It looks like the SEC didn’t waste much time in finding its big company poster child for key performance indicators (KPI). Yesterday, the SEC issued a press release announcing an enforcement proceeding where it brought charges against Diageo plc for disclosure failures. The enforcement proceeding is right on the heels of the SEC’s KPI interpretive release that John wrote about just a couple of weeks ago. Here’s the crux of what the SEC had to say:
According to the SEC’s order, employees at Diageo North America (DNA), Diageo’s largest and most profitable subsidiary, pressured distributors to buy products in excess of demand in order to meet internal sales targets in the face of declining market conditions. The resulting increase in shipments enabled Diageo to meet performance targets and to report higher growth in key performance indicators that were closely followed by investors and analysts. The order finds that Diageo failed to disclose the trends that resulted from shipping products in excess of demand, the positive impact the overshipping had on sales and profits, and the negative impact that the unnecessary increase in inventory would have on future growth. The order further finds that investors were instead left with the misleading impression that Diageo and DNA were able to achieve growth in certain key performance indicators through normal customer demand for Diageo’s products.
Without admitting or denying the findings in the SEC’s order, Diageo agreed to cease and desist from further violations and to pay a $5 million penalty.
You can find memos about the SEC’s KPI interpretive release posted in our “MD&A” Practice Area.
-Lynn Jokela, TheCorporateCounsel.net February 20, 2020
