Early last week, Microsoft (NASDAQ:MSFT) was in the headlines for leading tech companies in a tough stance against Russia for its invasion of Ukraine. The company ended the week making headlines for a bribery scandal. With Microsoft accused by a whistleblower of spending hundred of millions of dollars a year to secure foreign contracts, is it now too risky to buy MSFT stock?
It’s time for a deeper look at what’s going on with this developing bribery scandal. What is the company accused of, who is involved and could there be penalties to Microsoft? Above all, from the perspective of a potential investor, let’s determine if Microsoft stock is going to take a hit.
Whistleblower Accuses Microsoft of Large-Scale Bribery
On March 25, Microsoft began to make headlines after a former employee went public with accusations that the company has been spending big on bribes and kickbacks in foreign markets.
As reported by The Verge, ex-Microsoft employee Yasser Elabd says is accusing the company of spending more than $200 million a year in bribes and kickbacks in a number of countries, including Zimbabwe, Qatar and Saudi Arabia. Elabd was a former director of emerging markets for Microsoft, and says he began tracking the issue in 2016. He noticed practices like foreign government ministries paying millions of dollars for Office and Windows licenses that were never installed. He believes the money was split between the government, subcontractors and Microsoft employees.
Elabd says he reported the suspicious payments and tried to stop them, but that Microsoft wasn’t interested. In an interview, he told The Verge:
“It’s going on at all levels … All the executives are aware of it, and they’re promoting the bad people. If you’re doing the right thing, they won’t promote you.”
Former employees — especially former employees who have been fired (as Elabd was) — can lack credibility. They could be seen as having an axe to grind. However, Elabd has been thorough in his documentation of the alleged bribery. Does this mean you should avoid MSFT stock until the bribery scandal fades?
Microsoft has an entire page on its website dedicated to its commitment against bribery and other forms of corruption. On that page, the company lays out its official stance: “We prohibit corrupt payments of all kinds, including facilitating payments. We expect our representatives to share our commitment to integrity, and if we see signs that a representative is unethical or could be engaging in corrupt conduct, we prohibit doing business with them.”
Microsoft responded to the allegations, telling The Verge that they were many years old, had been investigated and addressed, and that the company had cooperated with the relevant government agencies to address any concerns.
Given the virtual non-movement of MSFT stock on Friday, the market seems content with Microsoft’s response.
MSFT Stock Growth Won’t Be Derailed Easily
You might wonder why Microsoft has such a prominent anti-corruption display. It’s likely because the company has faced this problem in the past. For example, in 2019, Microsoft was fined $25.3 million. This penalty came after the U.S. Department of Justice caught the company bribing government officials in Hungary, while the U.S. Securities and Exchange Commission found the company had engaged in improper payments in multiple companies including Saudi Arabia.
At the time, Microsoft said that it had terminated the employees who were involved in the schemes.
Since the time of that wrist-slap, MSFT stock has delivered a 119% return.
Bottom Line on MSFT Stock
The market reaction to the accusations that Microsoft is spending $200 million a year on bribes says it all. MSFT stock closed just a fraction of a percent lower.
I don’t condone the practices Microsoft employees are accused of, but I don’t think it’s a systemic issue. At least Microsoft seems to be making all the right moves about addressing bribery whenever it’s discovered. With its legacy Office and Windows business remaining very lucrative, you can bet Microsoft is taking steps to ensure it isn’t endangered.
As for the impact of this latest bribery scandal on MSFT stock, it still has a consensus “buy” rating from the investment analysts polled by the Wall Street Journal, and a “B” rating in Portfolio Grader. I wouldn’t let this episode convince me to pass on MSFT stock, which is discounted 6.5% from the start of the year.
On the date of publication, Louis Navellier had a long position in MSFT. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article. InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.