SEC Foists Well-Intentioned Governance Reforms on Dell

Dell has filed a tentative settlement with the Securities and Exchange Commission (SEC) relating to an investor lawsuit.

Dell pursued the settlement after the SEC determined that the company had exaggerated sales by $359 million and profits by $92 million during a period extending from 2003 beyond 2006.

As John Oates of The Register put it:

Dell has settled a long-running court case brought by disgruntled shareholders, who accused management of artificially boosting Dell’s shareprice so they could offload their personal holdings.

Even so, nothing in the settlement concedes wrongdoing by Dell representatives. Instead, the agreement requires the company to fork over $1.75 million in legal fees and to enact numerous corporate-governance reforms.

Dell, for example, must ensure that at least 60 percent of board directors will be independent (at least in name and in theory). In future, each director will receive training at Dell’s expense, and directors will have “complete and open access” to Dell management and employees without requiring coordination involving the chairman or board-liaison office.

That last provision, well intentioned but somewhat naive about the wily ways of the boardroom, will be a double-edged sword for Dell employees. In my experience, board members can have their own hidden agendas, often impenetrably opaque and inscrutable, not to mention intensely politicized.

While I understand that the provision is meant to foster laudable honesty, probity, and transparency within the company, I also know that board members cannot always be trusted to put the interests of a whistle-blowing employee above their own convoluted priorities. Employees best tread warily in that serpent’s den.

Still, in no way do I condone the dubious practices alleged to have been perpetrated at Dell. So let me make my position clear: I encourage employees to speak out emphatically on ethical violations and questionable business practices within their companies, but I also encourage them to document all relevant interactions and to consult counsel every step of the way.

Remember, people at the top of the corporate food chain rarely serve themselves up as scapegoats, as a certain case involving a former McAfee employee makes clear.

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