By ROBERT TRIGAUX, Times Business Columnist
Published January 28, 2005
Only four weeks old, 2005 is shaping up quickly as the year of the not-my-fault CEO. As in: it's not my fault my company was riddled with financial fraud and accounting gimmickry.
Blame the hired help and collect another big bonus. Nice work if you can get it and still sleep at night.
If only we could enforce a truth-in-corporate-title law. Then "CEO" at wayward companies would stand more accurately for "Copious Excuses Officer" or "Corrupt Ego Officer."
Three long-awaited trials just began with prosecutors trying to nail three big CEOs for their alleged roles in manipulating their corporations' accounting. Why? To make their companies look financially better than they were and, by doing so, receive big compensation packages based on that deceit.
The courtroom fate of these CEOs will send a telling message to the U.S. business community, shareholders and corporate employees. Should the top executive, who earns tens of millions of dollars a year in compensation and perks, who is driven to succeed and lives like modern royalty, be held accountable when his company collapses from fraud at the highest levels of management?
If the answer is no, then why are CEOs paid so much money?
In a federal courtroom in New York, former WorldCom Inc. chief Bernie Ebbers and his lawyers insist he was just a big-picture guy who left the WorldCom numbers in other managers' hands. In 2002, WorldCom became the largest bankruptcy in U.S. history.
Ebbers is taking the "dumb jock" defense. "I'm a P.E. (physical education) graduate, not an economist," Ebbers explained once to WorldCom analysts. "So I don't know that I can speak to that with any credibility or anything."
On trial in U.S. District Court in Birmingham, Ala., ousted HealthSouth Corp. CEO Richard Scrushy denied he ordered company financial chief Aaron Beam to "fix" HealthSouth's numbers to meet or beat Wall Street expectations.
Scrushy, whose personal fortune tops $250-million, is taking the "finger-pointing" defense. His lawyers argue that 15 former executives who have pleaded guilty were responsible for the company's $2.7-billion fraud. Five separate, consecutive chief financial officers, Scrushy insists, were all in on the scam.
And in New York State Supreme Court, ex-Tyco International CEO L. Dennis Kozlowski and another executive stand accused of rewarding themselves with $150-million in unauthorized compensation and profiting illegally on $575-million in Tyco stock sales.
This is Kozlowski's second trial after the first one ended with a mistrial in April. This time, prosecutors are focusing more on the alleged fraud and less on Kozlowski's lifestyle that featured a $2-million party for his wife on the Italian island of Sardinia and lavishly decorating a New York apartment - the infamous $6,000 shower curtain included - at Tyco expense.
Still another corporate trial expected to start this year will bring former Enron chairman Ken Lay and ex-CEO Jeff Skilling back into the legal spotlight. When Skilling testified several years ago about Enron's failure before a congressional panel, his frequent "I know nothing" responses quickly became known as the "Sgt. Schultz defense" of TV's Hogan's Heroes fame.
Not only has each CEO in each of these trials denied wrongdoing, each CEO in each trial has hired top-line lawyers who will do everything possible to blame others and to make the buck stop somewhere - anywhere - else.
Welcome to the legal wave of CEO excess and denial. Here are Thursday's snapshots:
At the WorldCom trial, the company's former controller testified that Ebbers apologized to him in 2000 after lower-level company accountants threatened to quit after being forced to cover up more than $800-million in expenses. That incident shows Ebbers was in the loop, prosecutors suggested.
In Birmingham, Scrushy's defense team claimed former HealthSouth co-founder and CFO Beam was a liar, heavy drinker and womanizer in an effort to undermine his testimony that Scrushy wanted company numbers to be doctored. Prosecutors offered up a list of high-living items on which, they claimed, Scrushy had spent his ill-gotten wealth: a $3.2-million Cessna Citation airplane; a $370,000, 21-carat diamond ring, and a $321,583, 40-foot racing boat called Monopoly.
In the Tyco trial, Kozlowski's lawyers said the Tyco CEO never tried to hide his hefty compensation. If there is no criminal intent, there is no crime, the lawyers argued.
All three trials continue next week.
The bottom line? Juries will decide who is and is not guilty. But don't accept the big paycheck if you can't accept the responsibility that goes with it.
When President Richard Nixon fell under investigation for the 1972 Watergate scandal and cover-up, more than 30 administration officials, campaign officials and financial contributors pleaded guilty or were found guilty of breaking the law.
Nixon, the chief executive, would not resign as U.S. president until 1974.
It seems not-my-fault CEOs are often the last to fall.
Information from Times wires was used in this column. Robert Trigaux can be reached at trigaux@sptimes.com or 727 893-8405.
RICHARD SCRUSHY
Former HealthSouth chief executive
PROSECUTION SAYS ... Scrushy made millions by overstating earnings by about $2.7-billion over seven years, and spent more than $200-million on such luxuries as waterfront mansions, opulent cars and a $3.2-million airplane.
DEFENSE SAYS ... A fraud did occur, but it was the work of a tightly knit group of executives - known to themselves as "the family" - who worked on their own and kept Scrushy in the dark.
BERNARD EBBERS
Former WorldCom chief executive
PROSECUTION SAYS ... Ebbers and former chief financial officer Scott Sullivan devised an accounting fraud that totaled $11-billion by falsely inflating WorldCom's dwindling revenue and hiding rising expenses, which led to the largest bankruptcy filing in U.S. history.
DEFENSE SAYS ... Ebbers had no background in accounting so he deferred to Sullivan, who was responsible for the fraud and struck a deal with prosecutors to avoid a long prison term.
L. DENNIS KOZLOWSKI
Former Tyco chairman
PROSECUTION SAYS ... Kozlowski, with former chief financial officer Mark Swartz, stole $150-million from the company in the form of unauthorized bonuses and defrauding shareholders by selling stock whose value they inflated by misrepresenting Tyco's finances.
DEFENSE SAYS ... Kozlowski never concealed his compensation from the company, and refused pay raises and insisted his compensation be tied to the company's performance.
