Of ‘crooked timbers’ – and crooks: Part 2, corporate governance
Not many corporate executives or directors have been convicted of crimes.
Part 1 of this series discussed Donald Trump’s criminal conviction. The charges included falsifying business records, but those were misdemeanours in New York, not crimes. What made Trump’s a criminal conviction was the conspiracy to affect the outcome of his (successful) election campaign.
But a few cases of corporate crimes and criminals spring to mind:
In the infamous Enron collapse in 2001 in the US, its chief financial officer, Andy Fastow, pleaded guilty to two of the 78 counts of fraud he faced, but only after prosecutors charged his wife with tax evasion. He also agreed to assist in the investigation. That was in 2002.
Four years later, Jeffrey Skilling, the CEO, and Kenneth Lay, the board chair, were convicted; Lay died of a heart attack before his prison sentence was due to start.
Skilling got a 24-year sentence and paid $45 million fine. He was released from custody in 2019, after serving half that time.
In Germany, the spectacular 2020 insolvency of Wirecard led to criminal convictions of several executives, including CEO Markus Braun.
But these cases are notable as much for the rarity as their severity. The accounting firm Arthur Andersen, which had served as Enron’s auditors, was convicted of obstruction of justice in 2002, and a partner and staff member were named in the suit. But the US Supreme Court overturned the conviction three years later.
In what we now call the Global Financial Crisis of 2007-09 – arguably a much more serious situation than the rash of corporate collapses that followed Enron’s – it’s hard to think of any crooks. A decade on, the Financial Times reported that 47 executives were sentenced to jail terms, but more than half of them were from just one country – Iceland, not quite the centre of the maelstrom. In America, only one banker served time, a trader for the Swiss bank Credit Suisse, not an executive or a board member. And no one from Lehman Brothers, whose collapse triggered the freefall in global finance.
The FT couldn’t find a single banker-crook in the UK, despite the demise of Royal Bank of Scotland, which had been the world’s largest bank and required a bailout by the British government. Even now, 16 years later, the government still owns a large stake in the renamed National Westminster Bank.
Crooked bankers are, officially, hard to find. That is, they are hard for officials to find.
In the wake of Enron, corporate governance around the world underwent a massive reform, in some places by law, in others by regulation, and almost everywhere through the self-regulatory device of codes of conduct. But none of it stopped corporate collapses from happening. Corporate governance seems to exist in a state of recurrent crisis (Nordberg, 2020b).
In Part 1 of this series, I mentioned how my father, a self-employed carpenter, taught me, as a teenager, lessons about crooked timbers. They were similar to, but not quite the same as, the ones that the philosopher Isaiah Berlin (2013) tried to teach us by asking us to accept the “crooked timbers of humanity”.
Berlin’s message – borrowed from Immanuel Kant in the 18th century – was that humanity involves accepting, even embracing the fact that people have different values. He was a Jew, born in what we now know as Latvia and lived as a child in Petrograd, what we now called St. Petersburg. A few years after the Bolshevik revolution, Petrograd became Leningrad an the family fled to Britain. He knew intolerance from an early age. Things change. Stuff happens.
The only way to live is to live and let live, he seemed to argue. Some of his followers call it “value pluralism” (Aarsbergen-Ligtvoet, 2006; Plaw, 2009; Talisse, 2018). Rules rigidify into ideology. They give structure and stability, but only for a time. Things change. Stuff happens. But also this: Structure constraints freedom, and freedom is one of the values that humans seem to hold in common. If humans value differently, then logically they must – collectively and individually – value pluralism.
But that’s only half the lesson, and half the “solution” to the puzzle of corporate governance, if it can be called a solution at all.
Dad’s lesson wasn’t quite “live and let live”. For his carpentry, he wanted the straightest timbers available, and went out of his way to find them. When he had to cope with crooks and knots in the lumber, he found workarounds, ways to reinforce any crooked two-by-fours that he had to use to build the walls or the two-by-sixes he used to support a dormer window. Those structures would be less than perfect, but still good enough.
Philosophically, morally, Dad was not a relativist. But he knew that timbers were like humanity, some straighter than others, others best to be avoided. He wanted to be an idealist, and he regretted falling short of that. But falling short was perhaps inevitable. And in any case, wear-and-tear would reshape whatever he managed to create. Change happens. He was a pragmatist.
So, here’s the other half of the “solution” to corporate governance, such as it is.
I’ve met a lot of company executives and directors in a lot of companies in a lot of countries. Most of them struck me as pragmatists, trying to make do, to cope with the contradictions of capitalism. We need corporate governance that, while imperfect, is good enough (Nordberg, 2018; 2020a). But executives and directors that adhere religiously to an ideology – whether of shareholder value or market efficiency – seem dangerously misguided, right in principle, maybe, but wrong in practice. Their principles had rigidified into rules, and rules into ideology, which makes leaders blind to change. When you see that ideology has turned into one rule for “us” and another for “the rest of you”, you’ve found the people that it’s best to avoid.
Aarsbergen-Ligtvoet, C. (2006). Isaiah Berlin: A Value Pluralist and Humanist View of Human Nature and the Meaning of Life. Leiden, The Netherlands: Brill.
Berlin, I. (2013). The Crooked Timber of Humanity: Chapters in the History of Ideas (Revised, 2nd ed.). Princeton, NJ: Princeton University Press.
Nordberg, D. (2018). Edging toward ‘reasonably’ good corporate governance. Philosophy of Management, 17(3), 353-371. doi:10.1007/s40926-017-0083-9
Nordberg, D. (2020a). Book Review: Daniel S. Milo, Good Enough: The Tolerance of Mediocrity in Nature and Society. Organization Studies, 41(6), 899-901. https://doi.org/10.1177/0170840619871177
Nordberg, D. (2020b). The Cadbury Code and Recurrent Crisis: A Model for Corporate Governance? Cham, Switzerland: Palgrave Macmillan. https://doi.org/10.1007/978-3-030-55222-0
Plaw, A. (2009). Conflict, Identity, and Creation: Isaiah Berlin and the Normative Case for Pluralism. Partial Answers: Journal of Literature and the History of Ideas, 7(1), 109-132.
Talisse, R. B. (2018). Pluralism and Toleration in James’s Social Philosophy. In A. Klein (Ed.), The Oxford Handbook of William James. Oxford: Oxford University Press.