Corporate Fraud on Trial: What Have We Learned?

The high-profile corporate scandals involving former WorldCom CEO Bernie Ebbers and former Tyco CEO Dennis Kozlowski are back in the news, refocusing attention on corporate fraud and inviting such questions as: What has changed since these allegations emerged a few years back? And will the criminal trials of these two men, under way this week, serve as a deterrent to other high-profile executives who might be tempted to forget the rules of fair play in corporate America?

Some observers caution that it’s a little early to determine whether the most recent round of corporate reform efforts -- primarily the Sarbanes-Oxley Act, passed by Congress in 2002 and designed to increase corporate transparency and safeguards for investors -- will have much impact on America’s executive suites and board rooms. Moreover, says Wharton legal studies professor Thomas Donaldson, there are limits to the compliance approach to ethics. “Corporate governance is a hot topic, but we are overly optimistic about what corporate governance can do.” Simply rearranging the chairs at the higher echelons of a company, he adds, will not prevent the types of fraud that have occurred over the past several years. Penn law school professor David Skeel agrees. “To the extent that we think we can head off the next round of scandals -- think that if we just get these cases right it won’t happen again -- we’re kidding ourselves.”

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The “big truth,” says Donaldson, “is that there is only so much we can gain from corporate compliance programs and corporate governance.” Or, as Skeel puts it: “The devious behavior of men and women knows no bounds.”