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Breeden's seal of approval set to come at a cost for KPMG
Stephanie Kirchgaessner and Andrew Parker, FT Syndication Service
9/12/2005
 

          If Richard Breeden's influence as a corporate monitor at MCI, the telecoms company formerly known as WorldCom, is anything to go by, then executives at KPMG should anticipate two things following his appointment to the same position at the accounting firm.
First, that the presence of the former Securities and Exchange Commission (SEC) chairman as a corporate monitor, as part of a wider settlement over tax-related allegations with the Department of Justice, would reassure hundreds of KPMG clients and government prosecutors that the firm is changing its ways and will not run into legal trouble again.
Second, that the seal of approval Mr Breeden's influence brings will come at a high price. If his performance at MCI is repeated at KPMG, then his overview of the company is likely to affect every aspect of its management and culture, putting constraints on top executives across the company's US operations.
The limits of Breeden's role continue to be negotiated by the US attorney's office in New York, which led the investigation into KPMG, and the accounting firm. People briefed on the case say KPMG has been anxious to ensure Mr Breeden's oversight be confined to scrutiny of KPMG's tax practice, and not its audit and advisory divisions.
But David Kelley, the US attorney in southern district of New York, is believed to be pushing for the monitor to have a wide-ranging role. Ultimately, people briefed on the case say, Breeden's mandate will hinge on the final wording of a settlement agreement and could involve opportunities to probe relevant work outside KPMG's tax practice.
A person familiar with the expected appointment says Mr Breeden's role will not be as expansive as at MCI, where the former SEC chief was described as a "shadow" board member who, regulatory filings show, took an active role in negotiating the $8.5bn sale to Verizon.
Supporters of Mr Breeden's role at MCI say his appointment by Judge Jed Rakoff in July 2002 as a corporate monitor made possible the emergence of the company out of bankruptcy and its subsequent sale.
But critics of the monitor, including attorneys and others familiar with MCI, say Mr Breeden's influence over the company went too far beyond his mandate, raising questions about what the proper role as a corporate monitor should be at a publicly traded company.
At the time of his appointment, Mr Breeden's responsibility was limited to two core missions: to ensure compensation of incoming executives was not excessive; and that documents connected to the company's fraud were not destroyed.
Michael Missal, a partner at Kirkpatrick and Lockhart who conducted an investigation at MCI, says those responsibilities were greatly expanded and that Mr Breeden took "effective control" of the company at the time of his appointment.
"No major decision or significant expenditure was made without his involvement. It was at a time when the company was in full crisis mode and needed someone from the outside to give it credibility to the various government agencies investigating the company," he says.
Breeden, who had an active role in negotiating the hiring of Michael Capellas as chief executive, eventually forced MCI to adopt a wide-ranging set of corporate governance principles that were hailed by corporate governance activists as a model for other companies.
But critics say the former SEC chief did not always live by the same principles of transparency that he has enforced. His own compensation at MCI, as well as the compensation of his associates and firm, Breeden and Company, have not been disclosed to shareholders since he took on his role three years ago though his $800 per hour rate has been made public. Ultimately, the prospect of an outsider poking around its US business is unlikely to be greeted with enthusiasm by KPMG but could be a sign of what is to come for all big US accounting firms, most of which are private partnerships that do not publish annual accounts but are under pressure to increase their transparency.
If a final deal between Mr Kelley and KPMG is agreed, then Mr Breeden is likely to make that happen at KPMG sooner, rather than later.
Breeden declined to comment.

 

 
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