For the third time in less than a week, a company has hired a chief financial officer to become its new chief executive officer.
On Wednesday StorageNetworks Inc., a provider of storage-management software and services, named chief financial officer Paul Flanagan as the company’s new chief executive officer and president, replacing co-founder Peter Bell, who resigned.
On Tuesday Argosy Gaming Co. tapped president Richard Glasier to succeed James B. Perry as CEO when Perry retires on May 2. Glasier joined Argosy last July after serving as CFO of Royal Caribbean Cruises Ltd.
And over the weekend, BHP Billiton, the world’s largest diversified resources company, announced that its former chief financial officer, Chip Goodyear, will take over as chief executive officer.
Observers say the hiring of finance types as chief executives may be more trend than coincidence. With rock-solid accounting now a high priority for many companies—and a lightening rod for shareholders and regulators—financial expertise has become a much-sought-after skill in corporate boardrooms. Indeed, some boards appear to be specifically seeking out experienced finance executives to help lead their companies in the post-Sarbanes-Oxley world.
Flanagan, for instance, had served as StorageNetworks’s CFO since March 1999. He was also named chief operating officer in April.
Flanagan will have his hands full at the company, however. In the press release announcing the CFO’s promotion, the company’s management also reported that it would be eliminating about 50 percent of StorageNetworks’s workforce. That would bring the number of employees at the data-storage specialist down to 110.
Whether those job cuts help get the company back on track remains to be seen. According to CFO PeerMetrix, StorageNetworks’s SG&A spend is equal to about 36 percent of the company’s revenue—much better than the industry median of 45 percent.
Improvement in StorageNetworks’s CMI (cost management index) score, however, has dropped a whopping 66 percent in the past four quarters.
“I look forward to the challenges inherent with these new responsibilities and to doing my best to help build value for our shareholders, employees, and customers,” said Flanagan.
Scott Dussault, vice president of finance, will take over as CFO at the company. “Scott’s public-accounting background and the experience he has gained in his tenure here make him extremely qualified to take over the role of CFO,” added Flanagan.
Shareholders Sue Former Motorola CFO
On Wednesday four more investor groups filed lawsuits against former Motorola chief financial officer Carl Koenemann. The suits allege he misrepresented the nature of a contract with Telsim, a Turkish cellular phone system operator.
This brings to seven the number of shareholder suits that have been brought against Koenemann, who retired in April.
Specifically, the suits claim the former finance chief failed to disclose that the deal required Motorola to provide Telsim with $1.7 billion in vendor financing to purchase Motorola products, or that serious problems had developed in the companies’ relationship.
According to the law firm Glancy & Binkow, the nature of the Telsim deal was revealed in Motorola’s March 29, 2001, proxy statement. The firm alleges that Motorola’s subsequent quarterly Securities and Exchange Commission filing revealed that $728 million of the Telsim loan was past due.
“As a result of these false and misleading statements, the price of Motorola common stock was artificially inflated,” another law firm, Schiffrin & Barroway, asserted in a press release.
SEC Names Niemeier Acting Chairman of Oversight Board
The SEC named Charles D. Niemeier as acting chairman of the new Public Company Accounting Oversight Board (PCAOB).
Niemeier was tapped one day before the PCAOB is scheduled to hold its first public meeting. The board is scheduled to be fully operational by April.
Established by provisions in the Sarbanes-Oxley Act of 2002, the PCAOB oversees the audits of the financial statements of public companies through registration, standard setting, inspection, and disciplinary programs.
Niemeier will serve as acting chairman until the commission selects a permanent replacement for William Webster, who resigned from the board late last year.
“We are delighted that Charley Niemeier has agreed to be the acting chair of this important board,” said SEC chairman Harvey Pitt in a statement. “The Commission looks forward to working with Charley and all of the board members as they develop the board’s programs and begin operations.”
The statement must have been somewhat difficult for Pitt to compose. The SEC chairman tendered his resignation in November due to controversy surrounding the PCAOB. Apparently Pitt knew that Webster, his handpicked candidate to head up the board, had previously served on the audit committee of a company being investigated by the commission. Reportedly, Pitt did not relay that information to the White House.
Niemeier was the chief accountant in the commission’s division of enforcement and co-chairman of the commission’s financial fraud task force. In these roles, he coordinated, monitored, and advised the division staff as they conducted accounting and financial-reporting investigations and initiated enforcement and disciplinary proceedings.
Under Niemeier’s aegis, the commission brought a record 160 financial fraud, reporting, and accounting cases last year. Some of those cases involved misleading earnings press releases and misleading disclosures in the management discussion and analysis (MD&A) sections of corporate reports.
As both an attorney and a certified public accountant, Niemeier has legal and public-accounting experience dealing with accounting, auditing, and financial-reporting issues.
SEC Proposes New Audit-Committee Rules
The SEC proposed new rules on Wednesday that would prohibit stock exchanges and national securities associations from listing a company’s security if it does not comply with audit-committee requirements set out in the Sarbanes-Oxley Act.
Under the proposed rules, each member of a company’s audit committee must be independent (according to specified criteria).
In addition, an audit committee must be directly responsible for the appointment, compensation, retention, and oversight of the work of any public accounting firm engaged for the purpose of preparing an audit report. Further, an audit committee must review or attest an auditor’s services for the company, and the registered public accounting firm must report directly to the audit committee.
A company’s audit committee must also establish procedures for the receipt, retention, and treatment of complaints regarding accounting, internal accounting controls, or auditing matters. That includes procedures for anonymous or confidential submissions by employees of concerns regarding questionable accounting or auditing matters.
Also under the SEC’s proposed rules, the audit committee must have the authority to engage independent counsel and other advisers as it determines necessary to carry out its duties.
The proposed rules would apply to both domestic and foreign listed issuers. However, a number of foreign companies received a bit of leeway from the SEC—as long as they meet the requirements of their home country.
For example, nonmanagement employees at non-U.S. companies will be able to serve on audit committees and shareholders will be able to select or approve auditors.
Tyco Leads $8.3 Billion in Offerings
Tyco International raised $4.5 billion in a two-part convertible bond offering, bringing Wednesday’s total value of debt and convertible offerings to more than $8.3 billion.
Tyco originally issued $3.75 billion of convertible bonds in the private placement market. But the conglomerate increased the size of the deal by another billion dollars following the exercise of overallotment options by purchasers of the bonds.
The deal consisted of $2.5 billion in 15-year bonds and $1.25 billion in 20-year bonds, later increased to $3 billion and $1.5 billion, respectively, according to published accounts.
The 15-year bonds had a coupon of 2.75 percent and a premium of 32 percent above the company’s Tuesday closing price of $17.26. The 20-year bonds had a coupon of 3.125 percent and a premium of 26 percent above Tuesday’s closing price.
In addition, Cendant Corp. issued $2 billion of debt in a two-part note sale, up from an originally planned $750 million.
Cendant offered $800 million in 5-year notes and $1.2 billion in 10-year notes.
Also yesterday: ASIF Global Finance, a unit of American International Group, raised $1.1 billion from two-part global notes in the private placement market.
ASIF issued $400 million in 3-year notes priced at 100 basis points over two-year Treasuries and $700 million in 10-year notes priced at 95 points over comparable Treasuries.
French bank BNP Paribas SA got into the debt-issuing act as well. BNP issued $750 million in 12-year medium-term subordinated notes in the private placement market. The MTNs were priced to yield 5.149 percent, 118 basis points more than 10-year Treasuries.
BriteSmile Inc. appointed John Dong as chief financial officer and executive vice president.
Dong has 25 years of related experience. He started his career with Coopers and Lybrand and most recently had served in the controller and CFO positions at companies including Computerland, Vectra Technologies, and D.V. Capital.