Auditing

Calpers: Don’t Mix Audit, Non-Audit

The pension fund's current round of no-confidence announcements names potential directors at IBM, MetLife, and Chubb.
Stephen TaubApril 23, 2004

Calpers announced that it will withhold votes for director nominees of at least seven companies, a week after the nation’s largest pension fund said it would send no-confidence messages to potential directors at 30 other businesses.

Many of the announcements stem from a policy decision made halfway through last year’s proxy season, when Calpers resolved to oppose audit committee members who authorized their company’s auditor to perform non-audit services. In most cases, Calpers also plans to vote against the ratification of the auditor.

The current round of Calpers announcements includes potential directors at IBM, MetLife, Chubb, Fortune Brands, Kraft Foods, Marshall & Ilsley, and PNC Financial Services Group.

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At IBM, for example, the pension fund is opposing four nominees — Lucio Noto, John Slaughter, Sidney Taurel, and Charles Vest — because they are members of the audit committee that has authorized the two company auditors to perform non-audit services. In addition, added Calpers, “the audit committee selected PricewaterhouseCoopers as the company’s independent auditor for the year 2004, despite the fact that the firm purchased PwC’s consulting business.”

At MetLife, Calpers plans to withhold votes for former Senator John Danforth and for Burton Dole. The pension fund is opposed to Danforth, a member of the nominating and corporate governance committee, because he is a partner of the law firm of Bryan Cave LLP, which provides legal services to the company. Calpers said that Dole is a member of the audit committee that has authorized the auditor to perform non-audit services.

At Chubb, the pension fund is withholding votes for eight nominees — including Zoe Baird, Sheila Burke, James Cornelius, Daniel Somers, and Alfred Zollar — because they are members of the audit committee that has authorized the auditor to perform non-audit services. In addition, it pointed out that Burke, Small, and Karen Williams are officers of the Smithsonian Institution, which receives funds from the company. Calpers also opposes Klaus Mangold because it believes he has had a poor attendance record.

The pension fund said it is opposing the entire board of Fortune Brands because the company failed to implement a shareholder-approved proposal to submit its poison pill to a shareholder vote.

Last week Calpers announce it would send no-confidence messages to potential directors at 30 companies — including Warren Buffett at Coca-Cola board and Sandy Weill at Citigroup — as well as to board nominees at Apple Computer, Lockheed Martin, Kellogg, Johnson & Johnson and Carnival Corp.

Earlier this week Buffett was re-elected during a quieter portion of Coke’s annual meeting at which a scuffle broke out; at Citigroup’s meeting, Calpers decided not to oppose Weill and other directors after all.

At least one company is taking Calpers’ policy to heart.

On Tuesday, American Express said it would bar its auditor from performing consulting services. As a result, Calpers reversed an earlier position and said it would now vote for four American Express directors. “American Express has stepped up to the plate and agreed to not use their auditor for any other work than the audit,” Mark Anson, Calpers’ chief investment officer said in a statement. “We are pleased that they are listening to their shareowners.”

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