Macquarie to Face Shareholders Seeking Answers on Scandal-Hit KPMG

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(Bloomberg) — Macquarie Group Ltd. is set for another tough shareholders’ meeting this week, with its board expected to face questions over a decision to hire scandal-hit auditor KPMG Australia, the company’s culture and its exposure to fossil fuels.

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Investors are likely to ask the Australian financial giant about the KPMG appointment, with the audit and consulting firm rocked by allegations it used confidential client information to win audit contracts. Even though shareholders will only be able to vote on the choice of KPMG at next year’s meeting, some are concerned about Macquarie’s move to award the lucrative contract, given one of its directors who previously worked for KPMG was involved in the process.

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“Given the current controversy with KPMG, shareholders need reassurance this auditor change is in the best interest of the company,” said Rachel Waterhouse, chief executive officer of the Australian Shareholders’ Association. She said concerns had been raised as far back as last year about “potential conflicts” in the appointment of the firm. CGI Glass Lewis, a governance firm, also said in a report that KPMG will be a point of contention this year, according to the Australian Financial Review. 

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The clouds over the July 23 meeting mark a fresh wave of scrutiny for Macquarie, just as it had sought to draw a line under past regulatory and risk issues including those involving short selling disclosures. Last year, Macquarie suffered a first strike against executive pay, dealing a blow to Chief Executive Officer Shemara Wikramanayake, whose pay got curbed due to the issues. The prospect of a second strike on Thursday would trigger a shareholder vote to disband the board, though that likelihood is low. 

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A spokesperson for Macquarie declined to comment on the potential issues to be raised at the annual meeting. 

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Besides KPMG, investors are also expected to prod the firm on the behavior of senior leaders in its dealmaking unit, after local media reports revealed letters sent by a group of staff to chair Glenn Stevens highlighting alleged shortcomings. The allegations included pressure to deliver optimistic projections within an infrastructure division and lax processes to treat internal complaints. Macquarie had declined to comment on the specific claims, but said to the AFR that “the material allegations were not substantiated.”

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“These revelations are clearly quite damning,” said Jun Bei Liu, lead portfolio manager of fund manager Ten Cap, which owns shares in Macquarie. Ten Cap wants to make sure Macquarie has “proper processes and procedures” to deal with the underlying allegations, including adequate whistleblower protections as “we expect a company like Macquarie to have a very high level of governance,” she said.

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The annual meeting comes on the heels of robust results for the year through March that delivered A$4.85 billion ($3.4 billion) in net income, exceeding estimates. The performance was buoyed by heightened energy market volatility that boosted earnings for its commodities unit.