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Making a fresh start

Corporate scandals can shake share prices and put a painful dent in your portfolio – but when should investors be prepared to forgive and forget?
Making a fresh start

In Ben Affleck's recent film, The Accountant, he plays a number-cruncher who audits a robotics company’s books and discovers that over $60m (£47m) has gone missing. The revelation leads to the deaths of several directors and culminates in a siege on the chief executive’s stately home. In reality, accounting errors and corporate frauds rarely escalate to assassinations and armed combat. But the film shows how a business problem can snowball into a scandal that threatens people’s jobs, reputations and livelihoods.

When a well-known company recalls a dangerous product or admits to cooking the books, widespread outrage, threats of boycotts and calls for prison sentences tend to follow. Public humiliation and castigation can alienate investors, partners and customers and permanently damage a company’s brand and growth prospects. However, executives who correctly handle a corporate scandal can recover some of their losses, gradually regain the public’s trust and restore their former prestige. Given the frequency of mistakes and unethical behaviour in the business world – Rolls-Royce (RR.), Rio Tinto (RIO) and GlaxoSmithKline (GSK) most recently come to mind – our readers are likely invested in one or more companies that will face the long road to redemption in the coming years. Using both cautionary tales and success stories, we outline the strategic steps to expect when disaster strikes.

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