Business Columns & Blogs

Is getting fired enough punishment for execs whose companies are involved in scandal?

You don’t have to go very far into the comments section of any story dealing with a business scandal to find calls for executives of the company involved to be fired, stripped of past pay and future compensation, arrested, jailed — and worse.

The outpouring of hostility can be read as reflective of our polarized, inflammatory times, culture and public discourse. It seems we can’t engage in discussion without the rhetoric going nuclear within seconds.

When it comes to business scandals, the outcry for someone to pay is nothing new. Today it’s Boeing. A decade ago, it was Wall Street and the banks. More than a century ago, it was the trusts and the robber barons.

The populace’s frustration doesn’t have much to do wealth concentrations or disparities, although political opportunists like to frame it that way. Instead it’s the sense that those responsible manage to evade responsibility, no matter how horrific the conduct or consequences, while the ordinary citizen catches no breaks no matter how mundane the infraction.

Multiple factors fuel the frustration.

Business executives walk away from the messes they’ve created not only with no penalty but with lavish compensation packages intact. The scandals never get a nice, clean “Dragnet” episode-ending resolution (how’s that for an anachronistic pop-culture reference?) with the miscreants getting their just deserts. Instead, they drag on, fade away, are forgotten in the wake of newer, fresher stories of bad behavior or disappear in the fog of confidential settlements.

Most of all, the people who usually contributed the least to the problem and have the least amount of say — low-level employees, customers, community members, individual investors — are the ones who pay the most.

These are issues playing out in such global controversies as the collapse of a mine-tailings dam in Brazil, a disaster that killed hundreds. The company that owned the dam faces accusations of knowing about, and ignoring, warnings that the dam was at risk of failure.

They’re also central to the ongoing debacle that is Pacific Gas & Electric, accused of setting off a wildfire that incinerated a California town and killed scores. The repercussions of that disaster include the current policy of cutting off power to huge swaths of the utility’s service territory in anticipation of more wildfires.

Much closer to home, in terms of the company involved and the effects of the controversy, is the Boeing 737 Max, the Renton-built plane that had two fatal crashes blamed on software systems that took readings from a faulty sensor and took over the plane’s controls to correct a problem that wasn’t occurring.

The revelations to date, including suggestions that Boeing implemented changes in automated safety systems without adequate notice to and training of pilots, have led to calls for executives to pay with their jobs, paychecks and possibly their freedom. So far the company has removed the chairman’s title from the chief executive and fired the head of the commercial airplanes division. Given the plethora of problems Boeing is dealing with in several airplane programs, not just the737, there’s considerable conjecture that CEO Dennis Muilenburg’s tenure is not likely to be long.

Should Muilenburg and others pay with their jobs? Is that enough, or should the penalties for screwing up be more severe and consequential than being sent away with a public scolding and a nice severance package?

Here’s where it gets messy and muddy, and where the public’s frustration starts climbing.

The executives would argue they can’t be expected to know every detail of everything that’s going on in their company and shouldn’t be held accountable for events beyond or below their station.

The counterargument is that CEOs are paid unseemly amounts of money to know what’s going on in the company and to bear ultimate responsibility for what the company does, whether or not they know beforehand.

The Watergate-era bromide, “What did they know and when did they know it?,” is an interesting investigatory exercise, but the executive sets the tone and culture and is the one answerable. They certainly get the rewards; they ought to get the risks.

Here’s another issue to make things even messier and muddier: Where is the line between being criminally culpable or negligent and just being bad at business?

While there might have been a few fraudulent operators, many of the dot-com-era company executives (and more than a few executives of today’s crop of unicorns like WeWork) sincerely believed they had sustainable business models, huge losses and ferocious cash burn notwithstanding. Many financial-sector executives saw no risk involved with an over-leveraged housing sector supported by tenuous loans and faulty assumptions about the economy.

This is a direct application of the George Costanza philosophy (from “Seinfeld”): “It’s not a lie if you believe it.”

But does incompetence qualify as a “stay out of jail free” card? Consider the case of PG&E, already on its second bankruptcy and with a record that includes a devastating natural-gas explosion. At some point the excuse, ‘Gee, I guess we’re not very good at running a utility,” becomes insufficient.

Similarly, Boeing executives past and present are confronted with questions about whether they were simply slovenly at running an airplane-development program or whether the neglect of important safety issues rose to the level of criminal negligence. (While we’re asking questions and assigning blame, let’s not let regulators off the hook; they, too, have some explaining to do in all these cases about culpability.)

Because that line is so hard to identify, and because it’s never in the same place, the public isn’t going to get what it wants — the sight of executives being pelted with rotting fish and vegetables as they’re led to jail.

The tar-and-feather, torches-and-pitchforks approach might be too crude, hasty and unreliable at finding the truth, assigning responsibility and exacting justice. But it’s not as though the current approach is doing such a great job at any of those, either.

Bill Virgin is editor and publisher of Washington Manufacturing Alert and Pacific Northwest Rail News. He can be reached at bill.virgin@yahoo.com.
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