Icarus In The Boardroom: The Fundamental Flaws In Corporate America And Where They Came From

Rating:
Summary: A Superb Book on Corporate Scandals
Review: This ambitious book takes on the "big picture" questions about the recent wave of corporate scandals: the increase in risk taking, the complexity of the modern corporation, and the limitations on shareholder governance. It offers intelligent advice for regulators, and warns average investors about the most extraordinary risks.

In my judgment, this book is a must read for anyone who followed the recent scandals. Unlike many of the books written about the markets during the past few years, "Icarus" offers a fresh perspective on what happened and why. To mix a metaphor, I hope it catches fire.

Specifically, the book recounts how technological and financial innovation made it so much easier for the 1990s corporate manager to take greater risks and manipulate how investors understood the corporation's business. The book's description of the split between perception and reality will be jarring to any investor.

Professor Skeel's writing is accessible and pithy. He lucidly explicates the "Gordian knot of conflicts" in the modern financial enterprise, and even devotes important pages to derivatives and structured finance.

But the strongest part of the book is its historical perspective. Today's reportage on the markets frequently ignores important eras, products, or schemes, and rarely understands how financial history repeats itself, or morphs in new and interesting ways. In contrast, this book ties together nearly every financial scandal during the past several centuries: the South Sea Bubble, Cooke, Gould, the Money Trusts, the S&L scandals, Milken, and so on. Of particular interest is Samuel Insull - readers who are not familiar with his schemes will find the material on the "House of Insull" unforgetable.

"Icarus" is an important intellectual history, and a riveting read. If only every book on the markets could be this good.

Rating:
Summary: Fascinating analysis of the causes behind corporate failures
Review: University of Pennsylvania law professor David Skeel's Icarus in the Boardroom: The Fundamental Flaws in Corporate America and Where They Came From presents an analysis of corporate scandals and catastrophic failures from the rise of the modern corporation through the present day.

Skeel begins by analyzing the underlying causes of what he terms "Icarus Effect" failures, named for the mythological Greek Icarus whose hubris in flying too close to the sun caused his downfall.

In Skeel's analysis, Icarus Effect failures occur as a result of three factors -- corporate executives willing to take excessive or fraudulent risks, the pressures of corporate competition, and the increasing size and complexity of the corporation. While not all corporate failures fit this definition, Skeel finds that the Icarus Effect underlies many of the most catastrophic and damaging failures in American business history.

Skeel's investigation of corporate malfeasance and business failure covers a wide historical scope, from the birth of the corporation during the 17th century voyages of trade through the exploits of recent figures such as Ken Lay, Bernie Ebbers, and Dennis Kozlowski. Along the way, we meet a number colorful historical characters such as Jay Cooke -- the Philadelphia banker whose scheme for selling government debt helped to finance the Civil War and the growth of the U.S. railroads until his increasing risk-taking caused the collapse of this financial empire in 1873 -- and Samuel Insull -- who established a utilities empire with a complex web of corporate ownership until his overextended, debt-laden empire was brought down during the Depression.

The most fascinating aspects of Skeel's historical analysis are the frequent parallels between the catastrophic failures of the past and those in recent headlines. Jay Cooke's dinners with President Grant are reminiscent of the friendly relationship between Present Bush and Enron's Ken Lay. And Samuel Insull's elaborate corporate structuring of his utilities holdings in the first decades of the 20th century are eerily echoed in the complex "off balance sheet" holdings of Enron in the final decade of the century.

In the closing sections of Icarus in the Boardroom, Skeel provides a critique of recent attempts to curb corporate misbehavior such as Sarbannes-Oxley, and finds little that he believes is likely to retard the ongoing cat-and-mouse game between legal curbs on corporate behavior and clever techniques for evading them. In the final chapter, Skeel offers a number of his own recommendations for how America can strengthen oversight of corporate behavior.

Icarus in the Boardroom is fascinating for both its historical perspective on corporate malfeasance and its analysis of recent headline events.