ABB sacks managers over hidden losses

The staff worked in ABB's London office

Swiss-Swedish engineering group ABB has fired "a handful" of managers who had tried to hide losses, spokesman Thomas Schmidt told BBC News Online.

The group says the activities were limited to its London offices, the amount of money involved was small and its financial figures did not need to be changed.

However, the mere fact that accounts have been fiddled in one of ABB's units could well spook investors who may be concerned about the conduct of the rest of the company.

The admission of a cover-up means that ABB's name will be added to the growing list of companies, whose employees or executives have either sought to cover up losses or engaged in fraud.

Shares worldwide have fallen as the public and investors' faith in corporate behaviour has been eroded, following scandals at companies such as WorldCom and Enron.

Shares in ABB slipped slightly on the Swiss stock exchange, falling to 13.60 francs.

No secret

Mr Schmidt denied that ABB had tried to keep the ploy, which took place during 1999 and 2000, and the subsequent dismissals secret.

It was uncovered by ABB during an internal audit in 2000 and made public in a 2001 filing with the US stock market regulator, Securities and Exchange Commission, he said.

"Since we caught them and since we did not have to restate our accounts, this is an example that our internal audit works," Mr Schmidt said.

"We believe that these activities were isolated in the London region of this division and did not extend to other operations," ABB said in the filing.

However, in the SEC filing the company also said that it "cannot ensure compliance on a global basis by all of our employees with our internal control policies and procedures".

Costly cover-up

The losses the manufacturing and consumer division managers had tried to hide were not massive when compared with several other recent corporate scandals.

And they were minute when compared with ABB's $25bn revenues during 2000, Mr Schmidt said.

"If we had not discovered these activities, our net income for 1999 and 2000 would have been overstated by $30m and $10m respectively," the company said in the SEC filing.

"In 2001, we identified and recorded additional costs amounting to approximately $25 million relating to these activities."

However, "no wrong numbers were actually reported to the outside world", Mr Schmidt stressed.

Tough year

Regardless of Mr Schmidt's assertion that the discovery shows that ABB's corporate governance is efficient, investors may well see the disclosure as bad news for ABB.

As such, the revelation would become the latest in a series of blows received by the company this year.

In January, analysts' raised concerns that the company's liabilities relating to asbestos could be much larger than previously thought.

The analysis was followed by a high-level row over pensions payments to the company's former executives Percy Barnevik and Goran Lindahl.