From Wells Fargo to Samsung: When Bad Things Happen to Good Investors

John Stumpf, the now-former Chairman and CEO of the Wells Fargo & Company, testifies before the House Financial Services Committee. Mark Wilson / Getty Images News

At first blush, a huge bank, huge automaker, and huge smartphone company would seem to have little in common (unless you used the phone to call the bank to finance the car loan).

But when the companies in question are Wells Fargo (WFC), Volkswagen AG (traded in Germany as VOW3), and Samsung Electronics, the sad fact is this: they now account for three of the biggest corporate disasters and scandals on record, with multi-billion dollar consequences powerful enough shake investor confidence not just for years, but decades.

Won't Someone Think of the Investors?

The headlines, as they should, will point to the pain felt by customers and employees. But sitting not far away, innocent investors are also left to figure out what to do with the mess they’ve inherited.

Experts say this all begins with regaining trust among all those constituencies. But therein lies a major hurdle: It demands a lot of the public to erase the suspicion that a company is only fixing things because they got caught.

Volkswagen’s gaming of U.S. emissions tests was highly likely to continue had it not been for the scandal coming to light. And quite the nefarious scandal it was, considering that the automaker installed secret software in its diesel cars to cheat exhaust emissions tests on a massive scale. Now, VW has to pony up for one of the ​biggest corporate settlements on record—$14.7 billion—to federal and California regulators.

Meanwhile, Wells Fargo remains under fire for opening millions of unauthorized customer accounts, putting unrelenting sales pressure on its employees in the process.

The debacle has already cost it $30 billion in business with the State of Illinois, just the tip of the iceberg in this Titanic-sized transgression.

“Wells Fargo fumbled the ball when it first blamed its employees and used a picture of its historical stagecoach in newspaper ads to try to spin its way out of the mess,” says Andrew Blum, a crisis PR expert based in New York City.

“The stagecoach was supposed to convey the message: ‘Trust us.’”

Then again, any crook will tell you that stagecoaches only exist to be robbed. And most consumers took it to mean that you could trust Wells to steer the coach as much as Jesse James to guard a bank.

What Should Investors Do?

When investors find their companies of choice mired in negative press and nefarious doings, here are four things they can do to keep their heads (and shares) about them when all others are losing theirs.

1. Stay Alert For Any Signs of a Cover-Up

While Enron went down in history as one of the greatest Wall Street flameouts of all time, it didn’t necessarily have to end that way. “Had Enron admitted from the start to its investors what was really happening with the company and its losses, things might be different,” says Elizabeth Edwards, founder and president of Volume Public Relations. What made the difference, then? “There was one cover-up, followed by another, followed by another. And it took the stock price falling—and the stock being downgraded—to expose all the lies all participating members took part in.” Once the Securities and Exchange Commission got involved, it was game over.

2. Strong Companies Accept Responsibility — Fast

Unlike Wells Fargo, which tried to pin its malfeasance on pressured employees, companies with unrivaled damage control attack the situation head-on to restore consumer and investor confidence.

“Johnson & Johnson’s Tylenol recall is an example of a successful attempt to handle a crisis,” says Andrew Schnackenberg, an assistant professor of management at the University of Denver’s Daniels College of Business . In 1982, the company learned that some of its pills were laced with cyanide. Immediately, J&J recalled 31 million bottles (worth $100 million) and unveiled tamper-resistant packaging. Perhaps most important overall, “it maintained transparency towards stakeholders throughout the ordeal. Arguably, J&J’s swift response coupled with transparency were the main factors enabling it to retain stakeholder confidence and trust.”

3. Beware of Companies That Try to Act Above It All

The real test for Samsung investors will be whether the tight-lipped South Korean company tries to blow off the Galaxy Note 7 disaster as though it never happened.

On the one hand, there’s some wisdom to leaving the past behind. But at this stage, no one seems to know the exact reason for the Note 7's dangerous battery defects—not even company executives. Meanwhile, Samsung has already set its sites on an S8 release tentatively scheduled for March 2017. The unimpeded launch may smack of bravado. But if Samsung can’t provide definitive answers regarding the Note 7, consumers will sit on the sidelines—and the company’s $5 billion disaster could hurt shareholders betting on a comeback.

Looking for a sign Samsung’s evolving strategy could backfire? Companies in such trouble “need to announce a big change, like someone getting fired,” says Tina Cassidy, executive vice president and chief content officer at InkHouse Media + Marketing. “They need to apologize, and they need to announce their new course of corrective action very quickly. The longer this takes, the worse the crisis becomes. Also, they should never make excuses. They should explain what went wrong but take full responsibility.”

4. Expect Some Share Price Bouncing Before the Dust Settles

Conventional wisdom dictates that companies making big mistakes will suffer big consequences. Yet on Wall Street, even a dark scandal can light a candle and an unmitigated disaster can sometimes produce short-term investor gains. VW, Wells Fargo, and Samsung stock all went up after their crashes.

What happens to these companies in the long haul, though, remains another matter—one that the market may not sort out until investigators and authorities do it first.