Tuesday, March 01, 2005

Ah, what a difference eight years makes. Back in 1997, Bernard Ebbers was portrayed in the press as a sharp-eyed visionary whose keen, out-of-the-box thinking was "showing industry veterans what the new era in communications is all about." (Apparently, it was about highly leveraged buyouts based on inflated revenue projections). He was the man who knew better than anyone else what was happening in the industry. Which brings us to Ebbers's current trial. Where the prosecution is trying to prove that Ebbers knew at least what was going on inside his own company. And where Ebbers himself is trying desperately to deny it:

Mr. Ebbers ... said he was ignorant about accounting in general. "I know what I don't know," he said, referring to his lack of understanding of the technology WorldCom sold as well as its finances.

He testified that he did poorly in college, where his "marks weren't too good," and that he bounced from one job to another, working as a milkman, basketball coach and warehouse manager, before he and a small group of investors started the predecessor of WorldCom in 1983. ...

Mr. Ebbers, who is accused of fraud, conspiracy and filing false financial reports, said that he was "shocked" when he heard in June 2002 that an internal auditor had unearthed billions of dollars in buried expenses. "I never thought anything like that had gone on," he said. "I put those people in place, and I trusted those people. I had no earthly idea that that would occur."

So, what does he say he was actually doing all this time, to earn his keep as the titular head of a company he didn't understand?

Mr. Ebbers, 63, said his role was largely that of coach. He said his main job was to motivate the sales and marketing team.

"I focused on the area I thought I could handle," he added, referring to his role managing the sales force.

Before you scoff too quickly, compare the two portraits, then and now. The 1997 profile acknowledges Ebbers' oddball background (with a degree in Phys. Ed.), and says that he has more fun riding tractors than talking finance. Is it all that implausible that a really good salesman could get in the habit of reciting a pitch made by others, without really understanding it? That he could train himself to rattle off impressive-sounding figures without understanding what they really mean?

Or that, when the accountants came to him and tried to tell him that they couldn't make the numbers work for his pitch, he might demand better numbers, without understanding that he was actually asking for criminal fraud?

I don't mean, here, to be insulting to the other P.E. graduates, college dropouts, and the like, who actually do manage to apply and better themselves. Some of them do -- an erstwhile failed haberdasher named Truman did a pretty good job of running a larger organization than Worldcom. But some of them don't. Ebbers might be one of those.

In which case, there would not be just one fraud here -- the cooked books which led to the current trial -- but two. One: the accounting fraud. The other: the fraudulent portrait of the CEO as mastermind, even though he now claims he didn't understand the business at all.

As to Ebbers, he's clearly a very fine salesman. In the 1990s, he sold the portrait of himself as a mastermind, A lot of CEOs these days spend a time doing that sort of thing. And for selling himself as a mastermind, he got a lot of money -- even though he now says he didn't know much about the business. Should he be liable for knowingly peddling such a flawed product?


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