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The Honolulu Advertiser
Posted on: Sunday, October 27, 2002

Psychologists explore corporate corruption

 •  Board kept CEO despite several warning signs

By Bruce Horovitz
USA Today

The hit parade of corporate scandal isn't about money. It's about boredom.

It's not about wealth. It's about loneliness.

It's not about power. It's about insecurity.

And it's not about greed. It's about unrealistic fantasy.

So say top corporate psychologists, management experts and CEOs asked to answer the simple question: Why? What motivates wealthy CEOs to steal from their companies? When you're already a multimillionaire, why do you need more?

Take Dennis Kozlowski, former CEO of Tyco, who, along with two others, has been charged with looting $600 million from the company. Or Andrew Fastow, former Enron CFO, who has been charged with masterminding schemes that officials say let him pocket millions of dollars.

Or take former Global Crossing chairman Gary Winnick, under fire for selling $734 million in Global Crossing stock before the company's collapse. Or John Rigas, founder of Adelphia Communications, who — along with two sons — was accused of stealing hundreds of millions from the company.

This image — CEO as crook — changes everything. It changes the way millions of investors view Corporate America. It changes the way the best and brightest leaders of the future view the executive seat. It changes the way honest, hard-working CEOs view themselves and their peers. And it changes the way some scandal-weary boards of directors will operate.

"It threatens the very fabric of our system," says William George, former CEO of Medtronic, an outspoken critic of corporate greed.

But it doesn't change one thing: the internal motivations that prodded a plethora of top executives to enrich themselves at the expense of shareholders and workers.

Were he still alive, Dr. Seuss might have his own name for it: "Yertle the Turtle" syndrome. Sound hokey? Well, the more Yertle got, the more the imperious turtle wildly fantasized about what else he could get — until his kingdom literally toppled into the muck.

Some of the nation's top corporate psychologists say that's precisely what's taking place in Corporate America. This isn't about simple greed. It's about a warped executive mindset — stoked by the faux tech boom of the 1990s — that's so out of whack it threatens the credibility of big business.

It wasn't long ago that CEOs were equated with rock stars and heralded as corporate messiahs. Now, after the scandals, investors are lumping corporate chiefs into the same ethical junk heap as con artists and two-bit crooks.

Why did Kozlowski need a $15,000 umbrella stand or a $6,000 shower curtain? Why would multimillionaire John Rigas allegedly take $13 million from his company to build a golf course?

"I call it the summer of greed," says Gary Hirshberg, CEO of Stonyfield Farms the nation's No. 3 yogurt maker.

Five companies — Enron, WorldCom, Tyco, Qwest and Global Crossing — have destroyed a combined $460 billion in shareholder value while moving inexorably toward bankruptcy, George says.

But it wasn't just greed that got us here. It's desperate, despondent and unfit leaders. "Their desires become insatiable once they reach the top," says Steven Berglas, a renowned executive coach and instructor at the University of Southern California. "They become toxic CEOs because their job challenges are no longer rewarding."

Here are the most common — and often surprising — explanations the experts gave for over-the-top greed at the top:

• Poor self-image. Despite a public perception that they swagger with huge egos, some scandal-ridden executives suffer from very low self-esteem, says USC's Berglas. "They keep building monuments to themselves to dispose of their negative self-images," he says. "That, of course, never works."

His favorite candidate for that category: Martha Stewart, the lifestyle guru, who comes from a working-class family. She's been accused of acting on inside information in trading nearly 4,000 shares of ImClone.

Some simply want to bury their humble upbringings, says Jeffrey Sonnefeld, associate dean at Yale School of Management. "They were so desperate to define themselves by what they weren't that they forgot who they were."

• The myth: "I deserve it." Successful former General Electric CEO Jack Welch may be the best example of the "I deserve it" school of thought, says Harry Levinson, a retired corporate psychologist.

His GE retirement package, revealed in a divorce settlement, had GE picking up the tabs on everything from his country-club fees to a Manhattan apartment.

"I call it self-love no longer governed by reality," Levinson says.

In the face of public outrage, Welch agreed to give up most of those benefits and pay GE $2.5 million a year for the perks.

Over the past decade, CEOs championed the myth that they were responsible for the growing fortunes of their corporations, says Rakesh Khurana, assistant professor at Harvard Business School.

The new media beat the drum.

"If you hear how great you are, you begin to believe it," Khurana says. "You start drinking your own bath water."

• Fantasies unchecked. For most people, fantasies are controlled by reality.

But for some executives, the fantasies get out of control because there's nothing to stop them, says Levinson, the retired corporate psychologist. "Without controls, people will indulge in whatever their fantasies tell them to do."

Harvard Business School professor Jay Lorsch is aghast over former Enron CEO Ken Lay's misuse of a corporate jet — reportedly using it to cart some of his daughter's furniture, including a queen-size bed, to France and back.

"The notion of irrational exuberance isn't just in the stock market," Lorsch says. "It created a culture of entitlement among many CEOs who lost their sense of proportions and began to do things that were ethically unwise, morally unchecked and illegal."

"They went nuts," Lorsch says.

• Society's blessing. CEOs feel emboldened to steal by a not-so-subtle societal message over the past decade that has said, "The end justifies the means," says Ron Shaich, CEO of Panera Bread.

But executives don't just wake up one day "and become crooks," Shaich says. Instead, he says, "They incrementalize themselves into it."

Management guru Jim Collins calls it the "winner-takes-all society." We've lost all perspective, he says, "when you have sports agents representing CEOs" in contract talks.

The media, too, turned CEOs into heroes. Just months before he was arrested, Kozlowski was tapped by Business Week as one of the top 25 managers of the year.

Medtronic's George recalls meeting Kozlowski in 1998 to discuss a possible acquisition. "In our brief meeting," George says, "he bragged that having his headquarters in Bermuda enabled Tyco to avoid paying U.S. taxes."

When George left the office, he recalls, "I put my hand on my wallet and held on tight, telling my colleague to cancel further talks with Tyco."

• Competitiveness gone awry. "For some of these guys, thievery is the only way they know how to play the game," says Ben Cohen, co-founder of Ben & Jerry's Ice Cream. "The object is to take home as much money as possible — no matter how you get it."

It's a "me first" mentality that Cohen says is an abuse of power. "CEOs have become gods who make their own rules and call their own shots," he says.

• Lonesome soldier syndrome. Powerful people often have a tough time building friendships. The concern is that people are only attracted by their power, Berglas says. "It induces deep loneliness." Some seek solace in material wealth because they cannot trust offers of friendship. "If you obtain an expensive painting, it can't exploit you," he says. "You own it."

• Boredom. Working nonstop is the life's blood of many top CEOs. As a form of warped entertainment, those who are at the top — and have no further up to go — will sometimes invent situations with very difficult obstacles to overcome, Berglas says.

"When Dennis Kozlowski fails to pay $1 million taxes on $13 million worth of art, it's because he's bored," Berglas says. "It's not as if he can't afford it."

People achieve goals they think will be life-transforming, "Then don't know what to do after they get there," Berglas says. "They become obsessed trying to find the next challenge."

Some who reach their goals suffer depression at their career peaks, says Yale's Sonnefeld. "They don't know what to do next," he says. So, they're tempted to do what's wrong. "They come in as dragon slayers, then become the dragons themselves."

• Power corrupts. At some point, some successful executives become unable to separate what is rightfully theirs and what is not, Sonnefeld says.

His favorite examples: Adelphia's John Rigas and Tyco's Kozlowski.

"Like royalty, they believe all peasants are beholden to the grand kings," Sonnefeld says. "They think they have a divine right to all that's around them."

"By hook or by crook," he says, these executives grasp at any and all the symbols of success. But ultimately, he says, "What they think is a badge of courage becomes a cloak of disgrace."