PwC and AIG – Way Past The Time To Resign

The Compliance Week 2007 agenda included an interesting panel on Proxy Issues, hosted by Louis Thompson, a Compliance Week columnist and former president and chief executive of the National Investor Relations Institute. Panelists were the founder of The Corporate Library, Nell Minow, Laurence Hazell from Standard & Poor’s, Kenneth Bertsch of Morgan Stanley Investment Management, and Institutional Shareholder Services Vice President Patrick McGurn.

Per the panelists, the top issues that saw a flurry of activity this year, (shareholder votes on executive compensation (“Say-on-Pay”), majority voting to elect directors, and broker voting) will resurface in 2008.

My question related, of course, to the rote, mechanical way companies propose and re-appoint their external auditors. We’ve had so many issues with auditors and the conflict of interest and lack of independence that occurs when they are investigated along with a company’s management or, worse yet, sued by the company and/or its shareholders.

Why, I asked, was the process for proposing and appointing the external auditor still such a non-transparent process? Why don’t the companies and shareholders sever relationships with audit firms that have steered them wrong or not prevented them from going down the wrong course and, therefore, subjected them to restatements and worse?

McGurn answered first and too quickly. He thought I was asking for all companies (or the PCAOB) to blacklist an audit firm that had been sued from auditing any other company. He started shrieking about another Andersen and too few to fail and KPMG’s reprieve before Laurence Hazell interrupted him and added some wise, measured comments. Mr. Hazell agreed that it was about time investors and proxy advisors started to look at this issue.

My next question is: Where is the SEC on this issue? When will they force the Big 4 to publicly disclose how much they have in reserve to protect the investor public, their other clients, their employees and partners, their business communities and their vendors from a nuclear bomb?

As we’ve seen, the auditors hang on to the relationships, even with all their talk of risk management and protection from litigation and catastrophic liability, until the last minute, before finally quitting or being fired. Maybe they need protection from their own greed and hubris?

Every Big 4 firm has been in this situation:
-KPMG with New Century and Fannie Mae, and GE
-PwC with Tyco, Freddie Mac and Dell,
-PWC/KPMG with
Collins & Aikman and Shell
-E&Y with Health South and American Express, and
-KPMG again still with Siemens,
-Deloitte with
Adelphia, Parmalat and Micrel,
-PwC again with BearingPoint,and now,
-PwC again with AIG

Greenberg sues AIG over derivative litigation
“Firing back at a $1 billion lawsuit filed against him last week by his former company, Maurice R. Greenberg on Wednesday sued various current and former American International Group Inc. directors and management as well as the insurer’s longtime auditor, PricewaterhouseCoopers LLP

5 replies
  1. Anonymous
    Anonymous says:

    Indeed, when will the SEC step in and protect investors? This has been going on for far too long. And why is it that PwC and the rest of the Big 4 seem to be able to buy their way out of these scandals. PwC settled for $95 million (so far) with regard to the AIG scandal. And has everyone forgotten about the Mony/Bush scandal, etc…?

    It seems that these big firms have so much hubris, greed, and of course, money, they can always buy their way out and not have to face legal consequences such as loss of licensing, prison terms, etc…

    What is wrong with this picture?

Trackbacks & Pingbacks

  1. […] conflict was identified here on June 20. Let me know where I can send the […]

  2. […] know it’s hard to sever a relationship of long standing, one that been very lucrative. But the time has long passed. You’re starting to act like a neurotic girl, who keeps talking about the […]

  3. […] and a clusterschmuck. Why was PwC still AIG’s auditor?  Afterall, they were being sued by AIG’s shareholders for a prior restatment. In the end, AIG “admitted” that their management may have held back or even lied to […]

  4. […] Source See my previous comments on this unholy alliance here, here, here, here and here. See my comments in the NYT on this article here. How Bad Is It? AIG […]

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