and they couldn't do anything to stop them. they could stop at any instant. they would have gone away and we did as quick as we could. because of what you did and your colleagues did, we were not hit again, so on behalf of americans grateful to you, thank you for keeping the country safe and joining us here again. [applause] >> the book is about me that i wasn't the only one there. by no means the credit. the men and women of the cia and the military, they can keep us safe from the military but not ourselves.

"after words" is next on the tv. harvard business school professor eugene soltes is the author of "why they do it an examination of white-collar crime. to write his book, he spoke with nearly 50 executives involved in corporate crime. >> host: professor soltes, good morning.

it's an pleasure to have the opportunity to talk to you about your book, "why they do it." let me start by asking how you came about writing a book on the perspectives and the background and thinking of white-collar criminals. >> guest: i am an economist by training and thi into this begai was a graduate student working on the empirical data. it's a cross between a reality tv show the documentary. on the show they had a crew going to various prisons and they were interviewing the felon for murder, assault, rape. i started to think about the kind of people that i wonder and think about some of the people in the industry, fortune, commencement donating generously, and wondering what

happened to these guys. they were convicted for offenses and then disappear. it began as a personal interest i saw the headlines in 2008 and that evening out of personal curiosity, i did what a lot of people have in the back of their mind when they were reading the stories what are some of these guys thinking. maybe if i could do what they were doing on the show spending time talking with us and it might be a different perspective. >> host: give kind of a sampling were list of who it is you spoke to. >> guest: over the course of the last seven years, host of which were convicted criminally, some criminal of some were overturned. the executives from enron, the

former ceo of tyco, people convicted of ponzi schemes, the most wel well-known, bernie madf and al standford, the biggest known ponzi schemes in recent history. >> host: how did you approach them and more importantly why do you think he talked to you ask >> guest: that is a great question as an attorney asking that. i approached them i think as an educator. i teach this material to my students at harvard business school and it isn't something that a student whatever think they would face. some of them are alum at the schools schools itschools i tea. what happened along the way. so a short letter i would like to better understand your perspective can we spend some time together. the first night i sent those questions i've received a number of responses.

it was elegant describing some of the challenges and others said i'm happy plenty of time now come visit me. so what i did this start taking them up on this offer and maybe started half-an-hour here, a letter there, back and forth. it became more apparent to me and was humbling thinking of some of these quite extraordinary individuals the face of such consequential sanctions to hear their perspectives and as to why, i think that one thing at hbs as i could commit and spend as much time as i needed to to understand the perspectives. i could say i'm going to write

something, i could spend weeks, months, years to understand how they see the world but also many of them missed the business world. we could talk about what's going on in other for it wasn't about their case. much was talking about everything else. hearing what they had to say was fascinating. >> host: did you talk to family members, victims, others that were around the crimes that were committed?

>> guest: a number of family members in the cases seems to be spent among the family. i approach this like many people externally. when you see this extraordinary kind that caused such devastation to say someone is going to get a year in prison or two years in prison, that doesn't seem very much. to see what that does a is a family is quite extraordinary and i think humbling even if the sanction is short. it's been interesting how some people are finding different things to do in their foraging in differenour foraging indiffee are stuck having the sanctions they could never overcome. and victims, some cases like

madoff. they were truly devastated by the actions. part of my goal speaking to the victims is to go back to someone like bernie madoff and say i just had this conversation, can you try to help me understand why this doesn't seem to be resonating with you. that's where i learned something about the personality. some just didn't seem to settle in that there were people on the other side that lost everything. >> host: i would ask whether you think they were truthful with you. you were not in the business trying to determine the truth that was confronting them is that right? >> guest: i wanted to put myself in their shoes and see hohow they view to the world. i think as any prosecutor knows in any defense does even if they

are trying to be truthful, they evolve and change and even the best scenario they were trying to be truthful, it is hard to remember all the details but on top of this, most of them are convicted felons, so to rely would be a little naïve on my part. but this is why i do try to rely on much of the other information going around for example we have a lot of e-mails and in some cases they would show me they are not worried that night after they signed the papers, they were just going out and celebrating at describing. they pieced it together and

subjected. i didn't run to my defense lawyer that night. i went out and had a party therefore i wasn't really intentionally doing anything wrong. we all do things that are wrong. we know that's wrong. and personal harm and devastation. we generally much of a deeper pause before going ahead i would argue that many cases. it is a slap in the wrist and this would lead to the kind of consequences that we see described in the book.

>> let me ask you what do you think is the difference between the white collar criminal on the one hand, and those that commit other types of crimes like burglary or drug crimes or fault, is there a difference between the profile of the perpetrator? it leads to the profile of the perpetrator and the crime is solved. you don't have to get close to the victim so this occurs in two ways. it's difficult to identify the name of the individuals that are more broadly a systematic increase to the system as a whole. no anonymous persons on the other side of the trade.

so they exist. it's not to say that it doesn't exist, but you can't pick them out and actually see their picture. in other cases where there are identifiable victims at the time that they are going to be identified as things like a ponzi scheme. it's when you are actually harming the individuals by investing in these schemes come to think of bernie madoff. they were clamoring to get him more money and leadership to the industries. most of the day it looked pretty good. it's only when it is revealed later that all of this is unwound and it becomes so clear there are people being harmed. so this is where i always found it interesting i spend hundreds of hours with individuals and i never wonder about if i turned around into my back pocket

stealing $20 out of my wallet. many of these individuals funds i owned, retirement accounts, they've taken far more than $20 from a knee. the question is why do i never need to worry about them stealing $20? you can do some pretty devastating things i have that feeling of doing something harmful. >> host: as opposed to putting a knife in somebody's throat and commanding thei their wallets. >> guest: which takes in many cases a fundamentally other kind of person or different kind of desperation or circumstance. >> host: you also point out in the book the kind of anonymity of the victim and the sort of longer period of time it takes for the victim to be revealed. it's the act itself that you

talk about how these crimes are committed by the mouse or erasing and putting in a new number on a balance sheet. is the nature of the act something that distinguishes the white collar criminal from someone else? >> guest: you can create >> guest: you can create extraordinary devastation. one in which they use the transitions that woul have alsod hundreds of millions of dollars for the firm. that doesn't feel all that harmful at the time. it is in the click of a mouse. one of the people that was prosecuted after the package of the former cfo, he described the false collateral it was actually

comfortable but they didn't feel that bad about signing many documents and it didn't seem signing a sheet of paper, so what. and it was only once he actually was confronted by someone who didn't think the numbers made a lot of sense but they just do not line up he would be forced to lie to someone face to face and he said that this doesn't make sense. so it's the most subtle decision and we could keep escalating from there. >> host: so does the fact that -- does this give you some insight into potentially how one might better detour holiday crime knowing how it is different from other types of crime does that give you any insight and did you reach any

conclusion about how best to prevent? >> guest: most of these people even when they were doing something pretty egregious, the kind of thing that is going to land you in prison, it isn't as if we hired some great lawyers, it is once detected you're going to prison for some period of time. that is pretty i think extraordinary to realize that even if you do something wrong and never see that outcome happening it suggests a different regulatory approach. it isn't a deliberate cost-benefit population. there are two ways to increase the cost. we could either increase the

probability of being caught or increase one cause and s and is awaiting such historical approach that we have taken has been with increased the cost associated with once you're caught so rather than the potential sense of one year goes from three years to five years or some cases several even argue it's too long when we compare them. >> host: there was one side anslightand about about 12 million-dollar fraud that impacts shareholders in the 1980s was punishable by approximately three years in prison whereas by the early 20008 increased fourfold between 14 to 16 years for the same offense obviously a drastic increase in the penalties and sanctions and fines, but your point seems to be that may not have much of an impact.

>> guest: we are talking about the most privileged people here. you go to prison for six months or three years. that idea is not resonating. that is for someone else. >> host: how about the fact of prison? >> guest:. it will hava lot of different ts associated with it which could be imprisoned but that is something people normalize and that this is what happens to people that do this kind of thing. if that was in people's minds, that would change but it's not a cost of calculation anymore. that becomes a part of our culture of what is appropriate and is not appropriate.

it's from some of the more difficult cases and the amount of resources to police which is challenging because of how much resources to investigators have. >> host: if white collar criminals don't think that cost-benefit analysis, then do you in your book have any suggestions on how it is that this crime could be better detour? >> guest: my view of this is oabout human nature and the people in here are not predisposed the pressures that

they face i think of this sampling for example when they are about to leave a prestigious business school ... my goal is to become wealthy, improve the industry, donate and then engage in fraud. no one thinks like that. but we find cases of people doing exactly that. one of the most well respected firms in the world eventually the ceo became the lead person

of one of the most celebrated firms in the culture and then you look soon after the retirement. there is a millionaire hedge fund divulging confidential information. everything to become successful. let me stop you right there for a moment. they might suggest that's exactly the kind of approach and conduct that gets you ahead in the business world. it's not a place necessarily where ethics and morality

prevail, but it's those persons that operate in a gray area and even across the gray area. so perhaps it was an extension of how he operated f. mckenzie. >> guest: the one thing that we think about roche group and mckenzie is that it is the client confidentiality. this is a place you don't talk about your client. it's to teach it t successfully with confidentiality and at least that's how i look at it in both of the cases they were

exposed in the confines. that isn't something that we've been defined to protect its something we learned together in culture if you are exposed to a different type of culture. when you start interacting with people that differed from that, which one may argue perhaps in some cases this could have occurred earlier but they were spending time with someone that acted differently. they adopted a different type of culture and it ultimately

undermined -- >> host: that suggests that culture and morality is more temporary than we would like to believe. it encourages and fosters world behavior and good conduct they become susceptible to crossing the line. >> host: i agree. we generally spend a lot of time. there are aisles and aisles to talk about the moral character and values, the moral compass. if we have this set of values sitting here today that's how it will be going out in any circumstance or situation.

we would see a lot of these instances you spend 40 or $50 taking ethics classes or spend a couple of weeks for the corporate training program that's going to be dominated 40 hours in the classroom. that's about the first three or four days on the job. that is the culture you are going to adopt and i think that we tend to describe the morality of the word greater than culture and driven by the cultural norms in a lot of these instances people tend aspire to do well but when facing tremendous pressure, and the wrong incentives, we see people doing things that are different. in the recent wells fargo case

it had an effect of culture and there were several thousand people doing with the firm and sympathized with simultaneously, one of the challenges people did things that were clearly a host of regulatory challenges and so this is where it really becomes told from the top as a catchphrase what is the culture being set in the firm. i guess to the fundamental question of why they do it, there's a portion of the book where you survey the theories for white-collar criminals to do whabut they do going back to th8 hundreds.

by the way they looked in the physical appearance like a high forehead and pointed nose. it's taking place in 1939 i wouldn't be the person that is here. he's the most well respected person in the country. he took a couple hundred measurements of kind of the

length, a couple hundred, the most comprehensive. something about the individuals body is related to the propensity. and he thought the trick is i need to do this more carefully with more rigor. they publish the book describing commonality. he had a wonderful place in the book showing the fraudsters for example and he shows that the person look like this, they are going to be the white-collar offenders. had this turned out to be true it would have been wonderful for both regulators and you could

just search through a database of offenders. it was a theory rematch in part and people started to see how this was correlated with some of the arguments and they were ultimately scientifics with the multi-correlation. but it wasn't totally gone away and that there was a pathologist from pennsylvania who's actually done some very interesting work that started. it's not the person's space or body shape, but it's their mind. we just need to go deeper so he is looking at people that engage in spousal abuse or have some type of brain makeup that seems to make them have a higher propensity associated.

it starts very primary which they acknowledge the differences in the brain structure associated with people that are more likely to engage in the white-collar and they have a capacity almost intelligence is a humbling conclusion. it is in a different way to be moramore careful way and ultimay the arguments around whether it is a physical cause, there are explanations and some of it got the difference between them and the executives, i could flip them around and i don't think

most people would be able to tell the difference. they are cordial, intelligent, everything that you would expect a corporate leader to be. so the idea that there is a physical cause for the white-collar criminality is an explanation that can contribute but it's probably not the answ answer. if you identify the culture as one cause, is it also situational, just to set up circumstances to make someone who otherwise would not cross the line to do so, what conclusion did you ultimately reach? >> guest: it doesn't look up so much what i think of as the reasoning. you could actually come even what looks like reasoning to us is oftentimes not genuine. it's justified with something we've previously done and we are

going back and forth. the wonderful evidence that's what we originally thought it comes down to in the intuition so i see much of the failures of the managed managerial intuition with a different approach to address some of these values. >> host: with their extra instinct is telling them is to do something that they should know better than to do. they don't have that a national instinct telling them and screaming out this is going to be very harmful or devastating. so, i think going back to this example, we all know it's wrong but to the extent that you are speaking, you don't really commend your gut doesn't tell

you you are doing something terrible, although there could be some serious consequences associated in that propensity of hurting somebody the doesn't strike us as physical harm. what we need to do is think of it in some cases where you might know you are doing something wrong but you are able to rationalize or justify it isn't so bad. if you see an accident or see a police car you might slow down because all of a sudden, you are reminded a lot of the situations we think of as ethical dilemmas are just doing them right versus wrong. they are very easily to solve

when we sit down and look at them. you don't need an elaborate discussion when you divulge confidential information. why do we see people in many cases falling prey to these simple failures and this is where the classroom and training is different than the real world. in training you are given that obama should you do this or shouldn't you do this. it's hundreds of other decisions that you are making. he will also see that there are people in the room that would think differently than you. so there are those with a lot of corporate governance and independent directors. a lot of it is checking the box from a regulatory perspective you have to independence, but it's not independent in terms of

thought and opinion or genuine. it's pushback on the ceo but it's a privileged position. >> host: an interesting story about mark whitaker and what it is that ultimately convinced him to conduct he was engaged in was in proper. he was by the way the focus of the insider. >> matt damon the best person to play someone convicted. they finally brought him under and this is how business is really done on a number of these products they are important in the industries and they surrounded literally figured out

how they should fit the prices. they wrote false names in the report they put a fair amount of effort. this isn't someone that came on one day. >> guest: yo >> guest: you would say it should have been. it's one of the most successful firms of the country. if you want to stay in that position of privilege, you adapt to what the theme is telling y you. he goes home and is talking to his wife describing what he's hs doing and she reacts with shock this is that you are and it

doesn't represent what you should be doing. he's someone that said completely outside the business and contaminating in many ways by differen the different normsd intuitions that were being treated. it's really tragic and becomes a whistleblower for the government that is the point it's something that few can argue is even more shocking. he starts eventually embezzling. it is being caused by some

degree. it's to take the best route going to prison for doing something else. so this suggests that perhaps one route to decreasing the level of white-collar crime is to populate the companies and corporations with persons who are outside the culture but who are there during the decision-making so that they can offer a voice that is untainted by the groupthink and may occur. i'd heard of this. do you think that is a viable solution? >> guest: it is done in a genuine way that there's a tremendous opportunity. the challenge that so much of this comes down to compliance and things we need to do to follow the rules. what many firms do when we try to avoid responding we institute

more rules and bring more people to predate the rules. sometimes very smart people and what do you do it just requires a little bit more thought how to stay within the bounds of the rule which is a perverse outco outcome. does this represent why you went to this firm and what you were trying to do in this industry. one are area that i spent aboutf time is talking about the role that attorneys play. i believe a lot of the firms they play the council where you are giving legal advice about what is appropriate or not appropriate when it comes to the laws and regulations but at least i can say speaking to many

of the senior managers they are looking to that attorney because it is someone that operates in the council someone is operating outside that has the ability to see the culture potentially differently. the challenge to counsel plays in this case because you are reflecting what the client wants in that moment is different from what they like in the long-term interest. it's something i think they could play a greater leadership role in actually knowing that it's not jus just whether they e finding the rules and regulations but the chief ethics officer in some cases. they shy away when you bring them in but i think that this is

where we see the managers wanting to offset the obligations. when it comes to the technical accounting matters i think historically this isn't the role where they are going to jump in the room. i think a lot more of that goes on and is given credit for service providers and advisers. that often does come for asymmetry.

imagine the border around the table you just need to have all of their spouses and significant others around the perimeter of the room for spitting in their ears. i get the one example that's probably one of the most interesting when i came across it he's a celebrated venture capitalist. when he hired a ceo for one of the firms they looked at the conversation arrangements we are doing one thing that looks not that competitive when i look at other firms in silicon valley. most of our competitors are the firms with the lawyers and accountants and they addressed them to make them the most attractive for the senior executives.

the initial response is this looks great obviously we need to do this. but he realized that his intuitions around when it came to the technical financing matters must not be perfect. it is an innovative thinker but he's not a technical finance accounting guy. it's not just within the firm but silicon valley. i recommend against this and then went back and said i know everyone else is doing it and that's true. it becomes big of a scandal and

the cfo informs the people that went to prison for this and as they reflect on their citizens because he had a better moral compass or values and other executives in the industry, they get better compliance control i think it is almost a preservation framework he knew that getting advice from the little inner circle might not always be right but he anticipated this. he was aware he might be compromised. >> host: let's talk about some of the individuals that you spoke to. let's start with bernie madoff.

tell us about your interactions and also in the book identify particular episodes that i think one might describe as a little chilling that gave at least according to the book of insight into his character. >> guest: it's something i've been corresponding for years now. the innovations that we think about. it grew to become one of the largest ponzi schemes, so despite the fact that he created one of the largest ponzi schemes he was never destined to create this but then the question is what happened.

one of the things i find very humbling when i talk about his case, i think most of us like to believe we would never let something gross like this have become out of control. there is no underlinin underlyi. it is a ponzi scheme that there'is theway that he could hd he could have gotten out of this. the question though is at what point. you go home on friday night and have dinner with your wife and kids and then you say you know what, this is enough. i should call the doj, because this needs to end.

then the next week comes, i know this is wrong and i need to stop but i don't want to watch it collapse. some of us would have the character after that final dinner with our family and decide we are going to end it. >> host: long sentences are a deterrent to confession. that's a very provocative way. he would never have another meal with his family. that is an interesting way of framing it. when it comes to why did this happen in the first place, this

is where it's different than many other people i spend time with. unlike the other people that might devastate but they didn't know them or see those victims. these are family, friends, people in the jewish community. when you know these people are going to lose money, how do you say it's okay to give me your money a family member asked. so these are the remote victims we spoke about earlier. >> it's the extreme opposite. the most closed members that were spending time around and so returning to the instance that we are trying to understand the personality and how he views the world. we would normally have our tal

talks, one committed suicide on the anniversary she turned himself in and the other died of cancer. i was reading the century when his second son died. i picked up the phone and from a federal prison. surprised i didn't have a call scheduled at this time with anyone it was bernie madoff. my stomach sunk when i heard his voice. he said he heard on the radio and asked if i could do his obituary. it's the true you could say the hardest points in one's life.

i read the obituary to him and i would say i'm so sorry if there is anything i can do maybe he wants me to pass a note along to someone. i'm at a loss. what do you say to someone in this situation? can we go back and talk about the interest rates. this conversation i don't think the first reaction was maybe he was in shock. i don't think it was that.

this was an issue he was focused on but then you can compartmentalize that and switch. this is something where it's just different. most of us don't have the capacity to compartmentalize, which i think is what actually helps to facilitate that. you have to compartmentalize them. all that was where the ramifications and all that would flow from that is not what entered his mind at that time. >> host: >> guest: in most cases he would say i can't take your money right now.

he would say i told people not to give me more money strictly speaking it's actually that marketing pitch telling people not to give money makes them want to give more. that is a great marketing pitch. i generally believe it was a great marketing pitch. it's a pretty sinister rationalization to blame the victim. it is the classic, that isn't a

reasonable way to make it enough to separate the. >> host: you have so many interesting stories about the individual white-collar criminals. are there others did stick out t in your mind, i know for example he took a very different view and claimed there was no wrongdoing at all. >> guest: if you say this wasn't any fault of my own, purely links and a look at this short of the pages and a fold ot of the u.s. government. what's interesting he could separate the two parts they were shut down prior which on the one hand is the goal of law enforcement to stop it before victims are created.

most of the time the financial industry talking with collapsed -- things collapse and go bankrupt. but the best case scenario is to stop it before it collapses and anybody loses anything. what is ironic if there are other firms that didn't have different bailouts or whatnot. i didn't pick the government got bailout and they put me into receivership. he uses the logic that because it didn't fail if must be legitimate as a way of providing some comfort this wasn't his fault if someone else. and it is a challenging question. if there is a chance the firm is going to fail ethnic city would've sensed to be taken ov over. now what the others put together suggest this is closer to the

99% cite. he should be one of the greatest investors. there was one that produced 30% or something return. it generates returns over decades and there should have been hundreds. it doesn't.

he stole some money in the tru trust. none of them knew what the business actually was. we don't ask questions we just so the stuff and it makes it harder to think that there was actually a legitimate business that he only knew about and no one else could find. so, she is able to appeal, but it continues to document more and more suggesting. buying a golf course or something and then moving around marking up to $3 million it's not the investment generating

that return. >> host: anyone also stick out in your mind? there is one aiding an attorney i believe, extraordinary. this is harvard and yale. one of the most reflective and it just i could see him as an academic in terms of -- that's what's interesting, self-aware now to think about his actions. it's basically of a billionaire client. we are talking tens of millions of dollars and he didn't have a

finance background. he was able to create them all from scratch. then some very well respected hedge fund is. after the first one worked he thought it might have taken off. up until that point it just becomes crazy and wasn't willing to take the note. it gets to these levels of absurdity. >> host: someone as i recall doesn't recognize him as an employee. he hops out and this is the

person he is in toronto and could have taken off that this s shows how delusional someone could become when you are in this situation you could say that the smart thing would have been to divert th divert justica pile of money that wasn't going to extradite him and debated exactly that. he thought he could get out of it and explain his way out of it at this point in time which shows how crazy you can get in these situations. ..