The pathology of greed

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Postby admin » Mon Mar 20, 2006 2:07 pm

this book appears to have a set of "rules to live by", for thise aspiring to be corporate greats...........or corporate Dilberts, whichever you prefer.

It does, however explain a great deal of the "without conscience" types of pathalogical thinking and behaviors that get some of those willing to do anything to gain power, into power.

The 48 Laws of Power
From Wikipedia, the free encyclopedia
The 48 Laws of Power is a seminal book by Robert Greene and Joost Elffers. It is a manual which provides rules, or laws, for those who seek to increase their power in life. The book ascribes to a simple premise: "certain actions always increase one's power ... while others decrease it and even ruin us."

The book uses ancedotes from notable historical figures such as Machiavelli, Talleyrand, Bismarck, Catherine the Great, Mao, Haile Selassie, Lola Montes and various con artists in order to give meaning and examples to the 48 rules.

Published in September 1998, the book has been compared to Sun-Tzu's The Art of War, another manual which provides rules to live ones life by.

Laws of Power
The laws of power given in the book are:

1. Never Outshine The Master

Always make those above you feel comfortably superior. In your desire to please or impress them, do not go to far in displaying your talents or you might accomplish the opposite – inspire fear and insecurity. Make your masters appear more brilliant than they are and you will attain the heights of power.

2. Never Put Too Much Trust In Friends, Learn How To Use Enemies

Be wary of friends – they will betray you more quickly, for they are easily aroused to envy. They also become spoiled and tyrannical. But hire a former enemy and he will be more loyal than a friend, because he has more to prove. In fact, you have more to fear from friends than from enemies. If you have no enemies, find a way to make them.

3. Conceal Your Intentions

Keep people off balance and in the dark by never revealing the purpose behind your actions. If they have no clue what you are up to, they cannot prepare a defense. Guide them far enough down the wrong path, envelop them in enough smoke, and by the time they realize your intentions, it will be too late.

4. Always Say Less Than Necessary

When you are trying to impress people with words, the more you say, the more common you appear, and the less in control. Even if you are saying something banal, it will seem original if you make it vague, open ended, and sphinx like. Powerful people impress and intimidate by saying less. The more you say, the more likely you are to say something foolish.

5. So Much Depends On Reputation – Guard It With Your Life

Reputation is the cornerstone of power. Through reputation alone you can intimidate and win; once it slips, however, you are vulnerable, and will be attacked on all sides. Make your reputation unassailable. Always be alert to potential attacks and thwart them before they happen. Meanwhile, learn to destroy your enemies by opening holes in their own reputations. Then stand aside and let public opinion hang them.

6. Court Attention At All Cost

Everything is judged by its appearance; what is unseen counts for nothing. Never let yourself get lost in the crowd, then, or buried in oblivion. Stand out. Be conspicuous, at all cost. Make yourself a magnet of attention by appearing larger, more colorful, more mysterious than the bland and timid masses.

7. Get Others To Do The Work For You, But Always Take The Credit

Use the wisdom, knowledge, and legwork of other people to further your own cause. Not only will such assistance save you valuable time and energy, it will give you godlike aura of efficiency and speed. In the end your helpers will be forgotten and you will be remembered. Never do yourself what others can do for you.

8. Make Other People Come To You – Use Bait If Necessary

When you force the other person to act, you are the one in control. It is always better to make your opponent come to you, abandoning his own plans in the process. Lure him with valuable gains – then attack. You hold the cards.

9. Win Through Your Actions, Never Through Argument

Any momentary triumph you think you have gained through argument is really a Pyrrhic victory: The resentment and ill will you stir up is stronger and last longer than any momentary change of opinion. It is much more powerful to get others to agree with you through your actions, without saying a word. Demonstrate, do not explicate.

10. Infection: Avoid The Unlucky And The Unhappy

You can die from someone else’s misery – emotional states are as infectious as diseases. You may feel you are helping the drowning man but you are only precipitating your own disaster: The unfortunate sometimes draw misfortune on themselves; they will also draw it on you. Associate with the happy and fortunate instead.

11. Learn To Keep People Dependant Of You

To maintain your independence you must always be needed and wanted. The more you are relied upon, the more freedom you have. Make people dependent on you for their happiness and prosperity and you have nothing to fear. Never teach them enough so that they can do without you.

12. Use Selective Honesty And Generosity To Disarm Your Victim

One sincere and honest move will cover over dozens of dishonest ones. Open – hearted gestures of honesty and generosity bring down the guard of even the most suspicious people. Once your selective honesty opens a hole in their armor, you can deceive and manipulate then all at will. A timely gift – a Trojan horse – will serve the same purpose.

13. When Asking For Help, Appeal To People’s Self Interest, Never To Their Mercy Or Gratitude

If you need to turn to an ally for help, do not bother to remind him of your past assistance and good deeds. He will find a way to ignore you. Instead, uncover something in your request, or in your alliance with him, that will benefit him, and emphasize it out of all proportion. He will respond enthusiastically when he sees something to be gained for himself.

14. Pose As A Friend, Work As A Spy

Knowing about your rival is critical. Use spies to gather valuable information that will help you a step ahead. Better still: Play the spy yourself. In polite social encounters, learn to probe. Ask indirect questions to get people to reveal their weaknesses and intentions. There is no occasion that is not an opportunity for artful spying.

15. Crush Your Enemy Totally

All great leaders since Moses have known that a feared enemy must be crushed completely. (Sometimes they have learned this the hard way) If one ember is left alight, no matter how dimly it smolders, a fire will eventually break out. More is lost through stopping halfway than through total annihilation: The enemy will recover, and will seek revenge. Crush him, not only in body but in spirit.

16. Use Absence To Increase Respect And Honor

Too much circulation makes the price go down: The more you are seen and heard from, the more common you appear. If you are already established in a group, temporary withdrawal from it will make you more talked about, even more admired. You must learn when to leave. Create value through scarcity.

17. Keep Others In Suspended Terror: Cultivate An Air Of Unpredictability

Humans are creatures of habit with an insatiable need to see familiarity in other people’s actions. Your predictability gives them a sense of control. Turn the tables: Be deliberately unpredictable. Behavior that seems to have no consistency or purpose will keep them off-balance, and they will wear themselves out trying to explain your moves. Taken to an extreme, this strategy can intimidate and terrorize.

18. Do Not Build Fortresses To Protect Yourself – Isolation Is Dangerous

The world is dangerous and enemies are everywhere – everyone has to protect themselves. A fortress seems the safest. But isolation exposes you to more dangers than it protects you from – it cuts you off from valuable information, it makes you conspicuous and an easy target. Better to circulate among people, find allies, mingle. You are shielded from your enemies by the crowd.

19. Know Who You Are Dealing With – Do Not Offend The Wrong Person

There are many different kinds of people in this world, and you can never assume that everyone will react to your strategies in the same way. Deceive or outmaneuver some people and they will spent the rest of their lives seeking revenge. They are wolves in lamb’s clothing. Choose your victims and opponents carefully, then – never offend or deceive the wrong person.

20. Do Not Commit To Anyone

It is the fool that always rushes to take sides. Do not commit to any side or cause but yourself. By maintaining your independence, you become the master of others – playing people against one another, make them pursue you.

21. Play A Sucker To Catch A Sucker – Seem Dumber Than Your Mark

No one likes feeling stupider than the next person. The trick, then, is to make your victims feel smart – and not just smart, but smarter than you are. Once convinced of this, they will never suspect that you may have ulterior motives.

22. Use The Surrender Tactic: Transform Weakness Into Power

When you are weaker, never fight for honor’s sake; choose surrender instead. Surrender gives you time to recover, time to torment and irritate your conqueror, time to wait for his power to wane. Do not give him the satisfaction of fighting and defeating you – surrender first. By turning the other cheek you infuriate and unsettle him. Make surrender a tool of power.

23. Concentrate Your Forces

Conserve your forces and energies by keeping them concentrated at their strongest point. You gain more by finding a rich mine and mining it deeper, than by flitting from one shallow mine to another – intensity defeats extensity every time. When looking for sources of power to elevate you, find the only key patron, the fat cow who will give you milk for a long time to come.

24. Play The Perfect Courtier

The perfect courtier thrives in a world where everything resolves around power and political dexterity. He has mastered the art of indirection; he flatters, yield to superiors, and asserts power over other in the most oblique and graceful manner. Learn and apply the laws of courtiership and there will be no limit to how far you can rise in the court.

25. Re-Create Yourself

Do not accept the role that society foists on you. Re-create yourself by forcing a new identity, one that commands attention and never bores the audience. Be the master of your own image rather than letting others define it for you. Incorporate dramatic devices into your public gestures and actions – your power will be enhanced and your character will seem larger than life.

26. Keep Your Hands Clean

You must seem a paragon of civility and efficiency: Your hands are never soiled by mistakes and nasty deeds. Maintain such a spotless appearance by using others as scapegoats and cat’s – paws to disguise your involvement.

27. Play On People’s Need To Believe To Create A Cult-Like Following

People have an overwhelming desire to believe in something. Become the focal point of such desire by offering them a cause, a new faith to follow. Keep your words vague but full of promise; emphasize enthusiasm over rationality and clear thinking. Give your new disciples rituals to perform, ask them to make sacrifices on your behalf. In the absence of organized religion and grand causes, your new belief system will bring you untold power.

28. Enter Action With Boldness

If you are unsure about a course of action, do not attempt it. Your doubt and hesitations will infect your execution. Timidity is dangerous: Better to enter with boldness. Any mistakes you commit through audacity are easily corrected with more audacity. Everyone admires the bold; no one honors the timid.

29. Plan All The Way To The End

The ending is everything. Plan all the way to it, taking into account all the possible consequences, obstacles’ and twists of fortune that might reverse your hard work and give the glory to others. By planning to the end you will not be overwhelmed by circumstances and you will know when to stop. Gently guide fortune and help determine the future by thinking far ahead.

30. Make Your Accomplishments Seem Effortless

Your actions must seem natural and executed with ease. All the toil and practice that go into them, and also all the clever tricks, must be concealed. When you act, act effortlessly, as if you could do much more. Avoid the temptation of revealing how hard you work – it only raises questions. Teach no one your tricks or they will be used against you.

31. Control The Options: Get Others To Play With The Cards You Deal

The best deceptions are the ones that seem to give the other person a choice: Your victims feel they are in control, but are actually your puppets. Give people options that come out in your favor whichever one they choose. Force them to make choices between the lesser of the two evils, both of which serve your purpose. Put them on the horns of a dilemma: They are gored wherever they turn.

32. Play The People’s Fantasies

The truth is often avoided because it is ugly and unpleasant. Never appeal to truth and reality unless you are prepared for the anger that comes from disenchantment. Life is so harsh and distressing that people who can manufacture romance or conjure up fantasy are like oases in the desert: Everyone flocks to them. There is great power in tapping into the fantasies of the masses.

33. Discover Each Man’s Thumbscrew

Everyone has a weakness, a gap in the castle wall. That weakness is usually insecurity, an uncontrollable emotion or need; it can also be a small secret pleasure. Either way, once found, it is a thumbscrew you can turn to your advantage.

34. Be Royal In Your Own Fashion: Act Like A King To Be Treated Like One

The way you carry yourself will often determine how you are treated: In the long run, appearing vulgar or common will make people disrespect you. For a king respects himself and inspires the same sentiment in others. By acting regally and confident of your powers, you make yourself seem destined to wear a crown.

35. Master The Art Of Timing

Never seem to be in a hurry – hurrying betrays a lack of control over yourself, and over time. Always seem patient, as if you know that everything will come to you eventually. Become a detective of the right moment; sniff out the spirit of the times, the trends that will carry you to power. Learn to stand back when the time is not yet ripe, and to strike fiercely when it has reached fruition.

36. Disdain Things You Cannot Have: Ignoring Them Is The Best Revenge

By acknowledging a petty problem you give it existence and credibility. The more attention you pay an enemy, the stronger you make him; and a small mistake is often made worse and more visible when you try to fix it. It is sometimes best to leave things alone. If there is something you want but cannot have, show contempt with it. The less interest you reveal, the more superior you seem.

37. Create Compelling Spectacles

Striking imaginary and grand symbolic gestures create the aura of power – everyone responds to them. Stage spectacles for those around you, then, full of arresting visuals and radiant symbols that heighten your presence. Dazzled by appearances, no one will notice what you are really doing.

38. Think As You Like But Behave Like Others

If you make a show of going against the times, flaunting your unconventional ideas and unorthodox ways, people will think that you only want attention and that you look down upon them. They will find a way to punish you for making them feel inferior. It is far safer to blend in and nurture the common touch. Share your originality only with tolerant friends and those that are sure to appreciate your uniqueness.

39. Stir Up Waters To Catch Fish

Anger and emotion are strategically counterproductive. You must always stay calm and objective. But if you can make your enemies angry while staying calm yourself, you gain a decided advantage. Put your enemies off-balance: Find the chink in their vanity through which you can rattle them and you hold the strings.

40. Despise The Free Lunch

What is offered for free is dangerous – it usually involves either a trick or a hidden obligation. What has worth is worth paying for. By paying your own way you stay clear of gratitude, guilt, and deceit. It is also often wise to pay the full price – there is no cutting corners with excellence. Be lavish with your money and keep it circulating, for generosity is a sign and a magnet for power.

41. Avoid Stepping Into A Great Man’s Shoes

What happens first always appears better and more original than what comes after. If you succeed a great man or have a famous parent, you will have to accomplish double their achievements to outshine them. Do not get lost in their shadow, or stuck in a past not of your own making: Establish your own name and identity by changing course. Slay the overbearing father, disparage his legacy, and gain power by shining in your own way.

42. Strike The Shepard And The Sheep Will Scatter

Trouble can often be traced to a single strong individual – the stirrer, the arrogant underling, the poisoner of goodwill. If you allow such people room to operate, others will succumb to their influence. Do not wait for the troubles they cause to multiply, do not try to negotiate with them – they are irredeemable. Neutralize their influence by isolating or banishing them. Strike at the source of the trouble and the sheep will scatter.

43. Work On The Hearts And Minds Of Others

Coercion creates a reaction that will eventually work against you. You must seduce others into wanting to move in your direction. A person you have seduced becomes your loyal pawn. And the way to seduce others is to operate on their individual psychologies and weaknesses. Soften up the resistant by working on their emotions, playing on what they hold dear and what they fear. Ignore the hearts and minds of others and they will grow to hate you.

44. Disarm And Infuriate With The Mirror Effect

The mirror reflects reality, but is also the perfect tool for deception: When you mirror your enemies, doing exactly as they do, they cannot figure out your strategy. The Mirror Effect mocks and humiliates them, making them overreact. By holding up a mirror to their psyches, you seduce them with the illusion that you share their values; by holding up a mirror to their actions, you teach them a lesson. Few can resist the power of the Mirror Effect.

45. Preach The Need For Change, But Never Reform Too Much At Once

Everyone understands the need for change in the abstract, but in the day-to-day level people are creatures of habit. Too much innovation is traumatic, and will lead to revolt. If you are new to a position of power, or an outsider trying to build a power base, make a show of respecting the old way of doing things. If change is necessary, make it feel like a gentle improvement on the past.

46. Never Appear Too Perfect

Appearing better than others is always dangerous, but most dangerous of all is to appear to have no faults or weaknesses. Envy creates silent enemies. It is smart to occasionally display defects, and admit to harmless vices, in order to deflect envy and appear more human and approachable. Only gods and the dead can seem perfect with impunity.

47. Do Not Go Past The Mark You Aimed For; In Victory, Learn When To Stop

The moment of victory is often the moment of greatest peril. In the heat of victory, arrogance and overconfidence can push you past the goal you had aimed for, and by going too far, you make more enemies than you defeat. Do not allow success to go to your head. There is no substitute for strategy and careful planning. Set a goal and when you reach it, stop.

48. Assume Formlessness

By taking a shape, by having a visible plan, you open yourself to attack. Instead of taking a form for your enemy to grasp, keep yourself adaptable and on the move. Accept the fact the nothing is certain and no law is fixed. The best way to protect yourself is to be as fluid and formless as water, never bet on stability or lasting order. Everything changes.
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Postby admin » Tue Mar 07, 2006 10:31 pm

Coxe skewers Wall Street swindlers
Book blames 'shills, mountebanks' for stock bubble

Jonathan Chevreau
Financial Post

Saturday, June 07, 2003

Shills and mountebanks, beware -- after 31 years in the investment business, veteran investment strategist and columnist Don Coxe has published his first book.

Out this week, The New Reality of Wall Street [McGraw Hill, New York, 2003] is a highly literate recap of the events leading to the great U.S. stock market bubble which burst in 2000. It also offers investors a cogent strategy for enduring the aftermath that's still very much with us.

Coxe, 67, is chairman and chief strategist of Chicago-based Harris Investment Management, part of the Bank of Montreal. To describe those responsible for "the ethical lapse of the century," he coins the colourful phrase "shills and mountebanks." We'll shorten that to S&M henceforth, as Coxe does in the book.

"Shill" is a well known term investor advocate Joe Killoran uses to describe some investment seminar speakers. Technically, a "shill" is an accomplice posing at public events as an enthusiastic customer to entice potential buyers or gamblers. Shills may pose as apparently unbiased advocates while pushing an audience to a particular point of view, or a financial product in the case of seminar shills.

Mountebanks are outright swindlers or charlatans, and presumably pay the shills their soul-compromising stipends.

I had to consult the Oxford Dictionary for a precise definition of mountebank. It's derived from the Italian montambanco, which means "climb on bench." That's an historical reference to itinerant quacks who mounted platforms to pitch snake oil.

What galls Coxe is the S&M crowd largely got away with their dastardly deeds. He's disgusted by the slap on the wrist U.S. regulators gave them recently. Compared to the US$10-trillion of investor wealth wiped out, the US$1.4-billion in fines paid by Wall Street's major investment banks is chicken feed: essentially the cost of doing business.

"Never in the history of major stock markets were the rewards so skewed to insiders at the expense of outsiders," he writes.

In an interview, he says some Wall Street leaders "are clearly shameless," with many still employed.

"Mountebanks have more job security than any other occupation. They're paid obscene amounts of money and they behave obscenely."

He sees his book as a form of "j'accuse" and hopes it stimulates long overdue reform. Because he's not an academic but an industry practitioner, "it's hard for them to brush me aside ... The emperor really did have no clothes."

Comparing modern Wall Street to history's robber barons is unfair, he says, since the latter actually created wealth and industrial infrastructure. Instead, Wall Street forged an unholy alliance with Silicon Valley, enriching insiders with stock options at the expense of ordinary shareholders.
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Postby admin » Sun Mar 05, 2006 10:37 am

from FORBES Business Mag ... 3/111.html

Why Not?
When the Blind See Better
Ian Ayres & Barry Nalebuff, 02.13.06, 12:00 AM ET

Power To The People
Tech's Top Dealmakers
Norfolk Southern
Foreign Bailouts For U.S. Airlines?
GM: Its Death Is Exaggerated

The combined compensation for the heads of America's 500 biggest companies increased by 54% in 2004. Harvard professor Lucian Bebchuk's calculations show that the top five executives now collect 10% of the average big firm's net income, double the percentage a decade ago. This is a problem that affects not just morale but competitiveness.

It's devilishly difficult to figure out how much bosses should be paid. Pay too little and your company will not attract quality leadership. Pay too much and you shrink the bottom line.

We don't want Stalinist central planning. But this is an area where the invisible hand of the market works poorly. Executive compensation is determined by a compensation committee of the board. In practice, the committee subcontracts the work to a compensation consultant. Consultants only make matters worse. Although they are supposed to be independent, the reality is that they are more likely to be rehired when the chief executive is happy with the result. Every firm likes to think its boss, like the children of Lake Wobegon, is above average. Thus the compensation consultant is more likely than not to find that the client has an above-average performer in the corner office.

The problem is that when most firms pay an above-average wage, the average skyrockets. Even in a world where half of the firms think that the chairman deserves just the average but the other half pays more than the average, then average pay will explode. If this year's numbers are between $1 million and $3 million, and next year everyone gets at least the average, then the bottom half will all jump to $2 million, a 33% increase for the worst performers.

There is a solution to this mess. To increase the objectivity of compensation consultants, we should give them less information. The consultants should be hired blind. They would be independent because they wouldn't know which side of their bread was buttered.

The compensation committee would arrange for a law firm to hire the consultant without disclosing the client. The consultant would be given a list of ten firms in the industry. The consultant would be asked to rank the executives' performance and suggest salaries for each. Half the chief executives would be ranked in the bottom half and presumably would be paid accordingly.

Indeed, the Securities & Exchange Commission could mandate that compensation studies be made public. Shareholders might like to know if the other consultants consistently rank their chief executive below average.

Not that it would be any cause for alarm if half of publicly traded firms discovered that their chief executive officer falls in the bottom half. Remember the old joke about what they call the person who graduates at the bottom of the class at Harvard Medical School? The answer is "doctor."

Consultants will complain that they can't do their job without insider access to a firm. But that's a problem that biases the current system because they only get insider access to the client. Maybe the comparable bosses also look better the closer you look.

We know that blind evaluations work from our own experience. The late economist James Tobin convinced Yale to adopt this approach for evaluating professors. When Yale wants to hire a senior professor from a different university, we ask outside reviewers to rank a list of ten famous professors in the field. It may well be the case that some of the names are not interested in the job. But the reviewers don't know who is a live candidate and who isn't. It's hard to play favorites when the reviewer doesn't know who you are looking at.

We also grade exam papers with code numbers replacing students' names. Nowadays orchestra auditions take place with the player behind a screen. Blind auditions have miraculously increased the probability that women will be hired. Since the introduction of screened auditions in the early Eighties, the percentage of female players has increased fivefold in the top U.S. orchestras.

Just maybe, screened evaluations of chief executive officers could spur an analogous revolution in executive pay.

Labor economists Claudia Golden and Cecilia Rouse at Harvard and Princeton, respectively, have studied the effect of blind auditions on orchestras; their paper can be found by Googling "blind auditions." You can get a FORBES scorecard on executive pay versus performance by going to and clicking on Top-Earning CEOs.

Ian Ayres and Barry Nalebuff are professors at Yale Law School and Yale School of Management.
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Postby admin » Sat Mar 04, 2006 6:52 pm

In the continuing saga of Lord Conrad, the stories of interest keep coming out. I personally have nothing against this man, have never met him. I do, however find him a fascinating study in how ego and entitlement can apparently ruin a person.

Today's globe and mail resports that Lord Black is being sued by Sotheby's Auction for not paying them the commission of $557,000 owed to them on the sale of his Park Ave appartment.

I find the stories like this, along with the comments coming from the Enron trial underway quite telling. They indicate a strong tendency towards pathalogical behavior among some of the upper echelons of society. It seems that humans will say and do almost anything in order to get on top or to remain there.

Fascinating stuff.
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Postby admin » Sat Feb 18, 2006 12:46 pm

Ex-CEO calls executives overpaid, greedy
Zimmerman says banks are the 'princes'

Friday, October 28, 2005 Page B4

A decline in personal standards of morality and an increase in greedy executive compensation lie behind the corporate scandals that have emerged in recent years, according to one of the most outspoken members of Canada's corporate elite.
Adam Zimmerman, retired CEO of Noranda Forest Inc. and a former director on numerous major Canadian boards, told a business audience in Toronto yesterday that he is "anguished" by the excessive levels of compensation he sees today, citing a recent example of Citigroup chairman Sanford Weill, who earned a total of almost $1-billion over the past decade.

"These huge remuneration schemes are the root cause of all that is going wrong in the world," Mr. Zimmerman said in a speech to the Toronto CFA Society.

Mr. Zimmerman says boards are under a misperception that they have to reward their CEOs excessively because they are the only people qualified to run their companies.

"It's a real false belief there's only one guy who can run any one of these big companies. There are a lot of good people out there."

Mr. Zimmerman said he blames disclosure rules that require companies to reveal the compensation of their top executives, saying they caused executives to begin competing for higher salaries. He said the major banks are the "princes" of the compensation world, and other companies have followed them.

"The end of it is that it's not at all indecent to produce any amount of money provided the company has the cash," he said.

Mr. Zimmerman suggested executives should be required to also disclose their charitable donations, and said CEO pay should be put into perspective with the salaries of normal employees at their companies.

"Were it not that they do it within the law, I would think executives are stealing money," he said.

Mr. Zimmerman said many recent corporate governance initiatives are little more than an attempt to create systems to control human nature, which is difficult to do. Many new standards are based on the simple idea that honesty is the best policy, he said.

"There was a time when individual ethics governed behaviour . . . There was trust and honour. Business, however, has become much more complicated . . . Personal morality has been bent out of shape, and every company thinks it's unique."

Also yesterday, securities lawyer and corporate director Peter Dey told the CFA Society that most complaints he hears about corporate governance going too far are based on concerns that directors have a limited amount of time and are wasting it on due diligence and technical compliance issues.

He said governance hasn't gone too far, but boards haven't done enough to find more efficient processes to free up time to focus on their main task. He said part of good governance is finding ways to resolve this dilemma.

He added that many new governance requirements demand a great deal of time as new systems are being created, but much less once they are in place.

"It's very important to have fun as a director. And the most fun as a director is not receiving legal advice . . . The most fun as a director is understanding a company's strategy and being able to contribute to the development of the strategy."
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Postby admin » Sat Feb 18, 2006 12:44 pm

SEC puts spotlight on executive pay

Diane Francis
Financial Post

Saturday, February 18, 2006

NEW YORK CITY - The Securities & Exchange Commission is circulating for comment tougher rules to crack down on excessive executive compensation. Among reforms will be the requirement that companies disclose on one page in plain English the complete tally sheet paid to their top brass.

"The rules are about wage clarity and not wage controls ... and not to impose salary caps," SEC's new chairman Christopher Cox told newspapers when the rules were announced.

Reviews have been mixed but predictable. Wall Streeters, corporate law firms and Republicans have complained about the imposition of more red tape.

But investors, money managers and pension funds have been clamouring for years to arrest the greed that has gripped executive suites and that continues despite scandals.

But even defenders of the status quo had to be shocked by a recent, "eye popping" study by Harvard Law School Professor Lucien Bebchuk. In 2003, he said the top five executives in all public companies received a collective compensation which was equivalent to 10% of their companies' combined profits.

That magnitude of profit skimming should worry free enterprisers as well as investors.

It should also worry the Ontario Securities Commission which must adopt these draconian new rules.

The SEC is circulating its 370-page policy proposal for comments and plans to impose them in time for the 2007 proxy season.

Highlights include more true independence and more professionalism when making decisions on the part of corporate compensation committee members.

Cronies are often embedded in these committees and approve piecemeal perks, which, under these rules, will have to be fully disclosed every year in total.

Disclosure will extend from salary, bonuses and stock options profits to retirement bonuses, pension entitlements, other incentives, discharge packages and other perquisites.

Regulators hope to zero in on the two most egregious, hidden benefits:

- Entertainment budgets. There's abuse here and the public would be shocked at the amounts involved.

- Use of private jets. It's an open secret that executives give "free rides" to friends and family. This is justified, by executives, on the basis that the plane was flying from A to B anyway with empty seats. But that's unacceptable.

And even when compensation is paid, it's inadequate. They usually reimburse the company the equivalent of a first-class ticket. But a chartered round trip on a four-seat jet between Toronto and Miami would cost at least US$25,000. First-class tickets for four return would cost a fraction of that.

Which brings up another point. Securities regulators are not the only persons who should be weighing in on this. The Internal Revenue Service and Canada Revenue Agency should require corporations to disclose entertainment and jet perks because they are "taxable" benefits to executives that aren't being taxed.

Executives using jets for any personal use should pay the full cost -- or, at the very least, be taxed on the difference between what they defray and the true cost to the corporation.

One New York money manager, who asked to remain anonymous said in an interview jets determine his investing choices: "When a public company gets a corporate jet for the CEO I consider it a sell."

The call for a crackdown has increased along with the amount of greed. A recent study showed that median executive compensation among the Standard & Poor's 500 increased from US$2-million in 1993 to US$6.6-million in 2003, according to accounting professors from Wharton University in Pennsylvania and Vanderbilt University in Tennessee.

Watchdog organization, the Corporate Library in Portland Me., said executive compensation increased 15% in 2003 and 30% in 2004 or "about 10 times the inflation rate."

Besides full disclosure, the SEC is cracking down on the cronyism rampant in compensation committees. Some expect these committees will be shaken up as much as Sarbanes-Oxley has shaken up audit committees.

These links, between cronies on boards and compensation, is the root of the problem. In a 2005 study by Wharton accounting professors called Back Door Links between Directors and Executive Compensation, the issue was quantified.

A total of 22,074 directors working at 3,114 companies were asked about their business or social associations. Where associated, executives reaped an average of US$450,000 more per year from their boards.

"Directors who serve on multiple boards may look like outsiders, but they are not really outsiders and may indulge in mutual back scratching," said Scott Richardson, Wharton Accounting professor.

Canadian regulators should also crack down on cronyism and hidden compensation in step with the SEC's reforms in order to protect the market's integrity north of the border too.

© National Post 2006

(advocate asks of some of these corporate exec's who have figured the system well enough to pay themselves over ten percent of the "take" at some companies............are they serving the corporation, or are they serving themselves by "preying" on the corporation? Is there a possible failure of fiduciary duty to ones employer in some of these cases? It is an interesting possible discussion point)
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Postby admin » Thu Feb 09, 2006 2:07 pm

Nortel has agreed to settle the Class Action lawsuit. This will distribute some reimbursement to some investors burned by the Nortel debacle. The recovery for individual investors is expected to be minimal and anyone who has suffered significant loss is unlikely to gain satisfactory restitution. Investors with significant loss would probably be better with individual lawsuits.

For others who have no alternative hope for recovery, the Class Action solution may provide some compensation if you qualify. Therefore if you have been effected by Nortel's share value collapse you may wish to contact the legal firms participating in the class action.

A press release from a year ago is appended and it includes contact information.

If only we could make the executives and accountants who are responsible for this devastating debacle to pay the price rather than having current shareholders pay for past sins of Nortel while the looters of the company have gone with the gold.

Stan I. Buell
Small Investor Protection Association
P.O.Box 325, Markham, ON, L3P 3J8
Tel: 905-471-2911
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Postby admin » Tue Feb 07, 2006 6:12 pm

The Daily Show with Jon Stewart Newsletter #682 Tuesday, February 7, 2006 ... ndex.jhtml

============== "Daily" Quote ==============

Jon on the Enron trial:
"The trial of Enron chiefs Jeffrey Skilling and Ken Lay began four-and-a-half years after perpetrating -- allegedly -- the fraud that led to the second largest bankruptcy in American history. Why four-and-a-half years? Because apparently it's harder to bring Ken Lay to trial than it is to invade two countries."

(here in Canada, we cannot invade countries (fortunately) and we do not prosecute our white collar criminals)
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Postby admin » Mon Jan 30, 2006 11:22 pm

The Times November 11, 2002

Snakes in suits and how to spot them
By Giles Whittell
Cold-blooded, remorseless egomaniacs in the boardroom are a hidden threat to your job, your savings and your investments. But our correspondent says the good news is that a new psychological test can flush them out

HERE ARE SOME facts: Andrew Fastow, formerly of Enron, stands accused by an American court of taking $30 million (£20 million) in kickbacks from the company while its shareholders lost more than $70 billion. Bernie Ebbers, formerly of WorldCom, is said to have arranged for his telecommunications firm to lend him $408 million as it slid towards bankruptcy. John Rigas, founder of the Adelphia cable TV giant, built himself a $13 million private golf course and, it is claimed, “borrowed” more than $3 billion from company accounts for his family while his shareholders saw $60 billion wiped from their investments. And here is a perfectly sober conclusion: if guilty, they are all psychopaths. Not killers. Not rapists. Not necessarily even criminals. Just cold-blooded, remorseless, egomaniacal psychopaths.

It’s a tricky word. Being a psychopath is not something that ordinary people aspire to, but neither does it have to involve face-eating cannibalism (Hannibal Lecter probably wasn’t a psychopath at all). The central qualification is to show no conscience; to fail to empathise.

Fastow, Rigas and the other stars of the great corporate meltdown showed little sign of conscience before — or since — being accused by the lumbering US court system, and they share other symptoms of psychopathy. They radiated charisma and authority, but hid much about themselves and their organisations. They revelled in risk, took no account of its potential cost to others or themselves, and rose to power during a time of chaos and upheaval.

When their worlds imploded, the markets staggered in disbelief. Hundreds of thousands of employees and investors lost pensions, savings and money they could ill-afford to have gambled. The bosses expressed scant regret and most of them continue to insist that they have done nothing wrong. Meanwhile, regulators, FBI agents and forensic psychologists, not to mention the fleeced American middle class, continue to scratch their heads and wonder how these apparent shysters got to where they did.

A diffident-sounding Canadian academic with a trim grey beard has an answer; possibly the answer. He first voiced it publicly to an audience of Canadian police officers in Newfoundland in August. At the end of a talk on organised crime, Dr Robert Hare mentioned his belief that some of the year’s worst accounting scandals could have been avoided if all chief executives were screened for psychopathic tendencies. He was quoted everywhere, not so much because of the sensational implication that some of America’s best-known companies had been run for most of the 1990s by people with a major mental disorder, as because of who he is.

Hare defined psychopathy for modern scientists with an exhaustive questionnaire, sold only to clinicians, called the Psychopathy Checklist, or PCL-R. It was introduced in 1980 and has become an internationally recognised instrument for identifying psychopaths. It means that when a subject scores 30 (out of a possible 40) in a prison in Dundee, an expert in Detroit will have a good idea of his proclivities. That’s the good news. The bad news is that the PCL-R revealed that psychopaths are everywhere. Most are non-violent, but all leave a trail of havoc through their families and work environments, using and abusing colleagues and loved ones, endlessly manipulating others, constantly reinventing themselves. Hare puts the average North American incidence of psychopathy at 1 per cent of the population, but the damage they inflict on society is out of all proportion to their numbers, not least because they gravitate to high-profile professions that offer the promise of control over others, such as law, politics, business management ... and journalism.

By the Hare definition there are 300,000 in Canada alone. There are at least as many in Britain— easily enough for you to know one; indeed, enough for you (3,500 of The Times’ 700,000 buyers) to be one.

Despite this, spotting psychopaths is hard, though it may be about to get easier. Next year Hare and a New York-based colleague, Dr Paul Babiak, will publish a book called Snakes in Suits: When Psychopaths Go To Work, that will at least alert the average office worker to the possibility that her amusing but exasperating — and, frankly, narcissistic and untrustworthy — colleague may be clinically psychopathic. Hare and Babiak will also produce a new diagnostic tool based on the PCL-R but designed to help businesses to keep their recruits and senior management psychopath-free.

Enter the B-Scan. It won’t be available to everyone, and it won’t be free. Slightly jarringly, one is reminded that its authors are businessmen as well as academics. But they insist that it will do a better job of raising warning flags than traditional screening techniques such as CVs (routinely falsified and seldom checked) and interviews and role-playing (“Psychopaths love this stuff,” Hare says. “It’s like a game to them.”).

If you are B-Scanned, it won’t be you answering the questions. It will be your colleagues, grading your personal style, interpersonal relations, organisational maturity and antisocial tendencies according to 16 buzz words, none of them uplifting. They include the following: insincere, arrogant, insensitive, remorseless, shallow, impatient, erratic, unreliable, unfocused, parasitic, dramatic, unethical and bullying.

Yikes. Who isn’t most of these things, at least some of the time?

I meet Dr Hare in a London hotel and find him used to such anxieties. “I know, I know,” he says. “People read this stuff and suddenly everyone around them is a psychopath. They pick up on three or four of the characteristics and say ‘yeah, he’s one’. But it’s not like that. It’s a medical syndrome. You’ve got to have the whole package.”

And when you do, what does it look like? Hare gives an example, and not just any example. He first gave it to Nicole Kidman in a private meeting requested by her to help her prepare for her memorably chilly role in Malice.

“I gave her a scene,” he says. “You’re walking down the street and there’s been an accident. A child has been hit by a car and is lying on the ground. There’s a crowd around him. The mother’s kneeling down there crying and emoting. You’re curious but not appalled. You look at the child momentarily and then you look at the mother. You walk towards her, step in some blood and then study the mother’s facial expressions for a minute or two. Then you walk back to your apartment or hotel room, walk into the bathroom and stand in front of the mirror practising those expressions. I said, ‘If you did that, people would see that you don’t understand emotion, you have no idea at all, you’re a colour-blind person trying to explain colour’. They didn’t use the scene, but they could have.”

In the workplace such a person might resemble “Dave”, a real individual studied by Babiak who cut a swath of disruption through a highly profitable American electronics company in the mid-1990s. Dave was good-looking, wellspoken and impressive in the interview that led to his recruitment. He was also a skilled and shameless liar, rude to subordinates, scheming towards his boss and quickly friendly with the firm’s top management. Already on his third marriage by his mid-thirties, he was shorttempered, happy to ignore assignments that he felt were beneath him, and quick to change the subject if challenged on a lie or asked to produce some real evidence of work.

When his boss summoned the courage and evidence to make a complaint to the company president, he found that Dave had got there first and secured for himself the status of “high-potential employee”.

The boss ended up sidelined. Dave ended up promoted, swaggering and “in love with himself”. He scored 19 on the PCL-R, lower than you would expect for a psychopathic murderer but much higher than your average working non-psychopath. He or she would score a 5 at most.

People such as Dave can be spotted early. Babiak recommends checking CVs exhaustively and auditing expenses — psychopaths like to indulge. It all seems obvious, but for the past 10 or 12 years, for most of corporate America, it hasn’t been. These have been tumultuous years in the world of business, with dot-coms booming and collapsing, older firms merging or shrinking to catch up, and hierarchies everywhere flattening faster than the boss can say: “Hey, c’mon in, my door is always open.” In short, it has been a high old time for psychopaths.

“When you see what has happened with Enron and WorldCom and all these other big corporations, and you ask how the hell could this guy get in that position, well, there are answers,” Hare says. “When the structure’s not there, when charisma is extremely important and style wins over substance, and one person ends up with three or four hundred million pounds in an offshore bank account, I start to get suspicious. And when the whole thing breaks and people are losing their pensions and livelihoods, these people give nothing back.

“Many of the high-level executives now being charged knew exactly what they were doing. They had no concern for anybody else, and you have to say they aren’t warm, loving guys.”

Likewise in politics. “Think what happened in the former Soviet Union and the former Yugoslavia. The old rules went by the board. Structure vanished and all the ethnic tension that had been held in check by central government began to emerge. It was the perfect set-up for an opportunist, a thug or a psychopath to enter and take over.”

That takeover usually has three stages. First, the psychopath identifies those who can help him and cultivates them with all his considerable charm. Then he pinpoints those who can harm him and outflanks them or stabs them in the back. Finally he makes a sycophantic but ultimately devastating beeline towards the source of power (one thinks of Hitler and Hindenburg, but also of the irrepressible Eve Harrington in All About Eve).

Psychopaths necessarily have victims, and Hare’s drive to expose the “subcriminal” ones in our midst is at least partly personal. He speaks of an old college friend, now gravely ill, who lost $500,000 in a mortgage scam to a white-collar crook who got off with a $100,000 fine and a six-month trading ban. Society still labels such people rogues at worst. Hare calls them natural- born predators.

There is a difficulty approaching all this from outside academe: it can seem as if the experts are using jargon to force a thousand shades of grey — for there are surely at least that many degrees of psychopathy — into convenient boxes for personnel managers, employment tribunals and courts.

Babiak certainly counsels caution. Being psychopathic is not a sin, let alone a ground on its own for dismissal. But underpinning the PCL-R is hard science, hard to ignore. Before he published it, Hare performed two now-famous studies which suggest that psychopaths really are different from the rest of us. In the first, subjects were told to watch a timer counting down to zero, at which point they felt a harmless but painful electric shock. Non-psychopaths showed mounting anxiety and fear. Psychopaths didn’t even sweat.

In the second, the two groups had their brain activity and response time measured when asked to react to groups of letters, some forming words, some not. Words such as “rape” and “cancer” triggered mental jolts in nonpsychopaths. In psychopaths they triggered precisely nothing.

That research is decades old now. The man behind it, instead of retiring, tours the world helping to nail the psychopaths among us and trying to make sure that his instruments are not misused. Part of his mission is to stay serious. He won’t appear on Oprah, and he won’t name names. Instead, when he sees someone in the news he thinks might be a psychopath, he says: “I’d sure as hell like to study this guy.”

“Have you heard of Jeffrey Archer?” I ask.


“Is he a psychopath?”

“No comment. But it would be interesting to take a closer look.” ... 77,00.html
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Postby admin » Mon Jan 30, 2006 11:15 pm

Spotting psychopaths at work

On the way to work. But who will they find there?
How do you spot the psychopath among your work colleagues?
Professor Robert Hare, of the University of British Columbia, is a world expert on the "snakes in suits" who scale corporate ladders with consummate ease.

He delivered a public lecture on psychopaths at work in Belfast on Wednesday, in the run-up to a two-day conference organised by the British Psychological Society (BPS).

"Corporate psychopaths" use arrogance and superficial charm to scale the top of the ladder, knocking off whoever gets in their way, Prof Hare explained.

They see the world as one large watering hole. Their resources are sex, power and money

Professor Robert Hare

"White collar psychopaths will defraud people of their life savings, then quite happily go to the Mediterranean, have a villa and never give it a thought."

He estimates that one in 100 people in North America are psychopaths. You do not have to be Hannibal Lecter to fit into the profile.

"People might say he or she is charismatic, high profile or 'gets things done'. We have a whole series of euphemisms for the individual who may be self centred, grandiose, lacking in empathy and does not give a damn about everybody else," he added.


"Think of Robert Maxwell who destroyed thousands of lives," he said.

Such people are social predators who do not get bothered by ordinary social anxieties. They are self serving individuals, he explained.

Their only concern is food. They see the world as one large watering hole. Their resources are sex, power and money.

With New York psychologist Dr Paul Babiak, Prof Hare has developed a new 107-point questionnaire to identify which desks those smooth-talking "snakes in suits" might be hiding behind.

The "B-Scan", which stands for Business Scan, was designed by them.

It follows on from the "P-Scan" which is now considered to be the standard test for detecting criminals with psychopathic leanings.

The test involves interviewing people working with the person concerned to get a so-called 360 degree assessment of their personality.

The two experts' book, Snakes in Suits: When Psychopaths go to Work, is currently with the publisher and should be finished by the end of this year.

The two-day Belfast conference was organised by the NI branch of the BPS. Its theme is: Protecting the Public - The Assessment and Management of Dangerous Offenders.
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Postby admin » Sun Jan 29, 2006 11:36 pm


January 29, 2006
'The Battle for the Soul of Capitalism,' by John C. Bogle
Mistrust Funds
If anyone still harbors the fantasy that the business scandals of the past few years were the handiwork of just a few bad apples, they should read John C. Bogle's "Battle for the Soul of Capitalism."

Christoph Niemann

By John C. Bogle.
260 pp. Yale University Press. $25.
Bogle has been a Wall Street insider for 50 years, the founder and long the chief executive of Vanguard in Philadelphia, one of the three or four largest mutual fund management groups in the nation. At Vanguard, he refused to charge the high annual fees that his competitors did. He was also among the first to offer investors index funds, at a time when most mutual fund managers were still claiming they could easily beat the market averages. (Index funds essentially duplicate the market averages, and have typically outperformed most of the pros over time.)

In this book, Bogle abhors what he sees as rampant cheating among his peers - not only mutual fund managers but brokers, bankers, lawyers and accountants. It's not just a few bad apples, he says: "I believe that the barrel itself - the very structure that holds all those apples - is bad."

Consider Jack Grubman. He may have been the best paid of the analysts who made fortunes partly if not largely based on conflicts of interest. But he was not alone.

Grubman earned $20 million in a single year in part by urging brokerage customers to buy the stocks of the corporations that his parent company, Citigroup, had as investment banking clients. When Attorney General Eliot Spitzer of New York State charged a wide swath of investment banks with similar conflicts of interest, however, 8 of the 10 largest companies on Wall Street decided they had better settle the suit. Goldman Sachs, Morgan Stanley and Merrill Lynch, among others, gave back profits and paid penalties of $1.4 billion, and altered the inherent conflicts in their managerial policies as well.

Nor was it only a handful of notorious companies like Enron and WorldCom that, under the tutelage of the most prestigious lawyers, bankers and accountants in the business, overstated their profits. Bogle totes up about 60 major corporations that had to restate their earnings - and this was not an inclusive list. Their stock market value equaled $3 trillion. That is "an enormous part of the giant barrel of corporate capitalism," he writes.

Or take the mutual fund industry, which Bogle knows best and which angers him most. Leaders boasted how clean they were compared with their colleagues at the investment banks and brokerage firms. But the relentless Spitzer found that dozens of them were rewarding good customers with secret and highly lucrative trading favors. As for executive stock options, which tied compensation to the company's stock price and made so many businessmen extraordinarily rich, they encouraged managers to manipulate short-term earnings to prop up stock prices.

Many people are still reluctant to concede that abuse was so widespread, since what they fear most is an assault by government in the form of tougher regulations. Unsurprisingly, loud complaints are now being lodged by influential lobbyists in Washington about the Sarbanes-Oxley Act of 2002, the only serious measure passed in the wake of the scandals to control business excess. And the tough-minded chairman of the Securites and Exchange Commission, William Donaldson, recently stepped down in the face of opposition from the White House and business interests.

Unfortunately, Bogle is less good at telling us how to fix the problems than he is at telling us what went wrong. He wants to believe that if we put the owners - that is, the shareholders - back in charge, most of the fraud, deceit and greed would dissipate like the morning mist.

Genuine shareholder democracy, he argues, would require chief executives to worry about the long-term health of the company, not the short-term fluctuations of stock prices. They would be far less tempted to manipulate earnings. In particular, if shareholders had appropriate voting power, the abuses associated with executive stock options could be reduced. Because shareholders do not have adequate voting rights, Bogle says, reform continues to be stymied.

But are shareholders inherently more ethical than corporate managers? Did they complain about "short-termism" when stock prices were at their heights in the late 1990's, or only after their stunning fall? Wouldn't they tolerate a little manipulation for a higher stock price?

It seems as if Bogle prefers to avoid the more obvious issue: that government looked the other way. Bogle acknowledges this lack of effective regulation, but he considers it a side issue.

The fact is that Washington has relaxed financial regulations under both Democratic and Republican administrations, opening the doors to conflicts of interest between brokers and investment bankers. In 1998, government, despite concerns, refused to separate consulting and auditing business. Although the hedge fund Long-Term Capital Management nearly pushed the world's financial markets over the brink that same year, the government demanded no further disclosure of the well-concealed financing of the industry.

But the open and honest flow of information is the only true check on the manipulation of the markets. Government regulation and independent scrutiny are critical to the process. Such regulation is a public good, like education and the highway system. If it requires a little expense on the part of business now, it will make them more money in the long run.

Bogle should have pushed his fine analytical ability and strong moral sense farther. Still, we should be grateful that an insider like him is willing to elucidate the often murky and apparently deceptive workings of the Street. John Bogle has been making Wall Street a better place for decades. His book is yet another important contribution in an illustrious career.

Jeff Madrick is the editor of Challenge magazine and teaches at Cooper Union and The New School. His most recent book is "Why Economies Grow."

(advocate comments.........with no equivalent to Eliot Spitzer in Canada my opinion is that Canada is effectively "unregulated" when compared to the United States. It is truly a wild west as Bank Of Canada Governor Dodge has stated)
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Postby admin » Fri Jan 27, 2006 5:09 pm

FEBRUARY 6, 2006


White-Collar Crime: Who Does Time?
Corporate criminals are punished more harshly today than in the '80s,
but hands-off executives may still face better odds

Does corporate crime pay? The record can seem pretty arbitrary. Tyco International Ltd.'s (TYC ) L. Dennis Kozlowski and WorldCom Inc.'s Bernie Ebbers got hammered for their misdeeds. But plenty of other corporate and financial titans at companies engaged in chicanery have come away only mildly bruised. Michael Milken, the embodiment of an earlier generation of scandals, served less than two years and left prison in 1992 with a fortune of roughly $500 million. Banker Frank Quattrone, a key figure in the more recent brouhaha over allocation of initial public offerings, faces 18 months and will keep much of the $200 million he made in the late 1990s.

Some beat the rap altogether. HealthSouth Corp.'s (HLSH ) Richard M. Scrushy, acquitted of charges he directed a $2.7 billion fraud, remains one of the largest shareholders of the chain of rehabilitation centers. A host of others at scandal-wracked companies, such as Global Crossing Ltd. (GLBC ) founder Gary Winnick, pocketed millions from stock sales and faced no criminal or civil charges at all.

As haphazard as these outcomes may appear, there are rules of thumb to keep in mind as the trial of Enron Corp.'s Kenneth L. Lay and Jeffrey K. Skilling gets under way in Houston. Here are a few:

MORE PUNISHING TIMES Generally speaking, convicted corporate figures get punished more harshly today than they did in the late '80s and early '90s. Milken, now-defunct Drexel Burnham Lambert's king of high-interest "junk" bonds, pleaded guilty to conspiracy and securities fraud in 1990 in exchange for a 10-year sentence, later reduced to 22 months for good behavior and cooperation with prosecutors. A defendant of his notoriety would not get off as lightly today, according to veteran prosecutors.

Federal sentencing guidelines, which weren't in effect when Milken's crimes took place, have ratcheted up the penalties for white-collar offenders, particularly where huge shareholder losses are involved. Attitudes have also changed. Public outrage over Milken's stock-manipulation schemes was relatively muted because the victims were primarily companies and faceless institutional investors. By the late 1990s, however, roughly half of American households had piled into the stock market, according to the Investment Company Institute, many through retirement plans. When the bubble burst in 2000, legions saw their brokerage accounts and 401(k) balances dip sharply. As it became clear that fraud lay behind some of the biggest corporate collapses, a large constituency demanded severe consequences, says Ira Lee Sorkin, a former prosecutor and official with the Securities & Exchange Commission now in private practice. "Middle America lost a lot of money, which has led to cries for tougher enforcement to put the scoundrels away," he says.

Financial penalties have become stiffer, too. Convicted in July of orchestrating the $11 billion accounting fraud at WorldCom, onetime billionaire Ebbers has little left to his name after settling with regulators, shareholders, and his former company. Adelphia Communications Corp. (ADELO ) founder and ex-CEO John J. Rigas, who received a 15-year sentence on fraud and conspiracy charges related to the looting of the cable-TV provider, faces a similar financial fate. He is appealing.

GREED ISN'T A CRIME Many companies played accounting games during the 1990s boom. But neither greed, dubious bookkeeping, nor suspiciously timed trading are necessarily criminal. Prosecutors must demonstrate not only that an action violated a specific law but also that the executive intentionally committed the bad act. "The evidence is very rarely black and white, and the law is often amorphous," says Steven R. Peikin, a former federal prosecutor now in private practice.

Ebbers and Winnick played similar roles as evangelists of the telecom boom, and both racked up huge stock gains before their companies crumpled. But while Ebbers will likely report to federal prison in Yazoo City, Miss., if he loses his appeal, Winnick hasn't been charged with a crime. The difference: The scam at WorldCom -- pretending that everyday expenses were capital investments, which artificially boosted earnings -- unmistakably violated accounting standards and securities law. Global Crossing did swaps of fiber-optic network capacity that made it look stronger financially than it was. But the swaps weren't clearly illegal.

Winnick had another big advantage: Unlike Ebbers, he wasn't his company's chief executive. As co-chairman of Global Crossing's board, Winnick persuaded investigators that he wasn't personally enmeshed in the company's problems. Enron's Lay, who served as both chairman and CEO at various times, is expected to attempt a similar defense.

Quattrone, a star banker at Credit Suisse First Boston (CSR ), helped dole out hot IPO shares to favored clients and supervised analysts who allegedly boosted wobbly Internet companies. But these practices, distasteful as they are to many, didn't lead to charges because they didn't violate any law. He was convicted of obstructing justice and witness tampering for suggesting, after learning of a grand jury probe, that workers tidy up their e-mail. He is appealing.

DEAL OR ROLL THE DICE Some of the hit-or-miss feel of white-collar justice stems from the defendant's dicey choice of pleading vs. facing a jury. Given the difficulties of proving complex frauds, prosecutors typically try to strike deals with midlevel executives to build cases against the top bosses. The difference in sentencing can be huge. Compare the five years WorldCom CFO Scott D. Sullivan got for helping prosecutors nail his boss with the 25 that Ebbers might serve.

But juries can exonerate as well as convict. Last summer, Scrushy fended off charges that he was at the center of the accounting fraud that permeated HealthSouth. Prosecutors thought they had a strong case, based on testimony from five former HealthSouth chief financial officers, who all pleaded guilty and implicated Scrushy. But his team poked holes in their testimony, and he played his hometown advantage shrewdly. He drew visible support from black pastors in Birmingham, whose presence as courtroom spectators may have impressed some members of the predominantly black jury. "The world may have thought he'd be convicted, as they now think Ken Lay and Jeff Skilling will be," says Robert Morvillo, a New York defense lawyer. "But trials take on a life of their own."

By Jane Sasseen, with David Polek
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Postby admin » Fri Jan 20, 2006 11:48 pm

Grey Matter: an investment adviser's mental illness unleashes big trouble
Matthew McClearn

Robert Frost, the American poet, once observed that the brain is a wonderful organ. "It starts working the moment you get up in the morning," he said, "and doesn't stop until you get into the office." That was not the case, however, for former Vancouver investment adviser John Frederick Pryde. The functioning of his mind on the job--or, rather, its malfunctioning due to mental illness--may have cost his employer more than $10 million.

Canaccord Capital Corp. is today one of Canada's largest independent investment dealers. During the 1990s, as part of an ambitious growth-by-acquisition strategy, the Vancouver-based independent investment dealer swallowed half a dozen smaller Canadian brokerages, among them Vancouver's Brink Hudson & Lefever Ltd., which it purchased in 1998. The brokerage industry relies heavily on the performance of individual advisers; what Canaccord really bought was a collection of people, each of whom had his or her own strengths and idiosyncrasies.

One of those people was Pryde, an employee who'd joined Brink three years earlier. On the surface, he seemed a fine asset. He was regarded as successful, intelligent and hard-working. He seemed to know a lot about small-cap stocks. And he appeared to perform admirably, bringing in impressive revenues for the firm while ostensibly keeping clients happy. By the time of the acquisition, however, Pryde was already off the rails. He later admitted that, by then, he'd already conducted more than 400 unauthorized discretionary trades in the accounts of 14 clients.

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In other words, Pryde was executing transactions without explicit consent. Discretionary trading can mean something as simple as a broker attempting to sell a plummeting stock to avoid losses for a client who's hiking in the Peruvian Andes; alternatively, some advisers have been known to trade without permission in order to generate commissions for themselves at their clients' expense. (The latter practice is commonly known as "churning.") Sometimes clients informally acquiesce to unauthorized trading. In any case, the practice is against industry rules, unless the broker has explicit permission to trade on behalf of a client--both from the client and from his or her brokerage.

Pryde continued behaving recklessly at his new employer. In the three years following the Brink acquisition, he executed more unauthorized discretionary trades--in several hundred client accounts. Though few details are publicly available, it seems Pryde fell in love with a small number of small-cap stocks. In early 2001, he converted five client cash accounts into margin accounts, also without notifying the clients or receiving their consent. (Cash accounts are subject to specific rules that can be circumvented, albeit improperly, by converting them into margin accounts.)

Why was Pryde doing these things? One factor may have been that he suffered from bipolar disorder, also known as manic depression. Health Canada says about 1% of the population will experience it during their lifetime. Fortunately, it's treatable. But according to the Toronto-based Centre for Addiction and Mental Health, sufferers typically experience dramatic mood swings--and, when manic, they "may take part in risky and unusual activities...or get in trouble with the law. They may also feel invincible or all-powerful." As well, they may spend freely and acquire debt. Those are not ideal qualities in an investment adviser.

Pryde would later admit to enforcement officials at the Investment Dealers Association of Canada that through it all, he knew "due to his state of mental health...he posed a significant threat of loss to his clients." Between 1998 and 2000, manic episodes caused him to be hospitalized twice. Even then, he continued to place trade orders.

Somehow, Pryde's infractions went undiscovered for years. For one thing, Canaccord says it received no customer complaints. Another possible reason was that following its acquisition of Brink, Canaccord failed to integrate the firm quickly; the Brink office remained in a separate building and its compliance apparatus remained in place and largely unchanged. What's more, Canaccord says that Pryde hid his malfeasance well. "From what I understand, John Pryde was a very intelligent man," says Canaccord spokesman Anthony Ostler. "When he received client complaints, he managed to satisfy his clients' issues, and so they never came to the attention of branch management." (An IDA hearing panel, however, stated that Pryde made no effort to conceal his activity.)

At long last, in 2001, client allegations surfaced against Pryde. Canaccord suspended him in May of that year, and commenced an investigation. Alleging discretionary trading, unsuitable investments and conduct unbecoming, it fired Pryde one month later. The IDA immediately commenced its own investigation.

Mental illness is often said to come at significant personal and financial cost. For Canaccord this proved abundantly accurate. The company voluntarily settled with a majority of Pryde's clients, reportedly at a cost of at least $9.7 million. "No hardball was played here," says Ostler. "Canaccord was embarrassed by this. To the best of my knowledge, there have been few, if any, voluntary settlements of this magnitude in our industry."

The brokerage firm didn't settle with everyone, however; it saw several cases as materially different from the rest. According to Canaccord, six former clients sued Canaccord and Pryde in the Supreme Court of British Columbia. Collectively, those lawsuits seek $2.2 million in damages, plus other damages "that have not been quantified," according to Canaccord's latest annual report.

One plaintiff is Dale Johannesen. He alleges that in July 2000, and unbeknownst to him, Pryde began buying and selling shares in six small-cap companies, including Dexton Technologies Corp., Voxcom Inc., CST Coldswitch Technologies, Polymer Solutions Inc., ESI Environmental Sensors Inc., and the ironically named Illusion Systems Inc.--stocks that, Johannesen claims, Pryde personally held large positions in. The trading created misleading prices and trading volume in those securities, Johannesen further alleges. "In or about April 2001, Pryde could no longer support and continue the market manipulation," Johannesen's statement of claim reads. "Consequently, the prices of the manipulated securities fell." Lawsuits from other Pryde clients make similar allegations, none proven in court.

(advocate comments........the problem I have with the above story is not that humans exist in the investment business, and are subject to human failings. The problem I have is that his abnormal and excessive trading of clients accounts probably generated enough (millions) in commissions for himself and his firm that they were probably willing to look the other way for far too long. In fact, I can look back at so many cases like this in the investment industry where traders like this are viewed as "rainmakers" at certain firms, and given trips, perks, and phony titles like "vice president".)

(side note: if your investment salesperson has "vice president" proudly displayed on his or her business card, it is not because they are invited to the upper towers, but because they have "contributed" to the upper towers. Run.)

extra side note: if your investment salesperson has the word "advisor" on his or her business card, then hold them to the standards of a fiduciary (your interests must come first) and loudly ask for your money back on any transaction where your interest can be demonstrated to have not come first..........DSC funds in your acccount, heavy reliance on firms own proprietary funds, unsuitable investments that lose money etc., etc.

You will be fought every step of the way, beaten battered and bruised by an industry that will take steps to avoid being responsible for this legal duty to care properly for clients (kind of like they promise.........), but one of you WILL win this argument, and millions will follow. I believe it to be a matter only of when.
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Postby admin » Thu Dec 29, 2005 7:03 pm


Calgary Herald Thursday, December 29, 2005

Associated Press

HealthSouth Corp accused ousted CEO Richard Scrushy of trying to "pillage" the company of more than $100 million US in court papers filed Wednesday and said he isn't due anything for his firing.
Responding to a state court suit filed earlier this month by Scrushy, the Birmingham-based rehabilitation chain said in a counterclaim that Scrushy was directly responsible for a massive earnings overstatement that nearly drove it to ruin.
A jury acquitted Scrushy of criminal charges earlier this year. Scrushy claimed he was duped by top aides and middle managers who pleaded guilty in the fraud.
But in a court document, HealthSouth argued that Scrushy hatched the plot to make it appear HealthSouth was meeting Wall Street estimates, then "profited hugely" by selling more than $200 million in HealthSouth shares and drawing millions more in salary, bonuses and options.
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Postby admin » Wed Dec 28, 2005 10:24 pm

Corporate Mandate
¤ 2005-03-03
The ubiquitous bumpf about putting clients first...

By: John De Goey

Corporate Mandate
I just finished reading Joel Bakan’s book “The Corporation”, which I received as a Christmas present. As a UBC corporate law professor, Bakan’s basic thesis is that since corporations are legally considered to be people, what kind of a personality type might reasonably apply to a corporation? The rationale put forward shows pretty convincing evidence that if corporations were in fact human, they would be seen by society as irresponsible psychopaths who lack empathy and are incapable of feeling remorse.

Corporations were brought into existence to make money. That is their overarching purpose. Senior executives, therefore, have a legal obligation to “maximize shareholder value” at the expense of all else. In fact, the law forbids all other actions and motives. When side-effects (something economists call “externalities”) do harm to society, corporations look for ways to avoid the blame. Think of the long history of harm done by corporations through time: Bhopal, Exxon Valdez, Thalidomide, Enron. The list goes on and the market timing scandal that pitted the interests of shareholders against those of unitholders is likely to go down as another fine example in a long line of externalities.

It is with this in mind that I reflected upon the re-assuring tone and content of all the web sites, newsletters and mission statements that so many investment firms (both those who create investment products and those who recommend them) show to their clients. Almost without fail, there will be a reference to the phrase “the client comes first”. Clients, always on the lookout for decent, high-integrity companies to work with, are presumably made to feel all warm and fuzzy when they read this- and to hand over their life’s savings as an expression of their unfailing trust in these reassuring words.

A man (even if that man is a corporation) cannot serve two masters. Either he is serving shareholders or he is serving clients. Both are noble. Both are justifiable. But both cannot be served simultaneously. In the majority of cases, the more money a firm makes, the higher the cost borne by clients. Conversely, the more prices are cut to benefit clients, the more shareholders will feel the pain. Profits derived from price changes, for instance, are a zero sum game. Whenever one party is doing well, it is as sure as the night follows the day that this comes at the expense of the other party.

What I found try astounding in the book is that one of the world’s re-eminent economists, Milton Friedman is of the opinion that corporate profit is a moral imperative. Friedman believes that corporate responsibility is both illegal and immoral if it compromises profits. He believes it is both illegal and immoral to put the client’s interests first.

Quite apart from the severe consequences if Friedman is right (jail time for installing SO2 scrubbers?), this could also lead to somewhat humourous situations. Imagine having a shareholder showing up at a corporate AGM brandishing a mission statement saying “It says here that you’re putting the clients’ interests first- what the hell is that about, Mr. CEO? If you don’t start charging as much as the market will bear and sending me the money in the form of higher dividends by the end of the next quarter, I’ll get you ousted.”

The simple lesson is that things are seldom as they appear. It is obviously disingenuous of corporations to suggest that they are simultaneously pursuing both agendas to the point where both sets of stakeholders’interests first. No one can have it both ways. Even if CEOs said something like “we aim to balance the legitimate interests of all our stakeholders”, I would buy in, although Friedman likely would not. My view on the obvious disconnect is that the ubiquitous bumpf about putting clients first is really just another cynical attempt to get people to give you their money. Corporations don’t really mean it. Friedman says they would be breaking the law if they did.

John J. De Goey, MPA, CIM, FCSI, CFP is a Senior Financial Advisor
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