Diageo fined USD 5 million for “misleading investors”
USA | Diageo has agreed to pay a USD 5 million fine to settle with the US Securities and Exchange Commission (SEC), which had charged the world’s number one drinks company of pressuring distributors to buy excess inventory to boost its results in a flagging market.
Reuters reported on 19 February 2020 that Diageo agreed to pay the penalty without admitting or denying the violations.
According to the SEC, a regulator, Diageo failed to publicly disclose how employees at its most profitable unit, Diageo North America, pushed distributors in its 2014 and 2015 fiscal years to buy more products than they needed.
Leaning on distributors
The Financial Times newspaper added that the problems related especially to so-called innovation products, newly introduced lines whose sales can be more volatile, and on which salespeople increasingly relied to meet targets. Allegedly, Diageo even agreed to waive other penalty payments that distributors were contractually obliged to pay if they bought unwanted products instead.
This practice is called “overshipping”. The SEC claims the overshipping enabled Diageo to meet internal performance targets and report higher growth in operating profit and net sales than analysts expected. It thus misled investors by leaving them with the impression that increased customer demand was fuelling its reported growth.
