Scandals That Bring The CEOs Out
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.

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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.

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