Audit committees lose the lapdogs, look for more bite
© St. Petersburg Times
In less chaotic corporate times, the face of this elder statesman never would have graced the business pages of newspapers across the country. Instead, he recently became the unwilling poster boy for corporate directors newly pressed to do the right thing.
What was once one of Corporate America's more obscure and comfy director's jobs -- sitting on an audit committee -- is suddenly a high-profile, high-risk undertaking. Screw up and let corporate fraud slip by your audit panel? Then you, too, may find your mug in print. Or worse.
Former federal judge William Webster knows that better than anyone. The man who once ran both the FBI and the CIA recently was appointed to chair the nation's new federal accounting oversight board. But Webster quickly resigned after it was disclosed that he had headed the audit committee at U.S. Technologies, a troubled public company accused of fraud.
He's not alone. Avid followers of Enron's disgrace and downfall may recall Robert Jaedicke, an accounting professor emeritus at Stanford University and former dean of its graduate business school. The former head of Enron's audit committee told congressional investigators earlier this year that the energy giant's executives duped him and other board members by withholding key information. Jaedicke has since resigned from bankrupt Enron and from most of his board positions at other companies.
"We had no cause for suspicion until it was too late," Jaedicke told a stunned congressional panel investigating Enron's dramatic collapse.
If the likes of Webster and Jaedicke were so blindsided by shenanigans at the companies whose boards they served on, what fate awaits more mortal directors who sit on the audit committees of companies prominent in the Tampa Bay area?
No wonder many companies are expected to face a mass "It's no longer worth it" exodus of board members. To sweeten the pot, some corporations are raising the fees they pay directors.
Exit the lapdogs. Enter the watchdogs. Post-Enron -- like it or not -- the men and women on corporate audit committees are now on the front lines of corporate accountability. And they certainly cannot embrace the fraternity culture so common on corporate boards.
"There's a skill, a sixth sense, in working on an audit committee," suggests Raymond James Financial managing director and corporate governance expert Barry Alpert.
So what exactly does a board's audit committee do? Plenty. It is supposed to review the audit plans of a company's independent auditors, monitor compliance with corporate accounting policies and review annual financial statements. In other words, really probe whether the rules are being followed and how the books are being balanced. Maybe that's why GE next year plans to pay audit committee members an extra 10 percent.
That brings us to the directors sitting on the audit committees of Tampa Bay area companies. Do they even understand the numbers they endorse? Are they prepared to step up to a higher standard of oversight? Can they really get their hands "dirty" with face-to-face financial discussions with employees?
The first question, though, is: Who are they?
Here's a quick glance, based on corporate filings with the Securities and Exchange Commission, of key people -- all supposed to be independent directors (with no ties to the company) -- on the audit committees of 10 prominent area corporations:
* Progress Energy, the North Carolina parent of St. Petersburg's Florida Power Corp. Among the committee's six directors are Jean Giles Wittner of St. Petersburg, former Orlando mayor Bill Frederick and relatively new board member Carlos Saladrigas of Miami. The committee's chairman is Richard Daugherty, the former IBM state executive for North Carolina.
Notably, Progress Energy ranked among the top 10 U.S. companies with the most independent boards, according to a report on board structure and compensation issued this month by the Investor Responsibility Research Center.
* Tampa's TECO Energy: Three of the four committee members are Tampa businessmen. They include car dealer Jim Ferman of Ferman Motor Cars, former Lykes Bros. chief Tom L. Rankin (now an independent investment manager) and committee chairman Tom Touchton, better known for his efforts to build the Tampa Bay History Center than for his role as managing partner of the Witt-Touchton private investment partnership. The fourth member of the committee is former Texaco treasurer Ira Hall.
* Clearwater's Tech Data Corp.: Six board members make up the audit committee. Charles "Eddie" Adair, an accountant and venture capitalist, chairs the panel. Only one director is local: Dan Doyle, founder of Danka Business Systems and now chairman of the information tech Web site BrainBuzz.com.
* Jabil Circuit: Just three directors make up the committee. They are Tech Data CEO Steve Raymund; C.E. Unterberg, Towbin investment banker Mel Lavitt; and former Eckerd (drug stores) CEO Frank Newman.
* Sykes Enterprises: Like Jabil's, Sykes' audit panel is a lean threesome. But the committee's been on high alert since 2000 when the call center company has on several occasions had to restate its earnings from accounting missteps. William Meurer, a former Arthur Andersen partner for central Florida, chairs the panel.
* Outback Steakhouse: The restaurant chain tapped four directors: W.R. Carey, a sales consultant who chairs the committee; former Lykes Bros. CEO John A. Brabson, now head of Brabson Investments; and two cookie company entrepreneurs, Toby Wilt of Christie Cookie and Debbi Fields-Rose of Mrs. Fields.
* Lincare Holdings: The home respiratory care company has three directors on its audit panel. Chairman Frank Cary served as IBM's CEO from 1973 to 1981 but now seems spread rather thin by serving as director for more than half a dozen companies.
* Republic Bancshares: The four-member panel is chaired by William Morrison, a CPA with Carter, Belcourt & Atkinson in Tampa. Other local directors include Marla Hough, an engineering consultant and daughter of the company's chairman, William R. Hough.
* Raymond James Financial: A three-person audit committee is chaired by a low-profile consultant, Jonathan Bulkley.
* Walter Industries: Of last year's three-man audit committee, only one director stuck around this year: chairman Neil Springer. The two remaining members stepped down or retired and were replaced. And here's a promising trend: Under a new practice, every time the audit committee meets it sets aside time to talk when no Walter management is present. Only audit committee members meet with auditors.
To Webster and Jaedicke, let's give a round of applause. For all their recent notoriety, they helped shed more light on the need to improve the performance of directors on audit committees.
More help is on the way. The recently passed Sarbanes-Oxley Act requires audit committees to be "comprised entirely of independent outside directors." And Securities and Exchange Commission proposals would require outside auditors to brief corporate audit committees on the company's critical accounting policies.
It's about time. Investors desperately need solid numbers to regain some confidence in the markets. At Raymond James, Alpert said it best in recent remarks when he issued a wakeup call to sleepy corporate directors: You are not working for the company.
-- Robert Trigaux can be reached at email@example.com or (727) 893-8405.
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