Mattel CFO Leaves

This is one for the books, as it were. Mattel understated its losses in the third and fourth quarters of 2017 by $109 million. The mistake in losses resulted from an error in calculating an allowance for its tax valuation. The company’s audits committee, along with outside counsel, found that Mattel had to restate its financials (but nothing material here, so move along) and its 10-K. Oh, and the report identified a “material weakness” in internal controls. Say what? So long as it is not quantitatively material, what, me worry? To be fair, the error did not materially affect annual EBITDA, adjusted EBITDA, cash flows, or EPS, i.e., neither the fake numbers nor the real numbers were materially affected — quantitatively)

Anyone can make a mistake on allowances, particularly on taxes. The odd thing about this particular error (and the resulting finding of a material weakness in internal controls) is that no one told either the CEO nor the audit committee about the error. One more odd thing, the error did not come to light until the company’s auditor received a whistleblower letter in August 2019. Oops– one more odd thing. PricewaterhouseCoopers LLP (the supercalifragilisticexpialidocious of the Big 4 accounting firms) replaced its lead partner on the Mattel account because the former lead partner had been recommending people for senior finance positions in Mattel. The whistleblower let those beans spill as well. PwC (to save the space) and Mattel issued statements indicating that they both “take independence seriously” and that they have “robust policies and procedures in place to identify and address potential threats to independence.”

PwC can stay, nothing to see here, and we will fix those internal controls. Just “lapses in judgment by management.” Off you go! The Barometer has found that “lapses in judgment by management” loosely translated means, “Managers were too “‘a scared” to report the error.” Such a “lapse in judgment” travels in pairs. The accounting “lapse in judgment” is followed by another “lapse in judgment” the failure to appreciate that this stuff wants out there. Somehow this stuff always comes out. Sort of comical that the whistleblower sent the letter to PwC — must not have known of the HR work of the audit firm.

See Paul Ziobro, “Mattel’s Finance Chief to Leave,” Wall Street Journal, October 30, 2019, p. B5 for more insights into the issues.

About mmjdiary

Professor Marianne Jennings is an emeritus professor of legal and ethical studies from the W.P. Carey School of Business at Arizona State University, retiring in 2011 after 35 years of teaching undergraduate and graduate courses in ethics and the legal environment of business. During her tenure at ASU, she served as director of the Joan and David Lincoln Center for Applied Ethics from 1995-1999. In 2006, she was appointed faculty director for the W.P. Carey Executive MBA Program. She has done consulting work for businesses and professional groups including AICPA, Boeing, Dial Corporation, Edward Jones, Mattel, Motorola, CFA Institute, Southern California Edison, the Institute of Internal Auditors, AIMR, DuPont, AES, Blue Cross Blue Shield, Motorola, Hy-Vee Foods, IBM, Bell Helicopter, Amgen, Raytheon, and VIAD. The sixth edition of her textbook, Case Studies in Business Ethics, was published in February 2011. The ninth edition of her textbook, Business: lts Legal, Ethical and Global Environment was published in January 2011. The 23rd edition of her book, Business Law: Principles and Cases, will be published in January 2013. The tenth edition of her book, Real Estate Law, will also be published in January 2013. Her book, A Business Tale: A Story of Ethics, Choices, Success, and a Very Large Rabbit, a fable about business ethics, was chosen by Library Journal in 2004 as its business book of the year. A Business Tale was also a finalist for two other literary awards for 2004. In 2000 her book on corporate governance was published by the New York Times MBA Pocket Series. Her book on long-term success, Building a Business Through Good Times and Bad: Lessons from Fifteen Companies, Each With a Century of Dividends, was published in October 2002 and has been used by Booz, Allen, Hamilton for its work on business longevity. Her latest book, The Seven Signs of Ethical Collapse was published by St. Martin’s Press in July 2006 and has been a finalist for two book awards. Her weekly columns are syndicated around the country, and her work has appeared in the Wall Street Journal, the Chicago Tribune, the New York Times, Washington Post, and the Reader's Digest. A collection of her essays, Nobody Fixes Real Carrot Sticks Anymore, first published in 1994 is still being published. She has been a commentator on business issues on All Things Considered for National Public Radio. She has served on four boards of directors, including Arizona Public Service (1987-2000), Zealous Capital Corporation, and the Center for Children with Chronic Illness and Disability at the University of Minnesota. She was appointed to the board of advisors for the Institute of Nuclear Power Operators in 2004 and served on the board of trustees for Think Arizona, a public policy think tank. She has appeared on CNBC, CBS This Morning, the Today Show, and CBS Evening News. In 2010 she was named one of the Top 100 Thought Leaders in Business Ethics by Trust Across America. Her books have been translated into four different languages. She received the British Emerald award for authoring one of their top 50 articles in management publications, chosen from over 15,000 articles. Personal: Married since 1976 to Terry H. Jennings, Maricopa County Attorney’s Office Deputy County Attorney; five children: Sarah, Sam, and John, and the late Claire and Hannah Jennings.
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