Overland Park, Kan. (March 31, 2003) - Despite recent corporate governance changes at Sprint, the AFL-CIO still believes shareholder confidence will not be restored until the company replaces its long-time auditor Ernst & Young.
The AFL-CIO claims Ernst & Young compromised its independence by selling questionable tax shelter advice to Sprint's top two executives: William T. Esrey, the former Sprint chief executive who was replaced last week by Gary Forsee, and chief operating officer Ronald T. LeMay.
Esrey and LeMay have both acknowledged that the IRS is auditing them.
The union's investment department says it is trying to protect the pension plans of union members and estimates that worker pension funds own approximately 16.45 million shares of Sprint stock.
"We are giving the company the benefit of the doubt due to recent serious changes that they are making, but one thing not taken care of is the auditor issue," said Dieter Waizenegger, research analyst at the AFL-CIO office of investment. "We believe it is important that shareholders see that the board [at Sprint] is willing to break with the past."
Sprint last week announced enhancements to its corporate governance practices and strengthened the functioning of its board of directors "in order to better serve the long-term interests of its shareholders, employees and other stakeholders," according to the announcement.
The enhancements, some of which have already been implemented and many others that are effective immediately, are consistent with requirements of the Sarbanes-Oxley legislation and the proposed New York Stock Exchange corporate governance standards.
The board also adopted a policy, effective in tax years after 2002, that prohibits Sprint's independent auditors from providing professional services to certain officers.
Sprint is currently standing by its auditor's work and has not indicated any plans to end its 28-year relationship with Ernst & Young.
"We believe they have maintained their independence and if there was any failure to do so we would make a change," said Sprint spokesman Mark Bonavia. "The corporate governance initiatives we announced last week are a move to place us at the leading edge of corporate governance standards."
Ernst & Young declined to comment directly about the issue, saying the firm does not believe it is its role to speak on behalf of the client in these matters.
"Ernst & Young supports what [Sprint] said already on this issue and we respect the board's decision [about corporate governance standards], which is an appropriate exercise of its enhanced oversight responsibility," said an Ernst & Young spokesman.
-- Seth Fineberg
