Scapegoating Ebbers Won't Cure Telecom Corruption

By CIOinsight  |  Posted 07-14-2005
When Mississippi's favorite son, Bernard Ebbers, was sentenced to 25 years in prison for his part in the Worldcom/MCI debacle this week, it seemed to be a worthy blood sacrifice to the many tens of thousands of people who suffered at his, and his company's, hands.

The clamor for sacrifice was focused on Ebbers himself. While he is a worthy target for mass ire, as CEO he is also a surrogate for an entire industry, the business standards of which are built on a foundation of vapor, the cancerous model of expansion as an end itself, and a complete lack of accountability to customers, partners, employees and the nation that grants its licenses to operate.

Ebbers is the fall guy, but the criminals that set up the whole scam are the telecommunications industry and its Wall Street cronies.

Ebbers' sentence was the most stringent yet delivered in the series of showy parade trials of popular CEOs of the 1990s, who were worshipped as heroes of Olympian significance during their ascendance.

I don't think it's a bad thing that he got this sentence—in my opinion, he deserved to be held accountable. What I find extraordinary is that his mix of corporate misfeasance and malfeasance is markedly lower than many of the others who were once idolized.

Ebbers' transformation from hotel chain operator to long-distance service provider in 1983 was triggered by the Reagan-era telephone deregulation.

That disruption of the telecom status quo provided a starting point for many entrepreneurs, some of whom saw an opportunity to try to create something new out of nothing, some of whom saw an opportunity to enter a field without formed regulations or even etiquette that would constrain the drive for pelf.

The simultaneous loosening of financial accounting standards in telecom and elsewhere made telecommunications an attractive line of work for people who like to play with intangibles as assets, for accountability sloughers, for empire builders and outright get-rich-quickers.

And once that happened, as in many unregulated endeavors, the industry devolved from a capitalist engine of creation into a Commons.

If you haven't read The Tragedy of the Commons, click here; the model describes why so many organizations have so much incompetence at the top and why quality is not a competitive factor in many fields; and if you think the telecom industry is not a prime example, ask two dozen acquaintances if they love their mobile service provider.

In a Commons, ethics, quality products and service, and the ideal of building a multigenerational business all make a competitor less likely to survive, while creative accounting, tax evasion and pimping the customer all build competitive strength.

Poisoning the environment further during the 1990s was the focus on being "first to market" and preempting competition through acquisition. Compound that with extremely slack accounting standards and you turbocharge the telecom's tendency to attract Corporate Raiders Gone Wild.

Outfits run by people like Bernard Ebbers were rewarded with expanded industry share and customers, while legitimate operations were subsumed by the market and Wall Street cronies. Wall Street rewarded operators who managed share price (an abstract artifact that represents some piece of a business) as opposed to managing their actual businesses.

Ebbers' and Worldcom's particular crimes were set off by the need to manage Wall Street expectations, because the price of the stock fueled apparent worth that in turn fueled the ability to expand that apparent worth. (Some good background on the ethos of "monetizing" customers and expansion for expansion's sake can be found in the book "Money from Thin Air" by Casey Corr.)

Understand, unlike some other CEOs such as Dennis Kozlowski of Tyco International, Ebbers wasn't looting the company to make himself richer. If his forfeitures are any indication, it appears he left the telecom industry with about the same assets he had before his company's conquest of MCI.

He doesn't seem to have played the stock market like the Enronnies. In a country where the statistics indicate that millionaires give less to charity than middle-class people, Ebbers apparently gave away an unusually high proportion of his income to charitable causes.

The crimes of which he has been convicted are parallel to common practices in the telecom world, but made more extreme (as in every Commons) to reap higher rewards.

He had ordered his finance people to make the numbers investors wanted, and the only way they could do that was to book non-revenue items as revenue.

Ebbers pumped his customers, suppliers and workforce to win allegiance from Wall Street and shareholders by hawk-eyeing trivial expense lines. He micromanaged the budget, killing off free coffee for employees and having the maintenance folk fill the water service's cooler bottles with tap water. Allegedly, he frequently snuck out of his office to check auto licenses in the firm's parking lot to audit who was working what hours.

All that makes comically disingenuous his claim that he had no idea that the financials on which the empire was built, and was floating, were flawed.

With a 25-year sentence eclipsing even the runner-up for the CEO Jailbird Award, can we say Ebbers was the worst of the lot?

I think probably not. Coming from an industry where all the major players use parallel techniques, Worldcom's CEO was cut out of the herd in part because his overly ambitious empire collapsed, in part because his lower-middle class roots granted him fewer loyalties from Wall Street and legal influencers.

Does it sound like I feel sorry for Bernard Ebbers?

I don't. I am sorry only that that most citizens will reach catharsis bathing in the blood sacrifice of a single transgressor instead of really fixing the system—instead of attacking the sickness of the Commons that is the modern telecom industry.

Because, as a culture, no matter whether we claim the opposite, we do hate the sinner, not the sin.

Jeff Angus is a management consultant and has been working with IT since 1974. He has held IT management positions in user interface design, marketing, operations and testing/analysis. Look for his book, "Management by Baseball: A Pocket Reader." Jeff's columns have appeared in The New York Times, The Washington Post, the St. Louis Post-Dispatch and the Baltimore Sun. He can be reached at jeff.angus@comcast.net.