Hubris in the dock

Editorial Notebook

March 13, 2004|By Robert Benjamin

AS THE GREEKS knew so well, hubris commonly precedes the fall of the high and mighty. And recently, corporate America's modern rendition of that age-old story line has been on plentiful and, for many, satisfying display.

At one point in proximate Manhattan courtrooms, fallen corporate deities were lined up like bowling pins ready to be tumbled. Not only was Martha Stewart on trial, but so were small-town cable-TV king John J. Rigas and Tyco's imperial CEO, L. Dennis Kozlowski -- even as WorldCom chief financial officer Scott D. Sullivan turned prosecution witness against his firm's bold founder, Bernard J. Ebbers, and they both were indicted in the nation's largest corporate fraud ever. Adding to the circus of hubris, U.S. Attorney General John Ashcroft even showed up to roll that last strike.

What a wonderful coalescence of justice! Altogether, a smorgasbord of '90s corporate excesses was, one way or another, in the dock. But it was the coincident and unprecedented ouster of Hollywood mogul Michael D. Eisner from his lordly perch as Disney chairman that may most augur the future for corporate titans. At the Magic Kingdom's shareholder meeting in Philadelphia, Mr. Eisner received a 43 percent vote of ill-confidence -- accused, it must be noted, not of illegalities but of merely doing a lousy job for grand compensation. For all the business world's talk of accountability, that was a revolutionary step with potentially positive implications for many investors.

Of course it was Martha, a living brand of rich perfectionism ripe for public come- uppance, who disproportionately grabbed the headlines. Her crime was merely lying about the circumstances of a stock sale that saved her only about $50,000. In the end, her case, despite some punditry otherwise, was a trivial sideshow with little meaning. On the other hand, even her defense -- she's too smart to lie so poorly -- was insufferably arrogant. So her jaw-dropping financial tragedy -- her empire is crumbling and she has lost at least a couple hundred million dollars -- elicits far less sympathy than perverse pleasure, human nature being what it is.

Legally speaking, the substantive action was in other courtrooms. Mr. Rigas and his sons are accused of using now bankrupt Adelphia Communications as their family's piggy bank by secretly loaning themselves $2.3 billion from its coffers and running up such expenses as a $700,000 golf club membership. Mr. Kozlowski and a former financial officer are alleged to have looted Tyco International of $600 million by theft and fraud -- partly devoted to lavish parties and a memorable $6,000 shower curtain. But Mr. Sullivan and Mr. Ebbers are the biggest fish of all, accused of cooking WorldCom's books by $11 billion -- fraud that decimated the company, 20,000 jobs and $180 billion of widely held stock.

No wonder investors are in an ornery state -- not only small fry burned by the crash of the '90s boom but managers of huge mutual and pension funds, such as CalPERS (the $167 billion California public employees retirement fund), who have begun fulfilling much more aggressively their responsibilities as holders of big blocks of stock. Emboldened Disney investors, who took away Mr. Eisner's chairmanship and may yet force him out of the company entirely, are not alone: The number of shareholder-driven corporate governance issues voted on this year is expected to rise to almost twice the 2001 level. Investors are signaling they're simply less willing to swallow puny performance from extravagant egos, and ultimately that form of justice may be more thoroughly chilling for corporate royalty than that being delivered to a few of their peers in federal courtrooms.

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