The United Brotherhood of Carpenters and Joiners union has crafted a revised shareholder proposal that seeks an annual report on auditor independence. This proposal has been submitted at 14 companies; engagement is ongoing with several of these firms, although Dell has filed a no-action petition with the SEC earlier this month.

This new auditor independence resolution is a departure from the auditor rotation proposals submitted by the Carpenters late last year. In the previous version, the labor pension fund sought mandatory auditor rotation at least every seven years in an effort to increase objectivity and to "limit long-term client-audit firm relationships that may compromise the independence of the audit firm's work."  Further, the resolution asked boards to implement a three-year cooling-off period before the auditor could be reengaged.

The staff of the SEC's Corporation Finance Division granted no-action requests by Walt Disney Co., Deere & Co., and various other firms where the original auditor rotation proposal was filed. The SEC staff has refused to reconsider its rulings that auditor rotation policies are part of a company's "ordinary business" operations. Dell also makes an ordinary business argument in its March 2 request to exclude the revised Carpenters proposal.

Given the SEC's views on the original resolution, the Carpenters have retooled and, in many ways, softened their proposal.  The revised resolution seeks increased disclosure with regard to the auditor-client relationship as opposed to the more prescriptive request of mandatory rotation.   

The revised proposal requests that the firm's audit committee prepare an independence report that includes the following:  (1) information concerning the tenure of the company's audit firm as well as  the aggregate fees paid over the period of its engagement; (2) information as to whether the audit committee has a policy or practice of periodically considering audit firm rotation or seeking competitive bids from other  public accounting firms; (3) information regarding the mandated practice of lead audit partner rotation; (4) information as to whether the board's audit committee assesses risk with regard to auditor tenure; (5) information regarding any training programs for audit committee members relating to auditor independence, objectivity, and professional skepticism, and (6) information regarding additional policies or practices, other than those mandated by law and previously disclosed, that have been adopted by the board's audit committee to protect the independence of the company's audit firm.