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

~ (Author), Cynthia J. Smith (Author) "Through the 1990s, most Americans grew accustomed to good financial news..." (more)
Key Phrases: public audit firms, public auditors, executive greed, Arthur Andersen, Fannie Mae, Wall Street (more...)

Editorial Reviews

Product Description

Financial scandals aren't unknown in US 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. Sayles is one the world's most honored management experts. As in-house corporate anthropologist at Arthur Andersen, Smith had a unique vantage point on the cultural changes that led to Andersen's collapse. Together, they identify powerful forces that cut across management, finance, the economy, politics, even psychology. Along the way, they identify rarely-discussed contributing factors such as the consulting boom, new technologies used by accounting and auditing professionals, the transformation of b-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.

From the Back Cover

"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.

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Product Details

• Hardcover: 288 pages
• Publisher: Prentice Hall (August 21, 2005)
• Language: English
• ISBN-10: 0131477722
• ISBN-13: 978-0131477728
• Product Dimensions: 9 x 6.1 x 1.3 inches
• Shipping Weight: 15.5 ounces (View shipping rates and policies)
• Average Customer Review: 4.1 out of 5 stars  See all reviews (7 customer reviews)
• Amazon.com Sales Rank: #1,078,202 in Books (See Bestsellers in Books)

Customer Reviews

Most Helpful Customer Reviews

3 of 3 people found the following review helpful:

4.0 out of 5 stars Greed Is Not Good for Anyone, March 1, 2006

By	Professor Donald Mitchell "Jesus Makes Me a P... (Boston) - See all my reviews (TOP 10 REVIEWER)

In the movie Wall Street, you may remember the statement, "Greed is good." Well, The Rise of the Rogue Executive makes exactly the opposite point. I like the book better than the movie on this point.

Public companies are primarily run as a confidence game these days in which all the players know the game is rigged . . . but don't really care as long as they get their piece. If you go back and look at any period of long economic bounty in American history, the period ends with those who were once hailed as heroes being seen as crooks. The current time is no different as those who were the biggest game riggers are carted off to be prosecuted . . . if not jailed.

Adelphia, Enron, Worldcom and others were sleazy operations that many wanted to believe were okay. But they weren't. The emperor actually had no clothes.

In this powerful account of the events leading up to revealing the frauds at the center of these greedy games, you will find out the roles that institutional investors, accounting systems, auditors, directors, journalists, investment bankers and ordinary employees played in facilitating scam after scam. Drawing a powerful parallel to the tragedy of the commons, in which all take advantage of a common resource . . . but don't renew the resource, the authors argue that no one is looking out for society's best interests any more. Instead, people are looking out for what they can tear off the carcass and run.

For those who work on the inside with the parties described here, there's not much new. For the average outsider, this book will be a revelation. However, most of that revelation has been made elsewhere before. So the book will seem a little dated to many.

The best part of the book came in the detailed descriptions of how accountants (especially at Arthur Andersen) lost their souls while in search of moolah.

The book has two primary weaknesses. First, the authors do love to tell the same stories over and over again. Believe me, there are plenty of bad actors out there they could have written about . . . but didn't. Second, the authors fail to perceive that some of those they praise were little better than those they vilify. For instance, Roberto Goizueta (who is held up as a paragon of virtue because he didn't buy a new home) was a Wall Street manipulator par excellence. He bought and sold bottling operations to keep pumping up e.p.s. on a regular basis. Had he simply wanted to build a stronger company, the bottling rehabs would have been done much faster. A Wall Street Journal story showed that in his later years, Goizueta spent much of his time writing individual letters to security analysts and reporters trying to spin the Coca-Cola story more favorably. Not surprisingly, Coca-Cola didn't do so well after Goizueta died.

I'm also more a little skeptical that the actions taken so far by the government and companies and the prescriptions advanced by the authors will really make a difference. I suspect that it will take a few more rounds of even worse scandals and a deep recession to really clean out the messes. Until then, just assume that earnings are manufactured more in the accounting computers than in the factories and stores of the company.

3 of 3 people found the following review helpful:

4.0 out of 5 stars How did we get here?, November 6, 2005

By	Thomas Duff "Duffbert" (Portland, OR United States) - See all my reviews (TOP 50 REVIEWER)    (REAL NAME)

Having been part of the Enron experience, I was very interested to read this book: The Rise Of The Rogue Executive - How Good Companies Go Bad And How To Stop The Destruction by Leonard R. Sayles and Cynthia J. Smith. It's amazing how we allowed ourselves to get to this point...

Contents: The Tipping Point - How Good Companies Go Bad And Executives Become Rogues; American Business At Risk - Picking Up The Pieces And Looking Ahead; The Stock Market And Executive Decision Making; Black Boxes And Big Black Lies; The Shocking Destruction Of Arthur Andersen, Auditing's Gold Standard; Auditing The Public's Auditors; Directors - Why The Weak Oversight; Too Silent Critics - Journalism; Too Silent Critics - Academe; Fees Galore; How We Nearly Lost American Capitalism; The Mythic CEO - Why Real Leaders Became An Endangered Species; Seeking And Valuing Real Leadership; We Can Do Better; Endnotes; From The Authors; Addendum - Supreme Court Overturns Arthur Andersen Conviction; Index

So many things were considered normal and were not questioned. Sayles and Smith take a look at some of the elements that led to the rise and fall of companies like Enron and Worldcom. Obviously Enron serves as a model whipping boy for most (if not nearly all) of the examples, as there was so much going on there. Rise lays out the abuses in a clear and concise manner, with a myriad of example cases to back them up. I especially appreciated the chapters on directors and journalism. I didn't realize that directors were often no more than a glamorous collection of big names put on the board to make the company look good. It's incredible that people charged with overseeing a company's direction can have so little knowledge and involvement in far too many cases. And we all know how few dissenting voices existed in the mass media pointing out the flaws of these companies. Ones that did try and raise objections were too often shut out by others and were quickly drowned out. If only we as the public had listened and paid attention...

While the book is supposed to offer remedies on how to stop this abuse, it seemed like there was less of that and more emphasis on pointing out the abuses. To be sure, the first step in stopping an abuse is finding out about it in the first place. But for whatever reason, I didn't feel a strong "call to action" in terms of a series of proposed changes. I can't quite put my finger on it, to be truthful. Maybe I was just too close to one of the meltdowns, or maybe the carnage of the abuse overpowered the rest of the material.

Regardless of that, it's still an important book to read. I'd like to think that what's happened in the last two or three years has allowed us to turn the corner on these types of situations. Realistically however, you know it's still happening. Rise will open your eyes and make you think twice about what's going on in the executive suite...

2 of 2 people found the following review helpful:

5.0 out of 5 stars Good Material from a Credible Source, December 24, 2005

By	Loyd E. Eskildson "Pragmatist" (Phoenix, AZ.) - See all my reviews (TOP 100 REVIEWER)    (REAL NAME)

Sayles states that today's threats to American capitalism come primarily from within the corporation, not like prior external efforts to monopolize markets. The threat started with modest deviations from accepted accounting practice - expensing stock options, and went from there. Soon executive compensation became obscene rising from 50 - 100 times that of average workers up to 1,000 times. Worse yet, the compensation was typically based on mythical earnings.

Earnings were frequently manipulated through smoothing (use of "cookie jar reserves), capitalizing costs that should have been expenses, generous assumptions about pension fund earnings, earnings insurance, off-the-books liabilities, losses, and subsidiaries, abusive/fradulent tax shelters (from '95 to '00, more than 60% of American corporations paid no federal income tax - per GAO research), rigged trading to boost values, fraudulent sales, etc. (Would have liked more examples of abuses, though perhaps those cited covered 90%+ of the abuses.)

The impact of these manipulations is more broadly felt today (with about 50% of citizens owning stock), than 1929 (about 10%), and the fact that many rely on stocks for a considerable part of their retirement funds.

Business leaders have had plenty of assistance in their distortions. Useless and complicit auditors (Arthur Andersen, KPMG), complacent boards that do not want to rock the boat and jeopardize their status and easy money, investment bankers willing to muzzle stock analysts to improve participation in future stock offerings, CEOs that also serve as Board Chairmen - controlling agendas, limiting access, "picking" board members, creating overly large boards (making meaningful participation difficult), and restricting stockholders' ability to replace board members. Sayles also identifies media and academics (both entities identified Enron as evidence of outstanding management) as also less than alert.

Sayles identifies pursuit of short-term earnings, combined with executive greed, as the major culprits. Large executive stock-options serve as the primary link between the two. On the other hand, Sayles also points out that stock options were introduced to cure a prior problem - motivating leaders of corporations that had stagnated over a period of years.

Sayles also points out that dishonesty is not limited to today's business world - witness the Iraq prisoner abuse, professional sports use of steroids, the Catholic Church's sex scandal, media scandals (inflated circulation numbers, made-up stories), educators helping pupils cheat on proficiency tests and fudging dropout rates).

What's the answer, the cure? Sayles offers a few suggestions - eg. smaller boards, limiting the number of boards that anyone serves on, requiring certification of earnings, limiting the exercise of stock options to much further in the future (Sayles even points out that Sec. of the Treasury John Snow was able to return his stock optioned-stock after the price fell), etc. Hopefully they are enough