The biggest economic question of our time might not be how to deal with inequality, after all.
It may be how to deal with corporate giants — and their top execs — when they misbehave.
The latest company to come under fire is Wells Fargo, the banking company that is ranked No. 1 or No. 2 for market cap among U.S. banks and until now a financial institution that was the crown jewel in America’s banking system.
Reporting in the Los Angeles Times a few years ago revealed that Wells Fargo’s front-line salespeople were rapidly opening and closing unauthorized accounts for unsuspecting customers and collecting incentives in the process. Internal and external probes followed and Wells Fargo has paid huge fines and fired more than 5,000 workers.
During televised hearings, Wells Fargo CEO John Stumpf came under fire in Senate testimony on Sept. 20 when Sen. Elizabeth Warren and others called for clawing back executive bonuses and possible criminal charges.
Stumpf appeared alternatively vexed and angered by the verbal assault from the Senate panel, but Wells Fargo is hardly alone. Volkswagen AG has paid billions to settle with regulators over fraudulently programming its diesel engine cars so they would pass emissions tests but then go back to exceeding limits when the test was over.
It seems impossible to believe that a group of rogue engineers hatched this plot; a guilty plea by one mid-level manager recently would appear to open the door for prosecutors to move up the corporate ladder. On Sept. 21, investors in Germany sued Volkswagen for misstating results — among other things it was betting on strong diesel sales in the U.S. to help it push past Toyota and claim the No. 1 spot among global automakers.
ExxonMobil is now the subject of a major Securities and Exchange Commission inquiry. The gist of it seems to be whether ExxonMobil scientists were studying the impact of fossil fuel-caused global warming on the company’s operations at the same time the company was denying — in very public terms — that global warming was real. Its potential liability could be very large — easily in the billions — if shareholders believe the company was miscalculating the future impact of climate change in order to meet profit forecasts.
And, of course, there is Apple, fined $14.5 billion by European Union regulators for its “Double Irish” tax break that allowed it to report taxes in a way that circumvented both EU and U.S. corporate taxes. The outrage for Apple is that the company has more than $200 billion in reserves and that amount is growing every day. Dodging taxes would appear to be the least of its worries.
Wells Fargo, Volkswagen, ExxonMobil and Apple are global brands with a vast reach and huge resources. Multi-million dollar fines don’t matter much to them. Negative headlines can help reinforce a message to consumers. In the case of VW it has hurt U.S. sales, but Apple’s EU woes have done nothing to slow its phone rollout or merger talk.
The problem is that millions of small companies that are trying to do the right thing pay a huge price for even small missteps. But corporate giants, particularly those “national champions” that federal governments covet and increasingly want to protect, have vast resources to pay penalties, defer judgments and move on. Regulators have a built in bias against punishing a national champion in a way that damages the national interest or the economy.
But the public’s anger over the fundamental unfair advantages of corporate-scale wrongdoing is spilling over into politics in a way that we have not seen for decades.
The question of cleaning up bad corporate behavior isn’t just about management — it is about the future of the free enterprise system and democracy itself.
• Reach Editor Henry Dubroff at [email protected]