In his excellent column about the upcoming Groupon IPO, Andrew Ross Sorkin points out some problems with the IPO’s original valuation and an accounting gimmick used by the company in its prospectus to present favorable earnings performance (http://dealbook.nytimes.com/2011/10/17/the-missed-red-flags-on-groupon/?src=tp).
Among the watchdogs that apparently allowed Groupon’s IPO to move forward with an excessive valuation and some questionable financial reporting disclosures, Mr. Sorkin calls out Goldman Sachs, the underwriter, and Ernst & Young, Groupon’s external auditor, for signing off on the original disclosures supporting the faulty valuation.
With respect to their responsibilities, Goldman or Ernst & Young’s actions, or lack thereof, must be examined. However, in addition to the underwriter and the auditor, we must also evaluate the performance of Groupon’s Board of Directors. After all, the board should represent the interests of outside shareholders and they should monitor and evaluate the activities of company management. But, time and again, boards seem to forget their fiduciary responsibilities. In addition to allowing their names to be used to lend credence to the actions of management, often, corporate boards merely rubber stamp management’s decisions and then approve compensation packages that reward management even when shareholder returns are weak or declining. In fact, due to past failings of major public company boards, an entire industry of consultants has emerged to assist boards in understanding their responsibilities and assessing independent director performance (http://www.businessweek.com/managing/content/dec2007/ca20071227_236732.htm). Maybe, in contemplation Groupon’s IPO, and the responsibilities that such status conveys on them, Groupon’s board should consider employing an independent advising consultant.