Stolen without a gun

My MBA program's Leadership and Ethics class had a guest lecturer last week. Walter Pavlo was a middle manager at MCI Communications in the mid-1990s. He was involved in helping MCI conceal millions of dollars in bad debt. His ability to hide bad debt led to a scheme to embezzle $6 million. He was caught and convicted, and served 2 years in prison. His book, Stolen Without a Gun, tells the story of his and MCI's downfall.

Pavlo is a very likable, outgoing guy. He was very open about what he did, and freely admitted he was wrong. The most interesting parts of his talk were about the corporate culture at MCI that put all value on making the numbers every quarter. Without using it as an excuse for his behavior, he described a situation where there was a lot of pressure to perform, no oversight, no positive corporate culture for accountability, and lots of money changing hands.

He had an interesting observation about the mortgage meltdown crisis going on now. "The mortgage industry is just the telecom industry in the 1990s." The subprime lenders and borrowers are telecom's wholesalers and high risk, high profit long distance resellers in the 90s. Pavlo says that the mortgage accounting tricks to hide bad debt occurred 3 years ago, and will soon come to light.

The talk was, in a way, a showing of the "Scared Straight" documentary for MBAs. Message: play clean, keep your moorings, resist the urge to bend the rules when it looks like everyone else is doing it.