Dell seems to be continuing on its downward trend lately. The company’s 2-year stock performance has been somewhat dismal (click on the thumbnail to the right for a large chart [from Yahoo! Finance]), and in an article released yesterday, the New York Times reports that Dell has found evidence of accounting misconduct: Dell Reports It Has Found ‘Misconduct’.

Finance-related scandals are nothing new, especially among once high-flying tech companies, and span a wide spectrum ranging from options backdating, to balance sheet massaging, to pulling fake numbers out of thin air. Dell’s findings, though described with remarkably little detail, seem to point to minor misconduct issues. Perhaps that is because the company is keeping a tight lid on the specifics of their findings, and perhaps it is because nothing major was uncovered during the investigation. Either way, there is far too little information available to investors, or the public, in order to make a clear judgment call on the company’s conduct.

The findings come on the heels of a rather sustained down period at the once mighty company:

“It was once the biggest PC maker in the world, but its computer sales are growing more slowly than those of many competitors. Its chief executive, Kevin B. Rollins, resigned at the end of January, and Michael S. Dell, the founder, returned to office.

“Since then, Mr. Dell has tried to focus a company distracted by disappointing financial results and bad news. He shook up senior management ranks, and has concentrated much of its efforts in China, one of the fastest-growing markets, where Dell’s presence is not as strong as that of Hewlett-Packard or Lenovo.”

Rollins had been groomed for the top spot for years prior to taking the helm, and his departure served a considerable blow to the company and to investor’s confidence. If the financial scandal develops into something larger, Dell may take more than a few years to recover.

…Enter the broader issues. Toward the end of the NY Times article, there is a short passage noting the direct impact the scandal will have on the company’s employees. The news is a bit disturbing:

“The accounting problems, meanwhile, are financially damaging to employees. The company said yesterday that it would have to suspend contributions to the Dell stock fund within its 401(k) plan beginning next month because of its failure to make the necessary financial filings. The suspension affects all employees, a company spokesman said.”

The situation was arguably “messy” prior to the above tidbit. But now all Dell employees see a suspension, of an unspecified duration, of the company’s contribution to the Dell stock fund. What responsibility does the company have to include greater disclosure at this point? How long will the suspension last? What is the nature of the misconduct, and have the responsible parties been removed from their positions? What will the company do to ensure that similar misconduct does not recur in the future? How broad was knowledge of the misconduct? Was Rollins aware of the issue? Was the Board? Was Michael Dell?

I think every Dell employee and shareholder would want the preceding questions, and a host of other ones, answered with the utmost transparency.

TAGS: DELL | Fraud | Ethics | SARBOX | GAAP | Accounting | Corporate Governance

This entry was posted on Saturday, March 31st, 2007 at 11:12 am and is filed under Business Ethics, Corporate Governance, Corporate Social Responsibility. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.