A corporate scandal can occur any time there is evidence of unethical behaviour, negligence or third-party interference that impacts a company’s reputation. As we will see, this can include evidence of ‘creative’ accounting, dodgy business practices, data breaches or anything that damages the environment. Here are 10 of the biggest corporate scandals of recent times – ranked according to notoriety.
Enron scandal
The Enron scandal is undoubtedly one of the most famous corporate scandals of all time.
The situation started in early 2001, when analysts questioned the accounts presented in the company’s previous annual report. These accounts used a variety of irregular procedures, which made it difficult to work out how the company was making money – despite it apparently having a foothold in energy, commodities and telecoms among other industries. The SEC began to investigate and discovered that Enron was hiding billions of dollars in liabilities through special-purpose entities (companies it controlled), which enabled it to appear profitable even though it was actually hemorrhaging cash.
The company’s share price fell from $90.56 to under a dollar as the crisis unfolded, with Enron forced to file for what was then the biggest chapter-11 bankruptcy in history.
Volkswagen emissions scandal
The Volkswagen (VW) emissions scandal – also known as ‘emissionsgate’ and ‘dieselgate’ – started in September 2015, when the US Environmental Protection Agency (EPA) announced that it believed VW had cheated emissions tests.
It turned out that the company had been fitting what some industry commentators described as ‘defeat devices’ to its diesel cars, which included software that would detect when the cars were undergoing laboratory testing and turn on controls to reduce nitrogen emissions. The cars would then appear to comply with the agency’s standards but, in some cases, were actually emitting up to 40 times the nitrogen dioxide limit when driving on the road.
This discovery led to investigations worldwide, with some estimates suggesting the scandal affected up to 11 million cars.
Lehman Brothers
Lehman Brothers filed for bankruptcy in 2008 after falling victim to the subprime mortgage crisis.
The bank had been borrowing significant capital for many years to provide loans to those looking to buy real estate. As a result, it faced a situation where its outstanding loans exceeded its available capital many times over, meaning it would be at risk of collapse if the housing market faced a downturn. To hide this fact, the company used repurchase agreements to disguise ‘at risk’ assets. In effect, this involved ‘selling’ its liabilities to banks in the Cayman Islands with a promise to repurchase them at a later date.
As the subprime mortgage crisis took effect, Lehman Brothers found itself unable to repay its debt as clients were defaulting on their loans. More than 70% of its value was wiped out in the first half of 2008 alone and the company was forced to file for bankruptcy in September of that year.
BP scandal
Next on our list is the Deepwater Horizon oil spill of 2010, which saw BP’s share price fall dramatically.
The crisis started in April 2010 when the Deepwater Horizon oil rig exploded in the Gulf of Mexico, causing oil to gush into the sea. Unfortunately, initial efforts to stem the flow failed and it took months for BP to find a solution that worked. By the time the well was cut off in July, approximately 4.9 million barrels of oil had spilled into the ocean, making this the worst accidental oil spill of all time.
The effects were devastating for the local ecosystem, wildlife and locals, and BP has been forced to pay billions of dollars in compensation since the crisis.
Uber scandal
Uber is no stranger to controversy. In recent years, there have been multiple accusations of sexual harassment at the firm and questions over its ‘stop-at-nothing’ approach to expansion. The latter allegedly saw it using illegal technology to evade law enforcement, poach drivers from competitors and spy on users.
However, it was ultimately accusations regarding Uber’s ‘bro’ culture that proved to be the biggest scandal, and led to the resignation of CEO Travis Kalanick in June 2017. The allegations included complaints that senior members of staff had made sexist jokes and visited a brothel in Seoul. Even though some were not proven, the claims affected the price of the company’s shares, which were traded privately at the time.
With Uber building towards an initial public offering (IPO), the company brought in a new CEO, Dara Khosrowshahi, to clean up its image and create a new culture. It listed in May 2019 at $45 per share, giving it a market capitalization of $69.7 billion.
Apple scandal
The biggest scandal to hit Apple in recent years is undoubtedly the ‘batterygate’ of December 2017.
This started when a Reddit user reported that a software update had reduced the performance of their iPhone but that this had corrected itself when they replaced the battery. This post led to a lot of press coverage, with some commentators suggesting that Apple was trying to force users to upgrade by deliberately slowing devices as they aged. Tim Cook issued a statement on the matter a week after the news broke, confirming that the software was designed to throttle performance but claiming that the intent was only to prevent unexpected shutdowns, which could affect devices with older batteries. The company offered a discount on battery replacements as a gesture of goodwill for those affected.
Facebook scandal
Facebook’s biggest scandal hit in March 2018, when the Guardian and New York Times reported that a firm called Global Science Research had harvested data from millions of Facebook users in 2013 – without their explicit consent.
This was possible because a previous version of Facebook’s privacy policy had allowed apps to access data about users’ friends – such as their name, birthday and location. This had enabled Global Science Research to gather information about 87 million Facebook users even though only around 30,000 people had actually used their app. These details were later sold to Cambridge Analytica, who used it to create highly-targeted ads to encourage users to vote for Trump and Brexit.
The furore surrounding this scandal was so serious that Mark Zuckerberg was called to answer questions in front of Congress in the US.