White-collar crime: Why they do it

What do Bernie Ebbers, Sanjay Kumar or Kenneth Lay have in common? All these superstars of World Inc were charged with fraud and conspiracy at the peak of their respective careers. India also has had its fair share of members in the corporate Hall of Shame, and B Ramalinga Raju happens to be one of its leading lights. Mr Raju, who once won the Golden Peacock award for corporate governance, was charged with engineering a massive fraud at Satyam Computer Services exactly 10 years ago.

Compared to the harrowing experience of his counterparts abroad after the scams in their respective companies, Mr Raju has had a relatively peaceful existence so far. He was let off on bail after 20 months in prison, and is now busy presiding over his family empire from his palatial bungalow at Hyderabad’s Jubilee Hills. 

In contrast, Bernie Ebbers, who was WorldCom, much like Mr Raju’s status in Satyam, is serving a 25-year prison term, after he was found guilty of executing what was then the largest accounting fraud in history. In September 2006, Mr Ebbers drove himself to prison in his Mercedes, which he is not scheduled to see again until 2028. Sri Lankan-born Sanjay Kumar, chairman and CEO of Computer Associates, was sentenced to 12 years in jail after pleading guilty to securities-fraud charges. And Kenneth Lay of Enron, who was accused of shady accounting practices, died from a heart attack while awaiting sentencing. His co-conspirator Jeffrey Skilling is in jail since 2006.

And consider what has happened to Carlos Ghosn, who was among the most celebrated chief executives around the world. The chairman of Renault–Nissan–Mitsubishi is locked up at an austere detention centre in Japan for an alleged under reporting of his salary by more than $44.5 million to the Tokyo Stock Exchange between 2011 and 2015.

So why do CEOs allow their reputation, carefully built over decades, to be blown to smithereens? Take Mr Raju, for example. The journey from being the poster boy of India’s IT industry to becoming Qaidi No.4148 at a Hyderabad jail must have been tortuous. Money couldn’t have been the sole motivation, considering he was the owner of India’s fourth largest IT company. In fact, all the fraudster CEOs were fabulously wealthy when they committed their crimes. 

Nevertheless, they risked their careers, families, reputation, wealth, power, everything. For what? One answer could be that all that power and money made these CEOs feel invincible and above the law. 

The other reason, strangely, is that they strongly believe they did nothing wrong. After his initial confession about fudging figures, Mr Raju insisted that he had not taken a “single rupee from the company”. Former McKinsey head Rajat Gupta is another example of this. After serving a two-year prison-term on insider trading charges, Mr Gupta talked about some “errors and misjudgements” and started a legal battle to overturn his conviction, arguing that he served a jail term for conduct that is not criminal as the government lacked evidence to show he “received even a penny” for passing confidential boardroom information to the now-jailed hedge fund manager and his one-time friend and business associate Raj Rajaratnam. The effort proved fruitless as on Tuesday, a federal appeals court declined to throw out his conviction, upholding a lower-court ruling, which found Mr Gupta guilty of passing tips to Mr Rajaratnam about Berkshire Hathaway’s $5 billion investment in Goldman Sachs and the bank's financial results for two quarters in 2008. 

Yet others said after their sentencing they truly believed that they did nothing but try to improve the conditions of their employees. Ironically, their employees and shareholders suffered the most from their actions.

Curious about the motives behind white-collar crimes, Eugene Soltes, a Harvard University professor spent seven years interviewing nearly 50 convicted corporate CEOs and wrote a book, Why They Do It: Inside the Mind of the White-Collar Criminal. Most of the subjects in the book exhibit an overwhelming lack of remorse for what they’ve done. Many of them seem to view their crimes as solutions to a problem at work, rather than moral failings. Many of the convicted executives Mr Soltes spent time with described their conduct bluntly. “Morals go out the window when the pressure is on,” explained Steven Hoffenberg, who confessed to running a Ponzi scheme that stole from thousands of investors in his company, the Towers Financial Corporation. “When the responsibility is there and you have to meet budgetary numbers, you can forget about morals.” 

Yet others feel they deserve anything they could possibly want — money, fame, a bonus and a football field-sized office. They should get these things because they “deserve” them. This level of selfishness can lead to all sorts of slimy decisions and behaviour. By the time they realise their mistake, it’s already too late. That’s what happened to Mr Raju, prompting him to make that famous statement that he was riding a tiger and did not know how to get off without being eaten.