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The rash of spectacular corporate scandals has already yielded a big shelf of books, many of them focused on the story of a single corporation run amok. David Skeel's Icarus in the Boardroom differs from most of the products of this genre. First, it is a very interesting and well-told history of corporate failures in the United States, and the role of those failures in evolving the legislative and regulatory environment for business in the U.S. today. In this respect, the book could not be more timely—but not because this is the white-hot issue it was at the time of the downfall of Enron and WorldCom and the passage of Sarbanes-Oxley. Rather, Skeel speaks to us at a time when business regulation is still a compelling issue—as the Enron trial makes clear—but the noise level has decreased enough for us to be more reflective in our thinking. Icarus in the Boardroom provides an excellent and easily accessible education for the reader who has not previously delved deeply into the topic.
Icarus in the Boardroom: The Fundamental Flaws in Corporate America and Where They Came From
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Skeel's ambitions extend beyond the strictly historical. The second major facet of the book develops a theory explaining why large-scale business failures occur: what Skeel calls "The Icarus Effect." The Icarus Effect comes into play when a rare individual, a leader who has exceptional business skills but also is marred by a significant character flaw, flourishes unchecked in a permissive business environment, with disastrous results. Finally, Skeel outlines his ideas for further strengthening the regulation of corporations and for better securing the nest eggs of individual investors.
The historical account of corporate America is by far the greatest strength of the book. It is literate and has a strong narrative drive. It is also very instructive. Skeel weaves social, legal, and regulatory perspectives together in a very effective way, telling the stories of some remarkable people who shaped our economy and society, for better or worse, all the while imparting a deeper understanding of the ways in which our economy and our legal system evolved in response to the failed flights of these Icaruses.
The stories of Samuel Insull and Michael Milken are particularly well told. Milken is familiar to many as the "junk bond king" who took Drexel Burnham on a high flight only to have it melt down. Insull's name survives among cognoscenti of Chicago history, who refer to the chair-shaped Civic Opera House he built in the Windy City as "Insull's Throne."
Milken commanded a network of wealthy investors and corporations eager to place billions of dollars at his disposal, in order to share in the extraordinary profits generated in the "junk bond" market he perfected. One of Milken's innovations was the "highly confident letter," an instrument that allowed a corporate raider—with virtually no real financing—to threaten a takeover of a major institution. This was a mechanism that Carl Icahn, a member of Milken's network, used to successfully threaten Phillips Petroleum into a buyout of Icahn's interest. Icahn subsequently used those funds for a takeover of TWA. As it happened, Milken kept his network together in part through violating securities disclosure rules for the benefit of his insiders. When stock trader Ivan Boesky pled guilty to insider training, he "sang" to federal investigators about Milken's disclosure violations. Milken ended up in jail and Drexel in bankruptcy.
For his part, Insull applied the principles of mass production to the business of the generation of electricity long before Henry Ford discovered them in the context of discrete manufacturing. In the financial arena, Insull pioneered the use of debt-leveraged minority interests in corporations, pyramided in a way that allowed him to control a vast network of utilities representing a significant portion of the overall industry in the United States at the time—a network that ultimately fell under the weight of its debt with catastrophic consequences.
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