Sunday, August 21, 2011

CEO Scandals

Disgraced CEOs who have been forced to leave the companies they once guided. Let's takes a look at executive scandals that rocked the business world



Kenneth Lay, Enron

In some ways, Kenneth Lay was Enron. Lay helped create the company in 1985; by 2000, he had turned it from a simple natural-gas corporation into an energy-trading giant worth $68 billion. But much of that money was based on shady accounting practices and losses not recorded in its financial statements. Investment analysts began to question the company's viability in March 2001. By October of that year, the U.S. Securities and Exchange Commission had opened an investigation into Enron's accounting books. Within one year, the company's stock price plummeted from more than $90 to less than $1, causing shareholders to lose $11 billion. Enron subsequently filed for Chapter 11 bankruptcy; at the time, it was the largest corporate bankruptcy in the U.S. Lay and fellow Enron exec Jeffrey Skilling were convicted in 2006 of fraud and conspiracy. Skilling is currently in jail; Lay died from a heart attack while awaiting sentencing.

Enron Corporation

Bernie Ebbers, WorldCom

In 1995, the Mississippi Business Hall of Fame inducted Bernie Ebbers, a graduate of the obscure Mississippi College who had risen to become CEO of WorldCom. And why not? Ebbers had started with a small telecommunications company that acquired smaller competitors and eventually created one of the largest companies in the world. In 2000, WorldCom was soaring, and his personal worth was more than $1 billion. But in 2002, investigators revealed that WorldCom had executed what was then the largest accounting fraud in history, with more than $11 billion in accounting misstatements. It was also alleged that Ebbers had taken $366 million in personal loans from the company. By the time the carnage settled, WorldCom's stock had plummeted from more than $64 per share to just over $1, costing stockholders more than $100 billion in losses. Ebbers was found guilty of nine felonies and sentenced to 25 years in prison. In September 2006, Ebbers drove himself to prison in his Mercedes, which he is not scheduled to see again until 2028.

MCI  Inc.

Mark Hurd, Hewlett-Packard

In terms of badly behaving CEOs, Mark Hurd is not the worst. Still, he learned the hard way that when you're the man in charge, even somewhat minor misdeeds can get you the boot. Hurd stepped down from his post as chief executive officer of Hewlett-Packard on Aug. 6 after the company found he submitted inaccurate expense reports that concealed his personal relationship a female contractor who assisted on HP-sponsored events. That woman was movie and reality-TV actress Jodie Fisher, who sent the company a letter alleging sexual harassment that prompted the investigation. The board concluded Hurd did not violate HP's sexual-harassment policy, but it did uncover the inaccurate expense reports. About $20,000 in expenses are at issue — a minuscule sum for one of the world's largest information-technology companies. For her part, Fisher affirmed that the pair did not have a sexual relationship and said she was "saddened" to hear Hurd lost his job. "That was never my intention," she said. Still, the board stuck by its unanimous decision. "Sadly, Mark's conduct undermined the standards we expect of our employees, not to mention the standards to which the CEO must be held," said Marc Andreessen, an HP director.

Hewlett-Packard Company

James McDermott, Keefe, Bruyette & Woods

Perhaps it was the irony of all ironies. In 2000, Canadian adult-film actress Marilyn Star made a film called Marilyn Whips Wallstreet, but Wall Street, or at least the Securities and Exchange Commission, had the last laugh.



In the late '90s, Star was romantically involved with James McDermott, CEO of the investment-banking firm Keefe, Bruyette & Woods. McDermott allegedly revealed details of an upcoming merger to Star, who passed the information to another lover, Anthony Pomponio. The two used the details to make more than $80,000 in the stock market. When authorities moved to arrest Star, she fled to Vancouver; in 2000 she was arrested and extradited to the U.S. After serving a few months in jail, Star was freed, but McDermott didn't get off so easy. He paid a reported $230,000 fine and served a short jail sentence himself. When asked by reporters if she had gotten into trouble because she was dating an older man, Star uttered words seldom heard in an insider-trading trial. "Older men like younger women because they are too dumb to stand up for their rights," Star said. "Instead of saying no, they say, 'Yes, Daddy. Yes, Daddy.' "

Keefe, Bruyette & Woods Inc.

Martha Stewart, Martha Stewart Living Omnimedia

Martha Stewart can bake a mean pie. She started with a catering company in 1976, wrote her first cookbook by 1982, launched Martha Stewart Living magazine in 1993 and became president, CEO and chairwoman of Martha Stewart Living Omnimedia in 1997. Then, in 2004, she went to jail.



Stewart was found guilty of conspiracy, obstruction of an agency's proceedings and lying to federal investigators about an insider-trading deal. The multimillion-dollar mogul had sold a few thousand shares of ImClone Systems stock to save just $45,000. She served five months in a minimum-security prison camp in West Virginia and was released in March 2005. Now she's back — and bigger than ever.

Martha Stewart Living Omnimedia Inc.

John Browne, BP

Unlike the costly environmental crisis that brought down Tony Hayward, the latest BP CEO, the scandal that forced his predecessor John Browne's resignation was one of his own making. In May 2007, Browne stepped down after it was found he had lied to a court about his four-year relationship with Canadian boyfriend Jeff Chevalier. Browne sought to stop the publication of personal details about their relationship, but while in court, he lied under oath about how the two had met. Browne told the court they had met while jogging in a London park, when in fact they had made contact through a male-escort agency's website. Facing perjury accusations, the CEO made his exit — forfeiting a multimillion-dollar severance package in the process.

BP p.l.c.

Sanjay Kumar, Computer Associates

Sri Lankan–born Sanjay Kumar went to the U.S. as a teenager, his family fleeing ethnic strife back home, and worked his way to the top of the IT industry at a rapid clip. In 2002, Kumar became chairman and CEO of software tech company Computer Associates. For a brief spell, he lived a charmed life, even buying the New York Islanders hockey team alongside his mentor and company partner Charles Wang. But by 2004, Kumar's name was mud. Investigated for cooking the company's books to the tune of some $2.2 billion, he resigned his post. In 2006, he pleaded guilty to securities-fraud charges and was sentenced to 12 years in jail. But he hasn't remained silent — in 2008, he issued a 27-page affidavit claiming that a host of others encouraged or knew of the company's false accounting practices, including Wang and even former U.S. Senator Alphonse D'Amato. A spokesman for the GOP politician dismissed the accusation, saying Kumar "from jail continues to be a stranger from the truth."

CA Technologies formerly CA, Inc. and Computer Associates, Inc.

David Edmondson, RadioShack

Cardinal rule of résumé-writing: Don't make stuff up. Or, if you happen to be like former RadioShack CEO David Edmondson, at least make up lies that are even remotely likely to be true. Edmondson apparently thought he could get away with claiming to have received two degrees — one in psychology and one in theology — from Pacific Coast Baptist College in California (now called Heartland Baptist Bible College and located in Oklahoma). The problem was that Edmondson finished only two semesters at the school — which has never even offered a psychology major. He admitted in 2006 that he had falsified the résumé, resigning in disgrace after nearly 11 years at the company and having recently been promoted to the top of the ladder.

RadioShack Corporation

Harry Stonecipher, Boeing

Following the ouster of Philip Condit as Boeing CEO in 2003, Harry Stonecipher came out of retirement to take over the reins. But Stonecipher clearly didn't learn any lessons from Condit's dismissal, which had been precipitated by not only an Air Force contracting scandal but also reported affairs with employees. So when an anonymous e-mail was sent that implicated Stonecipher in an affair with female executive Debra Peabody, it was déjà vu for the scandal-hit aviation company. Just 18 months after taking over, Stonecipher resigned after an investigation into illicit e-mails between the two confirmed the allegation.

Boeing Company

Chung Mong Koo, Hyundai Motor

South Korea has long been dominated by the chaebol, powerful business families whose vast conglomerates (such as Samsung and Hyundai Motor) have been the engines of the country's economic miracle and have significant stakes in most of its major industries. Their fingers in many pies, the chaebol also wield great political power and at times have seemed above the law despite numerous allegations of corruption. In 2007, Chung Mong Koo, Hyundai chairman, was found guilty of fraud and embezzlement, having siphoned some $100 million into a slush fund allegedly to bribe officials. His trial was hailed as a victory for transparency and rule of law in South Korea — but Chung's three-year jail term would be suspended, and in 2008 he received a full pardon from South Korean President Lee Myung Bak.

Hyundai Motors Company

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