CADBURY: NIGERIA'S ENRON?

UNCLAS SECTION 01 OF 02 LAGOS 000010 SIPDIS SIPDIS DEPT PASS TO EX-IM KVRANICH AND BUBAMADU TREASURY FOR ASEVERENS AND SRENENDER USDOC FOR 3317/ITA/OA/KBURRESS PASS OPIC FOR ZHAN AND MSTUCKART PASS TDA FOR NCABOT PASS USTR FOR ASST USTR FLISER E.O. 12958: N/A TAGS: ECON EINV EFIN PGOV NI SUBJECT: CADBURY: NIGERIA'S ENRON? LAGOS 00000010 001.2 OF 002 ¶1. (U) Summary: Since 2003, Cadbury Nigeria, Plc. had overstated its financial position by naira 13bn to naira 15bn. This information came to light following the company's discovery of accounting irregularities in November. After a special audit conducted by PricewaterhouseCoopers (PWC),the company fired its Chief Executive Officer and Finance Director. Cadbury's handling of this mismanagement is a show of corporate responsibility and could signal a growing awareness of Nigerian firms of good corporate practice. End summary. ¶2. (U) Since 2003, Cadbury Nigeria, Plc., the local subsidiary of Cadbury Schweppes, had overstated its financial position by naira 13bn to naira 15bn. During that period, Deloitte and Touche was doing the company's regular annual audits. This massive discrepancy came to light during the scheduled transition from then-Chief Executive Officer (CEO) Bunmi Oni to an incoming CEO. Both Oni and Finance Director Ayo Akadiri were set to retire in November. Heretofore, Oni personally and Cadbury Nigeria had acquired not only a reputation of profitability but of corporate integrity and probity. In September 2006, Oni was named the most respected CEO in a poll of Nigerian business leaders conducted by Business Day newspaper. These revelations sent shocks through the business community as Oni, a leading figure in Nigeria's business community, had been discredited. ¶3. (U) Cadbury's Board of Directors promptly contracted accounting firm Pricewaterhousecoopers (PWC) to conduct an audit. In response to PWC's findings, Cadbury's Board of Directors relieved Oni and Akadiri of duty. Cadbury Chairman Imo Itsueli released a statement declaring the company would report an underlying loss for 2006 of between naira 1bn and naira 2bn. The company reported no evidence of theft from its coffers. ¶4. (SBU) When asked why Cadbury's external auditor, Deloitte and Touche, had not caught the irregularities for the past three years, a Deloitte representative held that the firm could only audit those records to which it had access. The records the firm reviewed showed no signs of wrongdoing, he asserted. ¶5. (U) A representative of the Institute of Chartered Accountants of Nigeria (ICAN) said a letter had been sent to Akadiri requesting the accountant's presence before the ICAN Board. Akadiri will respond to an inquiry and may face sanctions by the trade organization. ICAN has taken similar measures in the past. The organization has yet to determine whether it will conduct an inquiry of Deloitte and Touche. ¶6. (SBU) Meanwhile a few observers in the corporate world are claiming that Oni is being scapegoated. They maintain that there has been a corporate tug-of-war for control of Cadbury Nigeria, with Oni allied with one faction of investors and the incoming CEO more closely associated with the other. These observers contend that Oni has been a casualty in a power-play by the opposing investors who have stirred up these allegations to help them wrest control of the company. (Comment: While there has been disharmony among the Board of Directors, that disharmony does not account for the damaging PWC special audit. The weight of evidence suggests something went awry at Cadbury. End comment) -------------- Comment -------------- ¶7. (SBU) The timely way in which Cadbury's Board dealt with its discovery of accounting malpractice is an encouraging demonstration of corporate responsibility in Nigeria. That the company acted swiftly upon the discovery of discrepancies and hired an independent auditor to determine the extent of the misdeeds could become a standard for other companies to follow. Unfortunately, there will be some in the corporate world who also see this as the discovery of a new sword with which to smite internal competition. Yet, weighing all of this in the balance, we view this as a positive indication of greater corporate governance. End comment. LAGOS 00000010 002.2 OF 002 BROWNE