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An honest Wall Street guy does exactly the right thing
By Jonathan Weil |
November 12, 2012, Monday
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UNLESS you travel in certain circles, you probably have never heard of G. Allen Andreas III. The business world would be far better off if more directors at public companies had the guts to do what he did.
Andreas, a 43-year-old investment manager in New York, on September 27 resigned from the board of tanker-fleet operator Overseas Shipholding Group Inc. The extraordinary part is how he went out, along with the events that followed. With one simple act, after eight years on the company's board and audit committee, Andreas blew the whistle on an accounting debacle that might sink the company.
This is what directors should do when they spot big problems with their companies' finances and can't get them fixed: Resign and go loudly, so the investing public is warned. In the real world, it almost never happens.
In his resignation letter, disclosed by the New York-based company on October 3, Andreas said his departure stemmed from a disagreement over "the process the board is taking in reviewing a tax issue." He urged the board's chairman, Michael Zimmerman, to report the issue to PricewaterhouseCoopers LLP, the company's outside auditor. He also noted that a public filing by the company was required "when a director resigns in this context."
Sending regrets
"I very much regret having to take this action," Andreas wrote. "I had hoped in prior discussions to convince the board and audit committee to follow a different direction. I was unsuccessful in those efforts. As a result, I have decided to tender my resignation."
In an October 3 response letter filed by the company, Zimmerman said that "we do not understand your statement that the resignation resulted from a disagreement with the board." He said the board was confident that its review process was "prudent and consistent with appropriate governance standards."
Nineteen days later, on October 22, Overseas Shipholding notified investors that its financial statements since 2009 "should no longer be relied upon," and that it might file for Chapter 11 bankruptcy-court protection. The accounting issue was related to the same tax matter Andreas had referred to in his letter. The company offered few details and didn't quantify the impact any restatement might have on its financial reports.
Overseas Shipholding's stock was down nearly 80 percent since Andreas's resignation was disclosed. Its US$300 million of 8.125 percent bonds due in March 2018 recently traded for 30 cents on the dollar. Less than three years ago, in March 2010, the company sold 3.5 million shares at US$45.50 each in a stock offering led by Goldman Sachs Group Inc. Back in June 2008 Overseas Shipholding had a US$2.4 billion stock-market value, compared with US$45 million today.
This was the sort of watchdog role Congress envisioned for audit-committee members when it passed the Sarbanes-Oxley Act in 2002. Nowadays audit committees - not management - are the ones responsible for hiring and firing outside audit firms. Their job is to oversee the integrity of their companies' financial reports. Each member must be "independent," as the rules define that term. Andreas certainly showed he was that.
You would think noisy resignations like Andreas's should be more common, with all the corporate scandals of recent years. Instead they are rare.
Since the start of 2011, for example, there have been 9,586 departures by directors disclosed by US public companies, according to Audit Analytics, a research firm based in Sutton, Massachusetts. In 101 of them, or about 1 percent, the departing directors said they left because of disagreements with the companies. Andreas was the only one I found who warned about an audit matter that later forced a company to withdraw its financial statements.
All quiet
Andreas didn't return phone messages left with family members. Chuck Burgess, a spokesman for Overseas Shipholding at the public-relations firm Abernathy MacGregor Group Inc, declined to answer questions about the company's accounting issues. Zimmerman, the company's chairman, didn't return phone calls.
It's impossible to tell from the outside what went on behind the scenes. We don't know how long Andreas or other board members were aware of the problem, or what the full range of Andreas's motivations might have been. That said, in the end he was right and forced the company to alert the public. Overseas Shipholding investors could have avoided significant losses by heeding his caution.
A lawyer by training, Andreas is president of Galaco Capital, a private investment firm that manages his family's money. He worked at three firms from 1999 to 2009, including the New York-based investment bank Allen & Co, where he was a vice president when he joined Overseas Shipholding's board in 2004. His father, G. Allen Andreas Jr., is the chairman and chief executive officer of Galaco and the former chairman and CEO of agribusiness giant Archer-Daniels-Midland Co.
Here's an idea: Now that President Barack Obama has won the re-election, how about someone at the White House calling up the younger Andreas to see weather he might be interested in an appointment to the US Securities and Exchange Commission? Investors could use someone at the SEC with a record of being on their side. A Wall Street guy this honest can be hard to find.
Andreas, a 43-year-old investment manager in New York, on September 27 resigned from the board of tanker-fleet operator Overseas Shipholding Group Inc. The extraordinary part is how he went out, along with the events that followed. With one simple act, after eight years on the company's board and audit committee, Andreas blew the whistle on an accounting debacle that might sink the company.
This is what directors should do when they spot big problems with their companies' finances and can't get them fixed: Resign and go loudly, so the investing public is warned. In the real world, it almost never happens.
In his resignation letter, disclosed by the New York-based company on October 3, Andreas said his departure stemmed from a disagreement over "the process the board is taking in reviewing a tax issue." He urged the board's chairman, Michael Zimmerman, to report the issue to PricewaterhouseCoopers LLP, the company's outside auditor. He also noted that a public filing by the company was required "when a director resigns in this context."
Sending regrets
"I very much regret having to take this action," Andreas wrote. "I had hoped in prior discussions to convince the board and audit committee to follow a different direction. I was unsuccessful in those efforts. As a result, I have decided to tender my resignation."
In an October 3 response letter filed by the company, Zimmerman said that "we do not understand your statement that the resignation resulted from a disagreement with the board." He said the board was confident that its review process was "prudent and consistent with appropriate governance standards."
Nineteen days later, on October 22, Overseas Shipholding notified investors that its financial statements since 2009 "should no longer be relied upon," and that it might file for Chapter 11 bankruptcy-court protection. The accounting issue was related to the same tax matter Andreas had referred to in his letter. The company offered few details and didn't quantify the impact any restatement might have on its financial reports.
Overseas Shipholding's stock was down nearly 80 percent since Andreas's resignation was disclosed. Its US$300 million of 8.125 percent bonds due in March 2018 recently traded for 30 cents on the dollar. Less than three years ago, in March 2010, the company sold 3.5 million shares at US$45.50 each in a stock offering led by Goldman Sachs Group Inc. Back in June 2008 Overseas Shipholding had a US$2.4 billion stock-market value, compared with US$45 million today.
This was the sort of watchdog role Congress envisioned for audit-committee members when it passed the Sarbanes-Oxley Act in 2002. Nowadays audit committees - not management - are the ones responsible for hiring and firing outside audit firms. Their job is to oversee the integrity of their companies' financial reports. Each member must be "independent," as the rules define that term. Andreas certainly showed he was that.
You would think noisy resignations like Andreas's should be more common, with all the corporate scandals of recent years. Instead they are rare.
Since the start of 2011, for example, there have been 9,586 departures by directors disclosed by US public companies, according to Audit Analytics, a research firm based in Sutton, Massachusetts. In 101 of them, or about 1 percent, the departing directors said they left because of disagreements with the companies. Andreas was the only one I found who warned about an audit matter that later forced a company to withdraw its financial statements.
All quiet
Andreas didn't return phone messages left with family members. Chuck Burgess, a spokesman for Overseas Shipholding at the public-relations firm Abernathy MacGregor Group Inc, declined to answer questions about the company's accounting issues. Zimmerman, the company's chairman, didn't return phone calls.
It's impossible to tell from the outside what went on behind the scenes. We don't know how long Andreas or other board members were aware of the problem, or what the full range of Andreas's motivations might have been. That said, in the end he was right and forced the company to alert the public. Overseas Shipholding investors could have avoided significant losses by heeding his caution.
A lawyer by training, Andreas is president of Galaco Capital, a private investment firm that manages his family's money. He worked at three firms from 1999 to 2009, including the New York-based investment bank Allen & Co, where he was a vice president when he joined Overseas Shipholding's board in 2004. His father, G. Allen Andreas Jr., is the chairman and chief executive officer of Galaco and the former chairman and CEO of agribusiness giant Archer-Daniels-Midland Co.
Here's an idea: Now that President Barack Obama has won the re-election, how about someone at the White House calling up the younger Andreas to see weather he might be interested in an appointment to the US Securities and Exchange Commission? Investors could use someone at the SEC with a record of being on their side. A Wall Street guy this honest can be hard to find.
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