Leaving their posts were William Waltrip and Stephen Ross, who the newspaper said had formed Compensation Valuation Inc. to sell stock-option valuation services with Ernst & Young in August 2003. The auditor contributed $1.3 million, the Journal said. According to federal auditor-independence rules, outside auditors are prohibited from forming business ventures with audit clients, including their executives, board members or trustees.
Later Friday, TIAA-CREF officially confirmed the resignations in an SEC regulatory filiing . According to the statement, audit committees found that the relationship hadn’t compromised the E&Y’s work. “ The Audit Committees of TIAA-CREF, and E&Y, each determined that the trustees’ business relationship with E&Y did not compromise E&Y’s independence from TIAA-CREF or the integrity or objectivity of the respective audits for 2003 and 2004,” TIAA-CREF said in the statement.
“TIAA-CREF has a sound track record of acting according to the highest standards of governance, independence, and ethics,” said Herbert Allison, Jr., chairman and CEO of TIAA-CREF. “Our participants can be assured that we are continuously looking to earn superior results, while meeting our high ethical standards in all business dealings
Ernst notified certain TIAA-CREF officials and the SEC about the independence violation in August. The trustees’ company shut down August 20. However, the trustees’ company wasn’t actually dissolved until November 17, and members of the TIAA-CREF board of overseers weren’t told about the auditor-independence problem until this week, angering some of them, the Journal sources said.
A board of overseers presides over TIAA-CREF’s structure, which includes two other boards of trustees, one for the Teachers Insurance & Annuity Association of America and one for the College Retirement Equities Fund. Waltrip was a TIAA trustee and Ross was a CREF trustee.
Unnamed Journal sources said the SEC has agreed to allow Ernst to conclude its audit for this year, but TIAA-CREF will seek new auditor bids next year. Ernst has been TIAA-CREF’s auditor for about seven years. With $325 billion in assets, TIAA-CREF is the nation’s largest institutional investor.
Ross is a finance professor at Massachusetts Institute of Technology and a director at Freddie Mac. Waltrip is the former chairman of Technology Solutions Co. Neither man returned phone calls yesterday. Their resignations took effect November 30.