When it comes to government policy on prosecuting business leaders, you could wrench your neck watching the twists and turns. In making sense of yesterday’s new twist, start by setting aside all your partisan leanings, whatever they may be.
Deputy Attorney General Sally Yates gave a speech announcing a new policy of going after individuals, not just companies, in cases of suspected business wrongdoing. The move was clearly in response to heavy criticism of the Obama administration – almost entirely from Democrats – that it had gone easy on malefactors in the financial crisis. Yates said, “Our mission here is not to recover the largest amount of money from the greatest number of corporations,” a striking reversal, since until yesterday that had been precisely the Justice Department’s mission. She continued, “our job is to seek accountability from those who break our laws and victimize our citizens. It’s the only way to truly deter corporate wrongdoing.” That new policy, coming from the most liberal administration since the days of Jimmy Carter, is one that Republicans and Democrats can both get behind. I warned you about your neck.
The very concept of punishing a corporation is troubled. A corporation is just some papers filed in a state capital. So when a corporation pays a fine or is convicted of a crime, who actually suffers? The shareholders certainly, often the employees, and sometimes even customers who may lose a supplier or face higher prices. Yet it’s overwhelmingly likely that none of those people, apart from certain employees, did anything wrong.
The injustice was demonstrated dramatically in 2002, when the Bush administration Justice Department charged Arthur Andersen LLP for its role as Enron’s auditor. By charging the company, not just the individuals involved, Justice immediately ended the firm’s 89-year history; no company will hire an indicted auditor. The firm was convicted – and then in 2005 the U.S. Supreme Court unanimously reversed the conviction. But it was too late. By then, the firm’s 28,000 U.S. employees – all but two or three of whom were blameless – had lost their jobs.
But don’t conclude from this example that Bush administration policy favored prosecuting companies rather than individuals. Just the opposite: In the scandals of the early 2000s, the Bush administration aggressively prosecuted individuals – the same policy the Obama administration is adopting now. The results were not wrist-slap penalties. WorldCom CFO Scott Sullivan served four years. Enron CFO Andrew Fastow served six years. Enron CEO Jeff Skilling, 61, is still in federal prison in Alabama. WorldCom CEO Bernie Ebbers, 74, is in prison in Louisiana. And Adelphia Communications CEO John Rigas, at age 90, is in prison in Pennsylvania, scheduled for release in 2½ years.
These former executives are, as Jay Leno once put it, living out their golden years in a gated community of a different kind. That prospect operates on the mind quite differently from the prospect of paying a corporate fine. And it has nothing to do with political party.
What We’re Reading Today
Ellen Pao drops discrimination lawsuit
Pao, a former partner at Kleiner Perkins Caufield & Byers, will not appeal her loss in a lawsuit against the venture capital firm. The decision ends one of the highest profile sexual discrimination suits the tech world has faced, but it doesn’t end discussion of the issues raised by the case. Pao’s decision was based partly on her lack of the resources to continue. Re/code
Obama’s Iran deal passes key test
Senate Democrats fought off a Republican effort to pass a resolution rejecting the Iran nuclear deal. In doing so, it ensures that President Barack Obama‘s landmark foreign policy triumph moves forward without a Senate rejection, a veto of the rejection, and a Senate vote to uphold the veto, which is what would have happened otherwise. Politico
Changes at GE
CEO Jeff Immelt‘s strategy of pruning of GE’s non-industrial businesses continues with the announcement that it will sell GE Asset Management, which manages $115 billion in assets. Separately, Immelt plans to decide this year whether the company will vacate its Connecticut headquarters of the past 41 years in favor of another state with a friendlier business climate. WSJ
The trail that led to Jeff Smisek’s undoing
While Smisek has stepped down as United Continental CEO, the federal investigation that led to his exit has targeted other officials, including Jamie Fox. Once a United lobbyist, Fox now serves as New Jersey’s transportation commissioner, appointed by Governor Chris Christie. The case also raises issues of what’s a bribe and what’s a negotiation. NYT
Joe Biden still unsure about a presidential run
In an emotional interview on Stephen Colbert‘s “Late Show,” Vice President Biden talked of his late son Beau and his presidential aspirations. He wouldn’t commit either way, but he didn’t sound like someone whose heart was fully ready for it, a quality he said any presidential candidate should have. USA Today
A moment of silence
President Obama and First Lady Michelle Obama hosted a moment of silence on the White House lawn this morning to commemorate the 14th anniversary of the Sept. 11 terrorist attacks. This afternoon, Obama will hold a town hall with service members at Fort Meade in Maryland, where he will speak about the anniversary. Washington Post
Building a Better Leader
Expect a big jump in wages next year
CFOs expect a 3.3% wage increase, says the Duke University/CFO Global Business Outlook Survey. That’s far better than this year’s 2.2% raise, in part reflecting the growing difficulty of finding quality talent to fill open positions. Fortune
What does a startup founder learn in 5 days with…
…Virgin Group’s Richard Branson, Tim Ferris, and three other entrepreneurs who made it big? Focus on a higher quality product than your larger competitors offer, among other things. Inc.
Has entrepreneurship become a profession for the wealthy?
How do you reconcile recent Census data showing entrepreneurship on the decline with surveys from institutions like Harvard University that say it’s booming? The answer could be that new business launches have become the domain of the rich. The Atlantic
Taking Labor Lumps
WeWork fights its office cleaners
The office rental startup hired a contractor for its cleaning services. The cleaners tried to unionize, so the contractor fired them. WeWork hired some of the cleaners full-time, and now it’s in the midst of a labor dispute. As co-founder Adam Neumann tries to reason with cleaners, the company is fighting a battle of new economy vs. old. NYT
Uber loses another labor dispute in California
A California Employment Development Department ruling that a former Uber driver was an employee, not a contractor, was upheld on appeal. It’s the third such decision against Uber in California since May. These rulings threaten Uber’s towering valuation, since Travis Kalanick‘s company’s growth is contingent upon not having to pay taxes or benefits for hundreds of thousands of drivers. Fortune
Paying commuters for their time
A European court has ruled that time spent going to and from work should be considered part of the job, and employers should pay workers for that time. Quartz
Up or Out
Maker of optical networking components Finsar’s CEO Eitan Gertel stepped down abruptly and without explanation Thursday. Chairman Jerry Rawls will fill Gertel’s spot. MarketWatch
ExpressScripts named Eric Slusser its new CFO. James M. Havel, interim CFO for the past eight months, will stay as a finance executive helping with the transition to a new CEO, Tim Wentworth, next year. WSJ
Fortune Reads and Videos
The spy that runs General Dynamics
CEO Phebe Novakovic has shunned the spotlight, even if she’s no longer part of the CIA. Fortune
Marissa Mayer missed a chance to rethink parental leave
We shouldn’t be so rigid with our choices when it comes to working after pregnancy, says one business owner. Fortune
Kohl’s first ever New York Fashion Week runway
The sensible clothing line looks to boost its private brands. Fortune
Fiat Chrysler recalls 1.7 million Ram pickups
There’s a problem with the steering wheel wiring harnesses, airbags, and steering components. Fortune
“That so many people heard what I had to say, against all that was brought to bear against me, is a testament to the depth of the problem related to women and tech … [But] I have gone as far as I can go and cannot commit the resources and time that would be needed to continue.” – Ellen Pao on choosing not to appeal her discrimination suit against Kleiner Perkins Caufield & Byers. Re/code
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|Produced by Ryan Derousseau|