White Collar Crime – presented by Mr. Neil Weinberg
Mr. Neil Weinberg, Executive Editor of Forbes Magazine, wrote “Stolen Without A Gun” with co-author Walter Pavlo, using the compelling personal story of Mr. Pavlo to portray in intimate detail the pressures that white-collar professionals face every day in corporate world. Mr. Weinberg’s discussion at Rotman was extremely relevant to MBA students because of the main narrator’s background: Pavlo was a young MBA who had a promising career at MCI until he took the wrong step on a mud slide of accounting scams that ultimately cost him not only his career but also his freedom, family, reputation and self-respect. According to Weinberg’s research, white-collar criminals are not just ordinary people; they are smart, well-educated and ambitious. They often start as wide-eye fresh graduates at large corporations of which profit-driven culture infiltrates all levels within. Some of them were even chosen as CFOs of the year: Andrew Fastow (Enron) and Scott D. Sullivan (Worldcom). So why do they turn out to be the thieves stealing from the economy $2.5 trillion per year? Weinberg argues that these people, like Pavlo, do not just wake up one day and decide to commit in a greed-inspired fraud. In fact, only 7% of perpetrators have prior conviction. They operate business under the performance pressure from investors, stockholders and Wall Street professionals. They execute mega mergers which present opportunities for companies to hide flaws and falsify earnings at multiple levels. Somehow along the line of conducting legal but unethical business, they find their ways to the dark side. Weinberg presents a triangle of Need/Incentives, Opportunity, and Rationalization as a combined force triggering ordinary people to commit extraordinary crimes. In his book, he suggests that by pushing ethics education at school and setting the right tone at the top, we can reduce the damages caused by corporate frauds.

As many of my colleagues, I agree that it is “the tone at the top” that sets the culture of greed in troubling companies such as Enron or Worldcom. Pavlo learned “tricks” from MCI to hide hundreds of millions of dollars in aging bad debts and clearly uncollectable receivables owed by a raft of upstart telecom resellers. He stated that he “cooked” the book, under pressure from higher-ups, to bolster MCI’s growth. Clearly management at MCI had pressure to boost the bottom line of the company. Why so? Board of Directors and top management had stock option incentives ($71 million for 5 Executives). The message from the top was to manipulate some financial statements items so that investors put high value on the company. The same story goes with Enron and Worldcom.

The next explanation goes to individuals’ ego. A well-known example that Weinberg used was Bernard Madoff. Scoring the largest Ponzi scheme in America history, he stole $65 billion from investors not because of financial pressures but because he “wanted to help people to earn money”, as he put in an interview with New York Magazine in 2011 (The Madoff Tapes, by Steve Fishman). It is credible because he was not under the influence of financial needs. He was a prominent philanthropist for many non-profit organizations. So was he trapped in the vicious circle because of greed? Probably not.

This led me to believe that what Weinberg discussed is only the surface of a deeper problem. In order to prevent such white-collar illegal acts, we need to dig further on how our society works and how social expectations affect our decisions. MCI was a fast growing company, why would management be under such pressure from Wall Street? To be fair, WE are the investors that place such expectation on a company’s performance. It is never enough on Wall Street. We are built and trained to “beat expectation”. Is there something missing in our MBA training program? I recall our Strategy class when our main concern for Wal-mart was “Can Wal-mart continue to grow at a rate of 10% and exceed investors’ expectation?” Naturally, when it does not meet the forecasted earnings, its stock price will drop and that hurts people who hold stock options. I believe that it is us who create such incentives for management to focus on earnings instead of innovation or efficiency, not to mention corporates’ social responsibility. It is a profit-driven society that we live in and that, to me, is the root problem of white-collar crimes. Yes, it brings us prosperity and a better life (this is still debatable), but come along with it are many complex problems that we have not found a solution for.