Did you hear about the company where an inside ring of employees tampered with a quarterly dividend distribution and sent shareholders an extra $43 million?
Or what about the drug company where employees were so irate over a 600% price hike in a life-saving drug (and the CEO’s subsequent pay boost) that they secretly added customer names to the list of shareholders of record so the aggrieved drug-buyers could use their dividend money to purchase the product?
Have you heard those stories? I doubt it, because I made them up – and because they simply couldn’t happen. Hundreds of employees don’t suddenly go rogue and start doing crazy things without anybody noticing.
What Happened at Wells Fargo
I make the point to underscore the utter ridiculousness of the claim that management didn’t know about the scandal at Well Fargo (WFC ), where thousands of phony checking, savings and credit card accounts were opened by employees to meet sales quotas.
In one sense, the bank’s top management probably didn’t know what was going on. Powerful people can be very good at nodding, winking and snickering – and not knowing. Such forced self-delusion and selective forgetting is a ploy that has been used by bureaucratic tyrants since before the days of Machiavelli.
The top guys can always say that they just wanted something to be done, and that they had no idea of the bad stuff that had to be employed to get the job done. You’ll note, too, that in companies where getting it done necessitates lying, cheating, and endangering the health & safety of employees and the public, there are often frequent proclamations of the company’s commitment to exemplary behavior.
This disconnect is apparent to anyone who has worked in a large organization where top management is either ‘crazy’ (don’t underestimate the number of egomaniacal loonies running Corporate America) or totally disconnected from the reality of how anything gets done. Such companies can sponsor United Way campaigns every week and crow incessantly about how “our employees are our most important asset.” But when they can speak freely, employees will tell you how much of the kumbaya is real, and how much is just a cover for some rather unseemly practices.
At Wells Fargo, which was slapped with a $185 million fine over its sales practices, CEO John Stumpf told The Wall Street Journal that there was “no incentive to do bad things.” He said that the 5,300 employees involved in the fraud had been let go, but also noted that the bank employs about a quarter of a million people.
The Journal story indicates an absence of remorse on Stumpf’s part, and while I’m not advocating that we bring back the old Japanese custom of hara-kiri for disgraced leaders, it wouldn’t have been the worst thing if Stumpf had said he was sorry. Of course, given our nation’s hyper-litigiousness, no person or corporation can ever admit doing anything wrong, so don’t expect that to happen.
About the best we can hope for, as a result of corporate scandals of this type, is that they encourage investors to think about their own ethics and the ethics of the companies in which they consider an investment.