It’s embarrassing anytime a company’s earnings are released accidentally. But when the company is a giant known for its savvy technology skills, well, it’s a calamity. Amid the morning-after explanations, several questions remain unanswered. First, why did Google outsource its SEC filings to someone else? And why did it choose a company whose principal technology – the printing press – was dominant in the 19th Century? A company can file its financial statements with the SEC itself, or appoint an agent. But usually that agent is, say, its outside counsel, which has been involved in the preparation and review of the filing. Which leads to the next question:
Why did Donnelly have a draft of the earnings release in the first place? Writing an earnings release is usually a tightly controlled affair, involving a company’s CEO, CFO, investor relations director and general counsel, assisted by a limited number of outside advisors. It’s not a big group, and everyone in it has a meaningful contribution to make. But a financial printer? It doesn’t have a role in writing the earnings. If they’re the filing agent, they should only get the final, finished release.
Exactly how did Donnelly’s error happen? To its credit, Donnelly fell on its sword quickly and took blame for the inadvertent release. But the company hasn’t offered details, saying only that it is investigating the matter. They’ll likely focus on the chain of authority to see which individuals were responsible for releasing the document, because this is ultimately a failure of management, not technology.
Lately, we’ve seen quite a few blunders rooted in complacency about a technology-intensive process. Think Nasdaq during the Facebook IPO. Or the whopping trading losses at Knight Capital. In all these cases, no one was checking the process carefully. The lesson is, there’s no substitute for good management.