Case Study: Walter Pavlo ends the video saying that he is no different than most of us and that we could do the same thing that he did. Do you agree? Why or why not?
Scenario Transcript
0:00:00.2 Cindy Moehring: Hi, everybody. Welcome back to another session here on our Business Integrity School podcast. We are fortunate to have with us today, Walt Pavlo. He is…
0:00:12.9 Walt Pavlo: Hi.
0:00:14.9 Cindy Moehring: Hi, glad to have you here today, Walt.
0:00:15.8 Walt Pavlo: Thanks, Cindy. Great to be here.
0:00:19.5 Cindy Moehring: Walt is a nationally-recognised expert on white-collar crime and the federal criminal justice system. He is a popular contributor to Forbes where he writes on white-collar crime issues, and his work has earned him appearances on American Greed and in documentary films, including White-Collar Convicts: Life On The Inside and (Dis)Honesty. Walt co-authored a popular book, Stolen Without a Gun, based on his experience as a senior manager in a large telecommunications company. Some of you will know the name MCI from back in the day, where he was at the centre of a large accounting fraud there. Walt pled guilty to wire fraud and money laundering, and ended up serving two years in federal prison as a result of that. So he has some very interesting experiences to be able to share. Since then, Walt’s made appearances for the FBI, the US Attorney’s Office, The Big Four accounting firms, top-ranked MBA schools, law schools, and major corporations across the country. In addition to his consulting work, Walt also operates Prisonology LLC as an expert testimony, training and consulting firm on the Bureau of Prisons policies and procedures. That’s certainly been in the news a lot lately.
0:01:30.3 Walt Pavlo: It has been a lot in the news, yes.
0:01:33.0 Cindy Moehring: Yeah, with Epstein and what happened there…
0:01:37.3 Walt Pavlo: Correct.
0:01:37.7 Cindy Moehring: In New York. Pavlo earned his BS in industrial engineering from West Virginia University, and an MBA in finance from Mercer University. He’s also a journalist, law school fellow at Loyola Law School. So I think we’ve got a lot of interesting things to talk about here, Walt, and I really appreciate you spending the time with us today, and sharing your story and views with our audience.
0:02:01.1 Walt Pavlo: Well, no, it’s a pleasure to be here. I have a long history with the University of Arkansas. Many years ago, I had been fortunate enough to visit campus, so I’m looking forward to doing it again.
0:02:12.2 Cindy Moehring: That’s great. Well, we’re looking forward to having you again and sharing your story. And in this podcast series here, what we’re really talking about is, what is the future of business ethics? And what does that look like from the academics perspective? And then what does that really look like from those who’ve lived it in the [chuckle] corporate world like you did at MCI and in the work that you’re now doing?
0:02:37.7 Walt Pavlo: Sure.
0:02:38.4 Cindy Moehring: What I wanna talk with you about before we really get into the future of business ethics, is just help the audience understand you a little bit better, and the situation you found yourself in at MCI, and what really happened there that set the stage for you landing in prison, and what you’re doing now. Case Study: Walt Pavlo
0:02:53.1 Walt Pavlo: Sure. Well, it’s a… I guess the best way to start off is in my early career, I worked in the aviation, defense aviation division, heavily audited. I worked for Goodyear Tire in their aerospace division, then went on to work for GEC Limited, a very large English company, heavily audited, a lot of oversight. I was an engineer doing cost estimation. I was interfacing with audit agencies, very tightly controlled, and then I got a job offer with MCI Telecommunications. Telecommunications back then was the Wild Wild West. We went from dialing telephones to now having your own 800 number, to touch-tone phones, to gathering information. In my job…
0:03:40.8 Cindy Moehring: Now, when you say back then, just to give our audience a [chuckle] frame of reference, what you’re saying… [laughter]
0:03:48.7 Walt Pavlo: Sure. It’s not really that long ago, alright? It wasn’t that long ago, but it was in the 1990s, early 1990s. The email was just coming about, the Internet was just being built. People were learning a lot of different things. And most people, if I were to say… And I worked in the resale division, companies who bought telecommunication services from MCI and then resold it under their own brand name, but if I were to ask anyone today, “How many Internet telephone companies are there?” ‘Cause most people have maybe Comcast as their Internet and phone, or AT&T or Fios, whatever it is. Back in that day, there were thousands of companies, thousands of companies that were just starting up. And so my job is to collect money from these companies, and then post it accurately on their account. And what we decided to do was focus on some of these smaller telecom companies. They were the most profitable for us. And without getting into the details that I would in a normal speech, is that a number of these companies just decided not to pay their bill, and they owed MCI millions and millions of dollars.
0:05:05.5 Walt Pavlo: I wasn’t an accountant. I’m an MBA in finance with engineering, so I’m good at numbers, but I don’t know exactly all the rules of accounting. I know enough of what’s right and wrong, I can tell you that, but when these customers weren’t paying, I said, it came to us as a dilemma, it shouldn’t have been a dilemma, “When do we write these off? When do we change what we’re going to do with the write-offs? When would we write it off?” And the answer came back is that we wouldn’t write it off, that we would instead, I don’t know, keep it on the books, massage it. And I joke now, it’s not a funny matter, but I do joke a bit now, that back then, it wasn’t called cooking the books. It was called helping. “Can you help and make the numbers look like what they’re supposed to?” And basically, that’s how I got in trouble. Case Study: Walt Pavlo
0:05:58.9 Cindy Moehring: Yeah, and that’s one of the rationalisations, actually, that that happened, when companies will say, “Will you… ” The people in a company can say to you, “Will you help?” And so it’s almost a rationalisation that you’re like, “Well, I’m helping the company and I was asked to do this,” and it’s one of those… Yeah.
[overlapping conversation]
0:06:14.8 Walt Pavlo: Sure, and the numbers were large. We were… And I say we, under my direction, hiding hundreds of millions of dollars, hundreds and hundreds of millions of dollars. And then it… I didn’t get hundreds of millions of dollars. [chuckle] I got to keep my job, I got promoted, I got… A lot of good things happened to me, but I wasn’t necessarily… I was taking a significant amount of risk on behalf of a company to keep my job or whatever I was doing. And I see that a lot in other crimes that I cover. People take a lot of risk for, really, a small amount of return.
0:06:53.1 Cindy Moehring: So how have you used that experience that you went through now in a positive way? You served some time in prison a couple… It was many years ago now. It was back in the early 2000s.
0:07:06.1 Walt Pavlo: Correct.
0:07:06.6 Cindy Moehring: And so how have you used that experience in a positive way since then?
0:07:13.0 Walt Pavlo: Well, one of the things…
0:07:13.4 Cindy Moehring: I’m sure you had a lot of time to reflect. Case Study: Walt Pavlo
0:07:13.7 Walt Pavlo: Yes. Yeah, I will tell you, there was a time when I thought that I would get out and I would go look for a job. [chuckle] I haven’t worked in a while. I’ve taken two years off reading books and doing things, and now I would like to get out there and find out what I can do. But finding a job is extremely difficult coming out of prison, particularly if you wanna work in finance for a business. So that was a difficult lesson to learn. And then the FBI approached me about my crime and what I did, and using it as a tool to help people learn. And I said, “Well, there’s really no other job opportunities [chuckle] out there right now.” And they introduced me to a guy named Frank Abagnale, which the people may know, this name is from the movie Catch Me If You Can, he was Leonardo DiCaprio. Frank was teaching, and he told me what he had done with his life. And I remember the conversation that I had with him, I said, “Hey, maybe I can come work for you, Frank.” And he goes, “Hey, you know what? If you do it right, you’re better off doing it by yourself and see if this is really what you wanna do.” I went to the FBI Academy, I taught at several FBI training sessions around the country, US attorneys. And then business schools were looking to talk about ethics and my story happened to fit in. So I was able to do that. And pretty much, that’s what I’ve been doing for the last 17 years, and then parleyed that into writing about different subjects on white-collar crime.
0:08:50.7 Cindy Moehring: So we’ll come to the business schools in a minute, but I just… I’m so curious, I just have to ask you, when you were at the FBI Academy teaching them, or the US attorneys, are they asking you, “How did you go about hiding this?” Are you trying to train them on what some of the tricks are and red flags that they should be looking for?
0:09:10.7 Walt Pavlo: Sure. When looking, you’re mostly talking to… It’s some… I would say it’s probably a-third FBI agents, and two-thirds support. CPA who support a lot of the forensic accounting was a booming thing. I’ve seen it grow over the last 20 years. But basically, “What did you do? What did the auditors? What was your motivation? What was your rationale? Why did you do it? Why didn’t you report this to somebody else? Why did you think that this was positive?” So there was… They were just… It was a unique opportunity for them to look at me and say, “Look, we’re not condemning you about what you did, we’re not judging you, just tell us what you did,” and I think that that was helpful for me to learn. Case Study: Walt Pavlo
0:09:58.1 Cindy Moehring: Yeah, I’m sure it was, and I’m sure that you had a lot to share in that regard, after thinking about it for a while. So you mentioned business schools, and that they had started teaching ethics, and there was obviously a connection there. So about 25 years ago, there was an article in Harvard Business Review that talked about the way ethics was being taught in business schools back then, and it was criticised by the author, Andy Stark, for being too general and too philosophical and too theoretical. So when you were in business school, you got an MBA from Mercer, did you… Was there a discussion of ethics then? Did you take a class or was it woven into any of the other classes you took?
0:10:41.7 Walt Pavlo: No, we did, and it was not… It was its own stand-alone easy class. [chuckle] That’s what… And it was not considered exactly interest… Nor was it interesting, just in my own experience. It’s nothing against Mercer, they got a great program.
0:10:56.2 Cindy Moehring: No, no, right. Yeah.
0:11:00.5 Walt Pavlo: But the ethics class was certainly… We’re going back 25 years now, was certainly not something that I thought was challenging. In fact, Cindy, I will tell you that my paper that I did on ethics was Willy Wonka & the Chocolate Factory, alright? So that was my, “Do I hold out for the big fries at the end, or [chuckle] do I give in to my weaknesses now on the chocolate trip?” But I think back then, we… Business ethics and the thought that we could even do something wrong was so foreign to us. And I think that’s the way that they taught it, is that there’s… “We hopefully know that you guys are gonna be good students, and just go out in the world and don’t lie, cheat or steal,” but I don’t think that they gave us a good grounding as to the challenges that we would see, which I believe have become far more complex today in today’s business environment than they ever were before.
0:12:01.6 Cindy Moehring: Yeah, so it sounds like it was too general to be applicable for you at the time that it was being taught in the way that it was, and that to your point, you needed more real-life scenarios about situations that you could actually face, and being aware of those, and then thinking through how would you deal with it in that situation.
0:12:25.3 Walt Pavlo: I think one of the most important things that I brought to speaking out there about white-collar crime, about my own crime, about others’ crime, was that it put a face on the criminal activity. Sometimes you can read it in a book and then you make up in your mind who it is, or there’s an actor on television, you can do it. I think seeing the person who’s actually did it, you were like, “Wow, that’s not a bad person. I would still go out with them and have a beer or something, and they have a family, and they’re right here, and they seem to be hurt by what they did.” I think those are important things for people to sort of humanise that. Case Study: Walt Pavlo
0:13:00.8 Cindy Moehring: Exactly.
0:13:02.6 Walt Pavlo: He’s just a regular guy.
0:13:05.0 Cindy Moehring: And to think, if it could happen to him, it could happen to me. So how did that happen to him, because I wanna make sure that I’m sort of guarding against that, so it doesn’t happen to me?
0:13:13.9 Walt Pavlo: Correct. Exactly. How did I see the playing field? How did I rationalise my behaviour? What were the risks that I saw? Who did I talk to at night? Why did I choose this? Why didn’t I confide in a friend? Why didn’t I do this? There’s a lot of different questions, and I just tell them. And I do believe that what I’ve seen over the years are people that genuinely can relate to stories about why do people do things that are wrong. I do believe that people relate to those stories. Not everyone’s perfect. We all make mistakes, but you just don’t know when you make that mistake, how far down a path that can go.
0:13:55.3 Cindy Moehring: Yeah, that’s right. Well, actually, nobody’s perfect, right? So the question is like, if you take a little step, does it start to become rationalised? Like what you said, at the beginning when we started here, it’s not like you walked away with hundreds of millions of dollars from the company. And you, in your mind, it was sort of being rationalised as, “Well, I’m helping the company, and isn’t that what we’re supposed to do, is help the company?” And it’s working through those rationalisations, actually giving voice to values. And Mary Gentile has a really great approach that we’ve been talking about recently about how do you work through… What are the common rationalisations, and how do you prepare yourself with a moral muscle memory for those rationalisations that you may hear in the workplace, and then what are you gonna say in response to it?
0:14:40.5 Walt Pavlo: Right, no, those are all good points, yeah.
0:14:43.0 Cindy Moehring: So if there were three things that business schools could do differently to help prepare students, or as you’ve kind of reflected on it, if we would have done these three things differently in business school, maybe I would have paid a little more attention and thought differently about it, what advice do you have for the faculty and academic community about…
0:15:06.9 Walt Pavlo: Well, one, I wanna give a lot of credit to universities for tackling this issue over the years. Is ethics a stand-alone class? Is it incorporated with all of the curriculum? Do they bring in speakers, do they bring in… I think those are all really good to give real life… These are real life challenges that are out there. So on the first thing, I would think universities have done a very good job of telling students real life scenarios, these are real people. I do think that they could find more… They could find better things. I worked at a big, large corporation, MCI, which became Worldcom, and I know that schools talk about Enron, they talk about some of these old, large… There are so many good learning lessons in frauds that aren’t nearly that size, that small business people who rely on trusted employees, and people that find themselves in real estate or working remotely, and then cross the line. So I think there’s a lot of good real life experiences, and it takes sort of digging behind it. Case Study: Walt Pavlo
0:16:15.5 Cindy Moehring: It does.
0:16:17.3 Walt Pavlo: Go look at the criminal thing, try to talk to the attorney that was involved in the defense, and try to talk with the defendant. There’s a little bit more research because one of the bad things you’re not gonna get is a good article written about something about the case. It’s a bad person, they did a bad thing, and they’re going away for a long time. There’s no lesson to be learned in that. We gotta figure out what happened. How did they see things, were they just a really bad person? And that could be, too.
0:16:46.7 Walt Pavlo: The second thing is to tell them where they can go for help. This is one of the things that I think the universities, they can say that you’re gonna get in trouble and don’t do this, and this is the way the person looks, but the question is, where is the solution? So you’re there, and your bosses are asking you to do this. Where do you go for help? Do you go to the police? This is gonna sound funny. But I’ve known people who have been ripped off by an employee, who called me and said, “Walt, what do I do? Someone has taken hundreds of thousands of dollars from me. Do I go to the police? Do I go to the FBI? What do I do?” So there’s some confusion as to, really, what do people do when bad things happen? And where do they go for help? Can they call a professor? Does Arkansas have a hotline? Maybe they should.
0:17:44.3 Cindy Moehring: [chuckle] Yeah, yeah.
0:17:45.0 Walt Pavlo: Call my office, and I’ll tell you what to do. So I think that that’s an important thing. And then the last thing I’ll say is an observation that I just had over the years. No one understands the Federal Sentencing Guidelines. There’s a point system in the federal government related to criminal activities of white-collar felons, and they’re stacked with certain points, and they can land people in prison for many years. And what I’ve found is that people are engaged, particularly students, are very engaged on this point, like, “Well, if I steal five million, how many years do I go to jail, versus if I spend three?” Now I don’t take that as they’re calculating what’s the best amount for me to steal. I see it as an eye-opener that they understand what the punishment could be, particularly if somebody asked them to do something that they’re not comfortable with. They can say, “Hey look, you know what? I remember this class about Federal Sentencing Guidelines, and I might be doing something from you where you guys are making a million bucks, but I’m not, and I know that I can get in trouble, and so I really don’t wanna be involved.” I think it gives a pushback. Case Study: Walt Pavlo
0:18:54.5 Cindy Moehring: Yeah, and well, it gives them the facts, they’re armed with information…
0:18:58.5 Walt Pavlo: Correct.
0:18:58.7 Cindy Moehring: So that they can help assess [chuckle] what they’re really being asked to do.
0:19:04.5 Walt Pavlo: Sure. Pushback. Yeah, there’s a real consequence for that. So I think it’s important. And I could tell you this to a person, Cindy, not one person that I know who’s been a defendant in a criminal case had ever heard of the Federal Sentencing Guidelines before they were facing incarceration with them.
0:19:23.0 Cindy Moehring: Really?
0:19:23.8 Walt Pavlo: Yeah.
0:19:24.0 Cindy Moehring: Okay. Very interesting. So, with if three things had been in place when you were going through business school and getting your MBA, do you think they would’ve helped you?
0:19:41.6 Walt Pavlo: I think it would’ve helped in some ways. It would have been a lesser excuse as far as the rationale has, the rationalisation happened. I can say this, it would be different than anything else that I had done before.
0:19:58.7 Cindy Moehring: Yeah. Yeah. It would have probably armed you with a little bit more information and you’d been able to…
0:20:03.7 Walt Pavlo: Sure.
0:20:05.1 Cindy Moehring: Ask some additional questions and have…
0:20:08.0 Walt Pavlo: Some things, you don’t even know though, but if you look at… Sarbanes-Oxley is a great example. There’s just… You can’t have the same auditing firm as the consulting firm. That temptation has now been eliminated, because you can’t tell me that there wasn’t some temptation earlier for the audit group to work with a consulting group. This is the same firm to drive fees and to work on the edges. So some things, it has helped. Sarbanes-Oxley’s received a lot of criticism over the years that it’s so expensive, but I would also argue that a lot of the same big accounting frauds that were just happening every single day aren’t happening anymore. Case Study: Walt Pavlo
0:20:47.0 Cindy Moehring: Well, this has been a really interesting, fascinating conversation with you. I appreciate you sharing your experience with us, sharing your time and your thoughts on reflection and thoughts on what business schools can be doing better and differently going forward. And we look forward to having you back on campus again in the future, whether it’s in-person or via Zoom. Case Study: Walt Pavlo
0:21:11.4 Walt Pavlo: Okay. Good.
0:21:11.5 Cindy Moehring: We forward to hearing from you again.
0:21:13.5 Walt Pavlo: I hope it’s in-person.
0:21:14.0 Cindy Moehring: I do, too.
0:21:14.9 Walt Pavlo: I wanna get out. I wanna get out of the box. [chuckle]
0:21:18.0 Cindy Moehring: I know, it’s hard right now. So speaking of it being hard in COVID, have there been any good books or movies or podcasts that you’ve either read or watched or listened to lately that just kind of for a release, but also have a good ethical dilemma attached to it? Case Study: Walt Pavlo
0:21:35.9 Walt Pavlo: Well, I will tell you this. I think it’s interesting, particularly for anybody interested in white-collar crime. I just read The Vanishing Trial. Robert Katzberg wrote it, he’s a great defense attorney, and I actually had a chance to talk to him about his book, and I wrote about it on Forbes as well, but he just talks about the lack of trial experience and how the criminal justice system is operating right now, particularly as it relates to white-collar, is that 97, 98% of all cases, once a person is indicted, they plead guilty. Of the 3% to go to trial, 90% are convicted. So once the hammer sort of draws on a person that’s involved in these, 99% chance that it’s gonna not end well for them.
0:22:27.6 Cindy Moehring: Wow.
0:22:29.0 Walt Pavlo: So that’s an interesting book. As far as podcasts… Go ahead.
0:22:33.2 Cindy Moehring: No, I was gonna say, that’s a really interesting statistic when you think about it, the 3% that… Wow.
0:22:38.8 Walt Pavlo: It’s more serious. It makes the subject matter… You better pay attention just a little bit more. As far as podcasts, I listened to Preet Bharara. He was the former US Attorney of Southern District of New York. And he does a lot of things on white-collar crime, prosecutions and the criminal justice system. Sometimes he gets a little too political for me, but I’m interested in that he has a very good perspective and he is obviously a very, very, very bright guy.
0:23:09.5 Cindy Moehring: Sure.
0:23:10.4 Walt Pavlo: Yeah. Is movies that I’ve watched recently?
0:23:13.1 Cindy Moehring: Yeah, movies, or video series, or anything fun. Case Study: Walt Pavlo
0:23:16.8 Walt Pavlo: I got two for you there. I thought about this. I just watched Social Dilemma, which is very interesting, about the use of Twitter, Facebook, and the algorithms that they use to drive us to look at these phones all the time. I thought that that’s a very interesting documentary, about an hour long. That’s interesting. And then the other thing, the binge-watch that I’d watch was one on Netflix, Dead to Me, which is Christina Applegate. It’s phenomenal.
0:23:46.0 Cindy Moehring: I’m in the middle of that right now. [chuckle] Literally.
0:23:50.1 Walt Pavlo: Ethical dilemmas all over the place about… I can’t give it away, but…
0:23:55.4 Cindy Moehring: No, don’t give it away. [chuckle]
0:23:57.0 Walt Pavlo: It’s the craziest thing. You’re just like, “What would I do if they did that?” It’s so uncomfortable, but I think it gives you a view into how you think you would handle something, and then just look and say, “Well, it’s a little weird, the way she did it,” but it’s a very good show, a very good show.
0:24:18.7 Cindy Moehring: Yeah. [chuckle] Being in the middle of it, I would have to agree. Case Study: Walt Pavlo
0:24:22.6 Walt Pavlo: That’s good. That’s good.
0:24:23.8 Cindy Moehring: We will end on that note. Thank you so much for your time, Walt. I really appreciate it. It’s been a great conversation.
0:24:31.4 Walt Pavlo: Thank you, Cindy.
0:24:32.5 Cindy Moehring: Alright. Talk to you later.