Holders of GE Stock Chilly on KPMG -- WSJ
April 26 2018 - 03:02AM
Dow Jones News
By Michael Rapoport
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (April 26, 2018).
Shareholders at General Electric Co. approved KPMG LLP on
Wednesday as the company's auditor for another year, but only after
a large level of opposition in the wake of GE's accounting issues
and criticism from proxy-advisory firms.
Only 64.9% of GE shareholders voted to ratify KPMG as GE's
auditor, according to preliminary figures released at GE's annual
meeting. That represents one of the highest levels of shareholder
opposition to an auditor at any company in recent years, according
to data from consulting firm Audit Analytics.
The vote at GE adds to KPMG's woes, which also include a scandal
in which former partners were indicted in January over allegations
that people at the firm had access to secret information from a
regulator. Separately Wednesday, KPMG announced it plans to take
the unusual step of adding independent directors to its board, a
move aimed at improving the firm's corporate governance.
GE has said the Securities and Exchange Commission is
investigating some of its accounting practices, including its need
for increased reserves in its insurance operations and its
accounting for long-term service agreements. KPMG, which has been
GE's auditor for 109 years, didn't flag any of the problems.
Earlier this month, Institutional Shareholder Services and Glass
Lewis & Co., the two biggest proxy-advisory firms, both
recommended that GE shareholders vote against reappointing KPMG as
GE's auditor. ISS cited "the apparent extent of GE's previously
undisclosed liabilities and accounting issues."
The level of opposition was "extraordinary," said Charles Elson,
director of the John L. Weinberg Center for Corporate Governance at
the University of Delaware. "I think for the (GE) board it's got to
be a rather sobering vote."
GE said in a statement that its audit committee, which reviews
the appointment of the company's outside auditor each year, "will
certainly be taking this indication from our shareowners into
account." A KPMG spokesman couldn't be reached for comment on the
vote.
Shareholder votes on reappointing auditors are typically all but
automatic, with only token opposition. Last year, 94.3% of GE
shareholders voted in favor of KPMG.
The latest GE vote marks only the fifth time since 2015 that an
auditor for an S&P 500 company has won less than 90% support
from shareholders, according to ISS Analytics. According to the
Audit Analytics data, in more than 15,000 shareholder votes to
ratify auditors at public companies from 2013 to 2017, there were
only 22 cases, less than 0.2%, in which more than 25% of
shareholders were opposed.
In another possible sign of discontent, shareholders at Wells
Fargo & Co. approved KPMG's status as the bank's auditor this
week with 91.1% of votes after Glass Lewis recommended a "no" vote.
Critics have questioned why KPMG failed to catch the bank's
sales-practice scandal and other problems it has experienced in the
past few years.
KPMG's move to appoint new outside directors, though, is more of
a response to the firm's information-leak scandal. That incident
led to the firing of a handful of partners in 2017 and the
indictment of five people in January. KPMG and prosecutors say the
partners improperly got advance word of which of its audits were to
be reviewed by regulators at the Public Company Accounting
Oversight Board in their annual inspections of the firm. That could
have made KPMG better able to prepare for the inspections, which
are closely watched as a barometer of the firm's audit quality.
"In 2017, certain events, and the actions of a few former
colleagues, caused us to take a deeper dive into examining our
culture and values, and to assess with fresh eyes how we could
improve," Lynne Doughtie, KPMG's U.S. chairwoman and chief
executive, wrote in an article published Wednesday in trade
publication Accounting Today.
The new directors will "provide a valuable sounding board to
management" and will "further diversify the boardroom dialogue,"
Ms. Doughtie wrote.
A KPMG spokesman said the firm is seeking up to three
independent directors and is currently in the process of
identifying potential candidates.
Independent directors are uncommon at big accounting firms,
which in the past have generally had boards made up of their own
personnel. That differs sharply from the firms' own public-company
clients, whose shares trade on major exchanges. These companies are
required to have a majority of their directors from outside the
company.
PricewaterhouseCoopers LLP said last year it was adding two
people from outside the firm to its board.
--Thomas Gryta contributed to this article.
Write to Michael Rapoport at Michael.Rapoport@wsj.com
(END) Dow Jones Newswires
April 26, 2018 02:47 ET (06:47 GMT)
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