Company Engagement Case Study

Varian Medical Systems

Issue: Auditor independence

WHEB has a relatively strict global policy on the independence of auditors. In our view, a corporate relationship between an auditor and a company should be subject to review at least every ten years. If the relationship lasts for longer than this it ceases to be independent in our view.

Objective

To convince the company’s Board Audit Committee to retender the audit contract.

Scope and process

We routinely vote against management’s recommendation to reappoint auditors if their tenure exceeds ten years without the contract being retendered. When we do this at a company’s meeting, we write to them to explain why we have voted against the reappointment of the auditor. At Varian Medical Systems, the auditor has been PricewaterhouseCoopers for more than fifty years. We have written to the management team every year for the last four years and have not received a formal response on this topic.

We are aware that in the US, it is not uncommon for companies to have relationships with auditors that last for more than ten years. WHEB’s policy and arguments are not aligned with what is considered to be good practice in US corporate governance. We have therefore engaged with our proxy voting agent ISS to explore whether they might be willing to reconsider their own attitudes and approach to this issue.

Outcome: Unsuccessful

So far we have not had any success in getting Varian to change its attitude to auditor independence. We will continue to engage on this issue.