Corporate Amnesia at Aegis: €30M Fraud Settlement Disappears in Q2 Numbers

Last Updated Aug 30, 2010 6:05 PM EDT

Aegis (AGS.L) published its Q2 2010 numbers today and completely failed to mention that it paid €30 million to settle allegations that its former president ripped off former client Danone Groupe (DN.PA) by siphoning Danone's TV media credits for himself, as recently as 2005.

This sort of corporate amnesia may work well to rehabilitate a brand but is bad for investors and companies in the long run -- assuming they want to root out corruption. Aegis controls an American billboard network and Carat, the respected ad airtime buyer. Its clients include Kellogg (K) and Johnson & Johnson (JNJ).

The lack of disclosure was predictable: A similar thing happened when Publicis (PUB) paid $15.5 million to settle allegations by prosecutors that its Chicago-based Leo Burnett unit defrauded the U.S. Army.

Also, the timing of the Aegis settlement appeared designed to wrap the payment up in legal non-disclosure requirements that would spare the company and its new CEO, Jerry Buhlmann, the embarrassment of atoning publicly for the company's wrongdoing at its June 16 shareholder meeting. Here's what Aegis said the highlights of the quarter were for Aegis Germany, where former Aegis president Aleksander Ruzicka was charged with embezzling Danone's media credits -- a valuable commodity in the advertising world -- for himself:
In Germany there were decent performances from the digital businesses and Vizeum. Client wins during the period included Deutsche Bank, GE Capital Bank and De Agostini, as part of a Pan-European client contract.
Obviously, the scandal is not Buhlmann's fault and the company wants to put the entire episode behind it. But wiping it from the history books, Stalin-style, will do nothing to deter new employees from taking advantage when opportunity presents itself. Investors and managers who want to deter corruption at work should, on these occasions, put transparency before brand management. (Or, even better, make transparency part of their brand.)

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