This topic underlines several topics of importance to investors. Operating in other countries is difficult, with far different cultures and market structures. In some places, corrupt practices are the easiest way to get ahead, unfortunately, and possibly even the most accepted way to do business.
That doesn’t mean companies should indulge in unethical practices, but the reality is that some do, and sometimes they get nailed for it. Shareholders should think not only reputational damage, but also literal financial damages.
Avon Products, Inc. (NYSE:AVP) spent $339.7 million on fees related to FCPA investigations since 2009, and the costs aren’t over yet. In its 2012 annual report, it said the fees “are difficult to predict,” which is not comforting to shareholders of any company. Glance at the company’s five-year chart, and we can surmise that such costs were the last thing the company needed, and its stock price shows it.
Remember News Corp.‘s phone-hacking scandals, involving allegations of bribery? That company has spent $179 million on legal and other fees, and $191 million on civil settlements. Just today, Bloomberg and other news outlets are reporting more criminal charges related to the scandal.
Losing energy
Some shareholders may still insist on giving JPMorgan Chase & Co. (NYSE:JPM)’s Dimon a pass; the fact that it’s by no means lonely under the lens of FCPA scrutiny is one rationalization. Plenty of analysts are pointing out that the kind of “bribery” in question isn’t cut and dried. It’s hardly unusual for people to hire the children of connected people, here and abroad. It’s difficult to prove that that’s intended to gain special favor, or even if it actually will.
However, the bribery allegations aren’t even the end of this week’s top headlines involving the bank. JPMorgan Chase & Co. (NYSE:JPM)’s beset on many sides. Last month, it settled with the Federal Energy Regulatory Commission for $410 million regarding allegations that it had manipulated energy markets in California and the Midwest. Now, the Department of Justice is taking a shot at the bank regarding energy trades, too.
Things have gone way beyond the London Whale. This appears to be a whale-infested waterspout, putting “Sharknado” to shame; it’s a lot less amusing than a ridiculous B-movie. In fact, it’s real.
The cost of unconditional approval
These days, we have plenty of superstar CEOs. Many CEOs may be underrated, but there are some that many people do respect. Still, investors should weigh whether their opinions should change, at least a little bit.
Obviously, when shareholders voted in the spring, they illustrated that, for the most part, opinion hadn’t changed about Dimon’s capabilities and controls over what was going on at the company.
Investors shouldn’t love stocks to the point that they ignore warning signs, and similarly, shareholders shouldn’t love CEOs to the point that they are unwilling to acknowledge legitimate concerns. As reputations deteriorate, and related costs rise, profitability and investment returns can surely suffer.
The article Dimon’s Dive From Grace, and Other Investing Lessons originally appeared on Fool.com and is written by Alyce Lomax.
Alyce Lomax has no position in any stocks mentioned. The Motley Fool recommends Walt Disney. The Motley Fool owns shares of JPMorgan Chase & Co (NYSE:JPM). and Walt Disney.
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