Avon Products can't dress up an ugly foreign bribery case. A rift with the US Securities and Exchange Commission over corruption charges, coupled with poor results, erased over $2 billion of the cosmetic giant's market value on Thursday. Balking at a government offer isn't unusual, but doing so in public breaks new ground. Avon and others may finally be getting fed up with regulatory zeal over the Foreign Corrupt Practices Act.
It was a rough quarter for Avon even without the SEC's meddling. Revenue came in below expectations and sales were down in North America as well as in emerging markets like Russia and Mexico, a bright spot in the past. Investors seemed skeptical of a turnaround after the rocky reign of former Chief Executive Andrea Jung ended last year.
The FCPA news was a shock, though. Avon has spent more than three years investigating the possible bribery of government officials in China, Brazil and three other countries. In 2011, the SEC and Justice Department got involved. In the quarterly document it filed on Thursday, the firm said it had initially hoped to resolve matters with the securities watchdog for $12 million. Now, though, the SEC has demanded an amount so large that it would "materially" harm the company's financial condition.
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Some companies, like Japanese tyremaker Bridgestone, have forked over fines for practices that are probably not even illegal.
Avon has already taken some painful lumps. It has spent more than $300 million in legal fees and related expenses alone since the investigation started.
In theory, investors might have welcomed resistance to the SEC as a sign that Avon won't break the bank with a settlement. Their negative reaction doesn't detract from the larger point, though. Companies have been itching for years to stand up to overreaching regulators - emboldened perhaps by Lindsey Manufacturing beating prosecutors in a 2011 FCPA trial. Avon's disclosures might help stiffen a few more corporate spines.
