It’s not just in America.
Around the world, business scandals seem to be everywhere. Whether it’s Olympus Corp using overpriced acquisitions to conceal trading losses from the ‘90s; or German financial companies paying high-performing sales staff to visit orgies and brothels in Budapest and Rio; or Siemens executives paying hundreds of millions in bribes to Argentine officials to secure a lucrative business deal—the level of deception and corruption are astounding.
In the US we’re livid, and rightly so, when the officials at MF Global seem more concerned about their shareholders or their employees’ jobs than they do in the $1.2 billion in customer cash that’s gone missing. We’re outraged when Bernie Madoff or some other fraudster perpetrates his Ponzi scheme on unsuspecting investors. But we tend to think that the problem is our system, or that Americans are especially greedy. It isn’t and they aren’t.
There have been fraudulent deals as long as there’s been trade and commerce. By some accounts, misstatements and false accounts are what brought the former Soviet Union to its knees. When you shoot the messenger for delivering bad news, don’t be surprised when the news becomes uniformly good—and universally false. It’s not the system that’s at fault, it’s people who game the system and maybe cut a few corners on the way.
The problem is—and will always be—one of incentives. When the rewards for a little compromise are large and the downside seems limited, it’s easy look the other way or maybe pad an account. The line separating honest accounting from false books doesn’t run between companies, or between countries—but right through every human heart—and through all human hearts.
It’s important to appreciate this as we close the year. Scandals will always be with us. But truth—and honest accounting—generally wins out.
Douglas R. Tengdin, CFA
Chief Investment Officer
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