When it blew up in late 2001, Enron was paying Arthur Andersen at a rate of about $1 million per week for various professional services, including audit services. Although the final chapter is yet to be written, a good case can currently be made that one of the primary reasons for the demise of Andersen in the wake of the Enron scandal was the firm’s compromising of its auditing integrity for the benefit of Enron as a key customer of Andersen’s other professional services.
Now, this interesting CFO Magazine story relates how the California Public Employees’ Retirement System (Calpers) is opposing Freddie Mac’s reappointment of auditor PricewaterhouseCoopers because the company has used PwC for non-audit services. This is a result of a new Calpers policy of withholding votes from audit committee members at companies that allow auditors to perform non-audit work.
The pension fund is also withholding its votes from director Michelle Engler, wife of former Michigan governor John Engler. The former Governor Engler is an executive at Electronic Data Systems Corp., which is a large vendor of Freddie Mac. The pension fund asserts that this business relationship between Freddie Mac and EDS could impair Mrs. Engler’s objectivity.
In the small world department, I hired Mrs. Engler in her first job as an attorney out of law school when I was running a downtown Houston law firm back in the 1980’s. Michelle was a fine lawyer and is a great person, and Calpers would be well-advised to adopt a more flexible position to keep conscientious and bright people such as Michelle on the boards of companies in which Calpers invests. Knowing Michelle, she would recuse herself from any action that the Freddie Mac board might take in regard to EDS, anyway.
Thanks to the BusinessPundit for the link to this article.