The Missing Mogul | Oxford University’s Professor Christopher McKenna On Corporate Corruption Today | 5

Summary

Business Movers: Episode 5 Summary – "The Missing Mogul | Oxford University’s Professor Christopher McKenna On Corporate Corruption Today"

Release Date: November 14, 2024
Host: Lindsey Graham
Guest: Professor Christopher McKenna, University of Oxford

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Introduction to Robert Maxwell and Corporate Fraud

In the fifth episode of Business Movers, hosted by Lindsey Graham, the focus shifts to one of Britain's most infamous business figures: Robert Maxwell. Known for his vast publishing empire and charismatic yet manipulative leadership, Maxwell's actions left an indelible mark on the corporate landscape. His sudden death in 1991 unveiled a tangled web of fraud and deception, profoundly impacting countless employees who lost their pension funds.

Interview with Professor Christopher McKenna

Professor McKenna's Background and Interest in Corporate Crime

Professor Christopher McKenna, a historian at the University of Oxford, brings a unique perspective to the discussion on corporate corruption. With firsthand experience on Wall Street and a deep interest in the history of business and technology, McKenna delves into the origins and evolution of white-collar crime. His academic journey led him to explore various historical cases, providing a comprehensive understanding of corporate malfeasance from the 16th century to the present day.

Maxwell's Presence and Impact in Oxford

Maxwell's influence in Oxford was profound. His mansion, now part of the university, overlooks local parks and stands as a testament to his once-prominent status. McKenna describes Maxwell as a larger-than-life figure whose business ventures were intertwined with his personal life. Maxwell's ownership of local establishments, including the Oxford United stadium, made him a ubiquitous presence in the community.

The Scandal and Its Significance in Britain

Robert Maxwell was not just a wealthy businessman but also a public figure with political ties, having served as a Member of Parliament. His downfall was monumental in Britain, primarily due to the revelation that he had misappropriated pension funds to sustain his failing businesses. This scandal was particularly shocking as it involved the theft from ordinary employees who relied on these pensions for their retirement, shaking public trust in corporate governance.

Enabling Culture Within Maxwell’s Companies

The culture within Maxwell's enterprises played a crucial role in facilitating his fraudulent activities. McKenna explains that Maxwell surrounded himself with top professionals, paying them well and creating an opulent environment that masked his manipulations. This allure of success and the excitement of working with Maxwell made it difficult for employees to recognize or challenge his unethical practices.

Use of Complexity in Corporate Structures to Conceal Fraud

Maxwell employed intricate corporate structures to obscure his financial dealings. By operating numerous subsidiaries across different countries, he created a labyrinthine network that was challenging to monitor. This complexity allowed Maxwell to move money fluidly, making it nearly impossible for outsiders to trace the true state of his finances. McKenna highlights that such strategies are common in white-collar crimes, where the opacity of operations serves to hide illicit activities.

Regulatory Environment in Britain and Its Role

The British regulatory framework at the time was ill-equipped to handle Maxwell's sophisticated fraud. McKenna points out that British business culture often relies on the "spirit" of the law rather than its letter, allowing individuals like Maxwell to exploit loopholes. This reliance on general principles over specific regulations provided Maxwell with the flexibility to maneuver around legal constraints, facilitating his continued deception.

Post-Scandal Regulatory Changes

Following Maxwell’s scandal, significant regulatory reforms were implemented to prevent similar occurrences. McKenna discusses how regulations became more specific, particularly concerning pension fund management. Restrictions were placed on the types of investments pension funds could undertake, aiming to safeguard employees' retirement savings from corporate mismanagement. However, McKenna notes that these changes had unintended consequences, such as limiting the potential growth of pension funds.

Family Involvement in Corporate Scandals

Maxwell's family, particularly his sons Kevin and Ian, were drawn into the aftermath of the scandal. McKenna observes that family involvement in corporate fraud is relatively common, often affecting multiple generations. In Maxwell's case, while his sons were initially accused, they were later cleared of wrongdoing. This dynamic underscores the complex interplay between family dynamics and corporate governance in high-stakes business environments.

Auditing Failures and Their Impact on the Maxwell Case

A critical factor in Maxwell's ability to perpetuate his fraud was the failure of auditing firms to detect his financial manipulations. McKenna explains that auditors often rely on the information provided by companies without independently verifying its accuracy. This reliance was evident in the Maxwell case, where auditors failed to uncover the misappropriated funds, highlighting a significant gap in corporate oversight mechanisms.

Comparison with Other Corporate Scandals

When comparing Maxwell's downfall to other corporate scandals like Enron and Bernie Madoff's Ponzi scheme, McKenna identifies common threads such as charismatic leadership, complex financial structures, and regulatory shortcomings. However, he also points out differences, such as Maxwell's late-career diversification and the specific impact on pension funds, which set his case apart from others.

Maintaining Public Trust in Modern Corporations

In the wake of numerous scandals, modern corporations have adopted stricter governance and oversight practices to maintain public trust. McKenna discusses measures like enhanced audit committees and increased regulatory scrutiny. Despite these efforts, he expresses skepticism about their effectiveness, suggesting that fraud remains an inherent risk in the corporate world.

Legacy of Robert Maxwell and Business Lessons Learned

Robert Maxwell's legacy is a cautionary tale about the dangers of unchecked corporate power and the importance of robust regulatory frameworks. McKenna emphasizes that Maxwell's actions have had lasting effects on pension fund regulations and corporate governance practices. Business leaders can learn from Maxwell's rise and fall by prioritizing transparency, ethical leadership, and comprehensive oversight to prevent similar abuses of power.

Conclusion

This episode of Business Movers offers an in-depth exploration of Robert Maxwell's fraudulent empire and its repercussions on British corporate practices. Through Professor Christopher McKenna's expert analysis, listeners gain a nuanced understanding of the mechanisms behind corporate corruption and the ongoing challenges in safeguarding public trust in business. The legacy of Maxwell serves as a stark reminder of the need for vigilant oversight and ethical conduct in the corporate sphere.

Transcript

[Lindsey Graham]

Want to get more from business movers? Subscribe to Wondery plus for early access to new episodes, ad free listening and exclusive content you can't find anywhere else. Join Wondery plus in the Wondery app or on Apple Podcasts. It's October 1990 at a hotel in Naples, Florida. Tim, an investment banker in his mid-20s, walks through the hotel bar. Working for Invesco in London. Tim spends most of his time in corporate offices and stock exchange trading floors. But today he's at a luxury Florida hotel for a conference. Several of his colleagues are enjoying themselves at the bar, but. But Tim is in no mood to join in. Instead, he approaches a pool table where he spots the person he's searching for. His friend Mark also works in London, but for Lehman Brothers, a rival investment bank. Hey, Mark. Hey, Tim. Oh, not drinking? It's only just now noon. That makes it five o'clock in London. Nah, I'm all right. Come on, let your hair down. I don't want to drink. Okay. Hey. Okay. Mark lowers his head and aims his pool cue. There something on your mind? You're not normally one to turn down a beer. Are you trying to take away one of our clients? Well, probably. Who? Robert Maxwell. I've just had a call from the UK. Maxwell wants Invesco to send 30 million pounds of stocks held by his pension fund to Lehman's. You know anything about that? Ah, yeah, yeah, I heard. Invesco runs the Maxwell pension fund, Mark, not Lehman's. Are you stealing the business? We're not. He's selling the shares. No, he's not. Yes he is. He asked US for a $15 million loan, but the higher ups turned him down. So he wants to liquidate those stocks instead. Turn them into cash. Tim fixes Mark with a disbelieving look. That's not what we've been told at all. He said it's going to be used for stock lending and return within 30 days. Stock lending is where an investment fund temporarily transfers its ownership of shares to a borrower. It's a type of short term loan commonly used by investment banks. And since the borrower pays a fee, it's an easy way for the stockholder to increase their capital. Mark looks up from the pool table. So he's been telling us different things. Yeah. That's odd, right? Why does he need the money anyway? Isn't he a billionaire? Well, a billionaire with debts to pay, apparently. If he's raiding his company's pension fund, I'm not surprised he wants to keep it quiet. But is that even legal, and the money's for his workers retirements. He can't just take it. What are you going to tell him? That this is Bob Maxwell we're talking about? You kick up a fuss and he'll take the pension fund away from you. I guarantee it'll cost Invesco millions and probably cost you your career. Tim falls silent because he knows Mark's right. Well, you know what I would do? What's that? Have a drink, play some pool, and forget we ever had this conversation. By 1990, more and more bankers in London were beginning to see through Robert Maxwell's facade. They could tell his debts were growing and that Maxwell Communication Corporation was nowhere near as profitable as Robert claimed. But whether it was fear of retaliation or the belief that it was someone else's job to rein him in, little was done to stop Robert. Only after his death in November 1991 would the full extent of Robert's fraud and deception be revealed. And it wouldn't be the bankers and London who would pick up the bill. Apple Card is the perfect card for your holiday shopping when you use Apple Card on your iPhone, you'll earn up to 3% daily cash back on every purchase, including products at Apple like a new iPhone 16 or Apple Watch Ultra. Apply now in the Wallet app on your iPhone subject to credit approval. Apple Card issued by Goldman Sachs Bank USA, Salt Lake City branch terms and more at applecard.com Business Movers is sponsored by Grammarly. 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From the moment he came to Britain as a refugee from the Nazis, Robert Maxwell demonstrated a ruthless determination to prove himself in his new homeland. He would do anything to succeed, even if that meant lying, cheating or breaking the law. He conned his first partners in business out of their share in a publishing company. He was temporarily removed from Pergamon Press for his crude attempt to inflate the firm's value. And he manipulated his company's accounts, making them seem more profitable than they really were. Robert spent years confidently claiming that he was one of Britain's richest men and that his business empire would be worth £5 billion one day. Perhaps he said it so often that he began to believe it himself. But the truth was very different. Robert had built Maxwell Communication Corporation into an international conglomerate by. By taking on huge and unsustainable debts. Following his disappearance from a luxury yacht in the Canary Islands, it was revealed that Robert owed the equivalent of over $2 billion in modern money and that he'd even plundered his employees pension funds to finance his failing businesses. Tens of thousands of Robert's former workers would have to tighten their belts during retirement, all because Robert had been perfectly happy stealing their savings. But Robert Maxwell would be far from the last corporate crook. From the Enron affair that took down one of America's biggest energy companies to financier Bernie Madoff's fraudulent Ponzi scheme, there have been many other scandals that have left ordinary people out in the cold. Business leaders are expected to take risks. To many of them, it's a badge of honor. But there is still a line between pushing the boundaries and breaking the rules, even if men like Robert Maxwell don't want to admit it. Here to talk about corporate scandals in the years after Robert Maxwell is Professor Christopher McKenna from the University of Oxford. Professor McKenna, thank you so much for speaking with me today on Business Movers.

[Professor Christopher McKenna]

It's great to be here. Thank you very much for inviting me.

[Lindsey Graham]

So I'd like to start with, if you could just describe a little bit of your career on Wall street and then how you perhaps developed an interest in corporate criminality.

[Professor Christopher McKenna]

So this came from the fact that I went to Wall street right after being at college. I studied economics and then went first to Wall street and then to the City of London. And I did it for a couple of years. But I actually was interested as a historian in history of business and technology. And I became interested in, particularly in professionals because I had been a professional with an investment bank and I was interested in how professionals came together and what they thought. But strangely, this wasn't where I started in corporate crime, in white collar crime. I was interested in all these management consulting firms like McKinsey & Company, who were so powerful in the 1990s. And into the early 21st century, and I was writing a book about them, and it finished just as Enron happened. And I was a historian, so I thought, well, this is the end, but what's the beginning? And so I became very interested in the origins of even the phrase white collar crime and where it came from. And this has led me over many years to think about a whole series of cases starting in the 16th century, going all the way back into the 1500s and maybe even earlier, and bringing it all the way to the present. So that's why we're talking today.

[Lindsey Graham]

So right now, today you live in Oxford, which was, of course, Robert Maxwell's home for many years as well, and he's the subject of our series. What traces are there left of him in town?

[Professor Christopher McKenna]

Well, it's very funny, of course, I didn't come here thinking necessarily about him when I arrived in 2000, but over time, I find it funny when I walk into the park that's right above my house and I take a loop around the park. And his old mansion, which looks down on the park, is now part of university, but it was his home for many years. And I have friends who actually would visit. They were friends with the children, they'd go up there and visit. And when I walk to work in the morning, I walk past, actually, a supermarket. But that was once where he sold his books from his press. So they're just elements of his life all around me as I wander around. If I even were to go to the Oxford United stadium, that's, of course, where he owned the team. So he was very much a presence.

[Lindsey Graham]

In this city, very powerful now for many Americans. Robert Maxwell is probably best known as Ghislaine Maxwell's father. But in Britain, his legacy is a different story. Can you give us an understanding of just how big a scandal the downfall of Robert Maxwell was? How important a figure was he in Britain at the time?

[Professor Christopher McKenna]

Well, of course, he'd not only been a prominent businessman and been one for a very long time, he'd made a great fortune through his publishing career. Also. He had nine children, so they were sort of everywhere and they were quite successful. But having been a Member of Parliament and being an MP from the city, he was sort of one of the great rich men of the city. And he had this second career, this moment, when he took off in the 1990s and was on the world stage. And for him, he was always slightly scandalous, but for him to suddenly die and for it to become evident that he had stolen money from the people who worked in his newspapers, that was shocking because these were ordinary people and they had lost their pensions. And pensions, of course, to anybody, are central. You're saving up all your life for this. And here, this rich man who had lived this life of plenty, who would fly around in a helicopter, had suddenly stolen the money and he was gone. You couldn't even get it back from him. So it just overpowered the news for a while to try to figure this out. And this has happened, of course, in other contexts, but for them, he was a very present figure and he was with elites, and somebody from the elites had stolen from the common people, but thousands of people. So it was quite the scandal.

[Lindsey Graham]

Now, from an early age, Robert Maxwell was a striver and viewed with suspicion by the British establishment. I mean, as far back as 1971, a British government report described him as not a person who can be relied on to exercise proper stewardship of a publicly quoted company. Why was that not the end of his career in business? How did he still succeed?

[Professor Christopher McKenna]

So that actually comes right after. And after a long time that he'd been in Britain, and of course, he'd made a great fortune through publishing and he published academic articles. And when you were at university, when you were in college, and you had to read a kind of boring scientific paper that came out of one of those kind of dry journals, you may have downloaded that or photocopied it or whatever. But this is what Maxwell had pioneered, is that from the late 40s onwards, he had created a great empire of these things and no one knew that they could make money, but he had made great money and he'd made it personally. He'd made it through, first through his stake in it, and then, of course, he'd sold it out to the public. He'd had a publicly quoted company. And so that statement was about the way that he treated the public and the private as he did it, but he had his own money, so he would sometimes just sell everything out and no longer be a public figure. And then at other times, he would decide that he would go back into the market and you would buy his company and he'd hold a percentage of it and you, as a shareholder, would have a percentage of it. And he had made millions. And he seemed to be able to do this over and over again. So in the early 70s, when they said he shouldn't be allowed to do this, there were other people who were saying, well, but maybe I could make some money. And not to make a very contemporary comparison, but Trump seems To have access to money, Maybe you'd like to invest in him. Even if there have been problems in the past with him, maybe there are opportunities in the future. He was a complicated figure in that way, but he was clearly very successful, even if they were dubious about him.

[Lindsey Graham]

What was the culture at Maxwell's Companies that perhaps either enabled him to get away with his fraud or at the very least, perpetuated the illusion of success?

[Professor Christopher McKenna]

One thing I would say about this is that he was successful. So he was a rich man with a lot of people around him who were often senior professionals who he needed. So if he was going to make a company go public, he'd bring in the very best investment bankers or the accountants or the consultants or whomever to work with him, and he would pay them well and they would come to visit him. And he was a character, but he also lived an opulent life. So you went to see him and you got to see his wine cellar, you got to see his view of the city, or you got to see pictures around him of all the famous people he'd been talking to. And he had a fascinating life. We definitely knew that he was involved in World War II in helping the resistance. And the various things that he did seem to be quite heroic. And then he had managed to take what seemed like a very boring area, academic journals, and turn that into quite a lot of money, which meant that he was associated with scientists and famous authors and that he was associated with various people. So you went to see him and he held court, and you were part of that court. And I've talked to many people who were. They said, well, you know, I worked with him and it was exciting. And he had. He had things that were going on. And if he was, you know, trying to cut some corners, well, I just reminded him not to. And, you know, this is the way business works. And he was an exciting client. So I think he was just a fascinating person to be around. And you never quite believe that, you know, anything would come back to you, would come to harm you in the process. And it seemed like he was creating tremendous opportunities as he went from, you know, a small regional player to a.

[Lindsey Graham]

Global operator if those around him thought that nothing would get back to them because they are operating within the bounds of professional conduct. How did Maxwell try to use the structure and management of his corporations to make sure that it didn't get back to him?

[Professor Christopher McKenna]

Either the quick way or maybe not the complicated way to do this? The solution is to have a lot of things operating at the same Time, so that we're all slightly confused. This is common in white collar crimes. You're in various countries, operating in various countries, which means that you have to have separate corporations in each of those countries. And within those corporations they may have subsidiaries. You have subsidiaries. Some of the money is directly yours, it's in your private company. Some might be held by a trust, some might be held by a pension fund, and some might be held by some investors. So all of a sudden we're managing many things and this is common. They're not just a dozen subsidiaries, but there can be hundreds of subsidiaries. And this in of itself isn't necessarily a problem, except that nobody can see all of it at once. Only you can see all the pieces, partly because some of this is your money or family money or with partnerships that they're not privy to. And so this was such a complicated structure that you could not see all of it at the same time. And for what you could work out, your part was fine. But he could do things with those parts as he moved money around and he circulated that money and you wouldn't know where the money was at any one time. And given that he had a lot of money and given that it was moving, you thought, well, there seems to be a lot of money here, that seems okay. But in the end you realize that because you didn't have full view of it, you were missing very important things that were beyond you.

[Lindsey Graham]

And is this construction of complexity pretty much key to concealing criminality Today you say it's common.

[Professor Christopher McKenna]

What I mean by common is it was used in the 1930s, famously by Ivar Kruger in the 20s and 30s, who was the match king. And he had 400 subsidiaries operating, selling matches around the world. Each match, bit of the empire and Swedish match was in a different country. And by the time it turned out that he had done a giant Ponzi scheme, they used to be called Kruger schemes. When he had done this, all the various 400 or so subsidiaries were negotiating with each other about who owed what. And one would say, you owe me a million. And they said, no, no, you owe me a million. So it got very confusing. And of course it comes to the present. Enron had lots of subsidiaries in the present. But it's not that only bad organizations have lots of pieces. Good organizations can have them too and, or they can get so out of control that they crash around us. So for example, choose an international company. Samsung operates in so many parts, how would you know which part is doing what? They make various sorts of things and one of the ways that the family that controls Samsung controls it is to actually piece it up and have 51% of this or 25% of this, so you can own more because you have it in parts. And the parts come together because they don't want to be legally responsible for each other. And the investors understand that the parts are all fragmented. And only maybe they can see it through the annual report. But the annual report is not going to be about the family's interests. Of course, as I said, you could even have a foundation in all this. You could have some nonprofit in there operating, and you wouldn't know that then. Finally, the part that was so difficult with Maxwell was that he had pension fund monies. Those are supposed to be just held in trust for the people who retire, but they rely on you to invest their money for them. They can't do it individually. And he had control over that. And that's now something that we try not to let happen. But it's happened in the past, and it may well happen again in the future, unfortunately.

[Lindsey Graham]

Now, you mentioned Maxwell was an alluring, charismatic figure, and he generated a lot of excitement around him. He was adept at managing his public image. Can you tell us some of the ways in which he curated his reputation? Why was he able to do so much despite his growing financial problems?

[Professor Christopher McKenna]

Well, I think the financial problems were in many ways very separate. So if you went to his house, if you were around him, if you could go into his helicopter, or you could join him on a trip, or you could go along, if you got tickets to the local football club, you're pretty happy to be there and chatting with him and thinking about what's going on. And meanwhile, he's confiding in you some part of a deal or a conversation he's had. He's alluding to the words that the bankers told him. They describe how when you went to visit his home, if you walked into his office and there were pictures of him talking with international leaders and purchasing fantastic buildings, or he's telling you about the most recent merger and acquisition he's engaged in, you wanted to know more. This was like entering a sort of secret world. And if you came along to a dinner party and there was somebody who was royalty or somebody who was quite exciting, you felt like you were entering a world. And so all of this suggested that if these important elite people were around him and you could be part of this, and then, of course, maybe you became part of that group and reassured somebody else. We all fall for this. I would be rather flattered myself suddenly became part of this. But of course the truth was that if somebody whispered in here some problems about it, you'd say, well, I'm not totally convinced. I just thought it was a nice night and I enjoyed it. And maybe I won't pick this up late, but one of the things that happened was there were a lot of professional fees associated with this. And it's not just the straight fee associated with there's a retainer and there's some extra money and by the time you're earning millions for this, you both enjoy the time with him, but you also know that this is good money and so long as it doesn't burn, does it come back and burn you. You think, well, this is both fun and lucrative. So it was hard to separate your own interests from those of the interests around of the people around you, from the sort of overwhelming lifestyle that he was leading.

[Lindsey Graham]

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[Professor Christopher McKenna]

Yeah, that's a very good connection to make. And this is actually something that's very famous in the British environment, and one that's actually a difference, say, between the Americans and the British, and it's a long time coming. So one of the things that tends to happen is that the British believe that if you write everything down very carefully, you'll find a way around it. So you'll take the rule and you'll find the small loophole in the rule and that then you'll move around it. So what they say is, here's the general principle and you should follow this principle, and we're going to gauge you against that principle. At the same time, interestingly, it fits with the legal environment. Americans and British share the idea of common law. And common law is based on a set of principles that then accrete over time. As you have a court case, you add to things. The regulation may be set out, but we figure out the details of it with each court case and each incident. The gentlemanly environment is one where I think we understand how the rules work. And yes, we have a sense that someone might behave badly, but it's in all of our interests to make certain that the rules are broadly followed, that we make certain that people don't break the rules and that we modify the rules as they come along. But let's not try to write a regulatory statement that's 330 words long because someone will find their way around it and that will just not work. And so he was odd because he didn't come in as a gentleman. And this is very much tied to his background as someone coming out of Europe from the war and who had been slightly dubious in what he did, but yet he was leading a gentlemanly life and he was behaving in this fashion and people wanted to trust him. They wanted to believe that such a rich person wouldn't prey on others, because why should he? And by now, what's interesting is often the Americans are the ones who deal with fraud because they have very tightly built rules and the British will sort of refer people. But the idea is that we have, in Britain that we have more general rules that then are expected to be followed and then we will come back at you should you break them. But we think that the system should hold at a general level.

[Lindsey Graham]

So if in Britain the spirit of the law is trusted more than the letter. After Robert Maxwell's malfeasance was discovered, did regulations change to become more specific?

[Professor Christopher McKenna]

They did. And that's both good and bad. So one of the things that you would want to ask me is, well, okay, I walked by his house and I walked by his old shop and I walked by his old football grounds. But this is a long time ago, this is more than 30 years ago. How does it affect me or many others? And one thing was that they were shocked by the misuse of a pension, the way that you could steal this money. But more to the point, they were shocked by what could happen with pensions. So pensions are supposed to be stable. Pensions are supposed to be something that you can rely on. You don't want people to come to the age where they want their pension and for it to be gone. And one of the things that he'd done was not only steal it and invest it in the stock of his company to prop it up, but just more generally, he'd put it into stock. And stock we think of as more volatile, more problematic than bonds, that the yields on borrowed money, that's safe, it's not junk bonds, but good quality bonds should be safe. And so they basically built rules from then on for pensions, for corporate pensions that said you shouldn't be investing in equity, you shouldn't be investing in stock, because that might cause a problem. Now this is where it goes back to me once having worked on Wall street in the City of London. But the one thing I do know is over time, if you only invest in bonds, you will not do much better than inflation rate. But they were worried about pensions and worried about losing the money, not necessarily about keeping up with inflation. Back when all this happened in the early 90s, interest rates were fairly high, so it looked like you could just invest in bonds. And so my own silly pension, something I care about, that's in the University Pension association, which is the largest private pension association in the country, has been ever since that period, for more than 30 years, held back from investing in the market. And the result for me is, well, my pension isn't as large as it would have been had it been more broadly invested in the stock market. This is not true in the United States. Not to go too long about this, but the university pension system in the US is to invest wisely. Again, it's very large, is to invest in stocks so that you can make better returns. And so in one sense, everybody who's had a private pension in the UK since 1991, since the early 1990s, has been held back by their pension when they go to retire. And I can name the person who is the cause of this, it's Maxwell. He is the source of this problem. And so that's what makes these situations really interesting to me. It's not just the particular horrible incident, but the legacy that comes from this. And this is a serious one. And you might say, oh, this is, yeah, this shouldn't, this is not a big deal. But if everybody's pension is a bit lower because of an incident like this, and it's not theoretical, it's just because we're all scarred by it, then that's a real imposition on everybody's future.

[Lindsey Graham]

I was doing some quick math while you were speaking there to try and find a comparison in the systemic pension or retirement savings between America and the United Kingdom. If there is, let's say, a 5% yield difference between a 401 that's largely in equities and a British pension that's largely in bonds over a 30 year period, that's almost 4.5x difference.

[Professor Christopher McKenna]

Yeah, I'm either crying or laughing, I can't quite work out which one. But it's serious. Now, they do have investments, but in other words, the benchmark for stability and for making certain that you weren't at risk was what we call in this country gilts, in other words, bonds. And in the US they're saying, well, of course we're going to have to benchmark things, but we'd be more likely to benchmark it against the S&P 500 or something that's very stable and wide. So this is quite a serious thing. And if you think that whether it be your house or your pension, these are generally the largest things in your life. If you're deprived of a serious increase in your pension across your career from a private pension, this isn't even the state, this is a private pension. But if they hold the private pension for you, and there may be reasons why you do that, why you feel that you have to let them hold it, then the yields the returns are not going to be as strong. And this is his legacy. It's a very serious legacy.

[Lindsey Graham]

Now, we've talked a fair bit about the people and professionals around Maxwell during this time, but his family was involved too. His sons, Kevin and Ian became involved in his business empire, and they were in turn accused of being involved in his fraudulent activities before later being cleared in court. How common is family involvement in corporate scandals like these? How does this dynamic tend to play out?

[Professor Christopher McKenna]

It's actually fairly common that people will. Both the children will be the legacy of it. And also sometimes they sort of learn about things. They take steps afterwards to sort of clear themselves, but they're embedded as this goes out the door. Now, you have to remember that he had nine children, so he had lost two along the way, but his older children were sort of away. It was the younger children that were closer to him and that were closer to the problems. And this is really speculation on my part at this point, but his daughter was left without anything and left in a situation where she was not only a dad jumped off the boat named in her honor, but she was trying to find her way. And I actually quite wonder about what happened to her, in a sense, the legacy of that on the rest of her life as she got involved in other problems. But the two sons, they were actually trying to clear their name for great amounts of time, going around talking to people, trying to find ways to say that we weren't involved, making the true point, which was that the underlying companies continued to survive. But that's often true when there's financial engineering at the top and the companies that were below were actually fined. It's the financial engineering that blew up. And the underlying companies always had some value. It's just that if you had added them all up, they never quite had the value that people thought they had. As it turned out, at the end of Enron, oddly, the thing they were hiding, which was the gas pipeline business, that was what had value. So as they said, it was just a problem in the financial engineering. But that is the problem when your leverage is so high or a bet goes wrong. And that was what happened to the children. That's pretty common, actually. It's a common motif.

[Lindsey Graham]

I'm glad you brought back Enron, because not only was Enron taken down, but Anderson was too, for their role in not auditing properly. So how did auditing failures contribute to the Maxwell scandal? How have audit firms evolved since.

[Professor Christopher McKenna]

So the auditors. It's always a complicated thing, and this is actually worth thinking about. Briefly, auditors will tell you that they're only as good as the information that they're given. And frankly, they're not hired to check the information. Now, that seems ludicrous to you and me, but I'm going to try it out as a professor. So when I go into the classroom and somebody misbehaves, you'd like to believe that I should do something about that, but I, as a professional, kind of don't want to do anything about it. I want that person to leave. And I think that they're paying for their university or should be an adult. And it's not my job to step over there and tell them to behave. And strangely, auditors feel the same way. They say it's my job to make certain that the numbers add up. If you create a piece of paper that says the money is there, how do I actually check it? This was a problem at Parma Lot. This was a problem at Enron. This was a problem at WorldCom. They all just say, what can I do? Now the interesting thing is they're held in some ways to a tighter standard than others. They'll say, we're giving advice. That's also what an engineering firm would say about the design of a bridge. Or a set of lawyers might say about a contract, that all they give is advice. And if they don't follow it and they're not given full information that they can't be held accountable. I'm not trying to be nice to the accountants here, but we tend to hold the accountants to a higher standard than we might other sets of professionals. What's interesting is they got burned. Now, the professional firms, of course, literally got shut out. In the case of Enron, Arthur Anderson went away, although on reversal, and we might say this about various parts of the Maxwell scandal, they were later acquitted. And they say, see, it was never fair what happened. But the point is, and this is how we often define white collar crime, even if it isn't absolutely criminal, even if we aren't able to make the full case of it, we say it was within a sort of penumbra, a sort of shadow that was unacceptable and they should never get that close. And that's sort of the issue we now have with accountants. And they're under continuing pressure. But remember, they can push back and say, if you get rid of all of us, if you shut us all down, then you won't have any accountants at all. So the pushback happens the other way, too.

[Lindsey Graham]

We've mentioned Enron and Bernie Madoff and some other Scandals. What are the general similarities and differences between those and Maxwell's downfall?

[Professor Christopher McKenna]

Well, so let me be clear about some of the commonalities. So often you get someone who has a close relationship with a community where they trust them and they feel like they're letting them in on something. Often you get someone who's moving internationally. So it's hard to put them under laws in one country or another. As I've been saying, they move money between their private funds, their public funds, and maybe even money held by the state or in jurisdictions that are outside of this trust, that sort of thing. They have family involved. Now, where was he different? Well, one of the things that's actually interesting was that he'd been warned, as you said several times, this wasn't his first time being thought of as slightly shady and problematic. And one of the things that's interesting about him is there was quite a break when he became the Maxwell that we ended with and the Maxwell that had started. So about the time that he could have retired, about the age of 60, he suddenly decided to go into another industry. And I mean this in the sense that even if publishing an academic journal, you might think is like publishing a paper, they're very different. And he suddenly became a public person, battling with Murdoch and doing international deals and leveraging something that had his name on it. And that was very different. And I think it fits with the era. It fits with Margaret Thatcher, it fits with Ronald Reagan, it fits with the period of Mike Milliken. This was a period of big figures who were doing global things and needed big money and you needed to trust them, and they were going to move things in complicated ways. And yet the other people I'm talking about hadn't really been cautioned the same way, had had a different career, and suddenly he swapped and he became a different person in the process. And one of the great ifs is to wonder, what if he had just stayed in the mansion in Oxford and run the football team and having been an mp, was a great man and watched his children achieve things and had lived with a reasonable amount of money, a lot of money, in his 60s, and retired into being a great fixture, a great sort of person who'd been through the war and was a model for all of us, strangely. Right. In retrospect, it's hard to believe, but he could have done that. And I not. I try not to psychologize people, but this. He was very different in choosing a very different career break at that age.

[Lindsey Graham]

Well, it sounds like if he did return retire placidly, then you would have more in your pension fund.

[Professor Christopher McKenna]

I would hope so. But who knows, maybe somebody else would have done the same thing right? And maybe the so one of the problems is if you do what ifs, you don't know who the other person was that followed.

[Lindsey Graham]

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[Professor Christopher McKenna]

I like to think of this as kind of honorable, sedimentary, that's built into the governance structures that we live with. And so one of the things that you see, say in Sarbanes, Oxley or other sorts of things is that we have reinscribed these things. We've said you must not just have an audit committee, but somebody who audits the audit committee. Right? We need not just to have the accountants in, but we need to go back and check the accountants and talk to them again and bring in some accountants who would oversee the accountants. Famously, this process is described as but who will guard the guards? And one of the things we've done is to increase the number of guards on these sedimentary layers, which we then frankly complain about, because they make it very hard for firms to be entrepreneurial and for people to do the things they want. We like the idea of individuals who've risen up and created unicorn companies, things where they're not just run by committees, where they can make decisions and they can do things. One of our solutions actually in recent years has been to steal away from the public markets where all of these rules hold people back, and to let rich people take these things back into their possessions, where whatever they're doing, at least they're doing it with their money, or the other rich people are working with them to do it with their money. Then occasionally we think, well, can I invest in that? And so we start letting other people create investments that poke us away. So I see this unfortunately, rather cyclically, and I see this as moving internationally and I see this as a new generation of Famous entrepreneurs who may well lead into similar sorts of problems. So I'm sorry that I'm not seeing an upwardly better world, but what I see is that maybe it's just this is a terrible thing to say, but a cost of doing business, if in fact it costs us 1 or 2% broadly distributed, maybe that's my answer. So when I buy something that's not in my pension, I buy an ETF, I buy an S&P 500 ETF, because if one piece of it goes away, I think, well, okay, that was unfortunate. I wouldn't want all 500 to go under. But we spread our bets and we spread our bets internationally and we try to make rules that will limit this. But we're basically playing a bet over time about those who would steal. And when they steal, it's terrible to that organization. But we're asking a question about how broad the cost is to society. And I can tell you there are other costs that are basically the same. And so I just live with a world which has a lot of transaction costs. And I think, well, this is just one of those. It's the most extreme. But I do want regulation.

[Lindsey Graham]

If it is the case that fraud is a baked in cost of doing business on a macro scale, philosophically, what is the difference between business fraud and business failure?

[Professor Christopher McKenna]

Definitional. You try to decide whether they messed up or whether they did it on purpose. And we spend a lot of time thinking about that. And what's interesting is it's not always obvious. And when people come close to failure or engaged in something but came out the other side, we kind of don't want to know or we just move on. And when it's definitely fraud because it ended in a terrible outcome. The problem is people like Kevin Maxwell will tell you that, well, I'm not certain it was fraud, but don't you think that we nearly got away with would be a phrase. But that sounds bad. But what if you came close to failure but came out the other side and you say there was no fraud involved? We spend a lot of time, rightly I think, trying to gauge what their intentions were. But it can be very, very hard to work out whether something was intentional or just an attempt to get through a difficult time. And of course, I think we all would tell our children that, you know, the difference. But a lot of these people will say, I was confused and only now do I understand what was wrong. This came out most recently in sort of stuff around cryptocurrency, where you started to see people say well, but I just. I just thought that I would help, that I would keep the organization going, that I didn't want to lose face. So people routinely plead guilty in these situations, but strangely, not so much because they were trying to make money.

[Lindsey Graham]

These days, Maxwell Communication Corporation is long gone, as is the man himself. What legacy, though, does Robert Maxwell leave behind? What does he represent to us today?

[Professor Christopher McKenna]

So of course he's a figurehead and his name will be always famous. I mean, if I think of Murdoch, I think of Maxwell too. They fought out a hard fight in the public. I also, for me, the part we haven't talked about was how he made money in the academic world. So for scholars, and this is a particular view, but for everybody that ever uses an academic journal, he made those very expensive. Every university now has to pay tens of millions to subscribe, and they used to be not very expensive, but he worked out that he could get academics to create the journals for free and then sell them back at an extraordinary profit margin back to the universities. And so those companies became behemoths, very wealthy, and they affect things like the tuition fees that we all pay at universities. And it's an extraordinary impact, although we don't think of him for that. As I said, the sort of things that he did are now hardwired into regulations, a lot of them in the uk, but also around the world. And it reminded people that you really don't want to have someone who can both profit from the corporation but also monitor the pension. And so those things should be broken apart if all possible. So we do have more and better accounting systems for this, but also kind of oversight of these things. But as I say, his presence for me anyway, is around. And I'm always amazed at how many people when I talk to them who had some sort of dealings with him or with his children or with some legacy organization and who are part of it. It's culturally still there and he always will be.

[Lindsey Graham]

This is a business show. And though Robert Maxwell moved in very high altitudes and his legacy is still present. What tangible business lessons do you think our listeners can learn from the rise and fall of Robert Maxwell?

[Professor Christopher McKenna]

One is that he saw in a particular business that was thought of as not for profit and international in circulation, which is the circulation of ideas. This is. Now we understand that knowledge is valuable, but he understood that scientific knowledge could be leveraged in a way. And I'm not a big fan of this necessarily, but people who work for the betterment of society have something of value. And the question is how Might you leverage it to make it better? And maybe how we think about whether it should generate vast profits for private interests or should we recognize the profitability of it, but restrain that. So a not for profit organization that helps in the circulation of academic ideas is a tremendous thing. And we started to build those networks and they employ a lot of people. Conversely, Maxwell wasn't wrong that the idea of the period where he started buying up newspapers and other sorts of properties in the 90s was a boom. And he saw that he could make money through leveraging his name and his connections, but also the existing organization, consolidating them, working with professionals to do so. We see this quite often and so we see this routinely in new tech industries. But think of the 90s as the consolidation of various. Think of America Online, the consolidation of various kinds of publishing and knowledge businesses that would fall back eventually. But he saw the potential in them. Then I guess the other thing is both the power of the family business. Most family businesses in the world, they're the dominant form. The United States we tend to see in the corporate form and for profit floated companies, public companies, we see that as dominant. But really private equity has taken over. In many ways it's moved. And that's because it replicates the power of family. And so if you have a family business, it's kind of remarkable what you can do with it both for unfortunately good and bad. And he knew exactly the power of his family. He had lost much of his family on the Holocaust, but he rebuilt an amazing family and he treated it like a family business. And what's interesting is to see the rise of family business again in the United States and around the world, whether replicated directly through family or sort of through the form of private equity as a solution to the problem of the regulation. It may be the over regulation of public business. Although obviously given Maxwell, it's hard to believe that overregulation is the fundamental problem.

[Lindsey Graham]

Well, Professor McKenna, thank, thanks so much for speaking with me today on Business Members.

[Professor Christopher McKenna]

I was delighted to be here. I hope this was helpful and thank you very much for giving me the opportunity.

[Lindsey Graham]

That was my conversation with Professor Christopher McKenna from the University of Oxford from Wondry. This is the final episode of our series on Robert Maxwell on the next season of business moves in 1980s America. Oprah Winfrey back battles it out for domination of daytime TV and becomes one of the richest and most influential women on the planet. If you like business movers, you can unlock exclusive episodes found nowhere else on Wondery plus and access new episodes early and ad free. Join Wondery plus in the Wondery app or on Apple Podcasts. Prime members can listen ad free on Amazon Music. And before you go, tell us about yourself by filling out a [e-mail] survey if you'd like to learn more about Robert Maxwell, we recommend the Mystery of Robert Maxwell by John Preston Maxwell, the Outsider by Tom Bauer, and Maxwell's Fall by Roy Greenslade. This episode contains reenactments and dramatized details. And while in most cases we can't know exactly what was said, all our dramatizations are based on historical research. Business Movers is hosted, edited and executive to produce by me, Lindsey Graham for Airship Audio editing by Mohammed Shanti Sound design by Gabriel Gould music by Lindsey Graham. This episode is written and researched by Scott Reeves, coordinating producer Jake Sampson. The executive producers are William Simpson for airship and Erin O'Flaherty, Jenny Lauer Beckman and Marshall Louie for Wondering In a quiet suburb, a community is shattered by the death of a beloved wife and mother. But this tragic loss of life quickly turns into something even darker. Her husband had tried to hire a hitman on the dark web to kill her, and she wasn't the only target. Because buried in the depths of the Internet is the Kill List, a cache of chilling documents containing names, photos, addresses and specific instructions for people's murders. This podcast is the true story of how I ended up in a race against time to warn those who lives were in danger. And it turns out convincing a total stranger someone wants them dead is not easy. Follow Kill List on the Wandri app or wherever you get your podcasts. You can listen to Kill List and more. Exhibit C True Crime shows like More bids early and ad free right now by joining Wondering. Plus check out Exhibit C in the Wondery app for all your true chrome listening.