Corporate Scoundrels

Every other week, the news reports of another corporate scandal, of another Fortune 500 company filing bankruptcy and of another high profile executive found guilty of ethics violations. Most recently, Martha Stewart was the latest CEO that has been found guilty of insider trading and giving false testimony to federal investigators. Martha Stewart and these other convicted corporate executives may be white collar; however, are criminals none the less.
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Stewart was convicted on the following counts:

– Giving false statements. Stewart lied when she told the Securities and Exchange Commission, the FBI and federal prosecutors.

– Conspiracy. Stewart “willfully and knowingly” obstructed justice and made false statements.

– Obstruction of justice. Stewart “willfully and knowingly” tried to hamper the SEC investigation of her stock sale by providing misleading information. (Convicted)

What is really disheartening about the Martha Stewart case, is the sentence that was given. Stewart was sentenced to five months in prison and two years’ probation. In addition, Stewart was ordered to serve five months of home confinement and fined $30,000.00

The difficult question is how to hold CEO’s and other corporate leaders accountable for their actions. When the judicial system hands down federally mandated minimum sentences for crimes committed, compared to their multi-million dollar salaries, there’s very little incentive for CEO’s to do the right, morally and ethical “thing”. In the Stewart trial, it was Stewart and her financial advisors who faced criminal charges; however, the company lost millions and over two hundred of Stewart’s employees lost their jobs. In some cases, CEO’s that are found guilty of criminal and ethical violations, the consequences were much worse.

When a gas leak from the Union Carbide plant in Bhopal, India killed thousands in 1984, human rights activists and environmentalists asked government officials to extradite Warren Anderson, CEO of the company. Anderson was to be held personally liable for cost-cutting measures that led to the closure of some safety systems in the plant; systems some say could have prevented the leak. Those arguments continue today, almost two decades later, with Anderson over the age of 80. (Corporate)

There have been other CEO’s who’ve been in the hot-seat. Actually, hundreds of companies have lost millions of dollars and have filed bankruptcy, while their CEO has been cashing out “big-time”. The following have made the news recently:

– While KMART is closing 284 stores and laying off 22,000 w/o transfers or severance pay, CEO Chuck Conaway walked away with a $9,500,000 on top of a 2000 compensation of $29,356,489.

– GE has not contributed to it’s workers pension plan since 1987, yet CEO Jack Walsh walked away with a pension benefit of $10,000,000 a year for the rest of his life on top of a 2001 compensation of $16,246,772.

– Enron barred workers from selling company stock in their 401(k)s as the company plunged into bankruptcy. Thousands of Enron workers lost their jobs, their health insurance and their life savings and still CEO Ken Lay cashed out at $123,000,000 in stock options and on top of total compensation of $33,533,468.
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In 2002, the average CEO compensation package equaled $10.83 million according to The New York Times. While pay cuts for the most richly rewarded CEOs reduced the size of the average compensation package, most CEOs actually got pay raises. Median CEO pay increased by 6 percent in 2002—more than twice the growth of workers’ paychecks. And while shareholders—including workers who depend on the stock market for their retirement savings and pensions—have lost $7 trillion since the stock market peak, today’s CEO pay packages are roughly equal to their pre-bear market levels. (People)

With such large compensation packages and minimum sentencing judgments, there is little incentive for people like Martha Stewart and other industry giants to act ethically. Law makers must create tougher laws to persuade CEO’s to act ethically and within the law. Furthermore, the judicial system must award tougher punishments to CEO’s.

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