Sunday, October 22, 2006
Can CEOs Police Their Own?
Corporate scandals have occurred often enough that wise investors have learned all too well what damage they can cause on the stock market. This may be the only reason why billionaire investors as diverse as Warren Buffett and Mark Cuban have spoken out against such scandals, and have sworn to pillory the perps once they're caught.
Buffett recently issued a public warning to the managers at his huge company, Berkeley Hathaway, Inc., that questionable financial behavior will not be tolerated. Just because "everyone else is doing it" doesn't make it right, said Buffett. "You can lose a reputation that took 37 years to build in 37 seconds. And it might take more than 37 years to build it back." He should know - he's had to deal with corporate scandals before. He took over at investment giant Salomon Inc. after a bidding scandal erupted there in 1992, and fired executives at his subsidiary General Re Corp. in 2005 for their involvement in accounting fraud.
Mark Cuban, founder of Broadcast.com and owner of the Dallas Mavericks, founded a website called ShareSleuth.com which investigates public corporations. If Cuban's reporters discover evidence of financial fraud, corruption or any other sort of unethical or illegal activity, he will publish the scoop so that investors everywhere will be warned to stay away.
Imposing this kind of peer pressure on top executives may be the only way to get them to follow the straight and narrow. After all, who else will they listen to? They won't listen to me. They won't listen to you. Congress is certainly too elephantine to act in a timely fashion, if not too craven to take any action at all. It is only other CEOs who can exert power over their own, which they can do simply by withholding investment, causing the stock price to plummet. Fine, I say. That's the way it should be. Let the big bosses grapple like a pair of Claymation dinosaurs in King Kong or some such thing. Better yet, let them all expire from mutual intimidation and disappear from the earth, after which we warm-blooded little creatures will inherit what is left.
"Another memo on ethics from Buffett" from The Philadelphia Inquirer
"Buffett: Steer clear of corporate scandal" from InsideBayArea.com (California)
"Buffett Warns Execs to Avoid Temptation" from The Washington Post"Sharesleuth.com: Digging up dirt on corporate America" from City Beat (Los Angeles)