This column generally focuses on company and market news of interest to serious investors. With apologies to my bosses, I am going to take it in a different direction today, because I believe that the most important story today, although it may not be directly connected to the market, does have serious implications for any business listed on the London Stock Exchange and, therefore, potentially for its share price.
Headlines everywhere this morning are shouting the news that the Serious Fraud Office (SFO), which had been carrying out a closed investigation into activities at defense contractor giant BAE (LSE:BA.), lost 32,000 separate documents pertaining to that investigation. I’m not going to cite a source. Just pick up a newspaper or visit any credible news site on the internet. It will be there.
Lest readers pass this off with a “ho-hum and a rummy dum dum,” I would warn you that the Labour Party’s shadow Attorney General, Emily Thornberry, called this incident, “Government incompetence of the first magnitude.” I get it. She is a politician in a party that is not in control of the government. But that does not make her observation either unwarranted or untrue.
Let me break it down for you:
- Potential fraud at any business = serious
- Potential fraud at a world class defense contractor = very serious
- Potential fraud at a world class defense contract being investigated by the SFO = extremely serious
- The SFO losing 32,000 pieces of evidence in the case = government incompetence of the first magnitude
Do you get the picture?
One of the fundamental reasons that the SFO exists is to protect investors, because, aside from being inherently evil, fraud always costs investors something in the end – and you know which end I mean! Let’s agree on one simple truth: Anything that costs investors is not good for the investors.
In the word’s of Isaiah, the Old Testament prophet, “Come, let us reason together.” No reputable business of any kind or size can function without a bona fide document control system. Police agencies talk about the “chain of evidence.” That is a form of document control. Document control provides the assurance that any systems audit (or investigation) can find out exactly how, why, and when the item or process being investigated happened.
If an auditor or an investigator cannot find the evidence that they are looking for within the business’ document control system, it typically escalates the investigation in proportion to the matter being investigated. I have personally had my own business audited by ISO teams from Lloyds of London. If they could not locate even a single document that they were seeking, employees felt like they were on trial at Nuremberg.
If losing a single document is serious, I have to ask the question, “How serious is it to lose 32,000 documents?” The answer is a very non-political, “Incompetence of the first magnitude.” Yet, the SFO says that it is “dealing with an incident of accidental data loss.” I’d say that the SFO is doing some public CYA damage control, and probably doing it with more success than they have had with document control.
Allow me to offer just a few small bits of information that can help add perspective to this matter.
I’m not saying that this is a problem of the fox guarding the hen house. It’s more on the magnitude of third-grader guarding your investment portfolio.
Now for some good news. The investigation has been closed. BAE share price is up .11% to 439.50 after an early morning decline. The current share price is up 40% over 12 August 2012.
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