ADM's accounting scrutiny intensifies with class action lawsuit

Questions raised about a link to the nutrition division's accounting irregularities and executive bonuses.

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Bronstein, Gewirtz & Grossman LLC has filed a class action lawsuit against Archer Daniels Midland (ADM) due to the revelations about the company's nutrition division, which is under investigation for its accounting practices. Reporting for Fortune by Tarso VelosoAnders Melin and Bloomberg shined light on how this division accounts for less than 10% of ADM's revenue but has had a disproportionate influence on recent executive bonuses.

Influence on executive compensation

Records indicate that in 2020 and 2021, ADM's board significantly linked a portion of senior executives' stock award payouts to the profitability growth of its nutrition unit. The company's success in surpassing goals for the first round of these awards led to executives receiving shares collectively worth more than $70 million. The payouts for the second round were to be determined early this year.

This scrutiny emerged alongside the lawsuit filed by Bronstein, Gewirtz & Grossman LLC, which accuses ADM of making misleading statements and failing to disclose information about the Nutrition segment's performance and accounting practices.

Stock awards and performance metrics

ADM's executives, like those at many large public companies, receive a substantial part of their compensation in stock awards. About half of these awards vest over three years based on specific performance metrics, while the remainder vests as long as the executive remains employed.

Shift in performance metrics

 In a significant shift in 2020, ADM's board replaced the adjusted earnings metric with a more targeted one: the growth of average operating profit in the nutrition segment. This change meant that executives would receive their target payout if this segment's three-year average growth exceeded 10%, with the potential to double their shares if growth reached 20%.

Impact of the investigation:

The investigation into ADM's nutrition unit, disclosed earlier, has significantly affected the company's market standing. The revelation of the CFO's suspension and the probe into the unit's accounting practices led to a major selloff in ADM's shares, erasing nearly a quarter of its market value.

ADM has declined to comment on the situation.

The lawsuit by Bronstein, Gewirtz & Grossman LLC, continues to gather attention, especially as it highlights the intersection of corporate governance, executive compensation, and shareholder interests. Affected investors are encouraged to join the lawsuit, with the firm representing on a contingency fee basis. 

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