Did Groupon's Board Changes Go Far Enough?

Online-rebate wrangler Groupon (NAS: GRPN) has had it with accounting shenanigans. With only one quarter of operations under its belt since the November IPO, the company had to restate earnings twice already. The SEC is investigating Groupon's accounting practices, and share prices are down 59% since the public market launch.

So today Groupon replaced two-thirds of its audit committee. Starbucks (NAS: SBUX) CEO Howard Schultz is moving out, the better to focus on his own resurgent consumer brand. Accel Partners associate Kevin Efrusy won't run for re-election. Both of these soon-to-be-former directors serve on Groupon's three-person audit committee, and they should shoulder plenty of responsibility for the recent miscalculations.

The replacements come with the appropriate credentials. Robert Bass is a vice chairman of giant accounting firm Deloitte. Daniel Henry is the CFO of financial-services titan American Express (NYS: AXP) and a former partner at Ernst & Young -- another one of the Big Four accounting firms. (For the record, Ernst & Young happens to be Groupon's auditor of choice.)

Two infusions of highly placed accounting expertise should do wonders for Groupon's accounting practices. But maybe the sweeping change didn't cut deeply enough.

The audit committee's chairman is staying put. You could argue that Ted Leonsis, Washington-area entrepreneur and owner of three pro sports franchises in the D.C. region, held the ultimate responsibility for getting the numbers right. Leonsis rubs shoulders with Dan Henry as an American Express director, but he doesn't serve on that company's audit committee. At the very least, Groupon shareholders should ask him to hand the chairmanship reins to either Bass or Henry when they arrive.

Accounting details aside, fellow Fool Tim Beyers thinks Groupon's business model is badly broken -- and I agree. Unless Dan Henry and Bob Bass can reshape the company's entire operating model (which of course they can't), Groupon is doomed to burn more cash than it makes forevermore. There's no way it's worth a $7 billion market cap. I'm slapping a thumbs-down CAPScall on the stock right now, only pausing to wonder why I didn't do it earlier. Turnarounds can make you rich, but this is just a sinking ship with no Coast Guard rescue in sight.

At the time thisarticle was published

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