On December 12, 2011, the SEC's Division of Corporation Finance declined the request by the United Brotherhood of Carpenters Pension Fund to reconsider the division's letter granting no-action relief to Deere & Company's exclusion of the Pension Fund's auditor rotation proposal from its 2012 proxy materials. In declining to present the Pension Fund's request for full commission review, the division determined that it did not involve "matters of substantial importance … where the issues are novel or highly complex."
The division's response reaffirms its position that shareholder proposals seeking auditor rotation policies may be omitted on the grounds that they relate to "ordinary business," and thus are not appropriate matters for shareholder votes. The division previously issued no-action rulings to The Walt Disney Company, Deere & Company, and Hewlett Packard on these grounds, and several similar requests are pending.
The Pension Fund's proposed resolutions asked the company's board and audit committee to establish policies to require the rotation of audit firms every seven years, with a three-year period before an auditor could be retained again.
In its request for reconsideration, the Pension Fund argued that its proposal to establish an auditor rotation policy served to protect and enhance audit firm independence. "Auditor independence is a matter of substantial importance and shareholders have the right to vote on shareholder proposals seeking to establish an auditor rotation policy as a means of enhancing that independence," wrote Ed Durkin, director of corporate governance for the Pension Fund.
The Pension Fund's proposal comes at a time when auditor rotation policies are increasingly cited in the public dialogue over auditor independence. In addition, regulatory entities such as the PCAOB and the European Union have recently considered such rotation policies. Proponents of the policies argue that auditor term limits reduce the pressure auditors face to protect long-term client relationships at the expense of investors.