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Activist union targets firms' auditing

 

Carpenters turn attention to Canada for fuller disclosure

 

By ELIZABETH CHURCH

Thursday, March 21, 2002 – Print Edition, Page B1

 

The carpenters' union, long a force of shareholder activism in the United States, is turning its attention to Canada with a campaign to pressure companies to disclose what they are paying their auditors to do audit and consulting work.

 

So far, the international union, whose members jointly oversee $38-billion (U.S.) in pension funds, $3-billion of that in Canada, says it has persuaded three companies -- Suncor Energy Inc., Canadian Tire Corp. Ltd. and Petro-Canada -- to report those numbers in this year's proxy circulars.

 

The amount companies pay accounting firms for audit and other consulting services is regarded by many as a key factor in determining auditor independence.

 

The union, with a membership of about 50,000 in Canada, says it has sent shareholder proposals to several other companies, including Loblaw Cos. Ltd., Biovail Corp. and Rothmans Inc., and plans to ask as many as 60 Canadian companies what they pay their auditors at annual meetings this year.

 

"We are going to have representatives at dozens of annual meetings raising this issue from the floor," said Ed Durkin, director of special projects for the United Brotherhood of Carpenters and Joiners of America in Washington.

 

"We want to hit a good number of these companies, get folks on the record and ask companies to keep us apprised."

 

The union hopes its actions will encourage most Canadian companies to disclose this information and pave the way for greater union activism in this country on issues of corporate governance.

 

Daniel McCarthy, the director of research and special programs for the union in Canada, is co-ordinating the Canadian effort and plans to be asking questions at several meetings this spring.

 

He said revisions to the Canada Business Corporations Act last fall made it easier for the union to make shareholder proposals on behalf of pension funds of which they are joint trustees.

 

"We can take back the voting rights," he said. "We have seen what is happening in the States and decided that it's time to do the same in Canada."

 

For several years, the carpenters' union in the United States has been an active advocate for improved corporate governance and shareholder rights. Mr. Durkin, who co-ordinates the U.S. efforts, said the union became active in the United States during the leverage buyout period of the 1980s. Moving that activity to Canada is a "natural progression," he said, given the recent changes in regulation and the fact that the Carpenters is an international union that shares programs and initiatives in both countries.

 

Mr. McCarthy said the Canadian branch of the union has tried activism on a smaller scale, including asking questions at the annual meetings of Power Corp. of Canada and Magna International Inc. last year.

 

While corporations have experienced pressure from union groups on issues such as the use of sweat shops, he said most are surprised to see the Carpenters involved in corporate governance issues.

 

"They are going to get used to us fairly quickly, though," he said.

 

The current campaign aimed at auditors, which has been planned since last summer, also has timing on its side.

 

The issue of audit fees is top-of-mind with many investors since the meltdown of energy giant Enron Corp. and questions about the independence of its auditors, which received millions of dollars for other consulting services.

 

While U.S. companies are required to report fees paid to accounting firms for audit and other services, this is not the case in Canada.

 

Shareholder advocates say auditors who are hired to do a lot of consulting work for a client may be reluctant to take a hard stand over an audit issue and risk losing the discretionary business.

 

Some companies such as Canadian Tire say they already were exploring the issue of audit fee disclosure when the union approached them.

 

"The request was very timely," company spokesman Scott Bonikowsky said.

 

Mr. Durkin -- who was in Toronto earlier this week to coach union members on the finer points of annual meetings -- said the union decided to focus this year on fee disclosure in Canada and on auditor independence in the United States long before Enron made headlines. But he said that experience has certainly given greater urgency to the issue.

 

Mr. McCarthy said the heightened concerns about payments to auditors means that his union's questions will likely get a lot more attention than they might have in other years.

 

"In terms of hitting the ground running, it's quite rewarding," he said.

 

The 50 to 60 companies that the union plans to target were picked to represent a variety of industries and regions of the country. They also were chosen because the pension funds of which the union is a trustee are long-term holders of shares.

 

Fees to auditors will be the main focus of this year's efforts, but auditor independence, the independence of directors and the role of directors in developing corporate strategy also has been discussed with some firms.

 

Rob Maxwell, director of special programs for the Carpenters' district council in Ontario, said the union wants to establish a relationship as an interested shareholder in the company, not simply create a stir.

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