How to Save Your Ass in a Scandal

It can happen to anyone. Maybe you're the head of a corporation. Or maybe you're blonde media mogul whose name is, say, the imprimatur of good taste in every household in America. Or the archbishop of, say, a big diocese on one of the really big faiths. Or the invisible, exceptionally well-groomed head of a big-league accounting firm. Or the president of a country that's the world's only remaining superpower. Or the vice president of said superpower who doesn't feel comfortable talking about his heroic endeavors in the business world. Whatever it is, you have a good job. You're sitting in the warm summer of your life, planted in the big cushy lawn chair of accomplishment, luxuriating in rays of respectability, feeling the drowsy comfort of success and prosperity, when all of a sudden, some twerp out of left field heaves a big bag of shit at your fan. "What? No money? No worth? We're what? Insider trading? Interns? Altar boys? You're telling me people in the FBI in Minnesota and Arizona knew what?"

What's that? You're innocent? Sorry, nobody will buy it. Oh, innocentish. That's different. That's something we can work with. See, sooner or later, scandal comes to us all. We're all human. We all make mistakes. A recent study showed that if you put two people in a room and urge them to have a conversation, within 10 minutes 60 percent of them will tell a lie. Which means everybody deserves a good defense. Or a good excuse. Or a good exit strategy. That's what we're here to discuss: how to survive a scandal.

Because, rest assured, someday (no doubt sooner than you think), your hand will be caught in somebody else's cookie—jar or cash drawer, or silk skirt—and some part of this guide will prove to be very useful. So do not ask for whom the shit hits the fan. It hits for thee.

the Rules when caught screwing around or screwing investors, let the defense dictate the tempo

Rule No. 1 Deny, Deny, Deny. This is the preferred strategy when evidence is scarce or nonexistent. Choose a short and succinct reply. "Nope," "Didn't happen" or "Wasn't there" are good examples. Try to be of as little help as possible. Don't speculate why others thought you were there, gave the order or weren't wearing underpants. You don't know, and you don't know why anybody thinks you do. Evidence is the crucial issue. In the old days, before cameras, tape recorders, computer records and DNA tests, denial was the gold standard strategy. Now, with so much proof of everything hanging around, it's harder to pull off. Some people manage. Hillary Clinton was able to sit in front of the Washington press corps and say with a straight face that her amazing luck trading cattle futures had nothing to do with being the wife of the governor. Denial, however, has consequences. George Herbert Walker Bush was a presidential hopeful when the Iran-contra scandal ran like wildfire through the administration of which he was vice president. Bush's famous, somewhat embarrassing, excuse for not knowing anything: He was "Out of the Loop." And since there was no record or recollection of his being in the loop, he was able to skate through. Using the excuse made him look something like a kumquat, but he survived.

Rule No. 2 Burn the tapes. This rule is to be adopted when you would prefer to follow Rule 1 but find yourself confronted with proof of your iniquity that seems inconveniently solid. The phrase burn the tapes is, of course, a reference to the Watergate scandal. Many people believe that in the absence of the Oval Office tapes—of actual recordings of Richard Nixon playing the same central role in the conspiracy to obstruct justice as Shaquille O'Neal does in the Lakers' triangle offense —Nixon would have walked. Therefore, he should have just burned the tapes. There are many times when following this tip would have saved so much bacon. Bill Clinton should have Burned Monica's dress, the one he so Inconveniently Dribbled On. Had himself a little bonfire. Of course, he would have had to send Betty Currie to le Gap to buy another sharp-looking outfit. But wouldn't that have been better than amassing all those legal bills? The burn-the-tapes strategy has its drawbacks, though, dersen tried to destroy the Enron evidence, but there was too much of it and they were too indiscreet, and now they're in the toilet. On the other hand, we will probably never know if there were worse things they got away with.

Corollary to Rule 2: Kill the witnesses. Or at least threaten to break their kneecaps. John Gotti beat one of the raps he faced when the accusing witness was struck with an expedient loss of memory. The witness lived, and Gotti walked.

Rule No. 3 Try to get people to believe it was an honest mistake. This is a tremendous strategy if you're basically an honest person and what you have committed is actually an honest mistake. During the NBA playoffs in 1993, Michael Jordan decided the best thing he could do with his free time was go gambling in Atlantic City. Well, it wasn't a smart move to put himself in proximity to professional gamblers, and it brought a lot of unwanted attention on his fondness for big wagers. But Jordan was smart enough not to get that particular spotlight off of him. Admitting to an honest mistake is not always a good choice, even if it is true. If you have a reputation for dishonesty, for example, you can make honest mistakes all day long and nobody will believe you. There is no evidence that the Clintons did any-thing in Whitewater except make a bad investment, but not even their friends believe the story is that simple. In addition, if you have enemies, admitting to an honest mistake merely gives them ammunition. In 1995, House Majority Leader Dick Armey uttered one of the great Freudian slips of all time when he called Congressman Barney Frank, a gay man, Barney Fag. Armey claimed it was simply a slip of the tongue. Frank, in a gesture of magnanimity (or in a clever manipulation to gain a later advantage) acknowledged Armey's excuse without further drama, and Armey survived.

Corollary to Rule 3: Sometimes the best PR is no PR. When Arthur Andersen chief executive Joe Berardino published an open letter in newspapers that admitted to certain mistakes—including that regrettable paper-shredding obstruction-of-justice thing—he was trying to head off a rush to judgment. Not only didn't the public buy it, but it also gave the other Big Five accounting firms a big boost in their campaign to poach clients from Andersen. (continued on page 78)Rule 3(a): Try to make believe it was a stupid mistake. It's hard to get people to admit they have been stupid, but it has two huge advantages. First, it's difficult for people to be judgmental of you; everybody makes stupid mistakes. Second, saying it was something stupid opens the possibility that you can learn from your mistake. Hugh Grant went on The Tonight Show and admitted that he had made a stupid mistake in shopping for an alfresco blow job, and he is still making movies.

Rule 4: When it becomes abundantly clear that you are surrounded by idiots, cop a plea. This is obviously the way to go if you are a small-to medium-size fish caught in a vast criminal conspiracy. You can't count on loyalty. There are exceptions, as we shall see, but your first thoughts should be to assume that you cannot count on anyone, that no one will protect you, that your boss will drop you like a hot potato, that your colleagues will sell you out—usually for self-protection but sometimes just for sport. John Dean recognized it. Sammy "the Bull" Gravano recognized it. Diana Brooks of Sotheby's recognized it. So obvious is this strategy that you have to wonder why so many Clinton loyalists—Webster Hubbell, Betty Currie, Susan McDougal and, of course, Monica Lewinsky—didn't recognize it. Maybe they really didn't have anything to tell. Or maybe they were just following Clinton's example. Remember, Clinton could have made some sort of settlement with Paula Jones early on in her suit. In retrospect, the terms proposed—a vague admission of some kind of misunderstanding, possibly combined with the payment of a small amount of cash—seem like a bargain compared with what ensued. High-level plea-copping can work. Ronald Reagan got through Iran-contra when at a crucial juncture he got up before the nation and acknowledged that "mistakes were made." It cost him a lot of the prestige he had built up during his presidency, but he wasn't impeached.

Corollary to Rule 4: Don't make the apology worse than the crime. If you're going to make an apology, try to look like you mean it—and pick the right time to do it. In August 1998, after Clinton testified before the grand jury, he made a statement on national television in which he admitted some guilt, and then attacked his accusers. What a blunder. At a moment when even some prominent Republicans were willing to let him off the hook, his defiance got them stirred up again. After the Catholic cardinals went to visit the Pope in April, they scheduled a press conference to talk about the steps they would take against abusive priests. They sat there and pondered—in front of reporters!—what they'd do with a priest who had succumbed to temptation only once. At a moment when people wanted the cardinals to come across like Mr. District Attorney, they acted like the ACLU.

Rule 4(a): Cop a plea, but minimize. When you cop a plea, use the opportunity to minimize the significance of the crime. Call it "that mistake," or "this thing 1 have done" or a "mechanical breakdown." Students, take note: When historian Doris Kearns Goodwin was recently accused of plagiarizing material in one of her early books, she used all three of these excuses while invoking Rule 3. (It's interesting that around the same time Goodwin was accused, the equally eminent historian Stephen Ambrose was also accused of plagiarism. He, too, blamed mechanics.)

Rule 5: The buck stops here. Nothing ends a scandal faster than somebody's taking responsibility for it. When Kennedy took the rap for the Bay of Pigs, he earned more respect than the debacle had cost him. Damage from roasting David Koresh and the Branch Davidians at Waco crested when Janet Reno took all of the blame. Lieutenant Colonel Oliver North managed to pull off an incredible combo of Rules 4 and 5 when, during the Iran-contra hearings, he admitted everything he did while laying the blame squarely on everybody else in the administration. Of course, this isn't an option open to everyone. Ken Lay can't really stand up and admit to defrauding the Enron stockholders. Gary Winnick can't really say, "Yeah, I used Global Crossing as my personal cash cow." So if the buck can't stop here, you have to get it to stop somewhere else. That's when it's time to invoke Rule 5(a).

Rule 5(a): Blame your subordinates. This strategy works best if you use it early in the scandal. But the strategy won't work if things have festered too long. Nixon tried to head off Watergate by losing Haldeman, Ehrlichman and Dean, but he acted too late. Cardinal Bernard Law said in his deposition that he relied on the advice of psychiatrists and other experts and left it up to assistants to handle accusations against priests. That excuse could work in a few instances, but it doesn't fly after years and years of trouble. (However, see Rule 9.) It also doesn't work if the problem is too far-reaching. If blaming a subordinate isn't enough, move on to Rule 5(b).

Rule 5(b): Take a scalp. This is a wonderful tradition in the military. If your troops lose too many battles, you're gone. Presidents often employ this strategy. Bush #1 fired his chief of staff John Sununu when he got into minor trouble for using government planes for personal trips. Bill Clinton dumped the useful Dick Morris when he was caught shrimping with a hooker. Taking a scalp sates our blood lust. But while it's often essential to take a scalp, you have to do it without breaking Rule 5(c).

Rule 5(c): Don't fire a guy who can put you in jail. The John Dean rule. It's that famous axiom: It's better to have someone in the tent pissing out than to have someone outside the tent pissing in. As Oliver North put it in congressional hearings, he was perfectly willing to be the fall guy for the Iran-contra mess—"For whoever necessary. For the administration, for the president, for however high up the chain they need someone to say, 'That's the guy who did it, and he's gone, and now we've put that behind us and let's get on with other things.'" North's thinking changed abruptly when he learned that the scapegoat would face criminal charges. At that point, he stopped shredding and decided to take home his personal spiral notebooks to protect himself. Perhaps this example explains why Bush the younger hasn't canned someone like CIA Director George Tenet for the intelligence failures leading up to September 11. No doubt W. thought it was more important to stick with Rule 5(d).

Rule 5(d): Circle the wagons. One bad thing during a time of crisis is to have people in your camp using the crisis to further their own agendas. It's not good when the FBI and the CIA blame each other for September 11. It's not good when conservative Catholics blame gay priests for molesting children, or when liberal Catholics blame celibacy. Or when internal auditors point the finger at you, the chief executive officer. Learning to circle the wagons is the key to having a long run: The WASP power elite, the Kennedys, the Mafia, the old-time studio executives, the Catholic Church, the British monarchy—all were able to keep a lid on trouble. We Take Care of Our Own is a credo that takes a lot of discipline to pull off, but it can work.

Rule 6: Be sincere or learn how to fake it. This is a major rule, one that applies no matter which other strategies you choose to follow. O.J. Simpson waltzed out of jail because some people wanted to believe him. We may never know how little or how much Gary Condit did to Chandra Levy, but his inability to project any sincere concern, grief or sorrow has left him convicted of anything and everything people accuse him of. Condit was never convicted (concluded on page 188)Save your Ass(continued from page 78) in a court of law, but he was hung by Connie Chung.

Rule 7: Go on the offensive. Scandals are usually won with defense, but a good offense throws the attackers off balance and pressures them into mistakes. Some of the best ways to go on the offensive are: Create a sideshow. (Both Nixon and Clinton raised questions of executive privilege, to which Clinton added questions about Secret Service privilege, as well as choosing to lob cruise missiles at Osama bin Laden at the time of his grand jury testimony and at Saddam Hussein in the middle of House impeachment proceedings.) Blame the victim. (When Merrill Lynch was accused of giving positive recommendations for companies that its analysts thought were dogs while simultaneously pocketing fees for selling their stocks, the Sunday morning apologists said, in effect, "Why would anybody in their right mind trust what a salesman says?") Attack the accusers. (Microsoft says those who accuse it of monopolistic practices are just jealous, whiny losers.) Muddy the waters. (Jim Cramer's response to accusations that he engaged in some shady practices to get an edge was to say, "I was the kind of scummer who does everything legal he can to make money.")

Rule 8: Make people afraid of you. Nobody in American history has been better at damage control than J. Edgar Hoover. He had the files, and he made it clear he could use them. He was so effective that it wasn't until he was dead that most of his transgressions were revealed. Even then, a loyal secretary spent days after his death destroying files—see Rule 2—so we'll never know just how much he got away with.

Corollary to Rule 8: Remind people why they like you. Call in your chits. If you have lived a pretty good life, they might be enough to save you. If not, remind Arthur Andersen that you've paid them $52 million. But never overestimate your influence in high places—particularly your pull with politicians. George W. hung Ken Lay out to dry and never shed a tear.

Rule 9: Invoke mumbo jumbo. Cardinal Law didn't quite pull it off, but he was on the right track. If you can invoke with some assurance a little scientific or scholarly or legal mumbo jumbo to explain or excuse what you've done, you have a decent chance of getting away. For years, people in Silicon Valley would tell you about Microsoft's predatory business practices. In court, Microsoft was able to get everybody talking about browsers and code and a lot of other technical hoo-ha; now they've essentially beaten the rap. And O.J. Simpson got off the hook as soon as his lawyers got everybody wandering into the murky world of DNA-speak.

Rule 10: Keep your eye on the ball. It's important not to lose track of what you should most be afraid of. Gary Condit never acted like a man trying to get away with murder. He acted like a man who was trying to get away with having an affair, and later, like a man who wanted to preserve his political life. So instead of making himself look innocent of something he probably really was innocent of, he tried, not very capably, to make himself look innocent of things he really did. It cost him big-time. In the same way, if you've contained the scandal, keep it contained. Lawyers for the Catholic Church paid off victims and got them to sign nondisclosure agreements. It's the sort of thuggish things lawyers do, and it didn't do much for the victims' psychological well-being. But from the Church's point of view, it contained the problem. Then the bishops went and reassigned the creepy priests to other parishes, snatching defeat from the jaws of victory. It's a scandal.

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Kenneth Lay of Enron

Modest Start: Son of a Baptist preacher.

Public Story: Almost anything can be financialized. Enron no longer has to be a stupid old profitable energy supplier. It can be an incredible trading company that buys and sells natural gas, electricity, water, coal, fiber-optic capacity, weather derivatives, even newsprint.

Real Story: If we keep making deals, no one will notice that we're losing billions on a lot of these harebrained ventures.

Personal Indulgence: Two S6 million Aspen homes, plus a $4 million Aspen "cottage."

Achilles' Heel: "An overweening pride," says a former Enron executive, "which led people to believe they could handle increasingly exotic risk without danger."

What the Company did: Signed long-term contracts to deliver goods and reported all the income from the deals in the first year. It created shell entities to hide the debt, collateralized with Enron stock. This kept the books looking good. But when the debts rose and stock prices fell, the Ponzi scheme was exposed.

Compensation: Lay made $205 million in stock-option profits during Enron's last four years alone.

Boss and Company

John Rigas of Adelphia

Modest Start: Son of Greek immigrants.

Public Story: Bring cable television to the masses.

Real Story: Get better prices by inventing the masses.

Personal Indulgence: Likes hockey so much he bought the Buffalo Sabres.

Achilles' Heel: Invited his whole family to pig out at the trough. "I really believe what we did was completely acceptable," Rigas said.

What the company did: Made up cable television subscribers to fatten financial reports and used Enronesque accounting to make the debt disappear from the balance sheet. For example, Adelphia overpaid $26 per cable box, then charged suppliers $26 apiece for marketing support, thereby padding cash flow by $91 million.

What they were trying to get away with: Running a large public company like a candy store, with family dipping into the till.

Compensation: The company eventually collapsed under the weight of $2.3 billion worth of off-balance-sheet loans to members the Rigas family.

Boss and Company

Dennis Kozlowski of Tyco

Modest Start: Son of a Newark cop.

Public Story: Wanted to be remembered as a combination of Jack Welch and Warren Buffett. Now Kozlowski will be remembered for having Jimmy Buffett flown in to play at his wife's birthday party in Sardinia (Tyco picked up half the tab).

Real Story:; More, more, more, more for me.

Personal Indulgence: Motorcycles, four homes (one with a $6000 shower curtain), small pieces of the Nets and Devils and, most fatally, fine art.

Achilles' Heel: Hated spending his own dough. Charged with evading the payment of $1 million in sales tax on $13 million worth of art that he was getting the company to pay for anyway.

What he was trying to get away with: As long as he got results—or as long as he might get results—the company would pay him anything. His $17 million Manhattan apartment and his home in Boca Raton were purchased with company money. But now, it turns out, he took a tiny bit more on the side. The SEC says Kozlowski used $242 million from an employee loan program to buy goodies. Tyco is suing him for $730 million.

Compensation: In his last three years with Tyco, his total haul was at least $345 million.

Boss and Company

Berine Ebbers of Worldcom

Modest Start: Worked as a teenage milkman and bar bouncer.

Public Story: "Our goal is to be the number one stock on Wall Street." And, "whichever way will make shareholders rich is the course we will choose."

Real Story: Folksy hick act wasn't an act.

Personal Indulgence: A yacht named Aquasition, a 500,000-acre ranch in British Columbia.

Achilles' Heel: Frugality. When the company started losing money, he ordered workers "to stop watering WorldCom's plants and let them die to save money." He also installed video cameras to time employee breaks.

What the company did: Hid operating costs in capital costs, which made it seem that the company was far more profitable than it was, which inflated stock prices.

What they were trying to get away with: Stupid accounting tricks. Company had to adjust prior earnings as a result of falsely classifying $3.8 billion of expenses as assets.

Compensation: Borrowed $366 million from Worldcom as it sunk underwater. During his last three years on the job, took home $20 million in cash compensation plus $163 million in long-term option grants.

Boss and Company Gary Winnick of global Crossing

Modest Start: Father's food-service equipment company went bankrupt.

Public Story: Lay undersea fiber-optic cable to link continents and reinvent the telecommunications industry.

Real Story: Any company with a huge market value, even if it has a teeny cash flow, can be soaked in 60 different ways.

Personal Indulgence: A modem-day Xanadu in Bel Air.

Achilles' Heel: Reckless, profligate spender.

What they were trying to get away with: As long as the company's value was high, Winnick could keep getting investors to put up more capital, and he could get paid. His holding company in one year received $7.2 million from Global Crossing for services rendered—while he was also being paid $2.8 million for being chairman! He put Global Crossing's headquarters in a building that he owned, then generously charged the company $400,000 a month in rent.

Compensation: Winnick cashed out $735 million in stock before it tanked.

Boss and company

Martha Stewart of Martha Stewart living Omnimedia

Modest Start: The daughter of Polish immigrants.

Public Story: Become the consummate arbiter of American taste.

Real Story: Living above all rules.

Personal indulgence: Six properties, including one in East Hampton and a Manhattan apartment (she has 20 kitchens to choose from). Martha Stewart Living Omnimedia pays yearly rental fee of $2 million to use her homes as sets on various shows and in her magazine.

Achilles' heel: Greed.

What the company did: Nothing. She, on the other hand, may have engaged in insider trading. She sold her 3928 shares of ImClone, the day before the FDA issued a ruling adverse to ImClone, which caused its stock price to drop.

Compensation: Stewart sold the ImClone stock for $227,000. If she had sold it after the announcement, she would have missed an opportunity to profit. But even if she lost it all, it would still be chump change to the megamillions she is worth.

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theQuiz

1. After tyco's Dennis Kozlowskin bought some Renoris and monets, he had them shipped to his apartment in New York. What was in the boxes he had shipped to company headquarters in new Hanpshire to dodge New York sales tax? a. Gauguins and manets b. his old farrah fawcett posters c. crack. d.air

2 Gary Winnick charaged his company, Globel crossing, $3.8 million for office renovations. what did his finished office look like? a Versailes b. the Tajmahal c. the Oval office d. Hef's bedroom

3. When Martha Stewart appeared On CBS said, "I will be Exconerated of any ridiculousness," she was holding two things. One was a chopping knife. what was the other? a. Jane clayson's throat b. her broker's balls c. the head of the DA's favorite racehorse d. a cabbage

4. In January 2001, Enron's stock was trading at $83, close to its all time high of $90 what did boss Jefftey Skilling say it was really worth? a. $126 b. beans c.$100 d. the sweat off his balls

5. who among the following did not have to recuse himself from investigations into enton because of ties to the company or its officials? a. U.S. attorney General John Ashcroft, who received campaign cash from b. Taxes attorney general john cornyn who received campaign cash from enron c. the entire office of the U.S. Attorney in houston d. the DA on "Law and Order"

6.What did Enron kingpin ken lay say when Jefrey Skilling resigned in august 2001, not long before the big crash? a. "I see a bad moon rising." b. "the sky is falling, the sky is falling." c. "you're going to need a bigger boat." d. "I've never felt better about the company."

7. According to "time" magazine, which of enron's creative money-making schemes did the feds choose to overlook (for now)? a. declaring itself the sovereign state of Enron and not liable under U.S. law b. shipping Taxas textbooks to the French Foreign Legion c. selling a lot of magic mushrooms and walking into the looking Glass d. offering pornography via the Internet.

8. What is George W. Bush's nickname for ken lay? a. Kenny Boy b. Dip-shit c. History d. Who?

9. What was one of the favorite ways an Enron trader could spend his lunch hour? a. read "The Wall Street Journal" to keep up with business b. watch CNBC to keep up with business c. invent a shell company in which to hide hundreds of millions of dollars in debt d. go to Treasures, a "gentlemen's club," flash a company credit card and buy a $575 bottle of Cristal to take into the VIP Room with a $1000 stripper

Charged with videotaping himself having sex with a minor, he released a single what was it called? a. "Heaven, I Need a Hug" b. "Heaven, I Need Johnnie Cochran" c. "Heaven, I Need to Make Friends With Some Really Big Guys Who Will Protect My Ass in Prison" d. "Thank Heaven for Little Girls"

11. After her arrest for shoplifting in a Los Angeles department store, Winona Ryder appeared on the cover of a magazine wearing a t-shirt. What was written on the shirt? a. Free Winona b. Cheap Winona c. Guilty Winona d. What Ever Happened to Winona?