Monday, November 30, 2009

Fortune magazine writer argues that former Enron-CEO Dennis Koslowski ought to be receive clemency.

And in doing so, Kaplan either ignorantly gets all sorts of things mixed up or intentionally mixes them up in order to back up his feeling that there should be criminal charges filed against executives of Wall Street firms that ran into problems last year.

Let's start by distinguishing between what Koslowski did and what the current batch of Wall Street executives are alleged to have done.

Koslowski stole money from Tyco by paying himself bonuses and using corporate funds for his own benefit without receiving explicit approval from Tyco's board of directors. It didn't matter that the money was properly accounted for on Tyco's books... it's theft if you take property from someone without their approval.

The current batch of Wall Street executives engaged in a series of bad - but legal - business decisions that resulted in serious problems for their companies and the country as a whole. They made investments that turned out to be duds. They didn't properly manage risk and diversify their holdings. They didn't anticipate the market turning against them. While their decisions ought to be enough to keep them from holding similar positions anytime in our lifetime, (based on what we know) their actions were NOT illegal.

A basic rule is you can't be prosecuted if you don't break a law. It isn't enough that the consequences of your actions are bad, if what you did was legal, you can't be thrown in jail. And a legal act doesn't become an illegal act even if you're motivated by self-interest (such as dreams of the tremendous compensation you'll receive as a result of your business activities).

Koslowski belongs in jail not because he was a bad business executive, nor because, like Enron's Andrew Fastow or Worldcom's Scott Sullivan, he engaged in illegal business activities, but because he is a thief... and thieves belong in jail. His sentence was appropriate for the amount of money - millions of dollars - that he was convicted of stealing from Tyco's shareholders. And it doesn't matter that Tyco shareholders benefited in total from his tenure, even after taking into account the money he stole from them.... a thief is a thief and a thief who does good things is still a thief.

And while I don't think I'll be hiring anyone from Citigroup, Lehman Brothers or Bear Stearns anytime soon, unless it is shown that they hid their activities from their superiors or that they took money that they're weren't contractually entitled to, they don't deserve to be criminally prosecuted for what turned out in hindsight to have been some real stupid business decisions. Note the adjective: stupid. Not illegal. Stupid. One gets you jail, and it should, the other doesn't.. and it shouldn't.