The scandal at Volkswagon, and the subsequent plummet of share prices, is worth some comment.
The scandal is quite real; the company deliberately installed software that would essentially deceive carbon emissions tests. Volkswagon has admitted wrongdoing. Share prices have dropped drastically.
Obviously, shareholders are not upset about the deception. They are upset about the exposure of the deception, and the incompetence of Volkswagon at keeping the deception concealed. The recall of the vehicles will be costly, and the possibility of legal penalties is likely; but these are not the reasons for the drop in share values.
The main factors in the sinking stock price are the damage this scandal inflicts on Volkswagon’s reputation in the market, and the sudden lack of confidence shareholders have in Volkswagon’s corporate leadership.
This provides us with a valuable lesson. Market reputation and executive decision-making are crucial components for determining a company’s share price, thus, it’s value as a generator of wealth for shareholders. If the reputation suffers, or if there are doubts about the ability of the execcutive personnel to effectively manage the company, shareholders can potentially lose millions of dollars.
These are both factors that are well within the ability of revolutionaries to influence.
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