Sure, stupid in small ways may not wound a company mortally. But, then again, illegal in small ways won’t, either. Just last month, Google Inc (NASDAQ:GOOG) was fined for, as The New York Times put it, “illegal collection of personal data” in Germany. That’s obviously suboptimal for Google Inc (NASDAQ:GOOG), but the $188,000 fine is hardly going to put the company under.
Big illegal (think Enron) or big stupid (Bank of America Corp (NYSE:BAC) or Lehman Brothers) on the other hand, can indeed lead to the destruction or near-destruction of a company. For the record, although there’s plenty of talk about how well Bank of America Corp (NYSE:BAC)’s stock has done since early 2012 (up 130%), on an adjusted basis, the bank’s stock still only fetches about 25% of what it did in late 2006. Put that one in the loss column for stupidity.
Evaluating management isn’t easy or particularly straightforward. And there aren’t simple screens that you can run for a company’s management team the way you can for its price-to-earnings ratio or return on equity. But when it comes to the safety of your investment, understanding who’s running the company — and the likelihood that they’ll avoid both illegal and stupid — is not a nicety; it’s essential.
The article You Want to See Bankers Going to Jail? Wish Granted. originally appeared on Fool.com and is written by Matt Koppenheffer.
Matt Koppenheffer owns shares of Bank of America. The Motley Fool recommends Google and owns shares of Bank of America, Citigroup, and Google.
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