Prof discusses history of scandals in business

For Penn students who hope to one day take over the world, attendance at the Provost's Lecture by Wharton Professor David Larcker should have been mandatory.

Entitled "What's Going on in Corporate America? Directors, Governance, Perks and Pay," the talk focused on recent corporate scandals like those at Enron and WorldCom in an effort to ask important questions about what has gone wrong.

But Larcker chose not to dive straight into current events -- opting instead to begin with a history lesson that illustrated an important point.

He detailed a scandal in which several interconnected companies shared executives, traded losses and ultimately failed -- all under an umbrella organization whose executives managed to become fabulously rich as things collapsed around them.

When Larcker asked audience members to guess the name of the company, most, including Provost Robert Barchi, immediately went with Enron. But they were sorely mistaken.

"Union Pacific Railroad," Larcker explained, referring to the company embroiled in scandal over a century ago.

"This is a topic of tremendous controversy," he said. "Although it's gotten a lot of publicity lately, it's been around for a long time."

After briefly covering many of the scandals during the past two years, Larcker moved on to the more important questions about the overall corporate crisis.

Corporate boards took the brunt of Larcker's criticism. He cited the excessive number of current and reitred CEOs serving on them and the lack of time spent meeting as the problem. He also showed how many executives find themselves in positions of unbalanced power as a result of weak boards.

"Bad executives do bad things," Larcker said. "They're not easy to detect, and they're not easy to stop."

Larcker was also realistic about the trends that affect how much attention politicians and investors pay to corporate governance.

"If the stock market goes back up, this will not be as big an issue," he said.

Larcker did express optimism that current problems could be solved without government intervention, which he opposes because of his belief in Adam Smith's theory of the "invisible hand."

"I hope that the market comes up with a solution," he said, "so that one doesn't have to be legislated."

As his talk concluded, Larcker took a few questions from students, staff and even the provost before the formal program ended.

At the reception immediately afterward, Barchi seemed pleased with the way things had gone.

"We asked David to speak because of the timeliness of the topic," he said. "It seemed like the rest of the community would be excited by a talk at a less esoteric level."

"The best part about these lectures," Barchi continued, "is seeing the conversations continue outside the formal setting."

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