An hon­est guy on Wall Street

“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.”

The Pak Banker - - Front Page - Jonathan Weil

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 Sept. 27 re­signed from the board of tanker-fleet op­er­a­tor Over­seas Shiphold­ing Group Inc. (OSG) 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 Oct. 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."

"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 Oct. 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 Oct. 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 closed yes­ter­day at $1.44, down 80 per­cent since An­dreas's res­ig­na­tion was dis­closed. Its $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 $45.50 each in a stock of­fer­ing led by Gold­man Sachs Group Inc. (GS) Back in June 2008 Over­seas Shiphold­ing had a $2.4 bil­lion stock-mar­ket value, com­pared with $45 mil­lion to­day.

This was the sort of watch­dog role Congress en­vi­sioned for au­dit-com­mit­tee mem­bers when it passed the Sar­banesOx­ley 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.

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.

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