Thursday, June 1, 2023

CFOs Are New Used Car Salesmen

Used car salesman have been portrayed as unethical for rolling back odometers to make their product more appealing.  WSJ reported similar manipulating with corporate earnings.

"...nontraditional earnings metrics are beating reported earnings by a lot more than last year, and a measure of the likelihood of earnings manipulation is at its highest level in about 40 years."

Both result in more money for the manipulators, higher commission for the used care salesman and increased executive compensation for the CFO.  

The accounting profession gave up its policeman role decades ago.  Now nontraditional measures dominate earnings reports.

The pressure to fudge is even greater if a corporation is private equity owned.  McKinsey said:

"borrowed capital means the risks are larger, the time to show results is shorter, and the scrutiny from investors is more intense."

The SEC and Justice Department avoided prosecuting widespread fraud after the 2008 financial crisis.  Corporate executives got the message, wink wink.  

The pressure for corporate executives to lie, cheat and steal is greater and the consequences are virtually nil.   That is the system our leaders created over the last few decades.  Politicians Red and Blue love PEU and increasingly, more are one.