The Rude Awakening
Wall Street, New York
Tuesday, June 28, 2005
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------------------------- PINSTRIPED PSYCHOPATHS
By Eric J. Fry 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, provider
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 then profitability. We will not miss Philip J.
Purcell, and neither will Morgan Stanley Deane Whitter's
shareholders. Psychopathy is destructive, no matter whether it roams the
back streets or roams on Wall Street. [Ed. Note: We have been referring to Kevin Kerr as our
'maniac' trader of late. Please consider this a public
apology if this term of endearment at all connotes, in any
way, psychopathic behavior. We were just pointing out the
enthusiasm of the man who posted 16 out of 16 winning
trades! Check out our maniac - though not psychopathic -
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By Eric J. Fry After putting today's column to bed yesterday evening, your
editor sat down to a game of Monopoly with his kids. After
the game, he reported the outcome to a close French friend. "After eating bar-b-cued ribs," his email began, "my kids
and I played Monopoly, exactly like every good American
family should do after dinner. My daughter was winning
early in the game, but I recovered from near-bankruptcy to
emerge triumphant. Unfortunately, the thrill of victory in
Monopoly lacks some of the delights that real-world
capitalism imparts. In the Monopoly game, for example, the
triumphant capitalist merely wins the game. He/she does not
also enjoy the perverse pleasure of causing thousands of
people to lose their jobs. Now THAT would be a real game!" The recipient of the email replied: "It is true that the
game of Monopoly lacks certain charms found in the
ferocious reality of every day life. But the game,
nevertheless, remains an excellent means of teaching your
children the essential values of life. Of course, Monopoly,
by itself, is not sufficient to convert your kids into
prototypical capitalists - the sort of individuals who
completely lack a conscience. So you must augment your
instruction by presenting evidence in support of amoral,
unrestrained capitalism. "To encourage your efforts," the French friend continued,
"I present my childhood education as an example of what NOT
to do. I also played the game of Monopoly…with my
communist grandmother. Unfortunately, she changed the rules
of the game to her liking. She declared the train stations
to be state-owned properties and sent "directly to jail"
any player who attempted to charge "unfair" rents. My
education, as a preparation for real-world capitalism,
proved to be a total failure… But I have confidence you
will do a better job with your kids!" Hopefully, your editor will encourage his children to
develop compassion, as well as an aptitude for capitalism.
Compassionate capitalism might begin with the self-evident
notion that CEOs deserve something less than 301 times the
income of the average hourly employee. [Ed. Note: One way to be a more compassionate capitalist is
to share your profit-making ideas. When Dan Denning came up
with a play that basically secures 129% profits that is
exactly what he did, share it. You can check it out here
and, we promise, you don't have to share any of your
profits: Strategic Options Alert ------------------------- And the Markets… | Thursday | Wednesday | This week | Year-to-Date | DOW | 10,302 | 10,271 | 11 | -4.5% | S&P | 1,198 | 1,195 | 7 | -1.1% | NASDAQ | 2,076 | 2,069 | 31 | -4.6% | 10-year Treasury | 4.07% | 4.07% | 0.16 | -0.14 | 30-year Treasury | 4.33% | 4.33% | 0.13 | -0.50 | Russell 2000 | 649 | 648 | 21 | -0.4% | Gold | $425.00 | $423.48 | -$15.00 | -2.9% | Silver | $6.94 | $6.94 | -$0.27 | 1.9% | CRB | 313.32 | 313.32 | 1.95 | 10.4% | WTI NYMEX CRUDE | $60.63 | $61.28 | $0.09 | 39.5% | Yen (YEN/USD) | JPY 112.35 | JPY 112.17 | -3.04 | -9.5% | Dollar (USD/EUR) | $1.1935 | $1.1933 | 225 | 11.9% | Dollar (USD/GBP) | $1.7149 | $1.7557 | 1,140 | 10.6% |
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