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A Vacuum of Moral Leadership: Is the pot calling the kettle black?

- One Leader's Perspective

By Greg L. Thomas

Once again I heard about another corporate scandal in the news this evening. It was yet another major business being accused of fraud or financial irregularities in its accounting practices. Recently powerful corporate names like Enron, WorldCom, Rite-Aid, KMART, Tyco, Xerox and too many others have become synonymous with unethical business practices toward their stakeholders, especially their employees and stock shareholders. This is serious and sad news. The very underpinning of our entire economy is based on trust, honesty and accurate financial reporting. This essential trust has been violated and greed has reared its ugly head once again costing unsuspecting stakeholders billions of dollars. In some cases individuals have lost their entire life savings or retirement funds because they, or their financial advisors, were deceived into thinking that unprofitable failing companies were highly profitable.

One of the problems that has caused this tragic lack of honesty is how corporate executives have been grossly over-compensated. Many have been offered unconscionable amounts of company stock called “stock options” as part of their total compensation package. For too many who were “integrity challenged”, this has amounted to a license to steal! All they needed to do was artificially increase their stock prices through accounting gimmicks, sell at the right time, and walk away with millions in a personal fortune. It would be for “others” to take the enormous financial losses and pick up the pieces of what remained of the corporation. This is not necessarily an organizational problem since the overwhelming majority of employees and other stakeholder are unaware of what was going on. It is typically an individual problem fostered by a lack of personal character and morals. It usually takes only a small clique of self-indulgent executives working in collusion to make this happen. This is a major reason weLEAD places significant emphasis on personal leadership. I encourage you to read our article entitled, “Just What Is Personal Leadership” from the February 2002 issue of weLEAD Online Magazine.

The bottom line was that knowledgeable but immoral corporate executives were in collusion to “cook the books” and reap enormous profits by committing fraud and deceit. The American Congress is looking at a number of laws to force change in the accounting profession and in the business practices of corporations. Hopefully, any individual found guilty of committing fraud will soon face a long-term mandatory jail sentence. It is rather amazing how our culture has traditionally treated “white color” crimes with less severity than other crimes. Somehow wiping out the retirement savings, life savings or college savings of an individual due to corporate financial fraud was considered less heinous than stealing their car out of the driveway! This double standard of justice must stop immediately and these corporate thieves must be labeled and punished for what they are.

Congress is beginning to hold hearings to learn more about these scandals and to prosecute the guilty. What do you think should be the punishment for an organization that exaggerates profits, or disguises liabilities, or engages in off-the-books gimmicks and financial dodges? How about if the organization I am talking about is the United States government? Could it be that the example of the United States government has contributed to the accounting problems we now find in American businesses? When US congressmen walk up to the microphone to condemn the unethical accounting practices of Enron or WorldCom, could it be a case of the “pot calling the kettle black”? Let’s look at some examples and ask ourselves some painful, probing questions.

For generations investigative reporters, financial analysts and some politicians have clearly documented how the US government habitually overestimates its revenues, conceals the true cost of programs and hides its liabilities in “off-budget” gimmicks. This is all done with the help and complicity of government accountants. Recently the Pentagon’s own Inspector General found $1.1 trillion in bookkeeping entries that could not be tracked or justified in the year 2000! But this was small compared to the 2.3 trillion discovered in 1999.

As another example, almost all of us are aware of how the government has routinely used more than $1 trillion in payroll tax payments intended for the Social Security “trust fund” to be used for the day-to-day operating expenses of the federal government. Unfortunately there really is no trust fund! It is all a mythical shell game. As yet another example, in 1997 Congress transferred the Medicare home care costs from Part A, which is financed by payroll taxes to Part B, which is financed by Treasury revenues. By doing this it allowed lawmakers to account for the debt differently and concealed long-term fiscal problems in the program. Finally, in March the General Accounting Office (GAO) reported that NASA had made a $644 million dollar error in its financial statements. It had been audited, and the error missed by Arthur Anderson LLP, who is the same accounting firm recently convicted of obstruction of justice in the ongoing Enron financial scandal. I could site dozens of more examples of unethical conduct perpetrated against the American taxpayer. Errors and deceptive practices by government officials have conservatively cost taxpayers hundreds of billions of dollars!

GAO Comptroller General David Walker reported in April that he was unable to certify the U.S. government’s financial statements for the past two years as “fairly stated in conformity with U.S generally accepted accounting principles.” He blamed “weaknesses in internal control and accounting and reporting issues”. The GAO has pointed out the Internal Revenue Service, Agriculture Department, Defense Department and Department of Veterans Affairs are the biggest offenders of accounting failures, abuse and waste. The GAO also found that in 2001 the Department of Health and Human Services paid $12.1 billion in improper Medicare bills. When comparing the government’s accounting practices with business, former congressman William Frenzel from Minnesota frankly stated, “If you look at the way the U.S. government handles its budget and pushes expenses and revenues into and out of fiscal years with reckless abandon, switches spending from mandatory to discretionary categories and back again, does all kinds of smoke and mirrors all of us are familiar with over the years, you can see all kinds of parallels.”

Tennessee Senator Fred Thompson has also contrasted the analogy between “the corporate obsession with quarterly profit reports and the psychology of members of Congress concerned about the next election, and let the next generation worry for itself.” How are these practices any different than the business scandals we are presently reading about? Is it acceptable to prosecute business scoundrels who affected the stability of worker 401K retirement funds while not condemning those who have affected the stability of worker Social Security funds? Is not Congress responsible to be the “legislative board of directors” for trillions in tax dollars? Where is the accountability? Is fraud, concealing losses, hiding liabilities and off-book gimmicks OK for the government but bad for business? Is it hypocritical for government officials to express shock and outrage when businesses commit fraud while dismissing their own conduct as “politics”? There is a powerful lesson here about leadership.

High-ranking officials cannot lead effectively within a vacuum of moral leadership. One cannot separate morality and ethics from the modern leadership role. American politicians act as if they are perplexed as to why fewer Americans vote or even care about the democratic process. But, they can find the answers to these problems by looking into the mirror and observing their own example! It is the role of government to be the model of integrity and ethical conduct for other institutions to emulate. The unethical way that governments conduct their business sends a message to society and its culture about what is considered acceptable and unacceptable conduct. Perhaps one major problem with some American businesses is that they are indeed emulating the deceptive and unethical accounting practices of our government officials! The role of the contemporary leader is not to live by a “double standard” but to expect and maintain the highest possible values, beginning with themselves.

Recently Senate investigators examined the scandal at Enron and the role of its own Board in shirking its oversight duties. Subcommittee chairman Senator Carl Levin remarked how essential it is for the Senate to swiftly strengthen accounting oversight and toughen laws that punish corporate misconduct. This is good and obviously long needed. But what about the accounting fraud and misconduct of the American “legislative board of directors”? Why is it not also essential for Congress to swiftly conform to the same stricter standards that will soon become law for business accounting? Where is the leadership we need in Congress pointing out this ongoing hypocrisy and demanding reform?

The lesson here is that a moral and ethical crisis exists in our culture beginning with government and filtering down throughout our society. Even many new members of Congress arrive with the idealistic desire to create real change and reform, only to be devoured by a bloated dysfunctional bureaucratic institution. Leaders from all segments of our society must recognize that this vacuum exists and immediately begin to “seal” the gaping puncture. We must first begin with ourselves, then positively influence the organizations where we work and the communities where we live. Expect more from yourself and from those we place in leadership positions, including elected officials. As anyone who has ever initiated “change” in an organization will tell you, the process of change is difficult, painful and frustrating. But it must begin “somewhere” and that somewhere is within its leaders! So remember the vital importance of your example. Don’t maintain a “double standard” that has one set of values for yourself and another set for everyone else. Don’t be like the pot that calls the kettle black!

Comments to: gthomas@leadingtoday.org

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About the author:

Greg has an extensive thirty-five years experience in public speaking and has spoken to hundreds of audiences worldwide. Greg has a Master of Arts degree in Leadership from Bellevue University, where he also has served as an adjunct professor teaching courses in business management and leadership since 2002. His first book, 52 Leadership Tips (That Will Change How You Lead Others) was published in 2006 by WingSpan Press. His second book, Making Life's Puzzle Pieces Fit was published in March 2009. Both are available at amazon.com. Greg is also the president of Leadership Excellence, Ltd and a Managing Partner of the Leadership Management Institute. Leadership Excellence, Ltd. effectively builds individuals and organizations to reach their highest potential through enhanced productivity and personal development using a number of proven programs. He is also the president and founder of weLEAD Incorporated.