The 5 Biggest Corporate Scandals of 2016
During an election year, any story has to compete for attention with the all-consuming race for the White House. But the public always has an appetite for a good scandal, and plenty of misdeeds on the part of the global business class were able to break into the headlines over the past 12 months.
Whether it was Wells Fargo (WFC) employees creating fake accounts in the names of real customers, or pharma giant Mylan imposing big price increases on users of its life-saving EpiPen, there were plenty of stories this year that highlight the pitfalls on the road to business success, and the fact that people in power abuse that power all too often. Here are the biggest scandals of 2016:
Wells Fargo’s Fake Accounts
Wells Fargo was the golden child of the post-financial crisis banking world. The bank’s focus on funding itself with a large base of retail deposits helped it weather the late-aughts credit crisis and emerge even stronger with a truly nationwide presence. The downside to Wells Fargo’s strategy? To grow profits, it had to rely on its ability to cross-sell more profitable products to its customer base.
That path wound up leading the company into a quagmire. Executives sought to drive growth by putting undue pressure on its employees to hit sales quotas, and many employees responded by fraudulently opening customer accounts. In most cases these accounts were closed before customers noticed, but in other cases consumers were hit with associated fees or took hits to their credit ratings. The bank was forced to return $2.6 million in ill-gotten fees and pay $186 million in fines to the government. But the biggest hit Wells Fargo will take is to its reputation, as the media and government officials spent much of the year slamming the bank for its fraud. (The scandal also cost CEO John Stumpf his job.)
Roger Ailes’s Sexual-Harassment ScandalWhen former Fox News anchor Gretchen Carlson made public her lawsuit against Roger Ailes, the chairman and CEO of Fox News, few thought the suit would end the career of the most successful cable news executive of his generation. But the news of Carlson’s action opened a floodgate of reports about complaints from several other women that Ailes had allegedly harassed over the years.
James Murdoch and his brother Lachlan—who have run Fox parent 21st Century Fox as CEO after their father Rupert stepped down in 2015—commissioned an internal review by outside lawyers that uncovered several other allegations of sexual harassment. That report convinced the executives they had to force Ailes out, though not before offering him a $40 million severance package.
Ailes eventually settled with Carlson for $20 million, and he continues to face lawsuits from other accusers. Though Ailes went on to be a player in Donald Trump’s successful presidential campaign, his wipeout this summer remains one of the most surprising and headlong downfalls of a top executive in recent memory.
Mylan’s Epipen Price Gouging Scandal
The American consumer is no stranger to steep price hikes on drugs. But few increases drew outrage like drug company Mylan’s decision to raise the price of its EpiPen. The device, which administers epinephrine, a crucial antidote for those suffering anaphylactic shock due to allergic reactions, is beloved by parents of the 1 in 13 children that suffer from food allergies in America. But Mylan has increased its price by 400% since acquiring the device in 2007.
Many American families, especially those with high-deductible health insurance, struggle to afford the $500 sticker price for the life-saving drug. And with Mylan controlling a near-monopoly on such products, consumers were stuck between a rock and a hard place. Congress dragged CEO Heather Bresch in front of the House Oversight Committee to answer for her pricing decisions, and the bad publicity caused Mylan’s stock to drop precipitously.
The scandal also prompted state attorneys general to investigate the company, with New York’s AG looking into whether the company committed antitrust violations, and West Virginia’s AG launching a Medicaid fraud probe into the drugmaker’s pricing. The company settled in October with the Justice Department over whether it underpaid rebates to U.S. government healthcare programs by misclassifying the drug.
Samsung Battery Recall
Smartphones can do just about anything these days, but exploding is not on the top of most consumers’ list of desired features.
When reports began to surface this summer that batteries in the new Samsung Galaxy Note 7 were exploding, the tech press jumped on the story, which snowballed quickly. Just a week after the first reports surfaced, the Federal Aviation Administration advised passengers not to turn on or charge Note 7 smartphones aboard aircraft or stow them in plane cargo. (Most airlines now ban them from their cabins entirely.) Then the Consumer Product Safety Commission urged Galaxy Note 7 owners to stop using their phones altogether.
A formal recall process was then initiated, but not before phones began harming consumers in various ways, leading to lawsuits and a PR nightmare for the South Korean electronics giant.
The Panama Papers
In a year dominated by hacking scandals, the Panama Papers may be the granddaddy of them all, at least in terms of the sheer size of formerly private information made public. A total of 11.5 million documents, comprising 1.5 terabytes of data, were stolen from the Panamanian law firm Mossack Fonseca by unknown hackers and leaked to an international consortium of journalists. The leak exposed myriad ways in which the global elite are able to hide their wealth and income from tax authorities and other interested parties.
The leak made more headlines abroad than in the U.S. Panama Papers information, for instance, led to the resignation of Icelandic Prime Minister Sigmundur Gunnlaugsson, after the leak revealed that he had not disclosed his interest in an offshore company that was a creditor to failed Icelandic banks.
Though the leak embarrassed powerful people around the globe, and helped fuel the global turn towards populism we saw in 2016, relatively few American eminences were embarrassed by the leak. That’s because corporate-disclosure laws in states including Nevada, Wyoming, and South Dakota are so lenient that Americans need not leave the U.S. to keep their business dealings private.
Exaggerations at Vegan Mayo Maker Hampton Creek
Hampton Creek, a San Francisco “plant-based food” startup best known for its eggless mayonnaise, has been a pugnacious presence in its industry since its 2011 launch, fighting (and often winning) legal tussles and public-relations battles with regulators and bigger food companies over the health claims of its products.
But Hampton’s Creek reputation took a much heavier hit in September when a detailed exposé in Bloomberg BusinessWeek reported that the company had exhibited “pattern of mistaken or exaggerated claims that may prove to be deliberately deceptive.” The report revealed that Hampton Creek employees and contractors had bought up huge quantities of the company’s products at retail outlets, effectively inflating the company’s sales numbers. It also alleged that the company had raised money from investors using claims about its products’ environmental sustainability that were later disproved.
Hampton Creek has denied any wrongdoing, and said that the retail buybacks were part of a quality-control effort. But the company’s tactics have prompted investigations by the Securities and Exchange Commission and the Justice Department. The saga of Hampton Creek, which counts many prominent tech venture capitalists among its investors, has also helped draw attention to the potential for abuses and number-fudging among startups and their financiers in Silicon Valley, as Erin Griffith reports in the January issue of Fortune.