The coveted role of the CEO is to maintain a business’s heartbeat – and to reap the financial rewards from spearheading a successful company. While many investors, executives and board members can have varyingly active roles in a company of any size, the chief executive officer is commander-general overseeing his army. Company policy, ethics and ethos all stem from this guiding force – with much of a company’s public image attached to the personality and performance of the CEO. That means that if a scandal hits the Chief Executive, it’s not going to be small: if of improper behavior from a CEO – be it personal or professional – emerges, the impact on the company can be cataclysmic. Whether pulling the wool over people’s eyes, or getting carried away by their seemingly endless free reign, the most scandalous big wigs in business have been guilty of some crazy dealings.
While some of the case listed here may seem somewhat anecdotal – perhaps isolated scandals, and certainly not enough to bring down a multinational company – others have proven much more serious. The acts of those ranked highest on our list have seen millions lose their livelihoods and life’s savings and may even, tragically, have resulted in deaths. The penalties, too, for those caught abusing their power are extremely severe; with certain judges more than happy to issue long-term sentences for high-stakes fraud and misconduct.
We’ve had a look at the financial collateral damage of the 10 biggest CEO scandals, but the top 10 is ranked in terms of the pure outrageousness of – and media buzz generated by – some of these Chief Execs’ activities. When a CEO steps out of line, he often brings the company along with him – causing scandals big enough to hit the international headlines, and fascinating enough to make it onto this list…
10. Chung Mong Koo: $100 Million Embezzlement
Chung Mong-Koo was the CEO of one of Korea’s most successful companies ever: Before the digital age hit and Samsung struck gold, car manufacturer Hyundai was the main name in Korean multinationals. Chung Mong-Koo, as chairman, was credited with much of the company’s success – particularly outside of Asia, with Hyundai becoming an established brand in much of Europe. All of that came crashing down in 2007, however, when it was discovered that Mong-Koo was building up a nice little nest egg worth around $100 million. The money was allegedly being used to bribe officials and further extend the Hyundai empire. Mong-Koo was found guilty and sentenced to three years in jail, but he mogul got off pretty lightly when his prison sentence was suspended and he received a presidential pardon for his activities. Hyundai remains the dominant car manufacturer in Korea today.
9. Sanjay Kumar: $2.2 Billion
Sri Lankan-born Sanjay Kumar was, for a time, the embodiment of the American dream. The billionaire CEO of Computer Associates grew up as with his family in the United States after fleeing the political instability of his native Sri Lanka. For a time all was well; so well, in fact, that Kumar aquired the ultimate in business mogul trophies – a sports team. Kumar, along with is business partner, purchased the New York Islander hockey team. In 2004 this all came to an end, though, when Kumar was investigated by the US government over worries that his finances were not all that they appeared. Sure enough, the suspicions were well-founded: It emerged that Computer Associates’ books had been cooked to the heat of $2.2 billion. Kumar pleaded guilty and was sentenced to 12 years in prison in 2006, where he remains to this day.
8. Martha Stewart: $230,000 in Dodgy Stocks
Martha Stewart is most known as the cake-baking entrepreneur who rose to create an empire around her aspiration look at domestic life. That’s not all the chef was up to however, with Stewarts also holding share in businesses outside of the culinary world-most notably, the pharmaceuticals company ImClone Systems. Stewart had friends in all the right places and so knew of the failure of one of their test drugs before anybody else. On hearing the news that the drug Erbitux had failed to get FDA approval, Stewart sold her shares for $230,000. The following day when the failure was made public, the same share would have been worth significantly less. Stewart was hauled into court where she received a 5 month prison sentence, as well as a $30,000 fine. Consumers were shocked at the shrewd dealings of the domestic goddess but in spite of the scandal, Stewart has weathered the storm. Today she remains a key figure of the domestic, media and event planning world.
7.Mark Hurd: $20,000 Affair
Compared to some of the romantic entanglements our CEOs get themselves into (stay tuned for more on that), Hewlett Packard’s Mark Hurd appears comparatively tame. The CEO began an affair with a fellow employee contracted in by HP, reality star, Jodie Fisher. News of the affair broke when Fisher alleged that Hurd was sexually harassed her in the workplace, prompting a HP investigation. While the allegations of any sexual misconduct were found to be false, they did reveal some seriously dodgy dealing on Mark Hurd’s part. The CEO racked up $20,000 in unauthorised expenses, and the HP board, having no qualms, fired him. Fisher later stated that she was saddened to hear Hurd lost his job, but of course, the damage was already done.
6. Philip M. Condit: $18 Billion Pentagon Deal
When Boeing Chairman and CEO got the sack in 2003, Bloomberg Businessweek commented that is was not so much his being fired that was so shocking so much as the fact that he managed to hold onto the job for so long. That pretty much sums up Condit’s reign at the airline manufacturer, with the timeline of events pretty much reading like the plotline for some sort of farcical business comedy. Condit swindled everyone from his wife (his secretary, who he later divorced) his secretary (no, another one!), his cousin (he married her too), and the Four Seasons (where he lived after she kicked him out). And that’s before we even talk about his work at Boeing. Aside from the workplace affairs, budgets soared, market share dropped before finally, someone started to ask questions. Sadly for Boeing, that someone was the Pentagon who had been due to sign an $18 billion contract to the US army with the firm. The series of scandals that followed the company and their CEO caused the Pentagon to worry and sure enough the investigations brought down the Chief Financial Officer, several senior manager as well as Condit himself. Busted.
5. Harry Stonecipher: Following in Philip M. Condit’s footsteps
You would think that having scandals as ludicrous as those perpetrated by Philip M. Condit would be enough to make the heads of Boeing wake up and smell the coffee. You would be wrong however, as after Condit’s resignation, they hired someone who was very much cut from the same cloth as his predecessor. Harry Stonecipher lasted a total of 18 months with the aeroplane manufacturers and with good reason. Like Condit, Stonecipher is something of a ladies man. Leaked emails between this CEO and a female colleague forced the CEO to resign. That and the $18 billion hangover that Condit left in his wake. Stoneciper may not have cost nothing anywhere near the amount of money his predecessor did, but we felt that this particular scandal was just too big to be overlooked.
4. James McDermott: $230,000 fine
James McDermott was once the CEO of the investment banking firm, Keefe, Bruyette & Woods. He enjoyed all the finer things in life, such as fine wine, good food, and good porn. Yes, you read that right. In the late 1990s, McDermott became involved with the Canadian adult movie actress Marilyn Star. McDermott, it seems, was something of a talker in the bedroom and revealed the details of a merger within the company before the deal was made public knowledge. Star proved that she was more than just a pretty face by using this information to win big with another lover on the stock market. McDermott saw what they were up to, however, and a warrant was issued for their arrest. In an intriguing twist, the banker was impaled on his own sword: Star was extradited from Canada and served a short prison sentence but McDermott on the other hand was fined $230,000 as well as serving time.
3. Bernie Ebbers: $11 Billion of Cooked Books
Bernie Ebbers rose from humble Mississippi beginnings to become a billionaire CEO of WorldCom. The world was his oyster, with shares in the company going for $64 a pop. Things however did go pop when WorldCom was found to have carried out the largest accounting fraud in United States history, all under Ebbers’ watch. Accounting misstatements racked up a total of $11 billion and it was also alleged that Ebbers’ took over $350 million in personal loans from company funds. When news of the story broke, WorldCom’s stock plummeted to around $1 a share. Ebbers himself was convicted of multiple counts of fraud and felonies and in 2006 the billionaire- or former billionaire as he more likely was then- was sentenced to 25 years in prison. He is scheduled for release in 2028.
2. Kenneth Lay: $11 Billion in Losses
If you don’t recognise the name Kenneth Lay and you are wondering what exactly he did to rank him so highly on our list, one word can answer all your questions: Enron. Kenneth Lay was the CEO of the energy giants who spectacularly imploded in 2001. Lay had been with the company since the early days when the company was founded in the 1980s meaning he had seen the company rise to be worth a spectacular $68 billion. As we now know however, Enron was pretty much giving master classes in how billion dollar companies should cook their books. Once the sceptics began to voice their concerns, the company spiralled dramatically out of control, losing $11 billion in a year. The scandal is so spectacular that there is even a movie made about Lay and his colleagues downfall. The trail went to court in 2006 and Lay was of course found guilty. The former CEO died of a heart attack before he was ever sentenced for the crimes.
1. Bernie Madoff: $65 Billion Scam
Since his down fall as head of the Nasdaq stock exchange, there has been a joke that more people should have spotted this scandal sooner. The punch line? ‘After all, this guy’s name is pronounced made-off’… But seriously, the Bernie Madoff scandal reveals the level of negligence that permeated not only Wall Street in the noughties, but the governmental and regulatory ranks. Madoff was raised in a Jewish community in Queens before entering the high-flying world of stocks and trading. The billionaire banker was known for his impeccable, refined tastes as well as well as for his well-heeled lifestyle. At 70 the banker had done well in life and all that appeared to await him now was the comfortable retirement he was sure to have planned for himself. In 2008 this idea was put to rest, as the executive was found to have carried out the largest Ponzi scam in history. And what, you ask is a Ponzi scam? Basically, an investor offers people a deal that will see an unusually large return on their investment, and for a time, the pay outs for clients are huge. But this income is simple a result of more people buying into the scheme rather than any stocks or bonds actually making any profit. Usually these scams are aimed at lower income families who either know little about finance and banking or who simply need the money. What Madoff did however, was target his peer group, the uber-riche, with many of the bankers own employees investing their pension funds in the scheme. In 2008 however as the financial crisis hit, the money began to wear thin and the cash flow ran out.
The scandal tore at the very heart of Wall Street and to this day haunts public trust around banking and investment. Madoff’s own son Mark committed suicide two years after the scandal broke, while the authorities targeted several members of the Madoff family as accomplices. On top of this the JP Morgan Chase group was found to be the principal bank through which Madoff’s deals took place; they has to compensate victims of the scam. Just last week – January 2014 – JP Morgan paid a $1.7 billion settlement as part of this the continuing case around the bank’s culpability. And Madoff himself? He was (obviously) found guilty and given the requested sentence of 150 years in prison.
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