March 25, 2019

There is considerable evidence that President Donald Trump is a narcissist. However, my interests are broader because many business and political leaders may be subject to the same diagnosis. First things first, what is narcissism? George Conway, husband of Kelly Ann Conway posted "Narcissistic Personality Disorder": 


 A pervasive pattern of grandiosity (in fantasy of behavior), need for admiration, and lack of empathy, beginning by early adulthood and present in a variety of contexts, as indicated by five (or more) of the following:

1. Has a grandiose sense of self-importance (e.g., exaggerates achievements and talents, expects to be recognized as superior without commensurate achievements).

2. Is preoccupied with fantasies of unlimited success, power, brilliance, beauty, or ideal love.

3. Believes that he or she is special and unique and can only be understood by or should associate with  other special or high status people.

4. Requires excessive admiration.

5. Has a sense of entitlement (i.e., unreasonable expectations of especially favorable treatment or automatic compliance with his or her expectations).

6. Is interpersonally exploitative (i.e., takes advantage of others to achieve his or her own ends).

7. Lacks empathy, is unwilling to recognize or identify with the feelings and needs of others.

8. Is often envious of others or believes that others are envious of him or her.

9. Shows arrogant, haughty behaviors or attitudes.


Consider a couple of extraordinary examples from business and politics. First up is Richard Scrushy of HealthSouth. Scrushy went through five chief financial officers (CFOs) during his tenure, all of whom went to jail. Scrushy did not [that is, found not guilty on 32 counts]: this narcissist hired a great legal team--using the "it was the nasty accountants who did the dirty deeds, not me" defense. One of the CFOs wrote a book about it (Aaron Beam, 2009); another came to Texas A&M to discuss HealthSouth (Weston Smith). He's the one that made the case that Scrushy was a narcissist with zero empathy, but demanded total loyalty. As a CPA (with a code of ethics), I wanted to know how is it possible to commit a white collar crime for a guy like this? Beam wrote that Scrushy was "one of the most enigmatic, nefarious, chilling and truly fascinating human beings the State of Alabama has produced," calling him "an egotist of the highest order, a consummate narcissist, likely a sociopath, and one of the biggest liars and fraudsters to ever lead a Fortune 500" (p. 12). of course, he was a super salesman. His salary ballooned over $100 million in cash and bonuses in 1998, and $90 million in stock options and "the ever-increasing wealth and fame only seemed to make him want more" (p. 115).


HealthSouth was the largest inpatient rehabilitation healthcare provider in the US. There proved to be a big demand for these services; Scrushy, Smith and others created relatively low-cost centers; profitability rose when start-up costs were capitalized rather than expensed--suggested by investment bank Drexel Burnham. Capitalizing cost and manipulating contractual adjustments and bad debts expense helped show profitability, allowing HealthSouth to buy dozens of healthcare facilities and aggressive merger accounting brought further profits. Scrushy made massive amounts of money; Beam made less, but still substantial--enough to make it difficult to say no to a demanding Scrushy ("management by intimidation"). Beam confessed to a growing ego and both a drinking problem and gambling addiction. 


Maintaining high earnings growth proved problematic. Accounting manipulation became more aggressive and turned to fraud [note that the shift to fraud and illegal acts can be difficult to determine]. Because auditors chose to review entries over $5,000, many questionable entries were made below this amount. Scrushy became increasingly active in politics and HealthSouth used a lobbying firm. Medicare and the Defense Department were overcharged and the government sued for $8.2 billion in Medicare fraud. Scrushy also bought over firms separately from HealthSouth, again with dubious operations. Beam (and presumably later CFOs) had the choice of continuing with the fraud, be a whistleblower, seek legal advise or quit. Beam quit in 1997 without spilling the beans (insider accounting joke unforeseen), but not before the fraud. After he left, "the fraud became so bad that by 2002-2003 the company was paying more in Federal income taxes on its reported earnings than it was actually making in true net income" (pp. 107-8), "120,000 fraudulent journal entries per quarter" (p. 109). As reported success grew, so did the fraud while actual results fell. HealthSouth was losing patients and doctors, while gaining lawsuits. The fraud was eventually revealed in 2003, in other words, shortly after Sarbanes-Oxley (SOX) passed following Enron. Scrushy refused to acknowledge the problems, although he unloaded millions in stock(a total $200 million. The FBI, SEC, IRS and  US Attorney's office investigated. Weston Smith, the CFO at the time, entered a plea deal. Scrushy was fired, then indicted on 85 counts--the first CEO charged under SOX. Before the trial Scrushy showed off as a God-fearing, church-going philanthropist while his lawyers discredited key witnesses (including the CFOs, now all convicted felons) and claimed the jury had to protect Scrushy from the evil government. It worked; Scrushy was acquitted. 


Probably the biggest crime was fraudulent charges to Medicare and other insurers, plus merger accounting tricks, and massive accounting manipulations to meet earnings, requiring a total $2.5 billion in earnings restatements. The criminal charges were securities fraud, wire fraud, bank fraud, mail fraud and money laundering. This was the first case under the Sarbanes-Oxley Act passed after the failure of Enron. Scrushy was fired and paid the SEC $81 million. HealthSouth restructured and was relisted on the New York Stock Exchange. Scrushy was later convicted of bribery on an unrelated case. 


As with business, politics has many candidates to choose from. I pick Benito Mussolini mainly because of the old black and white newsreels that demonstrate what a narcissist should look like. Madeline Albright book Fascism (2018) describes Mussolini in detail, but in the context of fascism--a term he created and defined--not narcissism. After World War I, Italy had a fragile democracy, with not a single president and party lasting for more than a few months. Following his Black Shirt's march on Rome, Mussolini became Il Duce in 1922, turning this into a fascist dictatorship. Unfortunately for Italy, Mussolili thought of himself as a genius and ran many operations himself. [The trains ran on time in Fascist Germany, but not in Italy.] The problem was, he was in fact incompetent (but genius in his own mind) and ruined one operations after another. In 1945 he was executed by firing squad. He proved to be a rather ineffectual narcissist rather than an evil genius. Too bad his arrogant bluster created so many converts.  



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© 2016 Gary Giroux

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