Publisher’s note: The following was submitted by Steven David of Edmonds
Let’s all think we are shareholders in a company that has been around for over a century. We are a major manufacture of widgets in Edmonds and have many people employed in the various service levels of this popular and family friendly business.
The Board of Directors is thinking of issuing more bonds to gain money and spend hundreds of hours trying to convince shareholders. Instead the CEO and CFO in April get together with the unions and decide that regionalization and combining services of our beloved team to a larger corporation is the best way.
The Board of Directors becomes engaged and in October, the executive summary numbers and contract of services are provided with various scenarios of only selling service and/or buildings and with service.
The shareholders are also given a few months to review the details but the information is disjointed and some shareholders question both the executive summary numbers and/or the contract summary of services as they are based on averages rather than outlining actual positions and service levels.
During the process the current CFO decides to go to work for the larger corporation. An interim CFO is hired and is present while the shareholders have their meetings with the Board of Directors. Many complain about the quickness of this important transaction in addition to the numbers. Shareholders that complain are not given any specific answers other than the corporation “stand by their numbers.”
The Board of Directors approves the sale of the widget service team and the sale takes place the beginning of 2010.
In January, the new CFO (formerly interim) provides financial projection to the Board of Directors reflecting a significant bottom line loss of close to two million dollars. Additionally, the sale of the services is half than what was anticipated.
The Audit Committee questions the CFO and CEO on these projections and basically the CFO states on more than one occasion that the sales transaction utilized the former CFO’s numbers. At no time during the Audit Committee meeting did the new (formerly interim) CFO takes responsibility of the largest transaction that ever affected this corporation. The CEO states the deal and outdated numbers have nothing to do with the sale of the services.
The stock plummets and shareholders leave in anger. Certain individuals face violating conflict of interest rules and misleading their shareholders. Furthermore, now the Board of Directors has to go back to the shareholders and try and regain trust to convince them to buy into the bonds.
So, the question becomes (use your imagination and fill in the blanks as to the characters of this story), why are municipalities different?
I suggest that those interested request from the council clerk’s office a copy of the taped Feb. 9, 2010 minutes of the Edmonds City Council Finance Committee meeting and listen to the discussion about the sale of Edmonds Fire Department assets to Snohomish County Fire District No. 1 that occurs about 35 minutes into the meeting.