[Originally published on July 8, 2005]
Some psychopaths occupy a prison cell. Others occupy a corner office. Both are dangerous.
Psychopaths possess a profound lack of empathy. They use other people callously and remorselessly for their own ends. Psychopathic CEOs are no different. By advancing their own interests, with little regard for the agony they might inflict on others, they jeopardize the welfare of employees and investors alike.
In short, psychopathy is bad business.
It’s true that heartless managers can achieve statistically heroic corporate triumphs. But it is also true that the garlands of such victories often contain the pink slips (and sufferings) of thousands of employees.
But before we proceed to condemn America’s self-serving CEOs, allow us to give credit where credit is due, both to Prof. Robert Hare for linking psychopathy to corporate behavior and to Alan Deutscheman for explaining the topic in a fascinating essay.
“One day in 2002,” Mr. Deutscheman begins, “a 71-year-old professor emeritus from the University of British Columbia, Robert Hare, gave a talk on psychopathy to about 150 police and law-enforcement officials. He was a legendary figure to that crowd. The FBI and the British justice system had long relied on his advice.
“According to the Canadian Press and Toronto Sun reporters who rescued the moment from obscurity, Hare began by talking about Mafia hit men and sex offenders, whose photos were projected on a large screen behind him. But then those images were replaced by pictures of top executives from WorldCom, which had just declared bankruptcy, and Enron, which imploded only months earlier.”
“These are callous, cold-blooded individuals,” Hare scowled. “They don’t care that you have thoughts and feelings. They have no sense of guilt or remorse… I always said that if I wasn’t studying psychopaths in prison, I’d do it at the stock exchange.”
Collectively, corporate psychopaths inflict pain on hundreds of thousands — if not millions — of employees and shareholders. The senseless sufferings include lost livelihoods, lost life savings and sometimes even broken families or suicides.
And all the while that these CEOs sow agony, they reap riches for themselves.
In 2004 the CEOs of 179 major companies were paid an average of $9.84 million, up 12 percent from 2003, according to a survey by Pearl Meyer & Partners. By contrast, average labor compensation rose only 4.5 percent. (Unless a guy can hit a baseball 400 feet, or create misogynistic rap lyrics, he doesn’t deserve that kind of money!)
But these highly compensated — and sometimes brutal — corporate executives, as implements of financial Darwinism, can produce a greater good, according to Robert J. Samuelson in a recent article for The Washington Post. “The obsessive drive to improve profits, though cold-blooded, also creates often-overlooked social benefits,” he asserts. “It’s not simply that growing profits bolster the stock market or finance new investment. The broader point is that advancing productivity — a fancy term for efficiency and a byproduct of the quest for profits — is the wellspring of higher living standards.”
Maybe so, or maybe we have simply baptized a social evil, in the process canonizing villains. There is a very fine line between “creative destruction” and creative annihilation. But morality is not our beat here at the Rude Awakening. We, too, pursue a profit motive that is morally ambiguous.
But even from a rabidly capitalistic perspective, investing in psychopathic management can be very bad business. Folks like Enron’s Andrew Fastow, Sunbeam’s “Chainsaw” Al Dunlap and Worldcom’s Bernie Ebbers have demonstrated the destructive capacity of corporate psychopathy.
When in doubt, therefore, the prudent investor might opt to invest in companies that do NOT promote psychopaths to positions of influence.
Given the power that CEOs wield, Prof. Hare suggests that we screen them for psychopathic behavior. “Why wouldn’t we want to screen them?” he asks. “We screen police officers, teachers. Why not people who are going to handle billions of dollars?”
The professor may have a point. Several big-name CEOs would score “mildly psychopathic” on Hare’s corporate Psychopathy Checklist, according to Deutschman.
“‘Chainsaw’ Al Dunlap [would] score impressively,” Deutschman relates. “What do you say about a guy who didn’t attend his own parents’ funerals? He allegedly threatened his first wife with guns and knives. She charged that he left her with no food and no access to their money while he was away for days. His divorce was granted on grounds of ‘extreme cruelty.’ That’s the characteristic that endeared him to Wall Street, which applauded when he fired 11,000 workers at Scott Paper, then another 6,000 (half the labor force) at Sunbeam… His plant closings kept up his reputation for ruthlessness but made no sense economically, and Sunbeam’s financial gains were really the result of Dunlap’s alleged book cooking.”
We would not be opposed to “CEO screening,” but we’d prefer to allow market forces to eradicate the scoundrels. Specifically, we’d prefer that the lessons of the past govern the investor behavior of the future. Now that we have observed the downside of corporate psychopathy, we individual investors should have learned to avoid buying into companies run by self-serving lunatics.
We cannot always know, of course, who is psychopathic and who is merely “tough.” But perhaps the time has come to attempt to discern the difference. For too long, we have revered executives who seemed charismatic, visionary, and tough…as long as they were lifting profits and share prices. We did not care about mass job layoffs, provided that they occurred as remotely and silently as a lethal injection.
“We were willing to overlook the fact that CEOs could also be callous, conning, manipulative, deceitful, verbally and psychologically abusive, remorseless, exploitative, self-delusional, irresponsible, and megalomaniacal,” Deutschman sums up. “So we colluded in the elevation of leaders who were sadly insensitive to hurting others and society at large.”
But we individual investors seem to be repenting of our complicity. In general, we no longer revere “tough CEOs,” and we no longer look the other way while psychopathic corporate managers abuse the companies they purport to lead. Morgan Stanley’s Philip Purcell was recently “shown the door,” mostly because he excelled at producing vitriol, rather than profitability. We will not miss Philip J. Purcell, and neither will Morgan Stanley Deane Witter’s shareholders.
Psychopathy is destructive, no matter whether it roams the back streets or roams on Wall Street.