Wednesday, June 30, 2010

Dell Crashes

Dell, the once mighty computer manufacturer, is crashing. The accounting tricks they used to make themselves look financially healthy and keep their stock price up have been exposed by the SEC, and fraud changes could soon be filed against founder Michael Dell. But the reason for the financial shenanigans was to cover up a deeper problem: their computers were breaking down. Millions of machines sold by Dell in 2003 to 2005 had capacitors on their mother boards that were prone to break and leak fluid across the board. (In fact, one Dell study suggested that the problem would affect 97% of its OptiPlex machines.) They didn't make the capacitors, and they could have -- should have -- recognized the problem, issued a recall, and kept their reputations. Instead, as the NY Times has documented, they did what is always disastrous for any business and tried to cover up the problem:

But Dell employees went out of their way to conceal these problems. In one e-mail exchange between Dell customer support employees concerning computers at the Simpson Thacher & Bartlett law firm, a Dell worker states, “We need to avoid all language indicating the boards were bad or had ‘issues’ per our discussion this morning.”

In other documents about how to handle questions around the faulty OptiPlex systems, Dell salespeople were told, “Don’t bring this to customer’s attention proactively” and “Emphasize uncertainty.”

“They were fixing bad computers with bad computers and were misleading customers at the same time,” said Ira Winkler, a former computer analyst for the National Security Agency and a technology consultant. “They knew millions of computers would be out there causing inevitable damage and were not giving people an opportunity to fix that damage.”

Hence the massive lawsuit Dell is now facing over its faulty computers, which may force the company into bankruptcy.

I keep wondering when businesspeople will get the message that covering up a problem is always the worst thing they can do. But I guess that just goes against the grain of people who have succeeded in their careers by going along with the flow, putting profits first, and always putting the best face on whatever happens.

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