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The Rise of the Rogue Executive: How Good Companies Go Bad and How to Stop the Destruction

Book Description

"Sayles and Smith have covered all the bases with a comprehensive, yet fascinating, analysis of what has been ailing our capital market system. A system that has given us such high standards of living. A recommended read for those who not only want to understand what is going on in the corporate world, but why it is going on. Congratulations."

—Frank Kolhatkar, Retired Chairman and Executive Director of the Global Financial Services Industries Practice, Deloitte

"This book confronts, head-on, the problems that have beset American, and world, business over the last decade. The authors boldly go to the heart of the problem; to a business culture that has lost sight of fundamentals in pursuit of the illusions of rapid growth and personal gain. This is a call for action, by CEOs, boards of directors, investors, regulators, and the public at large, everyone with a stake in our business system. Anyone worried about the future of American business and American corporate culture should read this book."

—Morgan Witzel, Editor-in-Chief of Corporate Finance Review and Columnist, The Financial Times

"The authors have provided a 'must read' autopsy of just about all that's wrong with American business today. It is a 'must read' for investors interested in why we are where we are."

—Graef Crystal, Pay Expert and Columnist, Bloomberg News

"Sayles and Smith make a compelling case that rogue business executives received a lot of help from others: economists, business schools, apologists, a compliant Congress, under funded regulatory agencies, a gullible press, as well as sleazy professional auditors and accountants—all of which contributed to the great market crash of 2000 and the persistent corporate scandals. Seeking unprecedented individual gains, many members of the business community forgot their commitment to personal integrity, which maintains an essential trust among strangers, which binds all members in the larger society."

—James Kuhn, Courtney C. Brown Professor Emeritus, Graduate School of Business, Columbia University

"We can pretend that we live in a progressive society and are protected as citizens and investors, or we can read the evidence in Sayles' and Smith's book and start to face reality. This book is a strong reminder of the breadth and depth of white collar crime and greed's piercing and pervasive impact on all of us."

—L.S. (Al) Rosen, Forensic Accountant, Rosen & Associates Limited

Billions of dollars continue to be lost by companies and investors due to the pervasive impact of manipulative, self-serving executives. Financial scandals aren't unknown in U.S. business history, but today's growing problem of executive excesses and self-serving behavior is unprecedented in both its persistence and pervasiveness. Executives continue to plunder their companies and rip off their stockholders. This book reveals the true breadth and depth of corporate corruption—including flagrant new cases that haven't received the publicity they deserve. More important, it answers the questions that matter most: Why now? And how can we stop it? The authors identify powerful forces that cut across management, finance, the economy, politics, and even psychology. They identify rarely discussed contributing factors, such as the consulting boom, new technologies used by accounting and auditing professionals, the transformation of business schools, journalism, and the media in general. This book addresses both criminal activity and the not-quite-illegal abuses that are now endemic in the executive suite—abuses that challenge the underpinnings of capitalism. Its deep insights will help both leaders and citizens understand exactly what's happened and what is needed to stem the tide of destructive behavior.

  • How the tail started wagging the dog

  • The unanticipated consequences of large-scale executive stock ownership

  • The technology of deceit

  • How information technology makes abuse easier to execute—and easier to hide

  • The silence of the lambs

  • How the media and academia contribute to the problem

  • The mythic executive

  • Overwhelming greed, excessive compensation...and feet of clay

  • © Copyright Pearson Education. All rights reserved.

    Table of Contents

    1. The Rise of the Rogue Executive: How Good Companies Go Bad and How to Stop the Destruction
      1. Acknowledgments
        1. From Leonard Sayles
        2. From Cynthia Smith
      2. About the Authors
      3. Introduction
      4. 1. The Tipping Point: How Good Companies Go Bad and Executives Become Rogues
        1. Today, the Inner Dynamics of Business Are the Culprits
        2. Individualism Run Amok
        3. Diminished Sense of Personal Responsibility
        4. Emphasis On the Short, Short Run in Companies
        5. Investor Impatience
        6. Finance and Accounting Assume a Central Role
        7. Wheeling and Dealing
        8. Neglecting the Heart of the Business
        9. Breaking the Cycle
      5. 2. American Business at Risk: Picking Up the Pieces and Looking Ahead
        1. Business Rises to the Top
        2. But Then, the Second Big Bang
        3. A Temporary “Fall from Grace” or Embedded Threats to Business Effectiveness?
        4. What Does the Future Hold; How Embedded Are the Defects?
      6. 3. The Stock Market and Executive Decision Making
        1. The Public Rushes In
        2. Corporate Management’s Dependence on the Market
        3. The Goad of Options
        4. Where Do Higher Earnings Come From? Let Me Count the Ways
        5. Privileged Shareholders
        6. A Really Short-Run Orientation When a Penny or Two Counts
        7. The Executive Challenge
      7. 4. Black Boxes and Big Black Lies
      8. 5. The Shocking Destruction of Arthur Andersen, Auditing’s Gold Standard
        1. Supreme Court Overturns Andersen’s Conviction
      9. 6. Auditing the Public’s Auditors
        1. A Final Thought...Really Public Auditing
      10. 7. Directors: Why the Weak Oversight
        1. Much Power; Little Influence
        2. Why the Passivity?
        3. Who Gets on Boards?
        4. The Role of the CEO in Board Selection
        5. Director Risks
        6. Putting Directors to Work
        7. Advice and Dissent
        8. REQUIRED CHANGE; Historically: Low Expectations; Even Lower Performance
        9. Structural Change to Improve Effectiveness
        10. Rethinking Boards
      11. 8. Too Silent Critics: Journalism
      12. 9. Too Silent Critics: Academe
        1. Conclusion
      13. 10. Fees Galore
      14. 11. How We Nearly Lost American Capitalism
        1. Accounting, a Backbone of Capitalism, Degrades
        2. Is Government Regulation Really Necessary?
        3. Market Manipulations
        4. A Newer Threat to American Capitalism
        5. Is Self-Dealing a Likely Concomitant of Capitalism?
        6. The Danger of a Backlash
        7. Executive Seductions; The Real Threats to American Capitalism
        8. Looking Forward
      15. 12. The Mythic CEO: Why Real Leaders Became an Endangered Species
        1. America’s Royalty: Mythic CEOs
        2. Compensation Excesses
        3. Severance Payments
        4. Stock Options
        5. Why Such Enormous Compensation?
        6. Greed and CEO Personality
        7. The Rush to Pump Up Profits
        8. Alluring New Markets
        9. Acquisitions and Cutbacks
        10. Structural Change
        11. Investment Bankers Aided and Abetted High Risk Strategies
        12. Leadership and Implementation
      16. 13. Seeking and Valuing Real Leadership
        1. The Leadership Failures of Those Mythic Leaders
        2. Selection
        3. Breaking the Close Tie to the Stock Market
        4. How Leaders Use Symbols and Their Own Behavior to Communicate Values
        5. Working with the Board
        6. Involved Leaders: Internal Oversight
        7. Why Operations Are So Important; Looking Inside; Not Just Out
        8. Balancing Resource Allocation
        9. Involved Leaders: External Oversight
        10. Real Leadership Isn’t Just Good Packaging
      17. 14. We Can Do Better
        1. Back To Basics
        2. Culture or Character
        3. Customers and Investors Are Fair Game
        4. What Doing Better Means
      18. Endnotes
        1. Chapter 1
        2. Chapter 2
        3. Chapter 3
        4. Chapter 4
        5. Chapter 5
        6. Chapter 6
        7. Chapter 7
        8. Chapter 8
        9. Chapter 9
        10. Chapter 10
        11. Chapter 11
        12. Chapter 12
        13. Chapter 13
        14. Chapter 14
      19. From the Authors
      20. Supreme Court Overturns Arthur Andersen Conviction