Obama's Crackdown on Corporate America

Regulators are showing a lot more backbone these days--and winning some high-profile cases.

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Google. Boeing. Johnson & Johnson. They are among the biggest and most-respected companies in America.

There's one other thing these corporate titans have in common: They've all been targets of government regulators this year, with all of them likely to pay sizable fines to settle charges of wrongdoing. Obama's critics regularly slam the president for being too tough on business--and there's mounting evidence that he has, in fact, ramped up policing of corporate behavior. Some of that stems from the financial crisis that began in 2008, but regulators have become more aggressive toward a wide range of firms in many industries. If Obama wins a second term, the crackdown might intensify.

[Slideshow: See the companies that have been nabbed for wrongdoing.]

A variety of federal agencies has the authority to investigate and prosecute businesses, and many of them have become far more active than under Obama's predecessor, George W. Bush. At the Securities and Exchange Commission, for example, the pace of settlements is running at the highest rate since 2005, mostly due to a spike in the number of insider-trading cases, according to NERA Economic Consulting, which tracks SEC settlements. Other agencies, such as the Justice Dept. and the Federal Trade Commission, have recently snared some high-profile settlements against Wall Street firms and other companies. State attorneys general and European regulators have also been going after wayward companies, sometimes with help from Washington..

It's hard to tell if there's more shady behavior in corporate America, or if the cops are just paying closer attention. "Some of this increase is probably a result of more illegal behavior, some of it is fallout from the financial crisis, and some may be the effect of increased oversight and regulation," says Paul Hodgson of GMIRatings, which monitors corporate governance.

A few high-profile convictions have also helped embolden regulators. Agencies such as the SEC endured withering criticism as the financial crisis unfolded in 2008 and 2009, and they seemed unable to successfully prosecute anybody. But the SEC finally exacted a $500 million fine from Goldman Sachs in 2010 in a settlement over the way Goldman marketed securities related to subprime mortgages. Similar cases against Citigroup, J.P. Morgan Chase and other banks are pending.

[See how Washington is wrecking the economy—Part II.]

The feds also notched important criminal convictions recently in the insider-trading prosecutions against Raj Rajaratnam, Rajat Gupta and 60 others. "The government is winning these cases," says Bruce Kogut, a professor of leadership and ethics at Columbia Business School. "When you win, you get more wind at your back. The administration's not holding the prosecutors back, and this is how they make their careers."

Investigations by regulators often lead to settlements that typically end with the company paying fines, even if it admits no wrongdoing. Over the last year, there have been nearly two dozen prominent settlements, with fines ranging from several million dollars to well over $1 billion.

Big banks are one obvious target, with virtually all of the 10 largest banks involved in some kind of investigation or settlement over the last few years. Big pharmaceutical firms such as GlaxoSmithKline, Johnson & Johnson, Abbott Labs and Merck have agreed to costly settlements recently, mostly over improper marketing of their drugs.

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Other settlements may simply reflect a stiffer backbone at regulatory agencies. The Federal Trade Commission, for instance, is reportedly poised to levy a $22.5 million fine against Google for circumventing the privacy settings on Apple's Safari Web browser, without disclosing that to users. While a small sum by Google's standards, it would be the biggest fine ever levied by the FTC.

In Boeing's case, the Federal Aviation Administration recently proposed a $13.5 million fine for delays in instituting a program meant to enhance the safety of fuel tanks on airliners. Boeing may appeal, but if the fine sticks, it would be the second-largest ever at the FAA.

Critics of heavy-handed government complain that a lot of prosecutions are fishing expeditions meant to grab headlines, not promote meaningful reforms. Investors, for their part, often seem nonplussed by settlements.

Wells Fargo, for instance, has been involved in two big settlements this year—one in February, as part of a huge, $25 billion deal with 49 states over improper foreclosure practices at five big banks, and another in July, when Wells agreed to pay $175 million to resolve charges of discriminatory lending practices. Yet the bank's stock price has outperformed the broader market all year, and it actually rose the day after the bank announced the discrimination settlement—perhaps because investors felt relieved that the matter was finally resolved. Share prices for other firms have barely budged after they agreed to punitive settlements.

Consumers don't seem to get worked up over news of corporate wrongdoing, either. After news broke about Google's pending settlement with the FTC, Google's public image actually improved, according to YouGov's BrandIndex score for the company, which measures favorability ratings. That may have happened because other, more favorable news about the company outweighed the privacy fine. The BrandIndex score for MetLife hardly changed in April after the big insurer agreed to a settlement that could top $400 million, to resolve charges that it failed to deliver death benefits to the beneficiaries of some policyholders. Other firms suffered slightly larger declines when news of a settlement surfaced, yet still retained a generally positive image.

Still, Americans' perception of corporate America has been declining, with just 21 percent of people saying they have confidence in big business, according to Gallup—down from 30 percent in 1999. "It matters to us as a country," says Kogut. "We want out companies to be better." Most businesses would welcome that, too.

Rick Newman is the author of Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.