ADM’s interim CFO needs to rebuild trust or stock price ‘may continue to slide’
Good morning. Shares of U.S. agricultural giant Archer-Daniels-Midland Co. plunged by 24%, the most on record, Monday after a Sunday announcement from the company’s board that CFO and SVP Vikram Luthar had been placed on administrative leave.
Outside counsel is investigating accounting issues tied to the nutrition segment, which produces ingredients for both human and animal food. The inquiry was sparked by a voluntary document request from the Securities and Exchange Commission. People I spoke with Monday told me Chicago-based ADM needs to reestablish trust with investors—and fast.
That's where Ismael Roig comes in. ADM’s board has appointed Roig, who's served in a variety of global operational and financial leadership roles since joining the company in 2004, as interim CFO. (Luthar took over as CFO in 2022.)
“Roig needs to credibly communicate a commitment to release accurate financial information to the board and investors,” Rick Warne, chair of accounting programs and a professor at the University of San Diego’s Knauss School of Business, told me. “Correcting prior inaccuracies will take some time, but the market needs to know now that accurate information will be forthcoming. The company's stock price will not rebound and may continue to slide until ADM rebuilds trust with investors.”
Terry Crews, lead director of ADM’s board, said in the company's announcement that the board will continue to “work in close coordination with ADM’s advisors to identify the best path forward and ensure ADM’s processes align with financial governance best practices.” ADM expects to delay its earnings release and conference call relating to Q4 and full year 2023 financial results.
Few public details have emerged surrounding the investigation. I contacted ADM for additional information but was referred back to the press release.
With the SEC approaching ADM, said John M. Veitch, dean of the School of Business and Management at Notre Dame de Namur, "my assumption would be that there's some kind of whistleblower thing going on.”
Veitch also noted how during time of stress, some companies more than others may “push accounting standards to the very edge of propriety, and when you're right on the edge—to go over,” he said. “And ADM has a somewhat checkered history in terms of its accounting.” (In the 1990s, the company was implicated in a price-fixing conspiracy. This was documented in a nonfiction book titled, “The Informant" published in 2000, and the 2009 film The Informant! is based on the book.)
Regarding ADM's nutrition business, in 2014, the firm made its biggest-ever acquisition—the $3 billion buyout of European natural ingredient maker Wild Flavors. The move was to diversify from row-crop grains and oilseeds into processed products, according to reports. But due to weakening demand, profits have not lived up to initial expectations. And now, that's far from the firm's most pressing issue.
“The steep drop in stock price shows a crisis of trust from the financial markets,” Warne told me. “Even if it takes time to correct information previously released, signaling a commitment to honest and transparent information dissemination is important."
Sheryl Estrada
sheryl.estrada@fortune.com
This story was originally featured on Fortune.com
