Penguin chief `didn't know about scandal'

City sceptical about chief executive's explanation for book company's pounds 100m loss

Peter Mayer, the former head of Penguin Books in America, spoke for the first time yesterday about the Pearson subsidiary's pounds 100m accounting scandal, saying he had known nothing about it.

Speaking after his return to New York following a six-week holiday in South-east Asia, Mr Mayer said the accounting scheme was in no way sanctioned by him and that he was only told of the problem a few days ago.

"I had no knowledge of it. I was really shocked and dismayed when I heard about it. There were quite a few controls in place between the level at which this happened and my position. Clearly those controls didn't work and we need to find out why."

Asked whether, as chief executive, he should have been aware of a six- year scheme in which book retailers were given discounts for early payment, he said: "It is a difficult question to answer. Obviously as chief executive you are responsible for the business so the answer is `yes' to part of the question.

"But is there any way a CEO could have known when so many financial people, who had this as their only job, did not know either?"

Mr Mayer said he had had no direct contact with the woman responsible for the scheme who had worked for Penguin for around 16 years. "I know her name but I had no direct contact with her at all. As to why she did it, I haven't a clue. It's a strange story. It would appear there was a degree of zeal there that was not appropriate."

Mr Mayer said he was happy to help Pearson and auditor Price Waterhouse with their inquiries but had not yet been asked. "I would welcome the opportunity to help, of course. I am more than interested to know the detail."

Mr Mayer said he first heard of the "black hole" in Penguin's accounts when he was telephoned in Hanoi by Michael Lynton, the new chief executive of Penguin USA. He was initially only told that there was a problem. The scale of the scandal followed later. Describing his reaction, he said: "It would have to be dismay and shock and some anger."

He denied that the woman's actions might have been encouraged in some way by Mr Mayer's tough performance targets. He said Penguin had a stated policy that no discounts should be given for cash.

The City took a dim view of Mr Mayer's statements yesterday. One media analyst said: "It is basically a completely unsatisfactory answer. As chief executive he should have known. That he didn't suggests that his involvement did not stretch as far down the organisation as it should have done."