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Swiss engineering group ABB is to take a $100m charge after uncovering “significant” fraud at its South Korean subsidiary, and has also announced plans to appoint a top manager from activist investor Cevian to its board.
ABB said the treasurer of its South Korean subsidiary had gone missing on February 7, since which time the company had discovered significant financial irregularities in its operations in the country. The company’s board was informed earlier this week.
The company said:
This embezzlement and misappropriation of funds will have an impact on the previously reported unaudited 2016 results. Current estimate is a pre-tax charge of approx. $100 million. ABB has initiated mitigating actions to reduce the impact of this criminal activity on its results significantly including recovery of misappropriated funds, legal claims and insurances.
The company has checked and reconfirmed the balances of its global bank accounts and can confirm that this situation is limited to South Korea. ABB has a zero-tolerance approach to unethical behavior and maintains the highest standards regarding integrity and ethical business practices.
ABB added that its annual report, which was due to be published on Friday, may not be released until March 16.
Separately, ABB said Lars Förberg, managing partners at Cevian, Europe’s largest activist investing fund, had been nominated for election to its board at the group’s annual meeting on April 13.
Cevian, which owns about 6 per cent of ABB’s shares, has lobbied for the break-up of ABB’s conglomerate structure to spin off its power grid’s business, the largest division. So far its proposals have been resisted by Ulrich Spiesshofer, ABB’s chief executive.