Congress created the 2002 Sarbanes-Oxley Act to protect investors from corporate accounting fraud by strengthening the accuracy and reliability of financial disclosures.
One company with a history of governance and compliance problems was Marvell Technology Group. I worked for Marvell for seven years during the time the Icarus Effect was operating at the highest levels.
The company, run by the husband-and-wife co-founders, was fined $10 million by the SEC for an employee stock-options backdating scheme; a patent infringement lawsuit with Carnegie Mellon cost the company $750 million; fined $5.5 million by the SEC for running an undisclosed revenue management scheme; and was threatened with delisting from NASDAQ for non-compliant report filing.
In April 2016, the Marvell board dismissed the co-founders. Marvell stock soared 14 percent in pre-market trading the day after the announcement of the co-founders’ departure from the company.
Marvell leaders, who resorted to — or were willfully blind to — problematic accounting and regulatory practices, caused turbulent times at the expense of shareholders. The company laid off hundreds of employees and closed several technology design centers between 2012 and 2016 to preserve and redirect capital. This was unfortunate because both billionaire founders were smart, prominent, and respected businesspeople in the Santa Clara high-tech community. They were widely recognized for their local and global philanthropic causes. But this type of public persona is the narcissist’s mask, and looks and feels like the "king's pass" version of unethical behavior.
But when Marvell’s C-suite executives were rationalizing repeated compliance dodges and questionable ethics, replacing the hostile environment in 2016 seemed to be the best change for the company. No longer would C-suiters regularly fire executives for expressing differing opinions from one of the founders. Gone were the founders’ hand-picked directors — “yes men” — whose autocratic leadership style forced the departure of talented professionals.
As one reporter opined an all-too-familiar refrain, “And Silicon Valley has once again been reminded that placing people on a pedestal too high can make their fall even more painful to watch.”
Willful blindness plays a role in some cases
We turn a blind eye to truths, situations, and facts every day. We create a false sense of “blissful ignorance” when we try to avoid blame, pain, or accountability. Whenever contradictory evidence confronts our beliefs, the “backfire effect” further entrenches them. It seems that our brains prefer the path of least resistance when we stick to our beliefs in “uninformed obedience”— instead of applying critical thinking to people and situations.
Board members should know how willful blindness has a strong connection with avoiding unpleasantries and pleasing others. They must enter the CEO vetting process with a stronger level of due diligence and deeper self-awareness that allows them to not succumb to the influence of a powerful personality.
Postscript: Since the exit of the founding husband and wife team, Marvell Technology Group has undergone significant change: From executive leadership management to even a logo change. The company makes a variety of in-demand technology products and under CEO and President Matt Murphy, will make great strides for employees and customers.