Cheating and Reputation

Pfäffikon SZ, Switzerland – Who cheats sees his reputation going on the merits is the general idea. Trust comes on foot and leaves on horseback. However, the impact of cheating seems to be relatively limited in more and more cases. In addition, the consumer, but also investors, features a short-term memory.

Reliable
We do not need to dig into history to expose skulduggery. It is striking that often established and highly trusted brands are involved. But also those who were beyond reproach regarding behavior did put many investors on the wrong track. Bernard Madoff is perhaps the most glaring example.

Several serious businesses, however, also knew how to cheat. The scandal surrounding Ahold is well known; noteworthy is that a few years later Tesco used, more or less, the same trick. The financial world also was not the best pupil in class; there was messed widely with mortgages. Particularly the ‘best bank in the world’ ––Wells Fargo–– cheated extensively with opening fake accounts. In the automotive sector Volkswagen, one of the largest automobile manufacturers in the world, was a master in deceiving test benches and officials for years.

Strong
It is striking that many of these companies get away with their skulduggery. Volkswagen sales are indeed not collapsed. Apparently, the Volkswagen brand is so strong that the customer still chooses the good quality product. Cheating thus seems to pay off in some cases. At Ahold, we saw pretty much the same. Ahold stores now run excellent, and the products are good; no one is talking about the accounting fraud anymore. This also applies to Wells Fargo which is at the core an excellent bank. Some customers have terminated their account, but this will not cause heavy problems for the bank.

The power of a good reputation seems to win of skulduggery. This is interesting and says something about the particular brand, but also about the society as a whole. Apparently, consumers (and investors) no longer take the effort to look for alternatives and rather choose the easiest path.

It remains for me to wish you a good weekend.


Jan Dwarshuis is CIO at Thirteen Asset Management AG. Dwarshuis writes his columns in a personal capacity. Professionally, he holds positions in major European, American and Russian stock funds. The information in his columns is not intended as professional investment advice or a recommendation to make certain investments. At the time of writing, he has no position in above mentioned shares and has no intention of doing so in the next 72 hours.