It takes a big scandal to make a CEO take a public defensive stance for their company. While scandals can be disastrous for a firm's image, a public statement is often the last way to save face and quite possibly the best political move. Although CEOs are not legally obligated to do so, frank honesty shows integrity and helps to salvage corporate reputation. Here we look at five CEOs who have spoken openly about their scandals and what effect these speeches had on the companies.

In Pictures: Top 5 Reasons Why People Go Bankrupt

Toyota (NYSE: TM)
Over the past 30 years, Toyota has earned a reputation for durable and reliable cars. However, recent reports allege Toyota's attempts to cover-up safety errors, including the dangerous and unintended acceleration of vehicles. On behalf of CEO Akio Toyoda, Toyota Vice President Irv Miller stated, "Our investigation indicates that there is a possibility that certain accelerator pedal mechanisms may, in rare instances, mechanically stick in a partially depressed position or return slowly to the idle position. Consistent with our commitment to the safety of our cars and our customers, we have initiated this voluntary recall action."

Although Toyota has emphasized that many of its malfunctioning products had slid under the radar of internal inspectors, the U.S. Transportation Department is seeking to fine the company over $16 million for failing to notify the government about its problems. Apparently, many investors are more confident. A year ago, Toyota's stock price closed at 67.90 a share, while just this April 1, 2010, they closed at 80.49 a share. (For more, check out: The Cost Of An Auto Recall.)

Maple Leaf (TSE: C.MFI)
In 2008, Maple Leaf Foods Company of Toronto recalled numerous roast beef and corn beef products due to listeriosis contamination, reportedly causing not only dozens of suspected and confirmed illnesses, but also death. Michael McCain, Maple Leaf's CEO, gave a candid statement, taking blame for Maple Leaf's meat contamination. He stated, "Tragically, our products have been linked to illness and loss of life. To those people who are ill, and to the families who have lost loved ones, I offer my deepest and sincerest sympathies."

His speech helped to strengthen not only the company, but also his own authenticity as CEO. It was reported that the recall and steps to sanitize the company plant cost the Maple Leaf Foods Company more than $20 million. Prior to the contamination outbreak the stock was trading at approximately $10.50, only to fall to $6.82 a couple months later. Nonetheless, due to an improved business model and adherence to safety standards the shares have rebounded to $10.46. (Learn more about the past recalls, read A Year In Product Recalls.)

McNeil Healthcare LLC
After complaints in January 2010 about "unusual moldy, musty or mildew-like" odor, McNeil Healthcare, a subsidiary of Johnson & Johnson (NYSE: JNJ), announced a voluntary recall of hundreds of over-the-counter medicines, including Benadryl, Motrin and Tylenol. Soon after, the U.S. Food and Drug Administration criticized McNeil Healthcare for a slow delay in rectifying contaminated products within the states and other international export regions.

This is not their first recall. In 1982, Johnson & Johnson voluntarily pulled 30 million bottles of pills nationwide, at a cost to the company of $100 million. While it may be too soon to speculate, one can only imagine how much revenue 2010's recall will cost them.

Eldrick Tiger Woods, Inc.
Tiger Woods is more than the most recognizable athlete in the world. His name alone is a brand that has led to many major corporate sponsors, thus permitting him the title of most well-paid endorser in the world. Moreover, as CEO of his namesake company, Eldrick Tiger Woods, Inc, Tiger's name, then associated with excellence and integrity, helped him earn an astonishing $110 million in 2008, becoming the first billion-dollar athlete. Recent allegations of marital infidelity along with Tiger's public admission are estimated to have cost his sponsors over $12 billion in lost revenue from declining stock prices. (Learn more in The Tiger Woods Effect - $12 Billion Wiped Out.)

Infantino, LLC
Two models of the Infantino baby carrier ride slings, "Sling Rider" and "Wendy Bellissimo," have been connected to several newborn fatalities this month. The bag-style slings, designed to cradle the baby, can position newborns in such a way that their chins fold to their chests, potentially cutting off their airway. The Consumer Product Safety Commission (CPSC) issued a warning that babies, especially those under four months, could suffocate due to the material and incorrect use of the product.

In light of the voluntary replacement program announcement, Infantino president Jack Vresics stated that "Safety is [Infantino's] No. 1 concern," and that they "[have] also been working closely with the CPSC and other agencies … to develop safety standards for baby slings." Consequently, one million slings in the United States and 15,000 slings in Canada have recently been recalled.

The Bottom Line
Admitting to a scandal does not always have an adverse effect on company revenue. Many view candidness on corporate scandals as noble, mature and taking the necessary step towards regaining consumer confidence. Additionally, many top-notch business schools instruct that the use of media to issue genuine apologies and explanations is a great way to shape public perception.

Most importantly, CEOs must minimize the effects of recalls and ensure that all efforts will be devoted to prevent product defects from occurring in the future.

If you're still feeling uninformed, check out last week's business highlights in Water Cooler Finance: Auto Hope, Bubbling Oil and Obamanomics.

Related Articles
  1. Trading Strategies

    Mastering Short-Term Trading

    The proper application of a few different tools can help a short-term trader succeed.
  2. Technical Indicators

    Four Commonly Used Indicators In Trend Trading

    No single indicator can punch a ticket to market riches, but here are four that remain popular among trend traders.
  3. Investing News

    Is It Time To Sell Technology Stocks? (LNKD, AAPL)

    Technology stocks have taken a drubbing in recent days. Is it time to sell them?
  4. Economics

    How Warren Buffett Made Berkshire A Winner

    Berkshire Fine Spinning Associated and Hathaway Manufacturing Company merged in 1955 to form Berkshire Hathaway.
  5. Stock Analysis

    The Biggest Risks of Investing in Johnson & Johnson Stock (JNJ)

    Learn the largest risks to investing in Johnson & Johnson through fundamental analysis and other potential risks. Also discover how JNJ compares to its peers.
  6. Stock Analysis

    The Biggest Risks of Investing in Celgene Stock (CELG)

    Discover the biggest risks to investing in Celgene Corporation when reviewing fundamental analysis and other external factors that may affect the stock's price.
  7. Economics

    Why Enron Collapsed

    Enron’s collapse is a classic example of greed gone wrong.
  8. Stock Analysis

    3 Risks U.S. Equities Face in 2016

    Find out why the probability of a U.S. stock bear market is increasing in 2016 and what the greatest risks are to the bull market that is almost 7 years old.
  9. Chart Advisor

    Watch For a Bounce in These Emerging Markets (BRF, PEK)

    While downtrends are clearly in control of the direction of many emerging market ETFs, short-term indicators suggest a bounce higher could be in the cards.
  10. Investing Basics

    Valuation Models: Apple’s Stock Analysis With CAPM

    The capital asset pricing model, or the CAPM, estimates the expected return of an asset based on the systematic risk of the asset’s return.
RELATED FAQS
  1. How did Johnson and Johnson's corporate responsibility policy pay off in 1982?

    In late September, 1982, Johnson & Johnson recalled all of its Tylenol products after seven people in the Chicago area ... Read Full Answer >>
  2. What is Fibonacci retracement, and where do the ratios that are used come from?

    Fibonacci retracement is a very popular tool among technical traders and is based on the key numbers identified by mathematician ... Read Full Answer >>
  3. What are some of the most common technical indicators that back up Doji patterns?

    The doji candlestick is important enough that Steve Nison devotes an entire chapter to it in his definitive work on candlestick ... Read Full Answer >>
  4. Tame Panic Selling with the Exhausted Selling Model

    The exhausted selling model is a pricing strategy used to identify and trade based off of the price floor of a security. ... Read Full Answer >>
  5. Point and Figure Charting Using Count Analysis

    Count analysis is a means of interpreting point and figure charts to measure vertical price movements. Technical analysts ... Read Full Answer >>
  6. How are double exponential moving averages applied in technical analysis?

    Double exponential moving averages (DEMAS) are commonly used in technical analysis like any other moving average indicator ... Read Full Answer >>
Hot Definitions
  1. Short Selling

    Short selling is the sale of a security that is not owned by the seller, or that the seller has borrowed. Short selling is ...
  2. Harry Potter Stock Index

    A collection of stocks from companies related to the "Harry Potter" series franchise. Created by StockPickr, this index seeks ...
  3. Liquidation Margin

    Liquidation margin refers to the value of all of the equity positions in a margin account. If an investor or trader holds ...
  4. Black Swan

    An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult ...
  5. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  6. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
Trading Center