Inrate AG

Retrospective: Controversial Business Practices in 2018

Inrate manages a database with more than 15,000 controversial business practices of over 3,000 companies of major indices such as MSCI Developed Markets, MSCI Emerging Markets and the Swiss Performance Index collected over nine years. News articles are screened on a daily basis, recorded, categorized as well as evaluated in detail.

At Inrate, we have taken some time to look at the database with respect to the controversies in 2018 and to compile a list of controversial business practices which caught our attention during the last twelve months. Every chosen example is extraordinary in nature, even though for different reasons. The list includes controversies that were relevant because of the impact of the corporate conduct on environment and society as well as the perception of stakeholders thereof. Some of the controversies that emerged in 2018 or before saw significant updates during the past year. It is not a ranking of the controversies with the severest grades of 2018.

Major trends and the role of corporations

As previous years, 2018 has seen misconducts by corporations on a wide range of topics. Companies have been at the center of attention of the revelations of the #MeToo movement. A striking example thereof happened at CBS and led to the CEO’s resignation from his position. A particularly interesting case in the light of the current trend of increasing data volumes concerns the business practices of Cambridge Analytica and insufficient data governance structures at Facebook. Another tech giant, Google (subsidiary of Alphabet Inc), was awarded a record fine of EUR 4.3 billion by EU regulators for abusing its market power.

Companies at the center of human tragedies

The year 2018 was also witness to tragedies such as the Northern California Wildfires (US), the most destructive fires in California’s history. Even though unusual drought and winds were factors that might have contributed to the spark of some of the fires, investigators signaled that the improper maintenance of PG&E’s electric infrastructure was the main cause. In Europe, even though the causes are not yet entirely clear, poor maintenance of the Morandi bridge by Autostrade per l’Italia (a unit of Atlantia) in Genoa may have been one element contributing to the collapse causing 43 fatalities. Listeria, a major foodborne disease, caused 200 fatalities in South Africa since its outbreak in 2017. The origin of the outbreak of listeria was contaminated processed meat at a subsidiary of Tiger Brands. Finally, the medical device failure related to the faulty hip replacements of Johnson & Johnson, which led to serious consequences for patients, has not lost its relevance.

Responsibility for environmental degradation

Corporations were hold responsible for environmental degradation. A striking example thereof is Bunge, one of the world’s largest agribusiness companies. Bunge has repeatedly been accused for irresponsible supply chain management of soy and in 2018 was fined for illegal deforestation in Brazil.

Money laundering and accounting irregularities

At Danske Bank, the CEO resigned in September 2018 and the chairman was ousted in December 2018 after massive money laundering allegations. The bank has built a reserve of as much as USD 2.7 billion (85% of last year’s net profit) in order to cover for potential fines. In terms of governance, the headlines were dominated by Carlos Ghosn and the allegations with respect to under-reporting his income at Nissan by around half over a period of five years.