CEO Predators Tamed?

This commentary was written by CBSNews.com's Dick Meyer.

Let me take the potential bullet for Team Journalism here. In November, 2003 I wrote a column headlined, "The Predator Class." It argued:

I believe there is now a professional, well-trained elite, supported by large institutions, that is adept and willing to use corrupt practices to accumulate wealth. Despite assurances from game-theorists and anthropologists that the criminal cadre in the species remains a constant percentage over time, I believe today's mainstream, sanitized, and institutionally sanctioned financial crime rackets are being run by a new breed of crook. There have always been scandals and crooks in the history of American money, but our predator class is a distinct creation of the late 20th century.

I believe there is no way the counter-class made up of regulators, watchdogs and do-gooders and hack columnists can match wits with the predator class. Today's piles of money are so huge, great fortunes can be amassed by swiping the tiniest of slices in the wiliest of ways long before picked pockets are discovered.

A case can now be made that I was wrong, that our crooks are just like old crooks, that the scam spree that went from the dotcom bubble bursting, through Tyco and on through the mutual fund industry wasn't unique, just your run of the mill, cyclical wave of financial mischief and it has been corrected by regulation and prosecution.

We've seen it before and we'll see it again. In the late 1800s, we had the robber barons of the Gilded Age, corrected by the Teddy Roosevelt and the trust busters. Next came the flim-flam of the Roaring 20s, the Crash and the reforms of the New Deal. Corruption and reform. Tick and tock. Soup and sandwich. American traditions.

Three factors conspire to make me think that perhaps the turn of the century greed epidemic has been substantially contained and defanged.

First, at the end of last year something remarkable happened -- outside directors at two corrupt companies agreed to pay money from their own silk pockets to help settle shareholder lawsuits. Ten former Enron directors chipped in $13 million of their own dough to settle a suit and ten ex-directors of Worldcom paid $18 million. That was unheard of. Part of what always made being a director such a great gig was there was no downside; they were insulated from liability by corporate cocooning and insurance; they could lose Other People's Money. From Greenwich to Beverly Hills to Palm Beach, corporate sphincters.

That led to positive development number two: newly vigilant, engaged and active corporate boards of directors. For varied reasons, some ethical, some strictly bottom line, boards have dumped problem CEO's, even glamorous problem CEOs. Out went Franklin Raines at Fannie Mae, Carly Fiorina at Hewlett-Packard, Harry Stonecipher at Boeing, Michael Eisner at Disney and, just this week, Maurice Greenberg at AIG, the company he built. I have no real way of knowing whether justice was served in these individual cases, but I do believe this may well be a true indicator of increased director diligence.

In January, according the country's biggest headhunting company, companies announced 103 CEO changes, the first time the 100 per month barrier has been broken since February 2001. So many CEO sayonaras must mean something.

Finally, CEOs are really going to the slammer. Martha has done her time. Rite-Aid chief Martin Grass is settling into his eight year sentence at a Florida prison. John Rigas of Adelphia, Frank Quatrone of Credit Suisse First Boston and now Bernie Ebbers of Worldcom are packing their slippers and jammies.

Dennis Kozlowski of Tyco and Richard Scrushy of HealthSouth are in the middle of trials. Ken Lay and the kids from Enron have a few quarters before they present their accounts to juries.

Underlying all this, there's the legislative piece, the post-scandal bill known as Sarbanes-Oxley that is supposed to make it a whole lot harder for companies to cook their books.

So, does all this add up to a happy capitalist ending?

I'll revert to journalist form and firmly say probably not. For a boat load of reasons.

The corporate crime wave of the early 2000s wasn't a blip but a continuation of a long-rolling tsunami. It started with investment banking scandals of the 1980s epitomized by Ivan Boesky and Michael Milken, who also went to jail and whose examples obviously didn't deter scores of zillionaire crooks that followed. It continued with the S&L scandals. After some quiet years came the dotcom boom and the scandals of "independent analysts" hyping their clients' stocks. Then came Enron, Tyco and Worldcom.

All these shenanigans, of course, were detected well after the dirty deeds were done. So whatever high finance fraud is happening right now, we won't know about for awhile. Meanwhile, the call to repeal or water down Sarbanes-Oxley is growing louder in the second Bush term.

Part of what fueled the scandal boom in big companies was the gargantuan growth of CEO compensation. Dizzied and dazzled by the wealth of dotcom's baby billionaires, rappers and centerfielders, corporatcrats decided they needed to get theirs -- and they did, with vengeances. Everyone at or near the top of public companies now has what they call "f**k you money" -- wealth so great, you're set no matter what happens -- ever.

There is no sign top corporate compensation is coming back to earth. In 1982, the ratio of avergae CEO pay to average worker pay was 42 to 1; in 2003, the ratio was 301 to 1. And the the bell weather editorial page of "The Wall Street Journal" now argues that CEO pay will have to go up further to entice talent willing to risk going to jail.

There is also no sign that the ostentation and wealth-worship of the dotcom daze has waned. Diamond sales are booming, as is private aviation. You cannot read an edition of "The New York Times" without at least one lusty profile of someone rich beyond rich, and the Sunday edition is chock full of it.

In short, there is now no cultural shift as there was with the populism of the Roosevelt era of trust and, three decades later, the New Deal.

But what smells most foul to me is that the recent uber-scandals weren't the work of renegade con men. They were executed by legions of highly trained MBAs and accountants within the companies, and facilitated by auditors, lawyers, directors and investment bankers outside the companies -- all giant organizations that have been merged, acquired, synergized, downsized, depersonalized and bureaucratized.

The worrisome point is that this crime wave was conducted by highly trained and educated professionals, mostly wealthy, mostly the children of history's wealthiest generation. Cheating and greed have been institutionalized.

There's a predator class -- still. But maybe I'm just looking for the bad news.

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By Dick Meyer