Friday, March 7, 2008

(Un)Independent testing- A real shocker.

The Senate, yesterday, passed a bill aimed at cleaning up the U.S. Consumer Product Safety Commission. The purpose of this bill is to better control quality of children's toys that enter the market by providing guidelines on the testing that goes into getting the product ready to be launched into the market and ultimately reducing the number of defective and unsafe toys. An effort in the right direction, but very weird to say the least. To explain it very simply, they plan to hand over the testing to "independent" labs who in most cases have had very close relationships with the very same manufacturers whose products they are expected to test independently. Convoluted or wot?

After reading about the Senate Bill's efforts to clean up the , i wrote back to the author whose article i read on on some of my is the email...


Your commentary on the recent Bill on consumer safety made for very interesting reading. It is truly shocking to see the utter ignorance of the authorities on the simple concept of independence. How are these laboratories supposed to provide an independent assessment despite their proximity to toy manufacturers? The ‘independent in house testing’ quoted by CTL’s President is more of an oxymoron. Corporate America, it appears is always struggling to understand the true meaning of ‘Independence’ whether it is auditor independence or ‘Independence of outside experts’. It is always testing ways to stretch the limits a little more.

There are different elements of Corporate Governance, the most popular being CEO compensation, director independence and takeover defenses. But key corporate behavior at the grassroot operation level may reveal greater inconsistencies than those revealed by years of research into other more arcane and obviously well controlled areas such as board composition or proxy voting.

I would just like to conclude by saying that analysts need to look beyond the usual and into more chronic, repeated and often overlooked offenses to understand the true value of a company.



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