How Business Scandals Are Good for the U.S. - TheStreet

How Business Scandals Are Good for the U.S.

Well, maybe not the scandals themselves, but the way we react to them engenders trust worldwide.
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Americans can't stand a cheater. Even more, they abhor wealthy CEOs who play the system to their advantage and think they can get away with it.

A couple of years ago, Dennis Kozlowski, the former emperor of Tyco, went to jail for using the company treasury like a piggy bank for his own entertainment. A raft of other corporate titans have joined him in prison for offenses ranging from stock manipulation to -- pardon the description, since we are mentioning Martha Stewart in this column -- cooking the books. Every dishonest CEO causes us to lose faith in our system and re-evaluate our ethics as a society and country. That's the American view.

I work for the Wharton School of Business's Global Consulting Practicum on a part-time basis. GCP works with major business schools in other countries to help foreign companies enter the U.S. market by developing marketing and operating plans and making introductions. Because I work for Wharton and have written five books, I am also invited to lecture to corporate heads throughout Latin America.

What surprises me when I visit those countries is their lack of trust in their fellow citizens to deliver what they promised. I am currently conducting a seminar on entrepreneurship for the University of Louisville at its campus in Panama City, Panama, and I asked those in attendance whether they would by a product online from a company in their country.

The students who go to that school come from all over Latin America. The Louisville business school in Panama is one of the best in Latin America. Not one person -- and I am not exaggerating -- said they would trust a company in their country to complete the transaction.

I asked those same people if they have bought from American companies, and everyone had. Did anyone have a bad experience? No! Did they trust Americans? Not one person said they didn't.

I asked them whether a company in their country that partnered with an American company to sell products and services over the Internet would be more likely to get their business. The answer was "yes," because they were confident the Americans would deliver.

When I spoke in Lima, Peru, on behalf of a money management firm, I gave a hypothetical example, saying I had flown to their country and wouldn't be paid until I had completed my assignment. I asked the crowd whether they would have accepted, knowing they wouldn't get paid until they were finished with the job.

Not one person said they would have agreed to those terms. They are shocked that Americans are so trusting, but then they read the headlines on

and understand why we trust each other.

I started asking why they trusted us. Everyone told me that if our system would send Martha Stewart to jail for what most people outside the U.S. consider to be a minor infraction, it meant that no one was above the enforcement of law. Hearing this gave me a greater appreciation for the transparent system we have developed.

The Teddy Roosevelt trust-busters and government attorneys such as Thomas Dewey and Eliot Spitzer buy us a lot of trust globally. Dishonest people make it harder to attract investment, and that means no jobs for the poor, which leads to social upheaval. Because of our system, foreigners who are educated here and see the system firsthand realize that everyone must be above-board, and if they aren't, there will be consequences.

There are always people who delude themselves into thinking that they are above the law, or who believe no one will catch them or that they can buy their way out of trouble, but be glad you live in the greatest society ever established. The world trusts us, and we have to keep working at maintaining that trust. It's one of our few competitive advantages.

Every country that wants to compete with the U.S. has to emulate us if they want to attract foreign investment. It used to be that we were smarter, more creative and better managers, but the gap has closed considerably -- just look at the faces of business titans on the news. What we do have is our integrity, and at the end of the day, that's all any business has.

Kramer is the author of five business books on topics related to venture capital, management and consulting. He is a faculty member at the Wharton School of Business at the University of Pennsylvania and the veteran of over 20 startups and four turnarounds.