AOL restructure hits business affairs group

The first target of a major restructuring of the online division of AOL Time Warner will be the business affairs operations of…

The first target of a major restructuring of the online division of AOL Time Warner will be the business affairs operations of America Online, whose accounting is at the centre of federal inquiries, a company source says.

The business affairs group struck many of AOL's advertising and commerce pacts that are now the subject of an internal review as well as inquiries by the U.S. Securities and Exchange Commission and Justice Department.

After standing by AOL's accounting for weeks, AOL Time Warner disclosed on Wednesday that AOL may have overstated revenue in three deals totalling some $49 million over a period of about 18 months. The disclosure came as a caveat as the media giant's top executives certified its financial results.

AOL's shares were up nearly 9 per cent, or 96 cents, to $12.00 near midday on Thursday as investors breathed a sign of relief that the disclosure so far was not bigger and that the company had certified its results.

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The top brass of hundreds of America's biggest companies swore by their financial results on Wednesday under a government order meant to reassure investors.

AOL Time Warner has started an internal review of AOL's deals, with the help of law firm Cravath, Swaine & Moore and it plans to have it completed by the end of the third quarter.

AOL Time Warner Chief Executive Richard Parsons said in a memo Wednesday that Don Logan, one of the Time Warner veterans recently promoted to his top deputies, and new AOL chief Jon Miller, planned to have a new structure in place for AOL in a few weeks as the company conducts its internal review and tries to revive growth at the online business.

"There is no room at this company for any unethical behaviour," Parsons said in the memo, encouraging employees to raise concerns about conduct to supervisors, human resources, the legal department or the company's compliance officer.

The major overhaul of the online division comes as AOL, once characterised as the company's "crown jewel," has dragged down growth of the overall company, even as other branches such as film and cable show strength.

AOL has been mired by the ad slump, a slower-than-expected migration by subscribers to high-speed services, an unwieldy structure in place since the dot-com heyday and now, questions about its accounting.

The business affairs restructuring comes in the wake of the ouster of the operation's former head, David Colburn. A source within the company said Colburn was on his way out as Miller began reviewing the organisation, but the disclosures accelerated his exit.

Lance Conn, a senior vice president for AOL's business affairs, who most recently was working in Europe, was given many of Colburn's responsibilities last month.

The restructuring of the group, which has had about 100 employees and which had gained a reputation during the dot-com days of being hard-hitting, will significantly decentralise the group and many of its employees may end up in other units, a source within the company said.