Global chemical business Chemours has announced that, after an internal probe, three of its top executives – CEO Mark Newman, CFO Jonathan Lock, and Controller and Principal Accounting Officer Camela Wisel – engaged in unethical financial practices.

An internal review of an anonymous report made to the Chemours ethics hotline led to an investigation by the business. A complete report of the findings of the internal review was delivered to the full Board on March 5, 2024.

Although the company fell down in a number of areas, from non-functioning internal controls to weak whistleblower hotline monitoring, its crisis responses in terms of accepting responsibility, being transparent and offering a roadmap for improvement are impressive.

Chemours investigation

The investigation was conducted by the audit committee of the company’s board of directors. It determined the three executives, who were recently placed on administrative leave, engaged in efforts in the fourth quarter of 2023 to delay payments to certain vendors that were originally due to be paid in that quarter until the first quarter of 2024.

The release said they also took steps to accelerate the collection of receivables into the fourth quarter of 2023 that were originally not due to be received until the first quarter of 2024.

“These individuals engaged in these efforts in part to meet free cash flow targets that the company had communicated publicly, and which also would be part of a key metric for determining incentive compensation applicable to executive officers.”

Chemours

The business named temporary replacements for the CEO and CFO seats, pending a review of “one or more potential material weaknesses in its internal control over financial reporting as of December 31, 2023,” the company said last month in a separate press release.

Its statement on March 6 says it has fully determined that Newman, Lock and Wisel violated the company’s code of ethics related to the promotion of “full, fair, accurate, timely and understandable disclosure.”

Internal controls and hotline missteps

“The Audit Committee found that these individuals engaged in these efforts in part to meet free cash flow targets that the company had communicated publicly, and which also would be part of a key metric for determining incentive compensation applicable to executive officers,” the company’s most recent statement said.

“The Chemours Board of Directors takes these issues very seriously and appreciates the diligent efforts by the Audit Committee, with support from its counsel and Company management, to review these matters,” Chemours Board Chair Dawn Farrell said in the release.

Although the internal review was conducted after an ethics hotline tip, the review was not elevated to the general counsel or the audit committee until the matter was identified in connection with the company’s year-end 2023 external audit process, the company admitted in the release.

The Audit Committee determined that the failure to respond to the internal complaint “resulted from inadequate procedures regarding the evaluation and escalation of hotline reports and poor judgment by certain employees who handle the intake of such reports,” the release noted.

In addition to examining the potential material weaknesses in Chemours’s internal control over financial reporting, the company said it plans to evaluate the effectiveness of the “tone at the top” set by certain members of senior management and the information and communication components of the COSO* internal control framework, including controls over the Chemours Ethics Hotline program.

Accordingly, the company plans to report on material weaknesses as of December 31, 2023 and related remediation plans in its next annual report on Form 10-K.

*Note: The COSO Framework helps organizations connect their internal controls to their business process. The terms harkens back to 1992 when the Committee of Sponsoring Organizations – an assembly of various auditing and accounting membership and advocacy groups – met to create a more significant relationship between the risk and business landscapes.