International Rectifier Corp. said it has shifted reporting of its internal audit function to the board’s audit committee and the general counsel as part of a larger effort to improve internal controls and corporate governance.
The maker of power-management products also announced that Alex Lidow had resigned as chief executive officer and as a director, effective immediately. In late August he took a leave of absence with pay
as an internal investigation was being conducted into accounting irregularities at a foreign subsidiary.
General counsel Donald Dancer, who took over as acting CEO in August, will continue in that position, with Korn/Ferry International having been hired to search for a permanent replacement, the company said.
In July, the company fired CFO Michael McGee, ended his 17-year tenure at IR. Part of that time was spent as co-CEO and chairman of Nihon Inter Electronics Corp. in Japan. In 2000 he was tasked with turning Nihon around, and by the time he left in 2005, it was boasting record profits.
At the time McGee was fired, Robert Grant, International Rectifier vice president of global sales and marketing, resigned. The company gave Grant’s duties to Lidow and made its vice president of corporate finance, Linda Pahl, the new acting CFO.
Dancer earlier took over Lidow’s and Grant’s former responsibilities, in addition to his general counsel duties.
In April the power-management company said its financial statements for 2006 and 2005 could no longer be relied on. It hasn’t filed a quarterly report since that time. All it would say was that the investigators were looking into revenue-recognition issues. Irregularities related to unsubstantiated orders and involved some shipments to warehouses not in the company’s logistical system, IR said. It acknowledged that the foreign subsidiary had material weaknesses in its internal controls and that the investigation could result in a material restatement of the company’s financials.
Among the governance changes this week, the company altered reporting relationships at its Japan subsidiary to improve oversight of the subsidiary; added interim processes to help assure adherence to proper revenue recognition policies there; appointed 19-year board veteran Jack Vance as lead independent director; and named a special board committee to advise and support the acting CEO.
The company also said it was evaluating independent third party consulting firms to document and assess the design effectiveness of processes and controls.
In addition, the company revamped its hotline process and placed it under the internal audit function.
“During this period of transition for the company, the audit committee and I are working diligently to bring the internal accounting investigation to a resolution,” Vance said. “We are also taking steps to implement meaningful changes to our internal controls and governance policies.”
Meanwhile, Lidow will receive accrued salary, bonus and vacation through the date of his departure. He will be entitled to exercise vested options for an additional 18 months or for 90 days after the date on which the company becomes current in its Securities and Exchange Commission reporting, whichever is later. The company also agreed to vest all Lidow’s options not already vested.