WHY COMPANIES OVERCOME STOCK SCANDALS?
At one time or another, many companies, especially the largest ones, have faced adversities impeding their capacity to continue operations and generate profits. While some are almost destroyed, others managed to withstand the storm and became stronger than before.
Why companies survive stock scandals?
Exxon Valdez, one of its tankers, hit a reef in Alaska on March 24, 1989. It led to spilled millions of crude oil. According to a 1990 report by the National Transportation and Safety Board, the incident was caused by various factors such as poor judgment and human error, low maintenance of the ship’s radar system, and insufficient number of crew members. As a result, a federal court ordered ExxonMobil to pay $5 billion in punitive damages, the highest fine levied against an entity in history, and $287 million in actual damages.
Amidst the oil spill, the stock hardly reacted to the news or the penalty as it resulted to a 4% loss in stock price after announcing the fine. The reason to minimal reaction? Oil stock prices are anchored on perceived supply and demand. Although the available supply declined, demand stayed at steady levels. But the market presumed the fine would be reduced and linked in the court system for many years. Hence, investors did not focus on its immediate effect to probability.
Johnson & Johnson
The creator of pain reliever Tylenol encountered one of its greatest challenges. On September 29, 1982, Johnson & Johnson unveiled the poisoned drug killed six adults and a 12-year-old girl. Following the announcement, its stock dropped by 17%. But as probes discovered the company was not responsible for the cyanide poisoning that occurred at the store level, the stock was able to recover after 43 days and it reached $3.20 in 1983. The firm outshined in this ordeal by issuing press releases and remaining visible during the investigation process.
In 2004, Vioxx was said to elevate the risk of heart attacks. The drug maker knew about the perils but did not disclose the details during the clinical trials or following the drug was on the market. Investors were shocked by the news as Merck was one of the strongest research and development drug firms in the United States. After several mishaps, Merck took several steps to restore its reputation, such as replacing its CEO, contending with lawsuits, introducing new products to the market, and acquiring some businesses.
The company’s stock declined from $45 to $33 on the day the news was reported. It continued to plunge at its low of $26 nearly 40 days later, when further investigations unveiled Merck may have known the risks and attempted to conceal those. The drug manufacturer overcame this difficulty and even surpassed its previous high in 2007.
The automaker recalled several of its car models due to sticking accelerators, causing unintended acceleration on November 2, 2009, January 21 and January 28, 2010. The first recall did not affect Toyota’s stock because of its little effect, linking the problem to the car’s floor mats. But with the emergence of other issues and the widening of recalls, the last two recalls made the stock slump from $90 to $72 over a 15-day period. Toyota’s stocks still had not recuperated six months following the recall.
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