A few weeks ago, we saw that Wells Fargo, the third largest bank in the US, was fined $185m for creating two million bank accounts and credit cards in the name of its customers without their consent. The fine was really a drop in the bucket compared to its revenue. The CEO came under pressure to step down, but only after he was able to walk away with millions of dollars. Then again, we saw Comcast was fined $2.3m for billing customer for products they never ordered.
This continues to happen because executives continue to incentivise bad behaviour. In Wells Fargo’s case, it was clarified that product sales goals are not a component of compensation for any senior executives. But if someone were to think for a second, stocks are a big part of executive compensation, and sales numbers are a key driver of stock prices. So, A=B=C, therefore A=C. A five-year old kid can follow this logic, but it was expected that analysts wouldn’t follow or question this logic, and that the senate committee questioning the CEOs of these errant companies wouldn’t understand this logic, and neither would the regulators. They continue to think so because, in reality, this logic hasn’t been questioned.
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Whistle-blowing programmes
The elephant in the room is and always will be ill intent and ways to cover it up. We know human greed is a powerful motive for wrongdoing. Why do we assume those holding the executive offices of our companies are not susceptible to this emotion? This is the first point at which we close our eyes.
The second point is when the wrongdoing is happening, and it’s so easy to investigate by way of analyst report, whistle-blowing programmes and protections, and basic logic application, yet we choose not to. This is the second point at which we close our eyes. By some miracle, if the wrongdoing is discovered, we settle through arbitration, fine the company a token sum, which amounts to little more than a slap on the wrist, perhaps hold a hearing or two and then forget about it. In other words, there are no serious consequences that would prevent wrongdoing in future.
For all of the regulators’ trouble, the executives laugh all the way to the bank. The taxpayers are the ones having to pay for this cost to society. This is the third point at which we close our eyes. So, what would it take for these monopolies and oligopolies to behave themselves in a manner befitting a good corporate citizen?
- Tougher laws, tough regulators enforcing the regulations, serious consequences that act as genuine deterrents. In other words, political will.
- Strong corporate governance is important in deterring bad behaviour. In other words, a system of checks and balances.
- Competition from upstarts is another way where businesses can understand what the customers want and then have the choice to deliver that to customers or go out of business. In other words, forced change or creative destruction.
The fidelity to the law of mankind wanting to do better for itself is universal. Anything that gets in its way, by way of partisan interest, corporate greed, disingenuous ways of conducting business, will have to fall by the wayside. It would only be a matter of time. But we shouldn’t depend on time alone, which is why whistle-blower programmes at companies are one of the most critical components of establishing a governance infrastructure.
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Main image: Linda Bucklin, Shutterstock.com
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