What Breaking Bad Can Teach Us About Business Ethics

Are financial criminals like drug dealers?  Do MBA students, mailroom clerks, IT professionals, Directors of Finance, and a host of other professionals carry some "Seed of Evil" within them?  Vanity Fair and FBI profiler, Candice Delong, examined Walter White's precipitous descent from educator to drug kingpin.  Their findings suggest that strong parallels can be found between that Hollywood drama and the true-lives of many business professionals turned criminal.  As we'll discuss, white-collar criminals nearly always find justification for their actions in their own minds and are seldom motivated by money alone.

From Bookkeeper to Booking: Portrait of a Healthcare Embezzler

Gwen Muller, a 53 year old medical receptionist from Kearny, NJ, should be looking forward to her golden years, retirement, grandchildren, and the other hallmarks of a life well-lived, but instead she is now beginning a 34 month federal prison sentence.  Gwen didn't start out bad, didn't become a medical receptionist, which probably required some additional education since she also handled the medical billing, just so that she could defraud people.  Nonetheless, just 5 years after she posted a review on Amazon about a religious paperback, stating, "GOD is always with you in good times and in bad times and this book proves it all," she has plead guilty to first embezzling $200,000+ funds from her employer, a medical practice, then failing to pay taxes on the stolen income.  She also admitted to opening credit cards in the name of one of the owners of the practice.  The road between professionalism and prosecution might seem a strange and convoluted one, but it is sadly far from uncommon.

In business, in all fields, human resources attempts to weed out individuals like Gwen by looking for warning signs, but are there any?  Employers screen applicants for drug addiction, criminal convictions, and even poor credit before hiring, yet over and over those who successfully make it through work for years and yet turn to crime.  Retail employers like Target submit applicants to a multiple choice screening test some 80 questions long, consisting mostly of variations on the question, "Is theft ever justified?"  The test asks, "Did you ever steal anything?  Would you report your friend for stealing something?  What if your friend stole just a pen, would you report that?"  When you see a cashier at Target, or anywhere else, know that they have successfully answered "stealing is always wrong, no matter what," to just such a test.  The theory under which such screenings operate is that white-collar criminals turn to crime because they fail to understand that theft is wrong.  That theory completely fails to address those who make it through the screening and still embezzle.  The purveyors of such screening tests will tell you that embezzlers who slip though are simply good liars, but something more seems to be going on here. 

I encountered embezzlement early on in my career, as the next hire to clean up the mess at a large medical facility in northern New Jersey.  My predecessor had outfitted his office with a state of the art wall-mounted flat-screen TV (in 2005!), cable, sports package, refrigerator, microwave, and more, all on the company dime.  Though what I heard was mostly second hand, he'd also outfitted his own finances using company monies in his 5+ years of employment.  The tip off, in his case, was the vast array of work left undone.  Somewhat ironically, the embezzlement was only discovered when he was on his way out the door, after the employer had disciplined him multiple times for failing to complete work at all, let alone on schedule.  Had this individual kept up with his workload, he likely would have continued to embezzle for another 5 years.  Since the embezzlement hadn't been to the tune of hundreds of thousands of dollars, the employer failed to even prosecute (which is why his name isn't printed).  It was cheaper to cut him loose and fill the position with someone who could clean up the mess and move forward than it was to bother prosecuting.  Failure of corporations to prosecute, not to mention how far in the future a jail sentence can often be from the original crime, are no doubt reasons why white-collar criminals fail to stay honest and law abiding, but they do not explain why criminals turn to crime in the first place.

What Makes a White-Collar Criminal?

What FBI profiler Candice Delong suggests is that professionals who "break bad," such as Walter White, tend to do so for power and frequently short-circuit their own sense of ethics through a series of justifications.  Walt had the money, several times over, but continued on his murderous descent into the drug trade.  Moreover, Walter White put the lives of himself and his family, a scant 4 people, above the lives of dozens of other individuals throughout the series, as well as the untold thousands impacted by the use and trade of meth-amphetamines.  Walter White becomes the classic, deluded crime boss, like Michael Corleone or Tony Soprano, who claims that his actions on behalf of his family justify the terrible consequences of his business.  We see the money argument torn to ribbons by Season 3 as Walt continues his business beyond his needs.  We see all arguments about family values fall apart as Walt destroys lives, including those of his own family.  ...and yes, we see Skyler dragged in too, with exactly the justifications that many criminals present in the real world.  So if it isn't about the money, what is it about?  Power?  A need for validation?  Vengeance against an unkind world?  Or maybe people like White just short-circuit the ethics portions of their brains with faulty logic beyond all reason.

Delong's theory nicely explains why white-collar criminals break bad as well.  Certainly Gwen must have had some need to commit her crimes, above and beyond the money.  Even following the mortgage crisis of the 2000's, lines of credit are still widely available via an endless array of credit cards and reverse mortgage options.  Moreover, of the thousands of Americans each year who are tragically bankrupted by medical bills, only a tiny percentage turn to crime to attempt to pay those bills, and such an explanation is not readily available in Gwen's case.  In nearly all cases, it appears that white-collar criminals are attempting to support a lifestyle that they cannot afford.  However, it's not the money that they're after and it's not the lifestyle itself, it's actually the emotional gratification that the lifestyle provides.  For some it may be designer handbags and dinners out which make them feel as though they can attend their 20th high school reunion and be perceived by others as successful (a form of social power and validation).

Following the high profile prosecutions of white-collar criminals such as those at Enron and Bernie Madoff in the past decade, business schools are wisely beginning to lead their programs with an education in ethics.  According to the MBA curriculum taught at Thomas Edison State College in New Jersey, financial crimes by CEOs often starts out with the best intentions: a publicly traded company has a bad quarter, so the CEO decides to alter the financial disclosures in order to borrow profits from the next quarter.  The CEO justifies their actions with the thought that the company is great and will make up the losses quickly, the stock is actually undervalued and trading below what it should, and that their actions are just protecting the shareholders.  In reality, even when the next quarter's profits are markedly higher, it's seldom enough for the CEO to fully erase their prior misdeeds.  So, the CEO ends up borrowing from the next quarter and the next, and before they know it, they're looking out from a federal prison, wondering how (and why) they managed to misrepresent their company's earnings 3 or 4 years in a row.

None of this is an exaggeration.  Executives who turned to white-collar crime have been interviewed about why they did it and the response is frequently that the criminal acts began small, with the intent to repay, and quickly escalated out of control.  Consider the following quotes.

Kenneth Lay, Enron executive, never really took responsibility for his part in the fraud that impacted so many innocent lives, "I take full responsibility for what happened at Enron. But saying that, I know in my mind that I did nothing criminal."  He also stated, "The last thing I would have ever expected to happen to me in my life would be that, in fact, I would be accused of doing something wrong and maybe even something criminal."  That's much the point: schools are now teaching students to understand that the road from boardroom to cell-block is not one monumental crime, but a series of ethical missteps which quickly become so damaging that they cannot be undone.

Bernie Madoff, a former investment advisor who carried off the largest Ponzi scheme in US history, was similarly unrepentant, stating, "I certainly wouldn’t invest in the stock market. I never believed in it. Most people lose money because of the emotional difficulty involved."  Of prison, Madoff claimed the following, "It’s actually very pretty. More like a college campus. Everything is provided for you."  What's amazing, from the outside, is how out of touch with reality criminals can become.  Madoff shows no understanding here that he is supposed to be in prison as punishment or that as a result of his actions, many investors, including the renowned Elie Weisel Foundation, went broke.

It may not really be surprising that executives in high finance lose touch with what is normal for the rest of the world, they see extraordinary events occur all the time.  For example, Donald Trump is widely considered to be one of the most successful businessmen ever, yet he has had between 10 and 12 massive business ventures that failed disastrously.  While it is hard to be sympathetic for white-collar criminals, we can begin to see how they delude themselves with the thought that "one good quarter will put us back on top," or "one day, I'll pay back everything I stole before it's missed."  Many genuinely believe these things and are shocked when they're finally arrested.  Others, even after arrest, seem to see even prison as a minor setback, and with role models like Martha Stewart who has spent the time since her short incarceration for insider trading tending to her public personality on TV, in interviews, and in books.  Many financial criminals are quick to don a suit, get in front of a camera, and tell their side of the story, which is how we end up hearing such deluded quotes as those shared by Lay and Madoff.

Preventing the Next Madoff

A 2 year MBA, even with increased focus on business ethics, cannot make a scoundrel into a saint, though schools also teach the letter of post Sarbanes-Oxley financial law, the consequences for financial crimes, and how easily white-collar criminals are caught.  Instead of trying to instill an ethical view in students, schools are focusing on helping to students to think through their actions in advance.  A common theme is to make decisions about the kind of leader, or team member, than you plan to be now, rather than waiting until your corporation is faced with financial challenges to examine your personal ethics.  The hope is that students will gain a full understanding of how their actions in the financial world can impact themselves and others and that students will choose to become law-abiding leaders, who will never find themselves struggling to hide a year's worth of misstated earnings, since they declined to manipulate those reports from the beginning.

I watched Breaking Bad as it aired, from beginning to the bitter end, and I have a humble suggestion: MBA students as well as those pursuing their stock broker license (Series 7) need to take a good hard look at Walter White in Season 1 and a Walter White in Season 5.  Then, they need take a good long look in the mirror.  When you're planning a career in business, you start from the bottom.  Soon though, executives find themselves strongly enamored of their newly leased car, their big house with the big mortgage to match, the Amex Black, and all the other accouterments of success.  Executives depend upon their continued success in business and the continued success of their company, regardless of what the market is doing, in order to maintain that lifestyle, and that's where the real pressure kicks in.  Business education is nearly without pressure, but the executive world is quite the opposite.

Candice Delong's profile of Walter White, originally from Vanity Fair, follows.  Spoilers may be present.