Broken Business

PART IINTRODUCTION

A fish rots from the head down.

—Greek proverb

In 2005, I started advising a global automotive manufacturer headquartered in Germany with more than 300 000 employees and a market capitalization of $100 billion. The organization has an iconic brand, deeply historical and traditional roots, and a complex system of building their products and distributing them to almost every country around the globe. It was (and still is) a mighty and very impressive organization.

A year earlier, however, US authorities had received allegations by a former internal auditor concerning accounts used for corrupt means. This led to civil and criminal investigations. Teams of lawyers and forensic accountants were brought in by the company to conduct an internal investigation.

Years of investigation followed, leading to extensive and costly remediation activities to clean up the improper conduct. Eventually, the company reached what is known as a Deferred Prosecution Agreement or DPA with the US Department of Justice. Essentially, this is a plea-bargain and settlement agreement between an organization and prosecutors, approved by a court, whereby facts on alleged misconduct, fines, and penalties are all agreed and documented, in exchange for avoiding a trial.

My firm was brought on board one year after the internal investigation was started. Our initial task was to remediate the books and strengthen internal controls. We had to bring off-balance-sheet accounts back into the books; ...