 We took Aon (AON) to task in a recent post for splashing out a bunch of money to move its top brass to the U.K. after relocating the company’s headquarters. Now, eagle-eyed footnoted researcher Bhattiprolu Murti has spotted another doozy in the insurance broker’s filings.
The company, by all appearances, is trying to gloss over an interesting — and possibly expensive — set of mistakes, centering on executive jet travel (what else?). After a line in its proxy (filed early yesterday) saying that Aon has a deal with fractional jet outfit NetJets, under which Aon pays an hourly rate for “certain aircraft for business and personal use”, here’s all you get on the errors:
“In 2011, Aon reviewed the travel expenses of its executive officers, including its named executive officers. As a result of this review, Aon identified personal travel expenses on commercial aircraft incurred by certain executive officers that were inadvertently paid by Aon in prior years. Each of these executive officers fully reimbursed Aon for all personal travel expenses previously paid by Aon.” Right. So what kind of mistakes were these? How big were the mistakes? These aren’t trivial questions. You could imagine something innocuous, like a billing error by NetJets, or something more sinister, from an accountability and internal control standpoint, like fudged expense reports. There’s no sign of the latter in the filings, but there also isn’t much in the way of language reassuring investors that the mistakes were innocent. (The word “inadvertent” could be read that way — or it could be intended to sound benign, without really meaning much.) As for the size, there’s precedent to think this kind of thing might be non-trivial, at least from a compensation standpoint. In March last year, we footnoted a similar-sounding mistake at Dow Chemical (DOW) that added up to $719,923 from a single executive. In that case, the company wasn’t exactly explicit about what happened, but it gave considerably more information than Aon does. Aon doesn’t indicate how many people are involved. Unfortunately, the company also doesn’t appear to provide any insight into jet use by its executives, personal or otherwise, despite that line about Aon paying NetJet hourly fees “for business and personal use.” Even if executives reimburse the company (which isn’t explicitly stated, except for when it comes to the mistakes), it would be nice to know, since mere access to the company NetJets account is a nice perk. Aon is a big company, and from a purely financial standpoint, these errors are probably de minimis. Still, shareholders are ill-served by this kind of non-disclosure. And the company’s stock performance last year raises other possibilities — Aon shares eked out a 2 percentage-point gain over the S&P 500, but badly trailed its three closest competitors: Marsh & McLennan (MMC), Willis Group (WSH) and Arthur J. Gallagher & Co. (AJG). In the end, it may prove that all this moving, worrying about school tuition allowances, and filling out NetJets expense reports is a more than a little distracting for management. Image source: Dassault Falcon 2000EX interior photo from NetJets brochure ———— Would you notice if companies in your portfolio tried to sweep something more serious under the rug? At footnotedPro, our subscription service for professional investors, we spot red flags and hidden opportunities well ahead of the market: regulatory risk, litigation, accounting games, M&A signals and more. For more information, or to inquire about a trial subscription, please email us. |
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