Glass Lewis & Co., the shareholder advisory firm, is reportedly calling for El Paso Corporation to replace Chief Financial Officer Dwight Scott.
Further, citing El Paso Corp.’s significant restatements, Institutional Shareholder Services (ISS) and Glass Lewis recommended that shareholders of the energy company fire PricewaterhouseCoopers as its auditor, and withhold their votes for a large number of directors, according to the Houston Chronicle.
“We are not claiming these individuals bear sole responsibility for the current situation; yet, the evidence indicates controls and oversight were deficient to such a degree that keeping these individuals in their current roles would be a disservice to shareholders,” Glass Lewis analyst Noam Katz wrote in his report.
In February, El Paso pared its energy reserves by 41 percent. Officials later announced that the company would restate its earnings going back to 1999 and would take $1 billion in charges related to hedge accounting.
ISS and Glass Lewis weren’t the first groups to sound the alarm. Last month, the AFL-CIO Office of Investment urged El Paso’s audit committee to fully disclose the findings of its independent investigation into the factors that led El Paso’s massive restatement. The AFL-CIO investment arm also questioned the role of Scott, as well as that of PwC.
“El Paso’s Audit Committee can hardly declare ‘mission accomplished’ for uncovering grossly inadequate internal controls,” said Bill Patterson, director of the AFL-CIO Office of Investment in a recent statement. He continued: “They have yet to demand accountability from those who allowed the deficiencies to go undetected for so long. Where was the CFO who signed certifications regarding internal controls? Where was the outside auditor? What about the audit committee itself? El Paso shareholders are entitled to a full accounting before voting on individual directors and the appointment of PricewaterhouseCoopers.”
Commenting on Scott, Bruce Connery, El Paso’s vice president of investor relations, told the paper, “I am certain that our shareholders do not share Glass Lewis’ view regarding Dwight Scott. Dwight has very strong shareholder support because they recognize his many contributions towards El Paso’s progress over the last 18 months.”
In a letter to the AFL-CIO filed with the Securities and Exchange Commission, audit committee chairman Juan Carlos Braniff defended keeping PwC, stating, “Given the requirements of Sarbanes-Oxley, together with the timing of our annual meeting, it is simply not realistic or prudent that we could interview and select a new independent auditor.”
But Braniff is also being tagged for removal. ISS and Glass Lewis recommended that investors withhold their votes for Braniff and other audit committee members, including John Bissell and Ronald Kuehn, for failing to properly monitor the firm’s accounting.
ISS also recommended withholding votes for a number of other board members for what the firm says is their failure to submit the company’s poison-pill proposal to a shareholder vote even though it received a majority vote at last year’s annual meeting.
Responding to the recommendations to withhold director votes, El Paso’s Connery told cbsmarketwatch.com that company officials feel “that our shareholders recognize the actions that our board has taken to align our policies with good corporate governance.”
He also told the Web site that the board allowed a poison-pill plan to expire in 2002. “We currently do not have any takeover defenses and would only implement a pill if it furthered an auction process to achieve a higher premium.” Connery also stressed that El Paso has a “very independent board,” noting that board member action has shown that they will act in the best interest of shareholders.
At the same time, the growing trend among companies to implement so-called “contingent poison pills” has been outraging shareholder activists of late, mainly because they feel it is a way of implementing a backdoor shareholder rights plan.
Indeed, aggressive shareholder activism is starting to ripple through the energy industry. On Tuesday, The California Public Employees’ Retirement System (CalPERS) and Knight Vinke Asset Management called on the oil industry to provide more transparent and meaningful reporting on their reserves.