In what many will interpret as a rare move, two leading proxy advisory companies have advised shareholders of General Electric Company (NYSE:GE) to reject the company’s longtime auditor, citing performance issues and independence.
Institutional Shareholder Services (ISS) has urged GE shareholders to vote down KPMG due to concerns about GE’s previously unrevealed liabilities as well as accounting practices at GE, which have prompted an SEC investigation. A part from ISS, Glass, Lewis & Co. has made a similar call two days earlier. This is according to a report that was run by the Wall Street Journal. KPMG and GE are yet to respond to the report.
General Electric, in its 2018 proxy statement, says it has benefited a lot from high quality auditing because of the familiarity that KPMG has with its vast portfolio. The auditing worked has worked with General Electric since 1909. KPMG is undertaking around 1,400 statutory audits in 90 countries around the world.
KPMG ‘Too Close’ To GE
In the proxy, GE says hiring a new auditor requires a lot of time which is may significantly distract the management’s focus on internal controls and financial reporting. General Electric has appealed it shareholders to approve the reappointment of KPMG at the upcoming shareholders’ meeting, among other issues.
However, according to ISS, there must be balanced reasoning. ISS says GE must be awake to the fact that a long-tenured auditor is likely to become to close and used to the client and a new auditor may help to unearth new problems that were unidentified before.
GE is currently facing a probe by the SEC as well as a number of lawsuits filed by shareholder over a legacy long-term-care insurance business plus accounting for some service contracts with customers.
ISS says overs the years, several commentators have questioned whether General Electric plus its auditors must have been aware of the problems, especially the increasing liabilities from insurance.
General Electric Stock Woes
GE stock dropped 2.8% to trade at 13.06 amid a major decline on the stock market on Friday. Their Dow Jones counterpart, United Technologies Corporation (NYSE:UTX) and 3M Co (NYSE:MMM) shed off 2.4% and 2.9% respectively. Siemens gained 0.1% while Honeywell International Inc. (NYSE:HON) lost 2.5%.