CEOs Gone Wild: What's Wrong With Corporate America?
CNBC.com Senior Writer
Four years after the financial crisis exploded and resulted in a regulatory clampdown, bad behavior is back in corporate boardrooms and C-suites, generating embarrassing headlines and posing the threat of even more rules.
Whether it's resume-padding at Yahoo , improper relations with female subordinates at Best Buy or questionable loan dealings at Chesapeake Energy , several high-profile CEOs have helped bring back memories of scandals past that destroyed companies and hammered investors.
For some experts on corporate governance, the rise in scandal comes as executives mistakenly think the coast is clear after the increased corporate oversight following the credit implosion in 2008.
They've been wrong, and are paying a huge price.
"This kind of stuff goes in trends, and anytime we have something like '08 kick up we see companies and CEOs being on their best behavior for a little bit," says Chicago-based securities law expert Andrew Stoltman. "Then once that kind of dies down, once the enforcement actions peter out, then we kind of see the same sort of financial chicanery that got us in the mess to begin with."
The aforementioned scandals — involving ex-Yahoo CEO Scott Thompson, Best Buy's former leader Brian Dunn, and Chesapeake CEO Aubrey McClendon— are only the three highest-profile of a slew of similar cases that have come up lately.
Francesca's Holdings on Monday said it fired its chief investment officer, Gene Morphis, for improperly communicating company information via social network.
Throw in the deep embarrassment for JPMorgan Chase CEO Jamie Dimon, whose firm reported a $2 billion bad bet on corporate debt — after Dimon had for weeks dismissed concerns over the "London whale" responsible for the trades — and you have a black eye the likes of which corporate America hasn't seen for years.
"Maybe Wall Street and big corporations are insufficiently chastened by the lack of confidence that's out there in the real world," says Laura Corsell, a partner in the business department of Philadelphia's prestigious Montgomery McCracken law firm. "This is going to pave the way for a lot more regulation."
Corsell says that big business for years had been protected by a relative lack of scrutiny wherein "as long as the economy was doing well and things were marching along as everyone wanted them to, everyone was comfortable with saying, 'They're the doctors, they know what they are doing and any interference from the outside might kill the goose that lays the golden egg.'"
However, in the age of the Internet, where information such as the false claims made on Thompson's resume at Yahoo can be examined in a matter of minutes, those protections have fallen by the wayside.
"The threshold for materiality that requires disclosure and discussions has simply changed and has become lower," Corsell says. "Corporate executives are surprised by it and undoubtedly uncomfortable with it on some level."
Those not conscious of the new playing field risk the fate of Thompson, McClendon and others caught in questionable practices.
The lessons are particularly important to remember for those who've made enemies along the way — practically an unavoidable pitfall of life on the company ladder.
"Play ethically and professionally with both your friends and foes," advises Wendy Patrick, a lecturer specializing in business ethics for the management department at San Diego State University. "It is that high level of professionalism that not only sets the tone in your company but also solidifies the relationships we have with our friends and enemies alike."
The continued additions to the corporate wall of shame also aren't helping investor confidence.
Already in 2012 there have been five "no" votes on the new say-for-pay regulations that allow stockholders to vote on executive compensation, the highest-profile being at Citigroup and the most recent at KB Home.
Investor dissatisfaction is likely to continue as long as CEOs keep acting as if they can get away with bad behavior.
"You've got to think there's some truth to the thought (by executives) that this is going to fly under the radar, or we wouldn't be talking about these ethical stories," Patrick says. "It's completely unacceptable."