The Myopia of Bad Behavior
I am shocked,shocked to find that gambling is going on in here!” The disingenuousness of Captain Renault’s outrage in the movieCasablanca isn’t lost on the audience, who know that Renault knows exactly what has been going on in Rick’s Café. It’s only after being pressured to shut down the establishment that Renault feigns shock.
As the soaring bull market cooled and the economy began to tumble more than a year ago, the country seemed plagued with Renault-like characters who were shocked,shocked to find that bad corporate behavior had gone unchecked. It’s hardly shocking, however, that transgressions go overlooked when everyone from the stock-option-rich CEO to the 401(k)-fattened rank-and-file employee finds himself wealthier by the day.
When companies imploded in the summer of 2002 and one corporate scandal after another littered the headlines, boardrooms and Congressional hearings, the rallying cry was for more corporate accountability. But underlying the scandals is a larger, more systemic problem: Corporate America and its investors are gripped by short-term thinking. Until executives get back to building companies for the long term and turn their back on the obsession with short-term upticks in stock prices, companies will find themselves stuck in this mire.
At the height of the dot-com boom, executives, mindful or not, may have been growing wealthier at the expense of the long-term health of their companies. Most employees bought into this mind-set as well. At Enron, for example, 60% of employees held stock options in the company. In the company’s elevators, employees could watch the financial news stations and see how their stock was doing. The importance of seeing the stock price rise and keeping it rising was at the heart of Enron’s culture. The short-term mentality that drove the dot-com boom and was endemic throughout the latter half of the past decade resulted in more than a few people turning a blind eye toward bad behavior.
Breaking the cycle of bad behavior will take more than convicting executives, shutting down auditors and instituting new rules and regulations. It will take a seismic shift away from the short-term mentality that grips corporations.
It’s a shift that seems unlikely to take hold soon. While there are glimmers of movement, such as some companies deciding they will no longer announce quarterly forecasts, even those glimmers often seem driven by short-term logic. Last summer, for instance, shortly after the U.S.