An adviser to union pension funds is calling on General Electric Co. to drop KPMG as its auditor after a series of accounting missteps and strategic blunders rattled investor confidence in the once–blue-chip company.
In a letter sent Tuesday to GE's lead independent director, CtW Investment Group urged the manufacturer to find a new accountant for the 2020 review and commit to changing auditors every 10 years. The group also is seeking stronger oversight of capital allocation following an “ill-considered buyback strategy'' and poor deal-making in recent years.
The renewed criticism of GE's accounting oversight piles pressure on the board a year after shareholders signaled displeasure with KPMG. While GE is keeping the firm for this year, the company said in December that it would solicit bids for a new auditor, opening the door to ending a relationship that has lasted 110 years. That's one of many shifts made by CEO Larry Culp as he tries to stem one of the worst crises in GE's 127-year history.
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“There are numerous audit concerns that have eroded confidence in the company,” CtW Executive Director Dieter Waizenegger said in a telephone interview. “We feel like there's a lack of urgency from the audit committee and from the board.”
The group is seeking changes ahead of GE's annual shareholder meeting on May 8.
A GE representative referred to prior statements on the company's intention to hold a tender process for its auditor. In a March regulatory filing, GE acknowledged waning shareholder support for KPMG and said it would consider an audit-firm rotation in the future.
GE's accounting is already under federal investigation in the United States. That's one of a litany of challenges for the Boston-based company, from crippling debt to shareholder lawsuits to weak power-generation markets.
CtW—representing a consortium of retirement funds managing more than $250 billion, including about 21.3 million GE shares—has sought changes at companies such as Equifax Inc., Chipotle Mexican Grill Inc., and Tiffany & Co. Recently, CtW has pressured Tesla Inc. to diversify its board.
Support for Auditor Is Dwindling
GE's auditor relationship came under scrutiny last year after startling, multibillion-dollar charges in its finance and power businesses raised questions about KPMG's ability to provide proper oversight. Under then-CEO John Flannery, GE defended its auditor and said dumping KPMG would be costly.
Proxy advisory firms Glass Lewis & Co. and Institutional Shareholder Services last year recommended that shareholders reject the auditor at GE's annual meeting, an unusual decision prompted by the “severity and ongoing nature'' of accounting issues. While KPMG was ultimately brought back, support dropped dramatically: About 65 percent voted in favor, down from almost 97 percent the prior year.
KPMG has come under fire elsewhere, with the Public Company Accounting Oversight Board (PCAOB) saying this year that it found deficiencies in a number of the firm's audits for various clients.
The issues “call into question KPMG's independence, fitness, and competency to conduct'' GE audits, Waizenegger said in the letter. GE's board, meanwhile, “offers no credible plan to deliver a reliable audit in 2019 or future years.''
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