Dell's Fraud Report Raises Questions about SarbOx, Earnings
from the just-a-few-pennies dept
This evening, Dell announced the preliminary results of a multi-month investigation into past accounting irregularities. As many had expected, the company revealed that management had deliberately massaged results to hit Wall Street targets. That being said, the total size of the fraud was not particularly significant. Overstating earnings between $50 million - $150 million between 2003-2006 is not all that big for a company as big as Dell. This doesn't excuse what the company did, but it does raise some questions about the incentives facing business managers. In the post-SarbOx era, these kinds of infractions can lead to serious penalties, and yet managers felt it was worthwhile to add a penny here and there in order to satisfy the Street's demands. Not only did SarbOx not do anything to prevent the fraud, but it didn't even prove to be a deterrent. The event should call into question the usefulness of the law, while also reigniting debate about the 'tyranny' of quarterly earnings, which pushes companies to make these choices.
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Huh?
I admit I'm stumped by Dell's behavior but I think that perhaps the insight here lies not with the speculated weakness of SarbOx.
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"it does raise some questions about the incentives facing business managers"
That is one of the most important causes of fraudulent reporting. No law can prevent someone from juicing the numbers if the incentives are large enough, and there's little fear of detection and serious punishment.
"SarbOx . . didn't even prove to be a deterrent."
I get the feeling (although you didn't say so) that you believe that SarbOx being "useless", it should be repealed or weakened in some way. How will that improve deterrence? Its failure to deter wrongdoing should be remedied by making it stricter, and the punishments harsher - a more effective deterrent.
"the 'tyranny' of quarterly earnings"
This is the undue influence of Wall Street on how businesses are run. Don't let Wall Street run your company. Run it the way it should be run. If your board doesn't like it, find a company that's interested in earning profits rather than just the short term fluctuations of the stock price. The stock price will do better over the long term.
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Responsibility
This type of thing usually seems to start in response to a small miss that the someone thinks can be caught up next quarter and then it snowballs.
We have been free from scandals while the economy was booming but if the economy starts to cool off the types of frauds that I mention will probably be widespread for a while.
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Anti-SarbOx again
Once again Techdirt makes no attempt to justify it's SarbOx position but simply passes on a position from somewhere else that techdirt doesn't really understand. Isn't that what corporate schills do ?.
Any genuine attempt to understand would attempt to gauge what might have happened had SarbOx not existed - e.g would the fraud hve been bigger ? when would it have been discovered (if ever) ?
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If you ask progressive executives, SOX actually provides a benefit. Those that look at SOX as just a task they must do don't see benefits. Those that look at SOX as a way to transform their organization and the way they do business actually see the upside to SOX.
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Re:
Related to teh "tyranny" of quarterly earnings, the recent dip in the share price of google because their growth was only 24% (not 27% as expected), ignoring the fact that any other company with a 24% growth would be amazing.
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Re: According to Fortune
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Missing the point
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Re: Missing the point
how long was this realy going on??????
try 1996, not 2003.
reynard
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