Conversations in Management: Scott London

“I feel terrible for what I have done almost all the time.”

Scott London.

LondonRemorse is a good thing for Scott London. It means he has a conscience. It means he knows right from wrong. It means he can experience shame. And it might explain why he followed the inexplicable path that he did. By any measure, London was leading an enviable life. Rising from unassuming beginnings, he became a partner with KPMG, one of the world’s largest professional services businesses and one the Big Four auditing firms. After a nearly thirty year career, he supervised 50 audit partners and 500 employees. He lives in a beautiful home in the San Fernando Valley and has a rich family life. He’s involved in his community. He has no financial problems. There is no indication of drug or alcohol abuse. Still, with no apparent hesitation, he engaged in insider-trading that netted him modest amounts of cash and gifts that he didn’t need or particularly want. Now the career is gone, the family traumatized and prison a distinct possibility.

His downfall began with golf. London was a member of the North Ranch Country Club, where in 2005 he met fellow member, Bryan Shaw.  The two became good friends and frequent golf partners. Their wives became friends as well and the couples often socialized. But by 2010, Shaw was in trouble. His diamond-wholesaling business was “floundering” and he needed cash. It’s not at all certain how it started, but London began feeding his friend insider stock tips. Trading on the tips, Shaw accumulated roughly $1.2 million before being caught. Along the way, he showed his appreciation to London by rebating about 10% of his earnings through cash, gifts and a $12,000 Rolex watch. By his own admission, London knew that what he was doing was wrong. When Shaw expressed concerns about the arrangement, London allegedly told him, “not to worry because regulators were not looking for ‘small fish.'”  When Shaw’s Fidelity Brokerage account was frozen in 2012, he claims London reassured by saying that, “insider trading was like counting cards at a casino in Las Vegas—if you were caught, they simply ask you to leave because they cannot prove it.” Shaw wasn’t  however, reassured and instead agreed to cooperate with the authorities. He consented to wear a wire and investigators were subsequently able to record and photograph a $5,000 payoff to London.  Criminal charges against both men are currently pending.

So why did he do it? London himself expresses bewilderment but the best guess is that he did it out of friendship. His buddy was in trouble, and he wanted to help out. Upon reflection he said he gave Shaw, “no real significant information.” That made it easier because the information wasn’t likely to harm anyone or impact the companies involved. He was also certain that the risk of discovery was very small. So motivated by friendship, with the belief that no one would be harmed and that risk minimal, he compromised his integrity and lost everything. London followed a path familiar to many of us. His ethical lapse wasn’t motivated by greed or power or evil intent. He was motivated by a virtue—friendship. When our initial motivation is positive, be it friendship, loyalty or love, it’s easier to rationalize small compromises to what we know to be right. Add to this the belief that no one will know and no one will be hurt, and you have the recipe for an ethical meltdown. It’s a very seductive impulse, but watch for the signs and resist the temptation.  Learn from London.  —Ebert

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