Do you work for crooks? Is your company about to explode (or imploded) in an Enron/Worldcom like scandal? "Gee how the heck should I know?" You are probably asking.
Well Boston Consulting Group has come up with a study that points to some warning signs that could help you decide whether your company is in danger:
Corporate scandals often happen at the most successful firms or at least at firms where the appearance of success breeds a megalomaniac CEO, reams of stock options, overoptimistic goals, and gaga recommendations from Wall Street equity analysts.
This is the conclusion of a Boston Consulting Group study that analyzes the companies responsible for twenty-five of the largest corporate frauds since 1996.
Compared with their clean competitors, "fraud firms" offered their CEOs eight times as much stock-based pay and set corporate performance targets 250 percent higher. Other factors associated with executive malfeasance were inflated stock prices and attention from the press (before their downfalls, fraud-firm CEOs were three times as likely to be quoted in the media as their competitors).
Moreover, two interesting insights emerged. First, good corporate governance - of the sort mandated by post-bubble regulations - may have done little to prevent fraud. Enron's board, for instance, was rated among the nation's five best-governed in 2000. Second, while crooked execs may have fooled analysts, the media, and the public, the market sniffed them out.
The median fraud firm lost 40 percent of its value in the year before its actions came to light. (One wonders who was selling ....)
Source:The Atlantic Online
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