Willie Neuman has a really great piece in the New York Times today about the big hit various multinationals’ bottom lines are taken as they’re forced to revalue their Venezuela profits from the fantastical Bs.6.30:$ rate to more realistically devalued levels. A taste:
Brink’s, the armored car company, could see about $400 million in revenue disappear this year from its operations in this country. Procter & Gamble announced a write-down of $275 million on its Venezuela business. American Airlines and Delta Air Lines are slashing their Venezuela flights.
Venezuela, once an apparent profit center for multinational companies, increasingly looks like a financial black hole.
It’s a great story.
There’s a dynamic at play here that Neuman didn’t quite capture, though. As he notes, lots of MNC executive in Caracas understood perfectly well that the “profits” they were reporting were never really likely to materialize in dollar form.
So why didn’t they say something before things came to a head? Is it just because of those nebulous “standard accounting practices” he talks about?
BS. It’s because lots of them had signed contracts that based their bonuses on formulas tied to those profits!
I’ve heard stories of people walking away with 7-figure dollar bonuses year-after-year for reporting paper profits they knew very well weren’t real. Accounting departments back at headquarters didn’t understand CADIVI insanity, and it would’ve been a lot of extra work and aggravation and locked-horns with their legal departments just to convince them that the official primary exchange rate was not a reasonable basis for booking profits.
That’s the kind of aggravation an MNC executive might be willing to pursue, if there’s something in it for him. But in this case, the “payoff” was just a massive cut to their bonus for the year.
So, of course, virtually no one did.