One of the most recent scandalous leaders, is no other than Bernie Madoff. He committed fraud worth billions of dollars, turned his back on his followers, and essentially turned out to be one of the worst leaders the business world has ever seen. Below is a link describing the scandal, as well as who Madoff was before any of the news surfaced.
http://www.nytimes.com/2009/01/25/business/25bernie.html?scp=2&sq=bernie%20madoff&st=cse
This brings up several different questions. What can we do about these types of situations? Were there any warning signs? Why did the scandal take so long to surface? Should limits be set on how much one certain individual gets to control in a company?
In this case, there were plenty of warning signs. Madoff had been under a careful eye for many years, and problems were known. I believe that this is largely do to the SEC's lack of investigation. With proper and through investigation, there is no way this could have gone undetected.
So, why do you think it took so long, and what do you think could have been done to avoid this from happening?
Posted by: Kelly Moran
Kelly,
ReplyDeleteHave you ever heard of the revolving door? It basically focuses on the relationship between regulators and industry executives. It is slightly more complex, but the revolving door refers to the movement of regulators into the public sector and vice versa. This creates a problem for a variety of reasons. Government regulators help draft laws to police companies’ actions. Afterwards, some of those regulators leave their oversight committees to join a company that was previously under their jurisdiction. While at their new company, they can assist the organization by utilizing the loopholes in the newly created laws. At the same time, company executives leave the public sector to create to become regulators. And so the cycle continues.
It doesn’t sound like this was the primary culprit in Madoff’s situation. However, it could be a contributing factor. Countless relationships are formed as a result of the revolving door. Madoff himself was the chairman of the Nasdaq. I’m sure he made friends during his rise to riches. Because he had made all the right friends in all the right places, no one was questioning him. Big money investors trusted his financial decision making abilities and the regulators trusted his previously unquestioned ethics. He was playing the system from the beginning.
One way to avoid another situation like this is to closely monitor relationships of this nature. It is vitally important for regulators to maintain a certain level of professional skepticism. Company executives should avoid questionable relationships that may cause suspicion among stakeholders. But let’s be honest, do we want the government to mandate who can be friends with each other?
Should limits be set on how much one certain individual gets to control a company? I would strongly oppose any legislation that creates such a restriction. Before continuing, I would like to make the distinction between a company and a corporation. I think a government mandate over control of a company would be a terrible idea. Ownership and control of one’s business is what fuels America’s entrepreneurialism. Why would anyone start a restaurant, a local general store, or even a small tech business out of a garage if they knew that one day the government would take authority away from them? The freedom to choose the direction of the company is the liberty of the creator. Should the business buy new or used equipment; should an investment be made in robotic manufacturing or should a new factory be built overseas? These are questions for the owner to decide, not an oversight regulator. Choice and freedom should not be taken away from the entrepreneurs of today or tomorrow.
However, I also believe in certain levels of oversight and regulation. When a company grows too big, expansion may be necessary. What if just another restaurant becomes McDonald’s? What if just another local general store becomes Walmart? What if just another tech business becomes Microsoft? These situations have and will continue to occur. Yet the laws governing officially formed corporations are different than those overseeing a small business. Of course additional regulations should be imposed upon a corporation with a wide reaching area of influence. Environmental, safety, and stakeholder issues become more important. Although there are many shares in a company, it is still possible for there to be only one owner. That one founder should not be punished because of what he has accomplished. I would be opposed to any form of government mandate that suppresses or punishes individual success and intuition. If someone is smart enough and dedicated enough to create an empire (legally), then so be it. Outside of legality and ethics, limits should not be set to determine how much one certain individual gets to control a company.
You did a great job finding this article. You have chosen an interesting topic and I'm excited to see the things you will bring to the table.
-Jarek Palmer (BBB)