Three Blind Mice

Ultimately, bogus numbers don't work. Neither should bogus CEOs.


Just when you think there is absolutely nothing more to say on the topic of financial scandals, something new happens. By the time you read this, Hank Greenberg and Bernie Ebbers will have slithered off the front pages. But now here comes Ken Lay, claiming he, like Ebbers, knew nothing about the little disturbances at Enron.

What is particularly hilarious (or enraging, depending on your temperament) about the defense strategy adopted by Lay, Ebbers, and HealthSouth's Richard Scrushy—whose trial is ongoing—is the notion that all those shifty CFOs (five at HealthSouth alone!) just juggled numbers too deftly for their bosses to understand.

There are two points to make here. First, it might be true—sort of. According to our new survey of CFOs (see "What Does Your CEO Really Know?"), about a third of CEOs knew less about finance before Sarbanes-Oxley was enacted than they should. (Although if Ken Lay gets away with this claim, his alma mater should at least rescind his Ph.D. in economics.)

Second, it doesn't matter whether it's true or not (beyond the tiny question of whether CEOs who don't understand accounting should be paid gazillions of dollars to run multi-billion-dollar organizations). CFOs do not manipulate earnings without a directive to do so. They may embezzle, but they have less to gain and more to fear from fraudulent reporting than anyone else in the C-suite. Unlike divisional presidents, say, CFOs don't need to fear for their jobs if a unit posts a major loss. It's not their neck if sales slip or a new product tanks. Indeed, surveys both before and after the current round of scandals consistently suggest that if CFOs fudge the numbers, it's because they've been ordered to make them work. CEOs may not care how they work, just as long as they do.

Ultimately, of course, bogus numbers don't work. Neither should bogus CEOs.


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