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Chemours audit finds execs violate ethics code

Katie Tabeling
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Chemours’ internal audit has found that three executives, including CEO Mark Newman, violated the company’s ethics code.

Chemours’ audit committee determined that the failure resulted from inadequate controls and procedures regarding the evaluation and escalation of hotline reports and poor judgment by those who handle reports to it. | DBT FILE PHOTO

WILMINGTON — Chemours’ internal audit has found that three executives, including CEO Mark Newman, violated the company’s ethics code to alter the appearance of cash flow targets dating back to the end of 2022.

The chemical company, famed for making Teflon, announced late Wednesday night that the audit has found a lack of transparency between senior management and the board of directors on payments and receivables, which affected the target Chemours forecast to have cash on hand.

Cash flow targets is a key metric to determine potential bonuses for key executives. Chemours’ most recent proxy statement shows that Newman earned $7.6 million in 2022, with $1 million in incentives. 

Newman and Chief Financial Officer Jonathan Lock and Principal Accounting Officer Carmela Wisel were placed on administrative leave on Feb. 29 pending the audit.

The audit, which was presented to the board on March 5, found that the three top executives worked to delay payments to vendors that were due to be paid in the fourth quarter of 2023 until the first quarter of 2024. Those executives also worked to “accelerate the collection of receivables” into the fourth quarter of 2023 that were not scheduled until first quarter of 2024. That way, the cash would come in the end of the 2023 rather than in the first months of this year.

Chemours reported by the end of 2023, the company’s cash and equivalents totaled roughly $1.8 billion, of which $1.2 billion was unrestricted. The company is working to assess the net impact on the cash flow as well as working capital timing.

However, the review also found that similar actions, though “to a lesser extent,” were taken in the fourth quarter of 2022, which in turn raised cash flows measured by the end of December 2022.

The executive incentive plan includes a combination of restricted stock and options, based on free cash flow as well as profit. Chemours’ 2022 proxy statement showed an annual free cash flow of  $447 million , which was slightly below the company’s targeted range. But still it was above the $372 million threshold to trigger the executive incentive plan.

Newman’s base salary in 2022 was $1 million and he received $5 million in stock options and restricted stock, security filings show. The company’s free cash flow drove about 40% of the $1 million bonus that he received, according to the proxy statement.

Newman was named CEO in 2021 and served as Chemours’ chief financial officer and senior vice president when the company spun out from DuPont. Lock became finance chief in June 2023 and Wisel became chief accounting officer in fall 2021.

Chemours officials note that the company is working to complete its year-end reporting process as well as internal controls on financial reporting for 2023 and to file the appropriate documentation with the U.S. SEC as soon as possible.

Chemours launched an investigation after an anonymous tip was made to the company’s ethics hotline earlier this year. In mid-February, the company announced it would delay its fourth quarter and full year 2023 financial results by the end of the month. That delay was extended while the probe into the financial report continued.

The anonymous tip did not make it to the Chemours general counsel or its audit committee until officials identified that it was connected to the external audit process. There was also a “lack of transparency” from senior leaders about the activities when the board looked into the matter, Chemours officials said.

Chemours’ audit committee determined that the failure resulted from inadequate controls and procedures regarding the evaluation and escalation of hotline reports and poor judgment by those who handle reports to it. As a result, the company is evaluating its systems for financial reporting as well as controls over the ethics reporting system.

Editor’s Note: This story has been updated.

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