Published in the San Diego Union-Tribune, July 17, 2017
“Behind every great fortune there is a crime.” — Honore de Balzac.
I am fascinated by people. I study them carefully in making investment decisions, and I am always looking for something — a window into their psyche, a reveal of their weaknesses and their strengths, a tell that reveals the lie or the puffery or the obfuscation. The question that interests me is not who is this person, but what is this person.
So let me share one of the most famous cases in the last 50 years — Bernie Madoff. The man who did the interview is Eugene Soltes, a professor at Harvard Business School. He spent multiple hours talking to Bernie, who is serving a 150-year sentence in a medium-security federal prison in North Carolina, and his most famous question was: How would you explain your actions and misconduct to a group of students?
Here is Madoff’s reflection on accountability. “In hindsight, when I look back, it wasn’t as if I couldn’t have said no; it wasn’t like I was being blackmailed into doing something or that I was afraid of getting caught doing it. I sort of, you know, I sort of rationalized that what I was doing was OK, that it wasn’t going to hurt anybody.”
Soltes plays this tape and more in his class, with the goal of pointing out that “knowing the difference between right and wrong is not sufficient to avoid falling into the behavioral traps people can face when under pressure to succeed.”
I recently was interviewed, and one story I told was about Alan “Ace” Greenberg, CEO of Bear Stearns, who said he hired based on PSD — poor, smart with a deep desire to be rich. My son happened to be listening in the next room, and after the interview he said that the desire to be rich adversely infects the entrepreneur and is not the single important characteristic necessary for success. It is not the same as a passion for the product and the adventure. I saw his point of view. It might be a characteristic for an investment banker, but not for an entrepreneur — but I countered that wanting to be rich was vastly better than wanting to be king. The desire to be rich drives a passion and a discipline and focus that is powerful for the entrepreneur. But therein also is the trap. It is nuanced. In the end, we shook hands and had a beer.
Soltes points out that Madoff exhibits many of the all too familiar cognitive biases:
• Ambition — a trait of every person who aspires.
• Overconfidence — there was nothing that Madoff thought was a limit.
• The slippery slope — Madoff says “going off the tracks was a temporary situation.”
• Lack of self control — Madoff says he wasn’t frightened enough to say I can’t take the risk.
• Rationalization of iffy decisions — Madoff concedes that “it was all rationalization.”
Soltes writes that “while Madoff possesses an extraordinary lack of empathy for his victims, he did not set out to commit the crime of the century. In other words, he didn’t really plan it — he just fell deeper into it.”
Here is the irony of all ironies. Madoff had a hugely successful business before he started the Ponzi scheme. At one point 10 percent of all NYSE-listed stock trading was done by his firm. And so the famous question is posed — how much is enough? That question will haunt many of us for a long time — and put many of us into therapy.
Madoff finally says in the interview “it’s like a comedy of errors — I just kept taking in more money — I couldn’t say no.” And along with this we have not even touched on the addictive drug of his power and fame in New York City, the biggest apple of them all.
Soltes says that “within the entrepreneurial culture, there is often a feeling that it is OK to bend the rules.” Uber, are you listening? And a decade earlier, Enron. In the final analysis, it is not a slippery slope — it is simply a cliff, and it is illegal. Entrepreneurs can feel the need to push the envelope, but there is always a mirror you have to look into — and sometimes some bars to look through.
Rule No. 529: Where is the remorse and the shame?