At age 83, Manhattan District Attorney Robert M. Morgenthau is still a force to be reckoned with. In going after Dennis Kozlowski and other Tyco executives, Morgenthau and New York State Attorney General Eliot Spitzer stepped into what seemed a regulatory vacuum. For Morgenthau, it was a familiar role.
Born into a wealthy New York real estate clan and a graduate of Amherst College and Yale Law School, Morgenthau has made an unlikely career of punishing the abuse of privilege. In his 27 years as Manhattan's DA and before that, as U.S. Attorney General, he has led prosecutions arising from scandals like those surrounding the Bank of Credit & Commerce International, otherwise known as the Bank for Crooks & Criminals International. He has gone after major accounting firms like Lybrand, Ross Brothers & Montgomery, which he charged with bad audits, and dragged Fifth Avenue jewelers Van Cleef & Arpels into court for helping well-heeled customers evade sales taxes.
In a Nov. 25 interview with BusinessWeek Associate Editor Nanette Byrnes, Morgenthau compared the most recent round of corporate misbehavior with the Street's past scandals. Edited excerpts of their conversation follow:
Q: Why is the Manhattan DA taking the lead on corporate crime? Shouldn't this be the purview of the Securities & Exchange Commission or some other federal authority?
A:We want to attract and hold businesses in New York. We want the public to think that businesses with operations in New York are being honestly run. But when it comes to compliance with the law, it has got to be largely voluntary. The government in its present state can't look over every corporate officer's shoulder, nor would it be a good thing if we could.
Q: Is there something different about this time of corporate scandal from earlier periods?
A:What I think we're seeing now is that the system of corporate governance, of checks and balances, has really broken down. In the past, you had a guy acting largely on his own. Now, you've got a lot of people involved, and that's the lawyers, accountants, executives, the board of directors. The kindest thing you can say is they have all been asleep at the wheel. Regulators have to take some of the blame for not analyzing what's going on. The whole system seems to have broken down. That's what I think is most disturbing.
Q: There have been so many sensational corporate implosions this year. Everything from off-balance-sheet accounting to executive compensation plans have come under a new, harsher examination. Is there any issue that has not gotten enough attention?
A:One of the things I've been concerned about for years is the use of offshore domains, not only to avoid taxes but also to avoid regulation. A lot of people, including the SEC and IRS, have looked the other way. If I've only accomplished one thing in the Tyco case, I've gotten the press to say "nominally headquartered in Bermuda" instead of "headquartered in BermudA:"
Q: Is that problem growing?
A:Whenever you have a problem that's not addressed, more and more people are going to get involved. They wonder, "Why should I pay my taxes when my neighbor isn't paying his or hers?" This kind of thing is bound to grow. It's inevitable.
Q: Is there an acceptance of greed now in Corporate America?
A:That behavior became acceptable. Once it becomes acceptable, more and more people are going to do it. But if we want people to invest in American business -- and we certainly want them to -- we need to make them feel that someone is keeping an eye on all this.
Q: What do you think about the levels of executive compensation?
A:That's not squarely in my purview, unless it's concealed. But I think the executive compensation is completely out of hand. As long as executives are getting these huge salaries, as long as accountants and lawyers and boards of directors are all getting taken care of, it's not going to be challenged. I think it's outrageous.
Q: The numbers are so big.
A:Many people have more money than they could possibly use. It gets to be, who's got the most Old Masters? Who's got the biggest yacht? It all becomes a competitive business.
Q: What will this period of scandal be remembered for?
A:I hope it will be remembered for the fact that, when these problems were uncovered, American business, regulators, and the justice system got together to make sure it wouldn't happen again for 25 years.
Q: Will it happen again for sure?
A:It's something that has to be watched all the time. One of the things I always say is, "If you rob the bank don't rob the candy store." If you rob the candy store, someone may find you robbed the bank.
Q: Do you think something will come of all this that will effect positive permanent change?
A:I hope so. I think the system has reacted pretty well -- better late than never -- but I don't think we should praise ourselves too much. You couldn't survive in this environment unless you were an optimist, and I'm an incorrigible optimist. I always think things are going to be better. What is the motto of West Virginia? "The price of liberty is eternal vigilance." You can't declare victory and walk away. You have to keep an eye on what's going on.