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CSC heading for disaster

Financial deficit, fraudulent financial reporting, disgruntled employees and angry customers are a dangerous cocktail

There is a wave of trouble breaking over one of Denmark's largest IT companies, Computer Sciences Corporation (CSC). First and foremost, the Danish part of the IT giant has had to deal with a deficit of DKK 355 million (US$65.3 million), with all Danish subsidiaries incurring losses for the last five years.

But that's not all. CSC Denmark now has a solvency ratio of just 2.8 percent and total liabilities of more than DKK 2.9 billion (US$535 million) out of which more than half is short term debt.

For these reasons the company is extremely hard-pressed and has little equity with which to weather the storm. According to Caspar Rose, professor of economy at Copenhagen Business School, this could represent a risk if the company again next year records substantial negative results.

"The low solidity increases the risk for the company's creditors to lose money, while the employees could reasonably fear even more that the company isn't going to survive," says Caspar Rose.

As its financial situation lays in ruins, CSC Denmark is the focus of an investigation by the U.S. Securities and Exchange Commission (SEC), which suspects the company of stock manipulation by means of fraudulent financial reporting in the order of DKK 500 million. This fraud was carried out in Denmark by what are now former employees, according to various CSC financial statements.

So far, the irregularities at CSC Denmark have lead to an exceptional write-down of the already historically weak financial statements with an additional DKK 200 million. Professor Lars Bo Langsted from the Department of Law at Aalborg University, a specialist in economic crime, believes that it would be prudent for the Danish Public Prosecutor for Serious Economic Crime to investigate the matter.

"When the SEC discovers something that looks unlawful in Denmark, I would be surprised if the U.S. authority did not contact the Public Prosecutor for Serious Economic Crime or other Danish authorities," he says.

Costly strike action

CSC Denmark also has been through a strike action that in several ways was both difficult and costly. Even though the company apparently came out on top and won a legal dispute over a collective bargaining agreement, sending the labor union Prosa packing and replacing it with HK, the U.S. senior management team says that the rift between management and the most important resource of the knowledge industry, namely the employees, has been costly.

Dissatisfied customers

Time will tell whether the relationship with the Danish customers more generally has also been impacted. But the catastrophic course of CSC Denmark manifests itself alarmingly in regard to one of the company's largest public sector customers in the country, the Danish Tax and Customs Administration. A senior executive of the authority accuses the Danish company of wilfully having obscured the truth about a failed IT project.

"I won't hide the fact that I can only regard what has happened until now as a wilful attempt to obscure the actual state of the project," writes Deputy Permanent Secretary at the Danish Ministry of Taxation, Jesper Skovhus Poulsen.

The senior management team of CSC is following the Danish situation closely these days, including but not limited to, monitoring allegations of fraudulent financial reporting, which has led directly to lawsuits against the U.S. parent company and its executives personally.

Carsten Lind, CEO of CSC Denmark, has through the company's busy PR firm in Denmark, Kraft & Partners, stated:

"The total earnings [in the latest financial statement] are evidence of the fact that we, as a company, are facing big challenges that require the full attention of the management."

Time will tell how the Danish management will manage to swallow the entire dangerous cocktail – with the global senior management standing right behind it at the bar – without it all coming back up.

(Translated by Thomas Boendergaard)


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