Diamond Foods CFO on Recovering From a Crisis after settling fraud charges with SEC

January 21, 2014, 4:36 PM ET

Diamond Foods CFO on Recovering From a Crisis

EMILY CHASAN

Senior Editor

Diamond Foods Inc. settled fraud charges this month with the Securities and Exchange Commission, but the snack food company still has work to do to put its accounting scandal behind it.Ray Silcock, who took over as chief financial officer of the company in June, says his top priorities include creating an internal audit function, refinancing $600 million in high-priced debt, and repositioning the Emerald nut brand by eliminating the least-profitable products.

“The things I’ve been working on for the past six months have been to try to correct all of the overhanging issues,” said Mr. Silcock.

On Jan. 9, Diamond agreed to pay $5 million to settle charges surrounding delayed recognition of $80 million in payments to walnut growers. The company did not admit or deny the accusations. The company’s former CEO Michael Mendes also settled charges, but former CFO Steven Neil, who has been pegged  by the SEC as the architect of the accounting treatment, is expected to head to trial.  Mr. Neil maintains he did nothing wrong and looks forward to prevailing at trial, according to his attorney.

The scandal, however, has left considerable clean-up for the company’s new executives.

Diamond “saw a sharp reduction in the amount of walnuts being offered to the company,” because growers were unsure of the company’s viability, Mr. Silcock said. The scandal also cost the company its $1.5 billion deal to acquire the Pringles potato chip brand, and plunged it into a financial crisis that nearly got its shares delisted.

Diamond survived with $225 million in rescue financing from private-equity firm Oaktree Capital. The company also reached out to investors following restatements, and kept them updated as it settled lawsuits.

“There’s been an increased focus on the need for doing things correctly and making sure we have integrity in the company’s processes,” Mr. Silcock said, who spent most of his career with Campbell Soup Co.CPB +0.74% “We’re making sure there are rules to follow and we follow them properly.”

Diamond has taken bids to hire a consulting firm to do internal audits of its operations globally – something the company has previously lacked.

Companies, like Diamond, that survive a financial restatement and move swiftly to try and rebuild their reputations can recover much of their value rather quickly, according to a new study from researchers at Stanford and Emory universities, as CFO Journalreported on Tuesday

.  And the firm has moved quickly to try to restore its credibility with investors, suppliers, employees and customers, Mr. Silcock said.

Diamond’s efforts appear to be assuaging investor concerns. The company’s shares have about doubled from a November 2012 low.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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