Peers say Kozlowski got off easy

Fellow executives have a stunning lack of sympathy for Kozlowski, Ebbers and their ilk

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September 24, 2005|By Floyd Norris

L. Dennis Kozlowski, whose excesses damaged the reputations of everything from shower curtains to ice sculptures, is now in a New York state prison for at least seven years. He is lucky that his sentence was not determined by a jury of his peers.

Even as some lawyers moan that it is unfair to send business executives away for years or even decades, there is a stunning lack of sympathy for them from those who used to be their peers: people who are or were at the top of large corporations.

"I think 25 years would be fair, similar to Bernie's sentence, so they are basically spending the rest of their lives in prison," said Colleen Cunningham, president of Financial Executives International, the trade group of chief financial officers.

Bernie, of course, is Bernard J. Ebbers, 64, the man who built WorldCom from a tiny long-distance company into a giant, then watched as it collapsed in fraud. He was sentenced to 25 years.

Cunningham, a former chief financial officer of Havas, the French advertising agency, is not alone in her hostility to convicted bosses.

Her group, along with the Zicklin School of Business of Baruch College, polled 318 chief financial officers on Ebbers' sentence. A large majority thought 25 years was either about right or too lenient.

Why the hostility? They think Ebbers and Kozlowski, have stolen something of value from them: a part of their reputations. They fear that others will think many bosses are crooks, that what sets Kozlowski apart from them is that he was caught. And they resent it deeply.

The costs of these frauds are often thought of in terms of shareholder losses and the fate of employees laid off after companies like WorldCom or Enron collapse.

But there are other victims as well. Cunningham used to be the chief accounting officer of AT&T Corp., and she remembers weekend meetings where company executives would pore over WorldCom's financial reports, seeking ways to keep AT&T competitive.

"We made decisions based on those false numbers," she said. AT&T laid off thousands of workers who might have kept their jobs.

Lawyers for Kozlowski, 58, emphasized that Tyco International Ltd., the company he bilked, did not collapse, and that may have helped to persuade the judge to be lenient. His sentence of 8 1/3 to 25 years could be cut to just over seven years if he behaves himself in prison. He could be out before he is 66.

One important question about long sentences for corporate criminals is whether they have a deterrent effect. That answer may not be reassuring.

"It would not stop economic predators like me," said Sam E. Antar, who knows something about fraud. He was the chief financial officer of Crazy Eddie, a New York home electronics chain that cooked its books. (Antar chose to cooperate with investigators and managed to stay out of prison after he pleaded guilty.)

What will stop them? "You need to build barriers like good internal controls," Antar said, "and you need sharp auditors."

Auditors may or may not be getting sharper, but the pressures for good internal controls are weakening. The Securities and Exchange Commission voted this week to delay for another year requiring small public companies to test and certify their controls. Some companies loudly complained that such testing is just too expensive.

Perhaps the delay will result in finding cheaper ways to protect investors.

Meanwhile, investors in small companies opposing the rules might want to ask what those companies have to fear. Tyco had no good internal controls, and top management very much liked it that way.

Floyd Norris writes for The New York Times.

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