Scandals, Bribes and Lies: When Corporate Ethos Run Amuck
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Once again the airwaves are inundated with the latest reports on yet another multinational, multibillion-dollar corporate scandal, and this time, the fingers are pointed at Wal-Mart (NYSE: WMT).
The world’s largest retailer is accused of suppressing details from an internal investigation of an overseas subsidiary that citied the bribery of Mexican officials for millions of dollars in 2005. The New York Times revealed that Walmart executives did not inform the Department of Justice of possibly violating a federal anticorruption law until last year, after the story originally broke – by Time Magazine - in late October. Once the second news probe occurred in April, Walmart’s shareholders threatened to use their shares to vote against five of the directors who are up for re-election next month; the following trading day, WMT’s shares fell 24% and, consequently, a Californian pension fund has filed a lawsuit seeking damages against Walmart’s board over its alleged cover-up.
And in a move not to be overshadowed by its Western counterparts - perhaps growing weary of nobility- Japanese camera-maker, Olympus, has committed one of the biggest white-collar crimes recorded in Japanese history. From a culture that cultivates a business model of complete governance and compliance, it was revealed last year (also in October) that for 13 astonishing years Olympus executives falsified financial statements that amounted to a $1.7 billion accounting scheme.
Like here in the States, it can be hard-pressed for executives to receive a slap on the wrist let alone a prison sentence when committing fraud, on the other hand, Japanese prosecutors are using Olympus as an example on its crackdown of white-collar crimes and have indicted a total of nine former executives and bankers; among those arrested were the former executive vice president and the former chairman.
But in an unusual twist, instead of the typical anonymous letter sent to authorities or of the press being tipped off by a disheartened employee, it was the chief executive officer, Michael Woodford, who in fact blew the whistle. Shortly after being appointed CEO in 2011, Woodford uncovered the off-the-books findings and, surprisingly, it was Woodford and not the senior executives involved, who was removed by the board of this position as president and chief executive officer.
Stock plunged 49% since Woodford's dismissal and last month Olympus shareholders approved the election of a new 11-member board of directors. [For a full detail of Woodford’s account, click here.]
While Avon Products (NYSE: AVP) may tout itself as “the company for women,” the beauty cosmetics firm is another international company in recent news to have certainly not been the poster child for ‘the company for integrity’. Several top-level executives were fired after, “A 2005 internal audit report of the company showed that Avon's employees in China had paid hundreds of thousands of dollars to Chinese officials and some third-party consultants in 2005,” according to news sources. The Justice Department is currently investigating whether top brass were buttoned up on the report’s conclusion; unable to easily wipe away the tarnished image, both CEO and the internal auditor resigned.
Avon’s first-quarter earnings on May 1 reported an 82% decline from $143.6 million to $26.5 million – leaving rumors to quickly spread about a possible buyout.
When allegations of bribes, accounting scams, financial statement manipulation, ponzi schemes, and insider trading are brought to light, it can be daunting. Companies like Wal-Mart, Olympus and Avon only remind us of the audacity of it all and the necessity for change.
There are numerous accusations of companies like Nike, Gap, Victoria’s Secret, Amazon.com, and Apple employing suppliers that either house sweat shops, uses child labor, slave labor, or conduct human trafficking; even the most popular -or respected companies- are not immune to public scandals. Aside from corporate entities, people from the likes of Bernie Madoff and Rupert Murdoch have used their business as a front for plotting sinister-like schemes for the purpose of greed and superiority. When businesses have proven to be found guilty of such actions, do we protest in anger over the treatment of others, do we boycott with the intentions of hurting them where it would hurt most: in their pockets? Or do we just shrug our shoulders and say, “Well, it doesn’t affect me.”
The same can also be posed to investors: When it comes to choosing a company to invest in, does corporate and social responsibility matter? Or when companies are accused of unethical practices, do we just say, “Well, their numbers are good, though!” Sure market capitalization reduces when stocks plummet after a “bad” press announcement, but how long does it last, a week, two, or maybe a month is long enough to send a message to executives that public or investor confidence is not something to take for granite.
Business ethics is more than just an elective course an undergrad takes to fill-in credit hours. Sadly though, what is taught in universities is not so easily carried over to corporate America.
We all say it’s important, but how important is it? We all get outraged and shake our fists at the news, but what do we do about it? Or can we do anything about it?
Unethical business practices have been around for quite some time now -since the days of John D. Rockefeller and Standard Oil, infamously monopolizing the oil industry and whereby today he’s considered a pioneer in “big business”. But, essentially, are these same questionable deeds at the same level, or does it only appears to be worse because of the speed and access to information? While American history tells us that scandals have been a part of our business make-up pre- the 19th century, what does say about current conditions? Were misdeeds necessary then, but intolerable now, and if so, then do only bad people do bad things?
That very subject was brought forth by NPR in a report titled, “Psychology of Fraud: Why Good People Do Bad Things.” A study was conducted by a Notre Dame researcher who studies unethical behavior. In the study there were two groups: one group was presented with a business decision, the other, with an ethical decision. The researcher then distracts the groups from their original set of goals. In doing so, the researcher gave the groups an opportunity to cheat. It was found that, "Those cognitively primed to think about business behaved radically different from those who were not — no matter who they were, or what their moral upbringing had been."
What does that study say about human behavior? When it comes to business matters, there’s an 'anything goes' approach? If we are good, moral people, then if faced with a dilemma, all ethics suddenly goes out the window? Are we only more inclined to do this in a business environment? What other type of environment – where business is not somehow tied to it - has examples on whether issues of ethics is treated as a choice instead of an obligation? The culture of excess and power can only change if society no longer promotes competition by any means.
So, what is the solution: more SEC rules and regulations, tougher government legislation, or perhaps more emphasis should be placed in the classrooms? Where should the law stop and when does self-discipline begin?
dpricevan has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.