Corporate Boards Rethink Roles Post-Enron New Buzzwords Will Be Accountability, Disclosure

Article excerpt

Byline: Mike Comerford Daily Herald Business Writer


CORRECTION/date 03-06-2002: KPMG LLP spun off its consulting unit in 2001, contrary to a reference in Sunday's Business section.


Warren Batts estimates he's served on more than a dozen boards in his lifetime but he says the Enron debacle almost single- handedly has changed the way directors are going to approach their positions this year.

Batts is a director of Hoffman Estates-based Sears, Roebuck and Co. and Northbrook-based Allstate Corp., among others. He's also a member of the audit committees at Sprint Corp. and Sears. Enron's audit committee is being widely blamed for a lack of oversight that contributed to the largest corporate failure in U.S. history.

"At Sprint and Sears, we review what we are doing pretty regularly but obviously this time it's different," said Batts, past chairman of the Chicago chapter of the National Association of Corporate Directors. Batts also ran Mead Corp. and Deerfield-based conglomerate Premark International.

"I think you'll see a lot more attention being paid to who is sitting on audit committees," Batts said.

One of the key controversial practices at Enron was the apparent conflict of interest in having Arthur Andersen as both consultant and external auditor.

Boards of directors of the Chicago area's largest firms, including Sears, Allstate and Motorola, have agreed to somewhat similar relationships for years.

In 2000, Schaumburg-based Motorola paid KPMG International $3.9 million for auditing and $62.3 for consulting, according to published reports. The consulting fee included $35.5 million for installation and deployment of a cash management system.

Until little more than a year ago, almost all of ComEd's internal accounting work was conducted by Andersen while Andersen was also auditing the utility's results.

In effect, accounting firms were auditing systems and financial relationships they had been paid to install.

Neither ComEd or Motorola is being accused of wrongdoing but post-Enron, these are the kinds of practices boards are likely to change this year. ComEd now is part of Exelon Corp., which will be doing all its own internal accounting by year's end. Motorola's auditor is spinning off its consulting wing.

Indeed, each of the Big Five accounting firms is moving to separate their consulting operations from their auditing units.

Long accustomed to conducting business in certain ways, corporate boards are going to make sure their ways stand up to critical scrutiny, said Curtis Verschoor, professor emeritus at DePaul University and author of two books on board of director audit committees.

"I think auditing committees will be taking their auditing responsibilities more seriously, asking more questions," said Verschoor, a Barrington resident.

Across the Chicago metropolitan area company directors are re- examining their own practices in light of Enron.

Some area boards have direct ties with Enron and others have approved similar accounting and ethical relationships.

Last week, Motorola announced Ronnie Chan, a four-year board member also on Enron's board, will not seek re-election at the annual shareholders meeting in May.

Also serving on the Enron board is Norman Blake Jr., Rosemont- based Comdisco Inc.'s chief executive and board chairman. Both men are resigning from Enron's board at its next meeting in March.

When boards meet later this winter and spring to re-examine their practices, Ralph Ward, publisher of Boardroom Insider, suggests they look at some of the problems at Enron. …