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“