money. For starters, CEOs, presidents, COOs, CFOs, chairmen, members of the board, and other in positions of power within a corporation should be made liable for criminal prosecution under RICO. We're talking jail time and tripling the penalties. Members of a criminal enterprise -- whatever form it takes -- should not get a free pass because they went to Harvard Business School.
Putting aside the issue of criminal prosecution for a moment, when a public corporation declares bankruptcy, officers paid salaries in excess of $1 million a year should be forced to relinquish gains made through the exercise of stock options in the previous two years. If unable to cough up the cash, all assets -- save their home -- should be liquidated. And repricing stock options for executives after company shares have lost significant value should be outlawed.
Of course, the defenders of overpaid execs would scream that business will be badly wounded if the best and the brightest -- cowed by draconian reprisals for failure -- avoid careers in Corporate America. And innovation would suffer, they would moan and groan, if risk-takers feel a chill.
OTHER PEOPLE'S MONEY. But you could also argue that creating a real downside for outrageous or clumsy corporate behavior would lead to stronger management and more thoughtful decisions. The weak would be weeded out. Crazy mergers wouldn't get done. Fast-and-loose accounting would be unacceptable. And the stewards of shareholder value would be more cautious about throwing other people's money around.
Sure, life would be tougher at the top. But then maybe upper-level execs would have a legitimate reason for getting paid those big bucks.
Scotti, senior editor for government and sports business, offers his views every week in A Not-So-Neutral Corner, only for BusinessWeek Online Edited by Beth Belton
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Copyright 2002 , by The McGraw-Hill Companies Inc. All rights reserved.
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