Corporate Crime

Corporate crime explained

We have had a rash of crimes by top-level corporate executives in recent years. Enron and MCI are prime examples. Why do executives work so hard to find ways to cook the books? These are very well-paid individuals, so they do not concoct their schemes in order to feed their families. The underlying cause of corporate crime is, of course, direct financial benefit to the parties concerned. This may be in the form of increased income but it can also be the product of trying to save a company (and thus, save your job). Protecting your employer from the consequences of wrong-doing can mean you continue to draw a paycheck.

For those cases where the purpose of the criminal activity is a direct increase in personal income, crime at the corporate level puzzles me. Other people have labeled the urge to greatly increase one’s personal wealth as greed. That labels it but it does not explain anything.

Here is where it brings my thinking process to a halt and leaves me completely at sea: why does a person who already has considerable personal wealth feel compelled to generate even more? Why does a person with a net worth of $10 million work 16 hours a day to increase it to $20 million? For a family of four, why does anybody need or want a 14-bedroom house? It means a lot more stuff to take care of. Windows have to be washed, and now you have a lot more of them. Carpets must be vacuumed and furniture dusted. A house that size cannot be managed by the homeowner so he/she must have hired help. Taxes are much higher than for a more modest and manageable dwelling and insurance premiums go up as well. So why do so many people obviously believe that more is better?

At first glance it might appear to be a desire for increased power rather than just wealth that drives those at high income levels to push for more. The boards of directors of corporations refute this, though, by claiming they cannot hire the best people for top positions without offering the prospect of huge bonuses. This constant push to increase one’s personal wealth, even or especially by people who are already “loaded”, is what leads to criminal activity at the corporate level. Enron is a prime example of executives using some very ingenious methods to generate, at least on paper, increased profits that would result in higher bonuses. They created a labyrinth of transactions that allowed them to enter nonexistent profits on the balance sheet.

One example of this was the creation of an offshore shipping company by a group of Enron employees. These employees sold some ships to their company. They arranged it so the company borrowed the money for the purchase from Enron. No real money changed hands. The ships were sold and the selling price was duly paid. This was entered on the books as a sale with a net profit. The payment was made with the funds provided by the loan (which was never repaid). This loan was recorded as a receivable, and therefore an asset, increasing the net worth of the corporation. The employees then sold the ships and pocketed the funds.

This tendency for corporate executives to grab for all the cash they can get, regardless of the consequences to the company, has been exacerbated by the attitude of the federal government that the best regulation of business is no regulation at all. Ronald Reagan is still a hero to people who call themselves “conservative” largely because of his attitude that “government is not the solution; it is the problem”.  We are now suffering the consequences of that policy.

The traditional conservative view of government is that its purpose is to protect us from external enemies. What conservatives seem to be unable to fathom is that government’s function is to protect us, yes, but not just from enemies outside our borders. We also need government to protect us from each other. If a company finds it is cheaper to dump waste containing mercury into a stream than to handle it safely, should the “free market” rule and the health of plants and animals (including humans) downstream be endangered so the company can make a larger profit? Should brokers and bankers be allowed to take very high risks with the money that has been entrusted to them and have no penalty imposed if they lose that money? Any debate on the functions and restraints on government action and regulation must consider the possibility that otherwise respected executives may be inclined to discard standards of decency and honesty when they impede amassing personal wealth.

After the savings and loan scandal of the 1980s was unraveled, several hundred people went to prison. As a result of the recent disastrous meltdown that started with banks and investment houses and then spread to auto manufacturers and insurance companies, the economy is in turmoil, the federal deficit has skyrocketed, and not a single person has been convicted of a crime.

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