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Introduction: Raw Greed and Red Flags > No More Heroes Anymore: Twisted and Con...

No More Heroes Anymore: Twisted and Conflicted Ties

There are few clean-cut heroes in all this. Few on Wall Street or in big business didn’t benefit from some of the crazier aspects of the 1990s stock market boom. There are few who can really say they have no skeletons in the closet or conflicts that could still dog them. Investors should question just about everything and everyone.

Indeed, as investors seek evidence of a clean-up in business attitudes, one less than hopeful sign is that many in positions of influence—whether in Washington or corporate America—show little understanding when they either face a conflict of interest or have created a perception that one may exist. The clearest example was Harvey Pitt, who met privately with former clients and others who were under investigation when he was chairman of the SEC for a tumultuous period beginning in the late summer of 2001. Pitt first put his foot in his mouth in October of that year, days after Enron had started to unravel, by telling an audience of auditors that the SEC would henceforth be a kinder and gentler place for accountants. It was a remark that would dog him for the next year as his critics accused him of being soft on accounting firms and some other former clients because he used to work for them.

Eventually, Pitt’s decisive vote that pushed through the controversial-appointment of former CIA and FBI Director William Webster as head of a new regulatory board for accountants proved to be the final straw. He supported Webster after the accountants had objected to another candidate, former head of the TIAA-CREF pension fund system John Biggs, because he was seen as too much of a reformer. But Pitt and key SEC officials failed to tell the other four SEC commissioners that Webster had been chairman of the audit committee at a failed Internet venture that was both the subject of a fraud investigatons and had fired its auditors after they raised questions about the lack of internal controls. Pitt, the SEC’s chief accountant Robert Herdman, and Webster all resigned in the resulting controversy, leaving both the SEC and the fledgling accounting board in turmoil at the end of 2002.

I began this introduction with Dennis Kozlowski, and I’ll end it with him. A victim of his reign as the head of Tyco was one of the world’s foremost advocates of strong corporate governance, Robert Monks, who had once served on the company’s board and had once described Kozlowski as the best CEO in America. Tyco and Kozlowski even donated $4 million to endow a professorship in corporate governance in Monks’ name at Britain’s Cambridge University. Monks said in October 2002 that he was sad about Kozlowski’s indictment. “I was glad that Dennis was willing to put up money for the professorship—I’m just terribly embarrassed and sorry the way things seem to have worked out for him, and for Tyco, and for its shareholders.” When a figure like Monks—who has been naming and shaming bad corporate leaders for many years—can have his reputation besmirched by someone like Kozlowski, it shows how vigilant ordinary investors have to be.

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