Positive Revelations from the SanDisk Case

The positive revelations are more precious than the negative lessons.

Following the uproar occasioned by Eddie Liu's stock embezzlement from client SanDisk Corporation ("the SanDisk case"), it took law firm Lee and Li a mere two months to reach an agreement with SanDisk. This was accompanied by a press release, signed by three of the firm's most distinguished partners, declaring that Lee and Li remained a "beautiful pearl", and offering "an appreciation, a thought and a reflection" drawn from the case.

Like the infamous August 1995 case, in which Yang Jui-Jen's sold forged letters of credit from his clients to other financial institutions and racked up a NT$10 billion loss for International Bills Finance Corporation (IBFC), the SanDisk case was similarly the result of an employee's criminal behavior. As IBFC's accountant at the time, this writer participated in its stabilization and rebirth. So now, looking at Lee and Li's handling of the SanDisk case, it is natural to feel a close sense of connection with it. Based on statements from Lee and Li and reports in the media, Li and Lee have evidently demonstrated the utmost wisdom and resoluteness, making the most of their sterling reputation - built up over many years - and the value of their professional assets. From the way in which this unfortunate affair was dealt with, one may discern three 'positive revelations', and that these are much more precious for society than Eddie Liu's exposure of the capacity for greed in human nature.

1. Confirmation of the value of reputation
   
   The first positive revelation from the SanDisk case is that it thoroughly confirms the critical value that reputation has for the professional organization.
   
   Law firms and accounting firms are all professional service organizations, each offering its own kind of 'credibility'. Because of this, professional managers insist first and foremost on maintaining the idea of good faith, as opposed to merely that of so-called 'profit making'. Credibility is the highest-valued of all professional management concepts, and this explains why, after their outward 'credibility' had taken a tumble, Lee and Li were still determined not to abandon their credibility with respect to individual people, to colleagues, to the sustainable operation of the firm and to society.
   
   The professionalism, credibility, respectability, and organizational reputation accumulated over a long period have been critically important to Lee and Li's ability to get past this scandal. In contrast to those businesses that curry favor and resort to slight-of-hand for short-term gains, the kind of approach followed by Lee and Li-long-term management for enterprise value-and the intangible value of reputation, have a crucial role to play in securing the ultimate survivability of the firm. Indeed, this is an approach worthy of encouragement and emulation.
   
   
2. Embodying a stakeholder-centered spirit
   
   The second positive revelation from the SanDisk case has to do with the embodiment of a spirit of mutual respect among stakeholders. The SanDisk case differs markedly from past cases in Taiwan in the way that it was resolved. Faced with the loss caused by Eddie Liu's criminal behavior, SanDisk Corporation did not demand high-handedly that Lee and Li take unilateral responsibility for making full restitution. Not only did SanDisk quickly reach a compensation agreement with Lee and Li, it allowed a considerable portion of the remaining debt to be converted into long-term credits for legal services. The company's president and vice-president even released a public statement asserting their confidence in Lee and Li.
   
   SanDisk has agreed, along with Lee and Li, to donate to Taiwan and US charities the unused amount of the US$1 million in credits for legal services to be made annually for 18 years, displaying broad-mindedness on the part of a high-tech company and creativity on the behalf of the professional service company. This also represents burden-sharing between the two parties, and shows the common concern for society that characterizes their corporate values. This sort of stakeholder-centered spirit is the best expression of the extended enterprise.
   
   
3. Realizing the true meaning of partnership
   
   The third positive revelation from the SanDisk case is the full realization of what partnership is all about. This word partnership may be taken, albeit over-literally, to mean a group of partners aboard a single ship. But then, in actual societies, the relationships within a partnership are precisely like that: The partners are all 'aboard' the same organization, with a common interest and sharing the same resources, but also sharing in unlimited liability. Among partnerships, perhaps the most typical organizations are CPA firms and law firms.
   
   After Lee and Li broke the news that Eddie Liu had illicitly sold stock owned by SanDisk, we saw the partners pull together in a common cause, sharing work and cooperating, putting their heads together through discussion and seeking solutions to problems. There was no mutual finger-pointing or shirking of responsibility. Compare this with accounting firm Arthur Andersen after the Enron case erupted. That global organization of partners disintegrated overnight like a flock of frightened birds. The dramatic difference between the two cases lies in the inculcation and realization of the true meaning of partnership.

Credibility is a long-term commitment, not a blank check

When the SanDisk case broke, it came as a dire warning to a great many businesses. They reasoned that, if a potentially fatal case of embezzlement can happen at an organization as tightly-run as Lee and Li, one with so much professional talent, then similar scenes could play out at any time and any place, given the least inattention to risk management mechanisms.

With the SanDisk experience behind us, most people understand that 'credibility' is not a blank check. It must be protected by effective internal control and risk management systems. It needs to have the organization's long-term reputation and value as its guarantors, with customer satisfaction won through professional service as further endorsement. Only then can credibility come to full fruition. The SanDisk case tells us this: mud may taint an oyster's shell for a time, but the pearl inside loses none of its beauty. Whenever an organization that stands by its professional ideals is buffeted by a storm, it will only be a strengthening experience. It will never be a life-threatening one.