Executive Greed: A Plague of Corporate Scandals

By Clyde Weiss

Workers and investors are paying the price for the greed of top executives at some of America's largest business firms.

The stench of scandal — of betrayal — rising from the boardrooms of Corporate America has sent investors fleeing the stock market, erasing nearly $3 trillion in value since June 2001 and creating a crisis of confidence that grows daily with each new report of restated earnings and government investigations.

Union members, who collectively have $6 trillion invested in union-sponsored pension plans, are affected by these scandals even if they personally held no stock in Enron or WorldCom. For instance, AFSCME's 1.3 million members participate in 150-plus large public pension systems that lost more than $250 billion in value because of the stock market collapse. The Enron scandal alone caused AFSCME's members to lose $1.5 billion in pension value.

The good news: For the most part, public pension funds are defined benefit plans, which means that current retirees are guaranteed a fixed benefit check regardless of recent stock market losses. The bad news: Those losses are putting tremendous pressure on state budgets; in Oregon, where AFSCME represents 5,362 state employees, the stock market plunge could drive up the public-pension shortfall to nearly $12 billion this year, forcing taxpayers to make up the difference.

By comparison, the future looks rosy for individual executives at more than 20 firms under investigation by the Justice Department, the Securities and Exchange Commission (SEC) and other agencies. Honest citizens can only hope that these criminals will serve prison time for their misdeeds, but most will likely enjoy the fruits of their schemes — and the fruits are staggeringly bountiful. From 1999 to 2001, the chief executives of these firms collectively pocketed $1.4 billion — as the value of their companies plunged nearly 73 percent and more than 162,000 workers lost their jobs (according to a report by United for a Fair Economy and The Institute for Policy Studies).

"These greedy corporate executives who led their companies into the ground are rewarded, while their hard-working employees are laid off and hundreds of thousands more have lost their retirement savings," says AFSCME Pres. Gerald W. McEntee. "Unfortunately, all of us have lost faith in that old belief, 'If you work hard and play by the rules, you'll come out on top.'"

Here is a partial rogue's gallery of proven and alleged corporate malfeasance:

Enron

Executives at the giant Houston-based energy trader allegedly tried to hide $1 billion in debt in order to increase stock value and generate bonuses for themselves. Former Chief Financial Officer Michael Kopper pleaded guilty to fraud and money-laundering conspiracies, and also agreed to return $12 million. Former CEO Kenneth Lay resigned in January. More than 4,200 employees lost their jobs and nearly 20,000 employees lost an estimated $1 billion in retirement savings after Enron declared bankruptcy last December. The scandal also brought down auditing firm Arthur Andersen.

Global Crossing

Investigations at this international telecommunications firm involve possible illegal insider trading and improper accounting. Founder Gary Winnick cashed out $734 million in stock before his firm filed for bankruptcy in January. Layoffs as of September: 5,000.

Qwest Communications

The local and wireless service provider came under SEC scrutiny in March for allegedly violating accounting rules and illegally inflating $1.16 billion in sales. CEO Joseph Nacchio was forced out in June by the company's board. Layoffs as of September: 18,000.

Xerox

In April, the copy-machine manufacturer negotiated a settlement over SEC charges that it had used accounting tricks to falsify financial results. The firm agreed to pay $10 million in fines and to restate its earnings. Layoffs as of September: 5,000.

Halliburton

In May, the SEC opened a preliminary investigation of this global oil-field-services firm, looking into accounting practices from 1995 to 2000, when now-Vice Pres. Dick Cheney was in charge.

ImClone Systems

Former CEO Samuel Waksal was arrested in June and charged with obstruction of justice, securities fraud and perjury in connection with insider trading.

WorldCom

The nation's second-largest telecom company admitted that it covered up nearly $7.6 billion in expenses over two years. On July 21, WorldCom became the largest U.S. company to file for bankruptcy. Former Chief Financial Officer Scott Sullivan and accounting executive Buford Yates Jr. were indicted by a grand jury on securities-fraud charges, and former controller David Myers was arrested. New York state's attorney general is suing former CEO Bernard Ebbers to recover $34.5 million in "ill gotten" gains. Projected layoffs: 17,000.

Adelphia Communications

John Rigas, the founder and chairman of the now-bankrupt cable television operator, was arrested in July with his two sons — both former executives of the firm — and two other high officials. The SEC charged them with fraudulently hiding billions of dollars in debt and concealing $3.1 billion in loans to the Rigas family.

Tyco International

Dennis Kozlowski, former chairman and founder, was indicted for evading nearly $1 million in sales taxes. Then he and two other company executives were indicted for allegedly looting the company of more than $600 million for bonuses, homes and stock profits. They also allegedly used corporate funds to acquire fine art, yachts and even pay for a $1-million birthday party on an Italian island for Kozlowski's wife. Layoffs: more than 5,000.

General Electric

Although not illegal, GE's actions are unconscionable — in bestowing obscenely lavish gifts on retiring CEO "Jack" Welch (see Fighting Corporate Corruption At the Ballot Box).