It's How You Play the Game

It doesn’t matter how you play the game, it’s all about whether you win or lose.

I keep imagining how this message would sound to the young boys I coach in Little League baseball. Of course, I teach them the contrary. But I fear it won’t take my boys long to doubt their coach; after all, the world doesn’t seem to work that way.

Every day we hear new allegations of wrongdoing in a mutual funds industry that is entrusted with the retirement and other savings for close to 95 million people. More than a few mutual funds gave their traders special breaks on buying and selling fund shares, in essence allowing them to profit at the expense of their long-term (read: small-fry) investors.

Unfortunately, this latest scandal is not singular. It comes on the heels of rampant deception at the investment banks, brazen cooking of the corporate books, and flim-flam that passed for market valuation in the dot-com boom. Personal integrity, it seems, has become an endangered species.

I often am asked: How do individuals justify to themselves such obvious wrongdoing? The answer: They tell themselves that the rules are arbitrary. Winners dictate their own rules; only losers adhere to standards. And if their conscience makes a counter plea, they quickly silence it with the retort, "Everybody (who wins) is doing it, after all."

IN THE LATE 1990s I became the CEO of a start-up in Silicon Valley. My search for capital led me at one point to Salomon Smith Barney, an investment bank that was wildly successful during the telecommunications boom. A friend introduced me to a banker there who handled the "private wealth management" of a number of America’s top telecom CEOs, including Bernie Ebbers.

No doubt to impress me with the leverage that his firm could offer me personally, the banker ran through some of the initial public offerings (IPOs) Salomon had led. He gloated about the shares that his firm had allocated to his stable of executive clients at prices ridiculously low, given the heights to which the stock later soared.

I followed the market avidly in those days, and I knew those very IPOs would

take off. But as a small-time investor, I couldn’t buy the shares until they already were headed toward their peak price. I recall walking out of Salomon Smith Barney that day with a sinking feeling that capital markets were rigged unfairly for the benefit of insiders as never before.

Rigged – that’s the appropriate word. Rep. Michael Oxley – who led a House investigation of IPO allocations at Salomon, Goldman Sachs, and Credit Suisse First Boston - called these gifts to executives "another example of how insiders were able to game the system at the expense of the average investor."

The rule-breakers don’t see it that way, of course. They feel entitled, if not shrewd, to exploit an advantage that arises from their insider position. The notion of fair play isn’t even a part of the discussion. It’s only cheating if you get caught. And far better to be a cheater than to be a loser. Try telling a senior executive - as I have on many occasions - that it would be a far better path to tell the truth about poor earnings over the previous quarter than to hide the bad news behind a shroud woven by accounting tricks.

Once the lies begin to flow, there’s no turning off the faucet.

This bit of counsel usually is met with a knowing smirk that indicates how naive I must be. Every insider knows the wrath that the market visits upon the weak. On that point they are absolutely correct - Wall Street’s harsh punishment is real, not imagined.

But I teach my Little League players that life inevitably delivers mixed results. The mark of an adult is how they accept defeats and earn victories. If that rings true for young children, why does it sound like such foolishness today in the world of business?

David Batstone, executive editor of Sojourners, was a founding editor of Business 2.0 magazine.