SEC Opts Out of Motorola Proxy Battle

February 4, 2002 ( - The Enron fallout continues to spread - this time to a bid by mobile phone maker Motorola Inc. to block a shareholder effort to keep the company's auditor from doing other company duties.

The dispute centers on a proposal filed by the Sheet Metal Workers’ National Pension Fund, which holds 162,000 Motorola shares, to enact such an auditor ban. As is usually the case with policy issues slated to come to a shareholder vote, pension fund officials wanted it included in Motorola’s proxy statement.

The Sheet Workers fund contended that auditors performing consulting and other non-audit services for the same company create potentially conflicting business and financial relationships that could raise conflict of interest questions and erode investor confidence.

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The fund pointed out that in fiscal 2000, KPMG billed Motorola $3.9 million to audit its books while billing $62.3 million for non-audit duties.

Turning to Regulators

Meanwhile, Motorola appealed to the Securities and Exchange Commission for support, which refused to get involved.

In a letter to Motorola, federal regulators cited the current public debate over accountant independence, which arose when Arthur Andersen – Enron’s auditor – failed to warn shareholders of Enron’s imminent financial collapse.

“In view of the widespread public debate concerning the impact of non-audit services on auditor independence and the increasing recognition that this issue raises significant policy considerations, we do not believe that Motorola may omit the (Sheet Workers) proposal from its proxy,” SEC officials wrote.

On the other hand, Motorola argued that its existing audit committee was “ideally situated” to cope with any potential auditor conflicts. Motorola’s next shareholder meeting is scheduled for May 6.