May 30, 2018

Auditor Ratification: The Biggest (Almost) Losers

Broc recently blogged about the rough sledding that GE experienced when it went to shareholders for ratification of its appointment of KPMG – “no” votes represented more than 35% of the votes cast on the proposal at this year’s annual meeting. However, this “Audit Analytics” blog says that the GE result didn’t even manage to crack the ‘Top 3’ no-vote getters for the three years ended December 31, 2017.

For the record, the blog says that the biggest (almost) losers were:

– Plymouth Industrial REIT (2015) – 49%
– (2016) – 45%
– Planet Fitness (2017) – 37%

In 2017, 15 companies received more than 20% of votes against ratification. In addition to Planet Fitness, Consolidated-Tomoka Land and Kulicke & Soffa Industries, each received more than 36% of votes against auditor ratification.

Auditor Ratification: So What Happened Next?

I’m sure you’re curious about what our biggest (almost) losers did in response to their high percentage of ‘no’ votes on auditor ratification proposals.  I checked the SEC’s Edgar, and the short answer is – nothing.  There were no changes in audit firms in response to the votes.  In fact, neither of the other two companies referenced by Audit Analytics as having received more than 36% ‘no’ votes in 2017 changed audit firms either.

Of course, these are non-binding votes, because otherwise they’d violate Sarbanes-Oxley’s requirement that the audit committee call the shots on independent auditors. Still, a big no vote sends a pretty strong message – but I guess the bottom line is that “a win’s a win.”

UK shareholders don’t appear as reluctant to pull the plug on auditors as their counterparts here in the US. In fact, this article says nearly 80% of the shareholders of SIG plc, a British construction supplier & FTSE 250 component, voted against the ratification of its auditor – and the firm was fired that same day.

Fake SEC Filings: Rockwell Medical’s Alternative Realities

Last week, Liz sent an email to Broc & me asking if we’d been following the “dueling 8-Ks” from Rockwell Medical.  I’d glanced at Matt Levine’s column about it, but it was when she characterized the situation as a “fake filing, but from the inside” that I realized we needed to say something about it here.

If there’s one thing we love on this blog, it’s “fake SEC filings.” But as Liz pointed out, this fake filing is a little different. This excerpt from Matt Levine’s second column about this company’s competing realities summarizes the situation:

We talked yesterday about the mysterious doings at Rockwell Medical Inc., where the universe has split into two alternate realities, in one of which (which I called RMTI-A) the board of directors has fired the chief executive officer, and in the other one (which I called RMTI-B) it absolutely has not, and in fact the directors are themselves in trouble for doing some unspecified bad things. Both sides raced to file dueling 8-Ks explaining their side of the story, leaving investors to try to figure out who is really in charge, the CEO or the board.

Here’s RMTI-A’s Form 8-K – and here’s the RMTI-B’s Form 8-K.  This is a strange brew even in a “post-truth” era – but believe it or not, the plot got even thicker. That’s because the company’s largest shareholder amended its 13D to disclose a letter supporting the board’s decision to fire the CEO – and calling for the scalp of the CFO, who the letter claims helped the CEO make his 8-K filing.

The board of RMTI-A then formally terminated the CFO and issued a press release updating shareholders about the week’s festivities. The whole mess has apparently ended up in the lap of some poor state judge in Michigan – who promptly sent both sides to their respective corners & gave them 21 days to try to work things out.

John Jenkins