Jenkins on punishing failure

In a great column in today's WSJ Holman Jenkins notes that we're too quick to make scandal out of CEO failures, rather than seeing it as it is, "risky stuff that didn't pan out." He notes that a lot of times it's only fickle markets that separate the winners from the goats: "Happy endings have a way of covering up a lot of behavior that under other circumstances (i.e., unhappy endings) would raise an eyebrow if not land the perpetrator in jail."

Like, for example (I would note), backdating at Apple.

Jenkins cites a study by Dyck, Morse and Zingales which was presented at CELS, as I noted last week. I focused on that study's finding of the pervasiveness of fraud, but missed the point (until I saw the paper presented) that Jenkins caught:

only a minuscule fraction [of fraud] fits the stereotype of self dealing by greedy executives. Most fraud, they write, "involves a misrepresentation of financial statements or breach of controls that was not motivated primarily by self dealing. The bulk of these involve overstated revenue and revenue expectations."

See Table 7 of the study.

It follows, as Jenkins points out, that it's wacky to suggest that CEOs should be imprisoned for their business mistakes, as Bill Lerach did in WaPo, discussed here.