Fortune 500 executives engage in egregious acts of corporate fraud for a variety of reasons. Many of these former corporate leaders shared Gordon Gekko’s philosophy that “Greed is good.” Unfortunately, their quest for power and money got out of control and they were left with few options. Although, you may expect to find the Gordon Gekko’s of the world on Wall Street, you don’t expect to find them in a profession dedicated to helping people. When you read about these Fortune 500 criminals, it will make you sick. However, future executives can benefit from these cautious tales. Otto von Bismark said: “Fools say that they learn by experience. I prefer to profit by others experience.”
Richard Scrushy was on the fast-track in the healthcare industry. In spite of his corporate success, he wanted more and his entrepreneurial spirit went into overdrive. In 1984, Scrushy started HealthSouth Corporation. The company experienced immediate success in the sports medicine arena and Scruchy quickly took the company public. In order to keep a high profile, Scrushy peppered the company’s advisory boards with big name stars like Bo Jackson. Unfortunately, this type of star-power didn’t come cheap and due to changes in the Medicare program, HealthSouth was bleeding money. Backed into a corner, Scrushy manipulated the company’s books believing he could stay one step ahead of the regulator and accountants until he could device another plan. Not surprisingly, this did not work and the entire company imploded. Scrushy’s greed and ego got the best of him. Ultimately, he was instructed to pay $3 billion in restitution to his victims and served time in a federal penitentiary.
The CEO of InterMune, Scott Harkonen, was not immune from prosecution when he reported misleading claims in a press release regarding the drug Actimmune. The biotech industry is highly competitive and expensive. It can take years to develop, manufacture and test a new drug. For small biotech companies, if the drug fails so does the company. However, if the drug is successful, a small company can rocket to the top. Harkonen knew the stakes and decided to gamble and released a statement which included partial data – only the good news. He didn’t lie; just omitted key facts. This sin of omission landed him in jail. Future fortune 500 leaders should remember to tell the truth, the whole truth and nothing but the truth.
The executives at Rite Aid did not have the right aid for their corporate books. In the 1960’s Rite Aid began to conquer the Northeastern United States drugstore market and issued its first public offering. During the 1970’s, the company continued a slow and steady increase in market penetration. However, in the 1980’s, everything changed under the direction of the founder’s son, Martin Glass. The company rapidly acquired over 400 stores across the U.S. and became the number one drugstore chain. To remain on top, the company had to continue to acquire more stores while appeasing the stockholders. When this became an impossible task, the executives at Rite Aid, including Glass, decided to operate on their own books and committed various types of fraud. This did not go unchecked by the regulators and ultimately, Glass and the other executives were convicted.
All of these executives should have kept the Hippocratic Oath in mind – “Do no harm.” Unfortunately, they did a lot of harm to themselves, their companies, the employees and stockholders. This type of fraud made a lot of people sick and the medical professionals did not have a cure to fix it. In the end, the court system had to inoculate the problem. Future Fortune 500 executives should keep this in mind; no pill can cure this type of corporate cancer. Companies will profit by having executives who have learned this lesson.
Information provided by Kitchen Simeson LLP, a Cobourg Corporate law firm.