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Greed will always be with us, but good guys can prevail

  • Article by: Neal St. Anthony
  • Star Tribune
  • June 10, 2006 - 12:00 PM

Let's see, in recent days the top dogs at Enron were convicted of conspiring to loot the company in a massive fraud that resulted in billions of dollars in losses to shareholders and the loss of thousands of jobs.

In Minnesota, the former chief executive of Zomax last week was convicted of stealing millions by selling stock ahead of bad news that sank the share price for other investors.

Also last week, several former top officers of Buca, who spent tens of thousands of dollars at strip clubs on the corporate card, took kickbacks from suppliers and bought a vacation villa in Italy, agreed to plead guilty for ripping off the restaurant company.

And the top executives of UnitedHealth Group are facing scrutiny from the Securities and Exchange Commission and the IRS, among others, over suspicions that they might have gone back in time to pick the lowest-cost dates on which to price their hundreds of thousands of stock options -- a practice that would have further fattened executive paydays.

Meanwhile, the nation's business journals have published their latest surveys of CEO compensation, confirming that the gap between the brass and working stiffs has widened and suggesting that any connection between CEO pay and company performance is illusory.

And if you think business columnists are cynical, try asking some of hard-working folks employed by these companies what they think of their corporate masters.

In search of a fresh perspective, I headed over to the downtown Minneapolis campus of the University of St. Thomas to talk with Prof. Mary Daugherty and three graduate business students who study hands-on investments and portfolio management investing in real companies through the school's Aristotle Fund. Two of these kids were born on foreign shores.

"We used to think that America was a perfect place," said Phoebe Liu, a business student from China. "Enron was a big event. But from my understanding, unethical business things probably happen less in America because of ethics education and the system of monitoring and enforcement.

"China is trying to match the capital markets here. So far, this is still the best system."

Nick Hansen noted that the Aristotle Fund had benefited by investing in First Marblehead, a financial firm that last year dismissed its top executive after he was discovered exchanging expensive, personal gifts with a female vendor. "The [First Marblehead] board responded promptly to an ethical situation and that caught our attention," Hansen said.

The stock is up about 50 percent since.

The lesson: Bad actors won't bring down a company if the good guys respond quickly.

At Enron, the self-interest and market manipulation and bad accounting had become so baked into the executive culture that it was too late to salvage much after the cash-short energy trader plunged into bankruptcy in 2001.

At Buca, top executives ripped off the company for personal benefit for several years at a cost of more than $1 million, prosecutors allege. Since 2004, the board has been reconstituted and a new management is at work. The stock price is half of what it was five years ago, when the old management was cooking the books. But there's still a vital little company there.

At St. Thomas and other business schools, ethics, disclosure and stakeholder interests are getting more attention. That's a very good thing.

"America has a system that permits people to become legitimate and fulfilled and rich," said student Jan Skorepa of the Czech Republic, who also works for Wells Fargo Bank. "Why would you be unethical?"

A fair question that comes with a familiar answer: Because, as the experience of a lot of prosecutors and defense lawyers indicates, some of us always will be greedy enough to rip off a candy bar, even if we've had enough to eat.

Sometimes we're dealing with rogue employees and sometimes with several conspirators at the top.

Katun Corp. once was led by a co-founder named Terence Michael Clarke, a guy who once had the audacity to complain about Minnesota income taxes -- but who was later ordered to pay $6 million in past-due taxes and penalties for failing to disclose as income millions he took from the company. The new owners of the Twin Cities-based imaging supply company were in pursuit last year of another $11 million from Clarke and several other executives for repayment of fines that Katun paid in compensation for illegal activities that occurred under Clarke & Co.

"Every organization is going to have some bad apples," said Assistant U.S. attorney Hank Shea, a veteran white-collar prosecutor. "But what's different with a case like Buca or Katun is that you have an organization that, from the top, wasn't doing anything to promote ethical values.

"We're talking about failure from the top. And that's where you create Enron-type debacles."

Recent victories by prosecutors have punished many corporate evils. And while those convictions and today's tougher regulations will never eliminate greed, they will make it easier for good men and women to cry out when they see corporate wrongdoing.

Neal St. Anthony • 612-673-7144 • nstanthony@startribune.com

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