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Say It Ain’t So, Mr. CFO

In his first column, &splt;i>CFO&splt;/i> Online's editor-in-chief recalls Diamond Foods's just-deposed finance chief during happier times.

When I learned last night that Steven Neil, the CFO of Diamond Foods, had been placed on administrative leave as part of the “corrective actions” the company was taking after an internal probe revealed accounting misdeeds and internal controls failures, the news had a familiar ring to it.

It reminded me of the Era of the Great Accounting Scandals, the period following the revelation of horrendous fraud at Enron in October 2001. For years after that, it seemed, we journalists would encounter bright-eyed finance chiefs of the seemingly highest order, and then be shocked — shocked! — to learn the Securities and Exchange Commission had discovered them embroiled in accounting fiascoes.

It was always depressing news to get — perhaps akin to a Chicago White Sox fan’s learning, in the early days of the last century, that Shoeless Joe Jackson had palmed a bribe. Not that any concrete allegations have been made against Neil and his boss, the nut seller’s president and chief executive officer, who was also given the boot.

Still, both executives have been at least temporarily replaced. The scandal came to a head with the release of 8-Ks filed by the company in December 2011 that revealed, respectively, that the audit committee of Diamond’s board was conducting an investigation of Diamond’s accounting for “certain crop payments to walnut growers” and that the company had gotten a formal order of investigation. Both filings appeared under the signature of Steven M. Neil, executive vice president, chief financial and administrative officer.

Two days ago, the company reported that the audit committee was largely done with the probe. The committee concluded that payments to growers of about $60 million in September 2011 and about $20 million in August 2010 weren’t accounted for in the correct periods. Diamond’s financials for those years and for certain quarters within them could not be relied upon.

When I interviewed Neil, then a 25-year veteran of corporate finance, at CFO’s New York office in early 2010, I had no reason to believe he had done anything wrong — and have no reason to believe so now. Yet when I look through my notes, I recall a likable man fascinated by his company’s operations and delighted with its products — yet one not particularly enthralled with accounting.

His mouth practically watered when he told me about the company’s “Cocoa Roast” almonds and its walnuts. He spoke with pride about the uniqueness of his job. “I am the CFO, but I’m also responsible for operations and logistics and IT and treasury. And I view them as one and the same,” he said.

“I’m the type of finance guy that looks at a financial report and says, ‘It’s numbers on a piece of paper unless I’m out in the plant and can see how the product flows, how we can reduce our unit costs, how we can improve our logistics.’ Then the numbers mean something,” he added.

Perhaps I prodded him to talk about the nonaccounting aspects of his job, because we journalists do find it hard to find the color in balance sheets and cash-flow statements. Retrospective judgment is always easy. But now it seems that Steve Neil, focused on such things as efficiency and the preservation of the supply chain, might have indeed lost focus when it came to the control of his company’s books. Say it ain’t so.

David M. Katz is editor-in-chief of CFO Online/Mobile.

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