KPMG is this week facing the prospect of a rebellion from shareholders in two of its oldest and highest profile clients, Wells Fargo and General Electric, over its role auditing the beleaguered companies.
The two titans of US industry and banking are facing calls to end their decades-old audit relationships with the firm. Professional services firms that are now part of KPMG have audited Wells since 1931 and GE since 1909. Last year it collected a combined total of almost $200m in fees from the two blue-chip groups.
However, KPMG’s role has come under the spotlight at Wells and GE, both of which have been laid low by a series of mishaps.
Fake accounts and other scandals at Wells, run by chief executive Tim Sloan, have cost the California-based company its status as the world’s most valuable bank. GE shares have lost half their value in the past year over financial difficulties including a need to prop up reserves over unexpected insurance liabilities. Both companies are under investigation by regulators.
Glass Lewis, the shareholder advisory service, has recommended that investors in Wells vote against retaining KPMG as the bank’s auditor. At GE, both Glass Lewis and ISS, another adviser, have called for a vote to replace it.
GE shareholders should reject the reappointment of KPMG “in light of several ongoing concerns” including Securities and Exchange Commission investigations and the firm’s “extremely long tenure”, Glass Lewis argued.
Of KPMG’s relationship with Wells Fargo, Glass Lewis said: “While cognisant that an auditor is not expected to inspect every instance of potential fraud at a company, we believe that this unique case warrants additional scrutiny.”
Shareholders in US companies, whose votes are not binding, rarely rebel over audit contracts. Support levels were higher than 90 per cent at all but four of the past 1,500 meetings at S&P 500 companies, according to ISS Analytics.
Yet the influence of ISS and Glass Lewis makes such a revolt a possibility at Wells and GE this week. KPMG declined to comment.