By Noah C. Gould
Thursday, December 15, 2022
The business pages regularly present stories of
leaders who have committed fraud and abuse. Still, every time wrongdoing comes
to light, we act shocked, as if no one could have seen it coming. Then we move
on until another incident emerges and we are shocked anew. We tend to view the
episodes as unrelated. Yet they are not. Every tale of fraud has common
elements, including a charismatic leader in pursuit of money, sex, power, or
influence (or, most likely, some cocktail of these), and willing to ignore
laws, rules, and morals to get there.
But the fraud is often presented as an ethical act. At
any time, embracing certain causes and beliefs confers social benefits and
shields those with the “correct” views from scrutiny. Many of the recent
business leaders who have committed fraud and abuse have used creative blends
of social causes and political fads to mask their misdeeds. If we pay
attention, their stories can help us to resist the next fad.
One such leader has dominated recent headlines amid the
implosion of his cryptocurrency outfit, FTX. Once praised as the “king of
crypto,” Sam Bankman-Fried went from a personal net worth of over $15 billion
to almost nothing overnight. He has been charged with eight counts of fraud and
conspiracy. The complex saga is still unraveling, and it’s likely that the true
depth of the wrongdoing has yet to be shown. But even now, sheer incompetence
and fraud are evident. According to the SEC, FTX loaned around $8 billion of
customer funds to Alameda Research, one of FTX’s partners, through a back door
by which customers deposited money in Alameda’s portal and it would be credited
to FTX. The problem was that the money was never actually transferred to FTX.
Uncoincidentally, Alameda was owned almost exclusively by Bankman-Fried, and he
stood to profit from the informal deal. This allowed Alameda to make bets on a
suite of risky financial products using customer money. Once Binance, a rival
platform, unloaded its shares of FTT tokens on the market, it became clear that
FTX was illiquid, prompting a run on the platform and a freeze on customer
accounts. Much of the money in these customer funds is likely permanently lost.
FTX lacked any internal accounting oversight or even formal record-keeping
processes but was nonetheless a darling in the crypto-currency world.
How was this possible? Bankman-Fried promoted a brand of
philanthropy called “effective altruism,” a kind of bang-for-the-buck
utilitarianism that focuses on outcomes of giving. He was the second-largest
Democratic donor (after George Soros) in this year’s elections. The remarkably
light touch of the SEC, Bankman-Fried’s recent appearance at the New
York Times’ annual business conference even after his actions had been
brought to light, and the barrage of puff pieces explaining away his
“well-meaning” but ultimately misjudged “mistakes” are all examples of how his
connections have paid dividends. Before the indictment, many media outlets were
still allowing him to frame the narrative through high — profile interviews.
Bankman-Fried epitomized the progressive hero out to save the world through
advocacy, business, and well-placed investments. He could have his cake and eat
it, too, as a billionaire jet-setter holding the moral high ground.
Then there is Elizabeth Holmes. During her tenure as CEO
of Theranos, a much-admired biomedical start-up, she set out to completely
overturn the standard method of blood testing. She touted the ability of her
proprietary technology to perform 70 tests from a single finger prick. But the
underlying technology hadn’t been fully invented even as she gave media
interviews and made venture-capital pitches extolling its benefits. She
claimed, incorrectly, that her firm’s technology was being used by the military
in combat. One stranger-than-fiction story involves then–vice president Joe
Biden touring Theranos HQ and being shown a completely staged lab staffed by
actors. Holmes meticulously crafted a narrative that included masking her true
voice in favor of a husky baritone and wearing a Steve Jobs–esque black
turtleneck.
And it worked — for a time. She was the “it girl” of
Silicon Valley, poised to shake up both the C-suite and the medical profession.
The fraud she and her partners committed directly connected to her status. She
had attended Stanford University and, through connections with professors
there, eventually filled her board with luminaries including former secretaries
of state George Shultz and Henry Kissinger. She received investments from the
likes of Oracle founder Larry Ellison. They were taken in, along with
journalists who wrote scores of puff pieces extolling her work. It is easier to
write a piece on “the first female billionaire entrepreneur” than to ask
critical questions. (Holmes has been convicted of defrauding investors and
sentenced to eleven years in prison.)
Another business leader cut from such cloth is Dan Price.
His Seattle-based company, Gravity Payments, first captured the limelight when
it offered a $70,000 minimum wage to all employees while cutting Price’s pay as
CEO. The employees responded by giving him a Tesla. All this catapulted him to
fame as an influencer on Twitter and LinkedIn and sent him on a speaking tour
with a contract for a $500,000 book deal. On his social — media accounts, he
talked about fair pay, corporate greed, and gender equality in the workplace.
Yet his personal life did not reflect the ideals he
espoused. At the same time that Price was extolling the virtues of promoting
women, he was allegedly exploiting them. Several women have accused him of
physical and sexual abuse. He is being charged by Seattle prosecutors with
fourth-degree assault with sexual motivation, fourth — degree assault, and
reckless driving. The women have said they were afraid to speak up because of
his clout — clout based on his social causes and media presence. It is an
example of benefiting from what the essayist Rob Henderson has called “luxury
beliefs” — “ideas and opinions that confer status on the rich at very little
cost, while taking a toll on the lower class.” Just as luxury beliefs confer
status, Price’s trendy views signaled that crossing him would not be worth it,
even to report alleged abuse. He was part of a protected class of elite,
wealthy business leaders with just the right opinions of the moment. The
positive buzz drowned out criticism, meaning that most people still know him
for his social-media presence and are not aware of the abuse allegations.
Ultimately, these public displays of morality can be used as a weapon against
opponents.
At any time, society deems certain acts worth emulating
and certain beliefs worth holding. An interview at the University of Zurich’s
website with the ethicist and professor Stefan Riedener reveals today’s ideals.
When asked what doing good means in his life, he responded, “I’m a
vegetarian, and also eat vegan whenever possible. I don’t travel by plane. I
don’t own a car. I generally try to live a humble life. And I donate 10 percent
of my income to organizations that I believe are doing good as effectively as
possible. I also see my work as a way of doing good.”
A few things jump out immediately from his response.
First, how little it has to do with his interactions with other people:
Everyday treatment of others does not appear on the list. Second, each thing
that does appear is a visible action: how he eats, travels, and gives. And
third, Riedener highlights his work as a core source of moral meaning in his
life, like so many others today.
If you ask recent college graduates what they are looking
for in a job, they will likely say they seek meaningful work that does good for
the world. According to a 2020 Gallup poll, among recent graduates who reported
having a “good job,” “the mission and purpose of the job” was the
highest-ranked reason given, above even pay. More and more employees are
demanding that CEOs bring political agendas into the workplace. Josef Pieper,
in his seminal monograph Leisure: The Basis of Culture, argues that
in the modern world work has subsumed all other aspects of life. This idea,
which he calls “total work,” helps explain why employees demand that their
workplaces address social causes: As other sources of meaning dry up —
specifically, faith, local community, and family — individuals seek ways of
filling the void. The result is that work is overemphasized as a source of
meaning at the same time that employees become disillusioned with its failure
to deliver meaning.
This shift has inevitably affected the business world. So
we see CEOs in every industry responding to employee demands by rolling out
impressive-sounding statements on all types of political and social projects.
This is not entirely unique to our current business moment; the corrupt will
use any method to evade oversight. But moral power, perceived or otherwise, is
one of the most potent forms of power that can be wielded. We have chosen to
give business leaders that power and they will continue to use it as another
tool in their belt to escape oversight. But are business leaders the right
people to deliver moral meaning to our lives?
Conservatives have missed the main lesson in their
reaction against performative morality: Instead of celebrating performative
moralists in business, they have lionized performative political amoralists,
such as Donald Trump and his allies. The solution is not to turn from one false
ethic to another, but to shift from the performative to the actual.
Although we may now recognize our misapplied faith in
Bankman-Fried, Holmes, and Price, we will likely be taken in just as easily when
the next charismatic leader comes along. We want to believe because we need a
sense of meaning in our lives. We’ve heard what happens to those who stand for
nothing (they’ll fall for anything), but those who believe nothing
are paradoxically more vulnerable to believing the next fad that comes along.
They are, in the words of the Book of James, “like a wave on the sea that is
driven and tossed by the wind.”
If a solution exists to the problem of fraud and abuse,
it must include a natural skepticism of grand visions and claims of occupying
the abstract moral high ground. A skeptic would ask specific questions, look
for the concrete value that a business provides, and resist calls for an
all-encompassing movement or program. This skepticism is forged by cultivating
meaning outside the boundaries of work and the business world. Such alternative
centers of moral gravity are the first line of defense against all the
hucksters and hacks who will try, again and again, to take us in.
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