Some Shareholders Want Accounting Firms to Stop Offering Consulting

Arthur Andersen's role in the Enron collapse is giving new urgency to a move by shareholders at some corporations to bar accounting firms from consulting for a company while also auditing its books.

Some shareholders contend that accounting firms that do both auditing and consulting for the same company have a conflict of interest that can lead to crooked financial practices.

In 2000, the Securities and Exchange Commission adopted disclosure rules to address such concerns. The rules require companies to give a breakdown of how much they paid their accountants for auditing and other services.

But some shareholders contend that the disclosure rules do not go far enough to protect investors and employee pension plans.

Union pension funds representing about $220 billion in assets have launched a nationwide campaign to put the issue on the agenda at shareholder meetings. The pension funds want to bar accounting firms from doing both auditing and consulting for the same company.

The first such vote will come at the annual meeting of the Walt Disney Co., set for Feb. 19. In 2001, Disney paid PriceWaterhouse Coopers $8.6 million for its auditing and $32 million for other services.

Disney management is asking shareholders to vote against the proposal. Disney argues that it already has strict guidelines on the hiring of accounting firms as consultants, and that the SEC's disclosure rules protect investors.

"We believe there is little chance for abuse and no benefit to the company or its shareholders from an arbitrary limitation on the power of management and the board of directors to exercise business judgment in the selection of auditors or other outside vendors," Disney said.

The independence of Enron's auditing firm, Arthur Andersen, has been questioned after it was revealed that Andersen was paid millions in consulting fees while the energy giant was reporting misleading financial results.

Accounting firms that do consulting offer expert advice on mergers, technology, taxes and other financial and strategic matters, and the work is highly lucrative. A study by the Investor Responsibility Research Center found that as much as 75 percent of fees paid to accounting firms in 2000 were related to non-audit consulting services.

Motorola, for instance, paid $3.9 million to KPMG for the audit of its 2000 financial statements, according to documents filed with the SEC. It paid the accounting firm an additional $62.3 million — 16 times as much — for consulting services.

Apple Computer spent $2.26 million on its 2000 audit, also performed by KPMG, and paid the firm $28.5 million for other services.

Union pension funds serving carpenters, plumbers and other building trade workers have filed shareholder proposals at 29 companies. Six of those companies, including Apple and Motorola, have asked the SEC to intervene and reject the proposals.

Most shareholder proposals usually receive little support the first year they appear on proxy statements. But Enron may have changed all that.

"I think there's steam from day one," said Ed Durkin of the Carpenters union, which is sponsoring the bulk of the proposals. "I think we'll see votes that will send pretty good messages."

Some lawmakers hope the Enron collapse will lead to legislation restricting what accounting firms can do.

"It's a no-brainer," said Sen. Barbara Boxer, D-Calif., who this week introduced a bill to restrict the work done by accounting firms. "But there are special interests, the very large accounting firms, opposing this."