Corporations Turn Somersaults To Avoid Blame Creative Copouts Help Insulate Companies From Angry Shareholders, Consumers

Looking for an excuse? Relax. In a burst of innovation, imagination and, yes, desperation, American business has devised a collection of copouts to suit the harried executive who is “performance impaired.”

Just try these “explanations” for recent foul-ups on for size:

A missing minus sign is how Fidelity Investments explained a $2 billion-plus mistake in calculating Magellan Fund shareholder payments, saying an accountant omitted the minus from a spread sheet, and no one noticed.

The Intel Corp., explaining to millions of owners of Pentium-equipped computers why it was not recalling and replacing the defective chip, said the device only rarely goofs at long division. (The company ultimately agreed to replace, but not recall the chip, after a howl of protests.)

A long list of big-money losers in the derivatives debacle, blue-chip companies like Gibson Greetings and Marion Merrell Dow, are explaining their misfortune by saying they are financial rubes.

Don’t worry if nothing fits. By all accounts, the market for excuses - good, bad and ridiculous - is growing, a veritable hotbed of corporate creativity. Scarcely a day goes by without a statement from a captain of industry or mover of money that tries to distance the person in charge - or even the one with the smoking gun - from the latest bottomline disaster.

To be sure, excuses are a familiar fixture on the American business scene. Just look at William Agee, late of Bendix and now, Morrison Knudsen, whose explanations for management missteps over a 30-year career must be legion among a select but growing boardroom crowd.

But students of blame say the corporate environment has changed, making excuses today a preferred mode of operation. Paradoxically, the change resulted from an effort to make executives more accountable for their actions, not less.

“There’s been a chipping away at the business judgment rule, which states that just because a management decision turns out badly does not make it subject to litigation or regulation,” said Clifford W. Smith Jr., the Clarey Professor of Finance at the University of Rochester’s Simon School of Business Administration.

The purpose of the rule, Smith said, was to free management to make decisions without being subjected to the crippling effects of Monday-morning quarterbacking. But it has also been used to shield executives from valid criticism. “To the extent that plaintiffs’ lawyers, the Securities and Exchange Commission or others say they’ll scrutinize a company when things go badly and go after its managers with a class action or regulatory club,” he said, “the market for excuses will grow.”

Fueling that growth is the increased use of consultants, what many executives bluntly describe as expensive but convenient scapegoats.

“My friends who work for Fortune 100 corporations say that whenever questioned, a corporate type can say, ‘But that’s what the consultants told us to do,”’ said Sarah A.B. Teslik, the executive director of the Council of Institutional Investors, an organization of 100 of the nation’s largest pension funds.

And with more top and middle management coming from a kind of no-fault “Not Me Generation,” that is precisely what contemporary corporate types are likely to say, according to Professor Jeffrey Sonnenfeld, the director of the Center for Leadership and Career Studies at Emory Business School. “They are children of the 50s - conformists, not mavericks or creators,” Sonnenfeld said. “As a general rule, they want to duck responsibility, not embrace it.”

The not-me attitude, which often translates into a blame-others approach, may indeed get an executive off the hook, for a while. But it could prove damaging to the executive’s company and eventually the economy, experts say, since the problem in question may wind up being ignored or buried until it recurs or festers into something far worse.

Excuse making has become so prevalent in American business that it has spawned its own cottage industry of experts, including, of course, people who have come by their wisdom first-hand.

Edward P. Wolfram Jr., for example, served 10 years in prison for embezzling $47 million from Bell & Beckwith, a brokerage firm in Toledo, putting it out of business.

Wolfram now works for Ethical Management Consultants, a small company based in San Marino, Calif., that sends lawyers, scholars and former felons to speak to companies, industry groups and business schools about enforcing ethical standards and compliance programs.

When it comes to excuses, Wolfram said, he has heard them all. “Look, some things are illegal and inexcusable,” he said, “like embezzlement, although I admit that at first I tried to blame anyone but myself for what I did. But we’re talking about excuses becoming a corporate way of life for folks who made bad judgments and don’t want to take responsibility for their mess.”