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. Chart Advisor

    ChartAdvisor for November 27 2015

    Weekly technical summary of the major U.S. indexes.
  2. Stock Analysis

    The Biggest Risks of Investing in Pfizer Stock

    Learn the biggest potential risks that may affect the price of Pfizer's stock, complete with a fundamental analysis and review of other external factors.
  3. Professionals

    4 Must Watch Films and Documentaries for Accountants

    Learn how these must-watch movies for accountants teach about the importance of ethics in a world driven by greed and financial power.
  4. Technical Indicators

    Using Pivot Points For Predictions

    Learn one of the most common methods of finding support and resistance levels.
  5. Financial Advisors

    SEC Audit? How Financial Advisors Can Be Ready

    Your firm may never be audited by the SEC, but you need to be prepared nonetheless. Follow these tips to make sure you're in compliance and organized.
  6. Chart Advisor

    ChartAdvisor for November 20 2015

    Weekly technical summary of the major U.S. indexes.
  7. Investing Basics

    4 Iconic Financial Companies That No Longer Exist

    Learn how poor management, frauds, scandals or mergers wiped out some of the most recognizable brands in the finance industry in the United States.
  8. Chart Advisor

    Is This The Beginning Of A Downtrend In Home Builders?

    Falling lumber prices and weakness on the charts of home builders suggest that the next leg of the trend could be downward.
  9. Professionals

    Common Interview Questions for Business Analysts

    Identify some of the most common job interview questions asked of business analyst candidates, and learn the responses that will make you stand out.
  10. Active Trading

    What Is A Pyramid Scheme?

    The FTC announced it had opened an official investigation of Herbalife, which has been accused of running a pyramid scheme. But what exactly does that mean?
  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 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 >>
  3. 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 >>
  4. 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 >>
  5. 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 >>
  6. How does the role of Medicare/Medicaid affect the drugs sector in the U.S.?

    Medicare and Medicaid have enormous influence on the pharmaceutical, or drugs, sector in the United States. For instance, ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Bar Chart

    A style of chart used by some technical analysts, on which, as illustrated below, the top of the vertical line indicates ...
  2. Bullish Engulfing Pattern

    A chart pattern that forms when a small black candlestick is followed by a large white candlestick that completely eclipses ...
  3. Cyber Monday

    An expression used in online retailing to describe the Monday following U.S. Thanksgiving weekend. Cyber Monday is generally ...
  4. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
  5. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
Trading Center