Crime and Punishment

Corporate misfeasance is not a new problem.  While there are exceptions, such as Enron, the perpetrators, including employees, supervisors, senior management and directors, face little or no serious punishment.  On the other hand, shareholders nearly always take a hit.

For example, Wells Fargo has engaged in a number of unacceptable practices and recently agreed to a $1 billion settlement related to risk management in its consumer lending businesses.  This settlement forced the bank to adjust first quarter earnings by $800 million.

Investors should recognize that, in most cases, when corporations misbehave, the shareholders pay, not the individuals responsible.

All comments and suggestions are welcome.

Walter J. Kirchberger, CFA