Former Avon CEO and Scandal: All Ethics Start at the Top

The Wall Street Journal reports that federal prosecutors want to speak with former Avon Products (NYSE: AVP) CEO Andrea Jung. These prosecutors continue to investigate Avon’s compliance with the Foreign Corrupt Practices Act. Avon may have bribed officials in China to get some business there. Whether that happened is yet to be determined. But it is not the only issue that the government has had with Avon. Early this year, Avon fired its vice chairman and former chief financial officer, Charles Cramb, because he made disclosures about confidential company business to a Wall St. analyst, and because he may have had a role in the alleged bribery trouble.

Jung has not been accused of acting in any way like Chesapeake Energy’s (NYSE: CHK) Aubrey Kerr McClendon, who apparently benefited from investing in his company’s drilling operations. Jung’s role at Avon is more likely to be similar to Jamie Dimon’s at JPMorgan (NYSE: JPM). Ethical standards at large public corporations emanate from the top. Trading problems at the big bank were not isolated to one or two people. Several senior managers lost their jobs, and the firings may not have ended. Dimon has upended his senior management structure. He obviously knows how high the knowledge and perhaps condoning of the risky activity reached.

Jung was the chairman and CEO of Avon from 1999 to early this year. The board pushed her out in favor of former Johnson & Johnson (NYSE: JNJ) executive Sherilyn McCoy. Somehow, Jung managed to convince her board that she should remain as full-time executive chairman. The board has been questioned repeated for allowing her to stay.

Jung’s career, or the perception of it, has been extraordinary. She has been put on nearly every major list of important female CEOs, including the Forbes list of “Most Powerful Women.” She sits on the boards of General Electric (NYSE: GE) and Apple (NASDAQ: AAPL). Her image as one of the best chief executives of a large public company remained untarnished until last year when Avon’s earnings were battered and questions about the bribery problems in China arose.

If there is a lesson in Jung’s tenure, and perhaps Dimon’s, it is that the public relations machines around these people and the coronations of them as the best of the best corporate leaders are often followed by the realization that no one is that good. Jung may have known nothing specific about any bribery problems in China. But people just below her on the corporate ladder did, if the bribery allegations turn out to be true. As the CEO who ran Avon for well over a decade, her responsibility and her ethic leadership should be questioned, and sharply criticized.

Douglas A. McIntyre