Transcripts For CSPAN2 After Words 20170103

Caller criminal. And this going back from large Empirical Data sets and i came across the show called m. S. Nbcs locked up it was of a reality show ended had a crew that was interviewing convicted felons murder or assault or rape and started to think about the kind said people the kinds of and Industries Like fortune, investments those that donates generously and what happens to these guys . That people respected then convicted and then they disappear so that is a personal interest i saw the headlines 2008 world, and enron and the associates are still there that evening out of personal curiosity i did what i think a lot of people thought when they read the wall street journal what were they thinking . Maybe i could dispense some time talking with them to get perspective. Give a sampling of the use spoke to. Over the last seven years roughly 50 people most were convicted criminals and in some cases they have spent over turn to like the executives from enron the ceo of tyco just like Bernie Madoff as one of the largest ponzi schemes in history. Host how did you approach them and why did they agree to talk to you quite timid that is a great question so i approached them with i think as an educator i teach this material at Harvard Business school so i dont think it is what they thought they would never face some are even a long as of the school that what i teach at so what happened along the way . Sidelight to better understand your perspective. That first night when i sent the first 10 questions and did receive some responses but day berry alec and letter back to describe the challenges that he faced some said by a wouldbe happy i have plenty of time now. So i started to take them up on this offer is favored federal prison email that became more apparent to me and was humbling at extraordinary intelligent individuals so as to why they spoke with me is that i could commit to spend as much time is a needed because they have the deadline i could spend weeks or months or in this case years to try to understand how they see the world because that is the old met goal of the project. In summer from the Business World and talk about the financial crisis, other firms much of the conversation was not about their case actually but. So here was a day had to say oftentimes was fascinating. Host family members . Victims . Others around these individuals . Much of my focus was on the individuals in many cases i yen in the correspondence and i think it is very easy. To use say somebody would get two years in prison to see what that does twofamily it is extraordinary even offended short. And now people start to get out of prison but in some cases their flourishing in different ways. And having the sanctions for something they can never overcome. They were truly devastated and then actually to say i just had this conversation why does this not seem to be resonating with few plaques and in some cases it did seem to settle and there were people on either side. I guess i would ask the question if you thought they were truthful with you but perhaps the way you describe it to you are not necessarily trying to determine the truth. Right . Did meg the broader goal is a view of the world i want to put myself in their shoes to see how they view the world but with their own case as with any prosecutor or defense knows even if they try to be truthful even with the best Case Scenario it is hard to remember all the details but most are convicted felons so that could believe on my part. So much more of the other information so we have a lot of females. They were not worrying that night they were celebrating going out with their spouses. So that piece of information is more powerful not widely reported to think of what they were thinking with their Immediate Reaction but ultimately subjective. I did not run to my defense lawyer that night i had out party sought was not intentionally doing anything wrong. And all data was intentional but they were worried in that is something different. We know that is wrong but if we know something is harmful with personal harm or devastation than there is a much bigger pie is so in many of these cases this could aid to a slap on the of rest of what was described in the book. So what is the difference , if there is one between the white caller criminal and those who commit a lot types of crimes . Is there a fundamental difference of the profile of doc perpetrator . The perpetrator and the crime itself is different about lost most is you dont have to get close to the victim. That the victims are distant from Insider Trading it is difficult to identify the name of the individuals. Know when there is anonymous person on the other side. Not to say it doesnt exist but in other cases with identifiable victims that they would be identified as part of the ponzi scheme. And after they invested in non existent to give you more money come home and most of the date would be pretty did it was just later that it starts to unwind and becomes clearer that there were people part scifi interesting with hundreds of dollars of individuals and a room. So many of these individuals have taken far more than 20 from me. Many without remorse from my account. And that is the fundamental difference. Even reasonably. And fundamentally with the desperation or circumstances. With uh victim for the victims to be revealed and the act itself. How the crimes are committed by the click of a mouse or to plant and a new number and. Is the nature of the act also part of that correct. That is extraordinary devastation in to cause hundreds of millions of dollars. It doesnt feel that harmful at the time but one of the people that was prosecuted as a former cfo describes he was ultimately prosecuted and was comfortable but did not sought feel bad to sign those documents. So what . Is only once he was confronted by at banker he said the numbers dont wind up in when you go facetoface peace said it is hell life. Is a life. So to be lying to someone to their face is harder. Host so the fact to give you some insight how one might better determine whitecollar crime how bad it is different blacks does that give you a conclusion. This is a big challenging question. From what initially surprised me is what i came to expect that most of these people are pretty egregious misses and just with the great lawyer but if you go to prison for a period of time it is not that they would ever go to prison even if we do something very wrong maybe just does different regulatory approach with the delivery cost and benefit calculation there is two ways to increase the cost you can increase the of probability or the historical approach over the last few decades associate the cost so rather one year or fiveyear or three years in some cases it could be even to long. There was one website in your book of 12 million fraud in packs shareholders that was punishable by three Years Imprisonment by the early 2000s it would increase between 13 and 16 years for the same effect that is us dramatic increase of penalties and sanctions and fines with your point that may not have much of an impact to deter whitecollar crime. It is the type of individual if you go six months or three years that idea is not resonating. It is those guys that go to prison. Not me. So this will have serious sanctions associated with that which could have financial penalties of prison but this is what happens to people who do this kind of thing. And is no longer a costbenefit calculation that is part of the culture of what is appropriate but in order to detect more cases with those resources that is challenging because it is a political consideration from what investigators have. Host if whitecollar criminals to make that costbenefit analysis then do you have suggestions on how this crime could be better deterred . This is my view that the people in here are not predisposed or have any inclination to do something criminal. The they are exposed to the norms and the cultures and the pressures that they face. From that standpoint there is not one Business School student that says my goal is to become wealthy and improve the industrys donate to organizations may be at the end of my career i willing gauge with Insider Trading but the people theyre doing exactly that. Key and add an extraordinary career one of the most wellrespected firms in the world and eventually ecl. And mr. Gupta became the lead person of culture and what it means then soon after his retirement he is on the board of prestigious firms including Goldman Sachs and 23 seconds after a Board Meeting he calls say wellknown Billionaire Hedge Fund divulging confidential information. This is against everything you dont become were you are by being thoughtful or reflective. Host i will stop you right there because maybe somebody blood suggest that is exactly the approach or contact them gets you ahead in the Business World. It is not a place necessarily with ethics or morality prevail but for those persons who operate in the grey area where those across the grey areas so mr. Gupta was an extension of how he operated. It could be it is impossible to rule that out but what i do think about with the other partner is one of the most cherished values at a place like mackenzie is confidentiality. You do not elevator talking rocklands you go to st. Louis but youve to which firms working for. It would be pretty remarkable to spend decades in the culture teaches it and lead it successfully and not respect that bet yet in both the these cases they were exposed when they work in the confines of the Mackenzie Coulter because we protect one negative protect the confidence. Edison something that is born this something that we learn to do for the type of culture that of a corrupt hedge fund so when they start interacting with people that differ from that and perhaps this could have occurred earlier but unambiguously labor spending time with someone that acted differently with the different types of culture and that is a little disturbing. Because of culture or morality is more temporary debbie would like to believe. To foster moral behavior and good contact. I agree. There are miles and the books of a moral compass and that is nice to think about to believe if travis said of moral values today and then to push back to say that situation dominates the few spent 40 or 50 hours and a Business School class or ethics are in a Corporate Training Program that is dominated in the classroom that is the equivalent of the first for all days on the job so that will dominate whatever experience you may have had in the classroom training exercises and i think we tend to describe reality and see that driven like the cultural norms. People do aspire the when they face tremendous pressure receipt people doing things that our different we have a case where wells fargo had several thousand people doing exactly that by one of those challenges was so whole host of regulatory challenges. So really it is too much of the catch phrase but the culture set within the firm because that is what will motivate people and ultimately their ethics. So to that fundamental question of why they do it it, and the portion of the book of why they surveyed those theories why white caller criminals do with they do to suggest that you could tell who would be whitecollar criminal by their physical appearance with a high forehead and a pointed nose and he would be embezzle. It is taking place 1939 actually a colleague from harvard one of the most wellrespected person in the country talking about why a crime ochres and help he can about this with the shape and size he did one of the most complete studies even by todays standards with it 10,000 convicted felons with the link the avi earlobe this is still the appealing few something about that body belated to the propensity that we need to get careful measuring and then they published his book describing criminality and then showing what the white caller of under looks like then he gives the six said then characteristics if they look like this and they will be whitecollar of vendor. Actually had this turndown to be to limit be wonderful. Answer to through that data base of photos that very much in part people started to see how this was correlated there were many faulty correlations but a criminologist from university of pennsylvania has then some interesting work it is not the persons face or body shape but you need to go deeper inside the body so there is a fascinating work like spousal abuse or murder and have the different brain make up with a higher propensity associated. And then there is a more recent paper with a number of lowlevel whitecollar offenders that day it knowledge to see differences in brain structure that they have a higher capacity but it shows in the different ways that ultimately the arguments of the physical causes that there are explanations many of the people that i spent time of the then i could flip around miff everything you expect says a corporate leader with the physical cause to whitecollar criminality but that is probably not the answer. What is the bottomline conclusion . Is it situational . This set of circumstances coming together for a perfect storm . What conclusion . So much avoided is reasoning in looks like reasoning to a bus with wonderful psychological evidence but it comes down to our intuition so most is the failure of the managerial intuition. To take a Different Task for approach. Because managers manage based on intuition and cut and they dont give a lot of thought to those situations to do something and they should know better. Exactly. That this will be harmful or erred devastating. Your guide does not bubble up there could be some serious consequences. But it does not strike as. What we need to do is think of whitecollar crimes but youre doing something wrong because other people are doing and. Before your spouse is next to you. Reviews cns accident or a police car. You may slow down because you are reminded. But a lot of these that is ethical the white do reseat people falling prey to this simple failures . Of the classical training is different than the realworld. Should you do this sort not . There will be people that will think differently and you. And from the regulatory perspective but generally not to push back with the ceo. Lets talk about that. Mark whitaker from archerdaniels midland and what convinced him of the conduct he was convinced. He was the rising star he was a rising star and promoted to a more Senior Division and with the global price fixing. Em with the japanese and european and a figure rod to set the prices. It is pretty clear to mark whitaker. It think there was the hands that there was some apprehension this is what the senior people tell you what you want to stay in that position of privilege you adapt to what theyre telling you. But it is just describing what he is doing in his wife reacts with shock that this is not who you are this does not represent what you should be doing. Somebody that respected and trusted to be contaminated in many ways in a situation and then became a whistleblower of 1. Is secretly taping many of these reports. And then becomes a whistleblower for the government but the point he is a whistleblower there is something even more shocking but he is embezzling. Does and talk to his wife and doing a crime as an informant will increase your propensity to be caught and then what could be Something Else so this suggest that one route decreasing the level of whitecollar crime is with the people who are outside the culture that they could offer a voice that is not tainted by groupthink. Is set of viable solution . In a genuine way. So much of this comes down to follow the rules. So what we are trying to avoid sometimes use the more rules this just do what i used to do before. And much rather say this is what represents white went to the firm. But of course, that is a very different approach. With the role that attorneys play. And as it comes to the regulations. But speaking to many managers but somebody is operating to see that differently so you are reflecting what the of client wants in that moment of of long term interest is something that kelso complain a leadership but infers cases you are the ethics officer that is a much more humbling position i know they shy away when you bring the world of the ethics with this is where reseat managers to offset also with the Technical Accounting matters. With the accountants and attorneys to give the different ethical lines. I think lot more that goes on and what is given credit from Service Providers put their ardor circumstances were a day are enablers and that does. So if youd imagine in a boardroom negative spouses or significant others when the moral compass goes off and. That is a generally different view. As the venture capitalist uncelebrated venture capitalist melendez see a fellow came and said it doesnt look that competitive but it turns out to make it the most attractive for Senior Executive this looks great basically have free lunch but he realized is intuition might not be perfect but nontechnical finance or accounting but with then Silicon Valley than the attorney comes back and there is no way id recommend against it. Many other firms are doing in the that becomes part of the scandal can actually one of the people and went to prison for this it is in because he had a better moral compass than the other executives but he had a better compliance system wasnt personal preservation in new financing and accounting but that little inner circle might not be so he anticipated this soleil will say is a fascinating incident that he was aware he could be compromised. Such callous about your interactions with the Bernie Madoff and one may be described as chilling. Corresponding over years now hundreds of pages of correspondence to be wellrespected and then to be attributed simultaneously to become one of the largest ponzi schemes. En never destined to create that failure and then she never get out of it. Invent it grows and becomes outofcontrol. That there is no way he could have imagined he would never get out of it but it wants so if people around you put you on a pedestal and then you say i should call the second the doj to sample to that next week. I know of this is wrong but to watch everything i have done collapse spend unnecessary humbling and difficult question and then we will ended today. That is a very provocative way. That the second he turns and softening never has another meal with his family but why did he clampdown . The people moving gauge and crimes they did not know the marcie those victims but that is not true for Bernie Madoff. People of the Jewish Community to say it is okay to give the money. Those remote victims . Tickets aid the exact opposite that dismembers better try to understand his personality or how he views the world. And one died of cancer and win his second son died just popped up on raiders and literally just came out i pick up the phone it turns out i was surprised because there was not a call scheduled at this time but it was Bernie Madoff. And my stomach just sunk when i heard his voice i am reading at that exact moment he said he just heard on the radio announced by could read him the obituary. The First Time Ever had to speak to somebody. That is the hardest point of someones life about their child. So i read the obituary i am so sorry if there is anything that i can do 20 use say to someone in the situation . Please as im fine and he says camille back to talk about Interest Rates . I will say he was the one distil think about this and went home and my wife saw me and had the most disconcerting conversation of my life. The first reaction maybe he was in shock but i dont think it was that. This was an issue for four minutes he was focused on fl bad and he compartmentalized said then he switched. Has psychological makeup is different that is what helps to facilitate. So when he was soliciting money but the consequences and revocation. And that all the key could differentiate but he would tell people i cannot take your money right now. And then say i told people not to give me more money. And leslie makes someone to give you money even more. That is a great marketing pitch. He says of they give me their money and that is their fault. So that is a sinister rationalization. I am deceiving them but this classic with that 8,000 line contract so we told you that could happen so that is not reasonable. There are so many interesting stories are there others that stick out in your mind . There was a very different view blaming everyone extreme that and purely at length short of the pages but what is interesting . With a Financial Institution with the goal of lawenforcement. But things collapse or go bankrupt and then receivership kicks in. Before it collapses and there are other firms i did not take the bailout. So he is is that it must be legitimate in no way to provide some comfort it is not his fault the somebody else. There is the 99. 9 percent chance of 1 percent chance to suggest this is more of the of 1 . With those representations. Added is hard to have succeeded. Teetwo the extended is legitimate Warren Buffett should call him a ford vice so he provides one ecuadorean 30 return there should have ben hundreds just like berkshire hathaway. An old College Buddy of his he did some pretty nasty things to put the money in the trust when his wife died in with those other major executives with those whistleblowers they didnt know what the business actually was to say we dont ask questions makes it much harder to think there was a on legitimate business that he only knew about but that receivership with more and more evidence. You could save derrick is investment but then moving around and barking at the 3 billion simic anybody else stick out in your mind . As the trained attorney we can see them as an academic. So if he has the time to step back where he wants to build a worldclass law firm to do that. But to talk tends of millions of dollars he did add have of finance background but could create from scratch but then with those hedge funds after the first one to save of cost kept going up faster than a the revenue. Finally somebody would take that by email. So it gets to the level of absurdity. And then they know that pension fund. Digest need to walk out of the room with the private jet waiting at the airport mr. Shows how zero delusional you could say the smart thing would be to divert that with a pile of money that would not extradite him several people did exactly that but he still by he could get his way added that this point of time which shows how you get into these situations. So coming back to the notion of the effective deterrent and how we minimize with uh concept of public shaming and the whole community is involved in the process. And to deter whitecollar crime. So no if they face wrongdoing but theyre not shunned in orthodox jew in a 70 engages they cannot take a leadership position but people are told not only tonight socialize but in their place of business and sometimes it the shaming is so deep that hurts them on every dimension. Not because able not be necessarily thrown in prison but they are losing their home. So now in the Business Community you dont see that same sense of outrage o curring. So we see that like when senator warren talks to them and we see this in protest like occupy wall street. Public andrea the tory outraged but we dont see a from the Business Community in some cases they say this was wrong but Everything Else is so extraordinary. And it is pretty remarkable. You dont get to have the letters of support attesting to how you donate this money and spend and change these communities. The question is, i wonder, do we need to have a little bit more of that outreach coming from the people in which they are buying the approval most from. Thats a cultural shift. I think this goes back, when it does come to regulators, the standpoint that other people see themselves in the same boat, facing those same kind of sanctions, this creates a challenging question. You dont want to then, you want to support and say its not that bad in your protecting yourself, but at the same time, thats the job as a leader. You should be able to call out and admit mistakes when they are made. This is where the challenges for leaders to be able to admit mistakes in executive of firms but thats always about four steps later. I think in many cases, i like to believe that people would be shareholders, public and regulators would actually be much more accommodating when mistakes happen. They happen in major firms. I think as anything other would be extreme. When we can admit those mistakes up front and see what were doing to try to change those. Its a degree of transparency. We present one side externally in one side internally and maybe some of the internal discussions are significant, what what were doing to address it would go away and make people think differently. We could spend a lot more time on this. Its a fascinating book. It gave me a perspective on individuals i didnt have in my formal role. Thanks to you for taking on the work as well as being informative for the public. Its been a great time to spend with you and congratulations on the book and thank you for sharing it with us. Thank you so much. Cspan, where history unfolds daily. In 1979, cspan was created by a Public Service by the Cable Companies and is brought to you today by your cable or satellite provider. In your new book, streaming, sharing, stealing, big data in the future of entertainment, you open with