Buffett is held in such high esteem that almost nobody believed he had behaved improperly—least of all, it seems, Spitzer, who was careful to say that Buffett was not under suspicion. "Warren Buffett is an icon," said the grand corporate inquisitor. "He has succeeded the right way. He stands for smart, long-term investing, transparency, accountability—all those things we value and support." (Quite whom he meant by "we" is unclear.) Still, had things come to this? That a man of Buffett's matchless reputation might have so much as brushed up against improper business conduct was shocking. All that talk of a crisis of values in American business must be true.
Enron, WorldCom, Adelphia, Tyco—not to mention Martha Stewart, accused of insider trading and jailed for lying to investigators: the tally of actual and alleged corporate sinners is long. It includes companies and executives once famed not just for their spirit of innovation and their shining business prospects but also in many cases for their drive, their integrity, and their values. Kenneth Lay, the head of Enron, spent last year awaiting trial on multiple charges of fraud and other crimes. He was a self-made man—the son of a part-time preacher, raised in poverty, who went on to become an acclaimed business innovator, a plutocrat-philanthropist, a model boss, Houston's hometown hero, and a good friend of the first President Bush.
Lay and others were not sleazy small-timers. That is why they raise doubts about the overarching integrity of America's business culture. Capitalism is underpinned not just by law but by trust, which can be legislated only so far. Parties to contracts need to trust each other. Investors in companies—increasingly at a distance from their assets—need to trust the managers whose salaries, ultimately, they are paying. In the broadest sense, citizens need to trust the system itself, to believe that it has their interests at heart—or at least that it serves their interests, even if it has no heart. The people who benefit most conspicuously from capitalism are parties to a social contract with the rest of us. The question is, are they in breach?
Put it this way: the terms of the contract are coming under strain. Outright fraud is just one manifestation of the problem, and a narrow one at that. The ostentatious greed of many (law-abiding) CEOs, and their broader lack of accountability to shareholders, are at least as significant.
The division of capitalism's spoils has become more lopsided in recent years. Many workers have seen their wages frozen and their benefits cut. And lately even owners haven't done well: returns to stock-market investments have been poor since 2000. The group that has continued to profit, sometimes spectacularly so, is high-end professional managers—the very group from which corporate criminals are drawn. Over the past ten years the gap in pay between top executives and their subordinates (not to mention workers at the bottom of the scale) has widened a lot, and the trend shows no sign of slowing. In many cases pay schemes that rewarded chief executives generously when share prices were soaring continued to do so as prices tanked. CEOs fired for incompetence, leaving injured companies and distressed investors behind them, sometimes walked away with multimillion-dollar payments. If it isn't fraud and false accounting, one might be forgiven for thinking, it is rapacious salaries, unexpensed options, golden parachutes, and post-retirement use of the corporate jet. Not every kind of compensation is being driven down by global competition.