BOARD STIFFS.(The Talk of the Town)

Dennis Kozlowski and Mark Swartz, at Tyco. John, Timothy, and Michael Rigas, at Adelphia. Scott Sullivan, at WorldCom. Andrew Fastow and Jeffrey Skilling, at Enron. Three years after the biggest wave of corporate scandals since the nineteen-twenties, the executives responsible are finally facing judges and juries. And, almost without exception, they're offering up the same defense: the board of directors told me it was O.K.

It's a childish excuse--one can imagine a judge asking, "And if the board had told you it was O.K. to jump off a bridge?"--and it is also, in some cases, untruthful. (Tyco's directors, for instance, did not know that Swartz and Kozlowski were giving themselves year-end bonuses months before the end of the year.) But much of the time these moguls turned mountebanks apprised their boards of their schemes, and the board members didn't object. The Rigases, for example, borrowed billions of dollars from Adelphia, and no one made a fuss. The Enron board signed off on a system in which Fastow, as both the C.F.O. of the company and the head of an outside entity that was doing business with it, was effectively allowed to negotiate with himself. The executives, at least, had a motive that the directors did not: to get preposterously rich. So why did the directors--who were being paid to look after shareholders' interests--turn out to be such pushovers?

One familiar answer is that these boards didn't have enough "outside directors"--people with no connection to the C.E.O. or top management. There's something to this: the fewer management cronies there are on a board, the better. But Enron's board was stacked with blue-chip outside directors, and it made no difference. The real problem was not so much who was in the boardroom as how they acted once they were there. On the Enron and Tyco boards, directors consistently deferred to company executives instead of challenging them. They discouraged debate and disagreement instead of cultivating it. In their own worlds, these directors were alpha males and queen bees with strong opinions and a forthright manner. But in a room together they turned into meek conformists, valuing unity over truth. At Enron, for instance, nearly every board vote was unanimous. When Fastow and Skilling proposed the strategies that eventually destroyed the company, board members asked a few cursory questions, then signed off. The directors had forgotten, apparently, that they had the power to say no.

This kind of thing happens all the time in small groups. People fall prey to what Irving Janis, in his study of American foreign-policy fiascoes, called groupthink. They become increasingly sure that their collective judgment is infallible. They listen mainly to each other, and they emphasize the need for consensus. Living in a kind of echo chamber of their own opinions, they pay ...