What's the Cost of Doing Business? What Should It Be?

A couple of stories in today's New York Times got me thinking about the "cost of doing business".

That's a phrase that gets tossed around a lot. Inventory "shrinkage" (a.k.a. theft, by shoplifters or employees) is often shrugged off as a "cost of doing business", whether the company is a mom-and-pop gift shop or a major retailer like Macy's.

A week ago, a federal judge blocked a proposed $285 million settlement between the SEC and Citigroup, terming the amount "pocket change" and noting that such a settlement was often viewed on Wall Street as a "cost of doing business" (click here for Edward Wyatt's 28 November New York Times article).

Now Bank of America's Merrill Lynch unit has come to an agreement to pay $315 million to settle claims that they misled investors about mortgage-backed securities (click here for the Times article, from the Associated Press). This is only the most recent claim settlement for BoA; the AP reported that "in the first half of the year alone, the bank put up $12.7 billion to settle similar claims from different groups of investors." Only potential roadblock here? The settlement must be approved by the same federal judge, Jed S. Rakoff, who struck down the Citigroup deal last week.

Also in today's paper, Sabrina Tavernise and Clifford Krauss reported that Alpha Natural Resources, now owners of Massey Energy, agreed to pay $209 million in civil and criminal penalties and restitution for charges stemming from the Upper Big Branch mine disaster last year that resulted in the death of 29 men. While some of the money (approximately $46.5 million) is earmarked for the families of the men who died, Alpha executives are protected from prosecution by the deal. Massey Energy executives, however, are not.

The problem is, "Under the federal mine act, safety violations, with the exception of falsifying records, are categorized as misdemeanors. That limitation could make it hard to build a case against senior [Massey] managers..."

I've written before about the inadequacy of mine safety protection; this is just further proof that some people view losing lives as merely "a cost of doing business".

Meanwhile, over at Olympus (previous blog posts on that debacle here, here, and here), it becomes clearer that "Olympus had persuaded several banks, including Société Générale of France, to submit incomplete financial statements to auditors, apparently in an effort to conceal financial maneuvers that the report says involved at least $1.7 billion and were meant to hide failed investments during the 1990s." (Full story by Hiroko Tabuchi and Keith Bradsher, here) While an independent report called Olympus management "rotten to the core", it found no evidence of organized crime involvment -- which could have led the stock to be delisted by the Tokyo Stock Exchange. So again ... just a "cost of doing business"?

Yes, accidents happen in every industry, and prudent corporate managers should build allowances for disasters and settlements into their budgets. But that's doesn't mean that people's lives should be destroyed -- financially or actually -- and that the only reaction is, "That's the cost of doing business."

I'm listening for the outpouring of outrage. Why aren't I hearing it?