Proxy Advisers Against Sale of IPG

But One Says PricewaterhouseCoopers Must Go

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NEW YORK ( -- Three proxy advisers this week recommended institutional investors in Interpublic back management in opposing an activist shareholder's pitch to put the troubled company on the block.

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But one of the advisers recommends investors boot three board members who were on Interpublic Group of Cos.' audit committee and vote against PricewaterhouseCoopers, the holding company's auditor since 1952. The adviser, Glass, Lewis & Co., blasts Pricewaterhouse and the audit committee for failing to catch troubles in its accounting systems. Interpublic has labored to get its books in order since revealing widespread accounting problems in August 2002.

ISS supports IPG
The leading proxy adviser, Institutional Shareholder Services, recommended investors support management's recommendations for every measure on the proxy. A third proxy adviser, Proxy Governance, also supported all of management's recommendations.

Proxies will be tallied at Interpublic's annual meeting Nov. 14, where shareholders will vote on a slate of eight directors; reappointment of Pricewaterhouse; approval of an employee stock plan; and a proposal from an activist shareholder.

Proxy advice is followed closely by pension funds, mutual funds and other institutional investors. Regulators require those investors to vote their proxies as part of a mandate to encourage good corporate governance. Interpublic's top 10 institutional investors own 54.3% of the company, according to Bloomberg data.

Glass Lewis wants auditors axed
Glass Lewis recommended investors vote against ratifying Pricewaterhouse's appointment as auditor for 2005. Auditing and helping clean up Interpublic's books has been lucrative for the accounting firm, which last year collected $92.7 million in fees, equivalent to 1.5% of Interpublic revenue.

Glass Lewis said: "We believe the company should appoint a new auditor given the magnitude of the company's [recent $514 million financial] restatement. ... We are deeply concerned that [Pricewaterhouse] did not detect the company's failure to properly report its financial statements over a multiyear period. We believe this raises serious concerns about [its] performance in conducting the audit. ... Appointing a new auditor would, in our opinion, provide shareholders with a fresh look at the company's finances and stimulate confidence among investors. Furthermore, we believe that rotating auditors is an important safeguard against the relationship between the auditor and the company becoming too close."

A Pricewaterhouse spokesman declined to comment. "As a matter of policy, we don't comment on client matters," he said. Interpublic declined to comment on the adviser's assertions about Pricewaterhouse.

Board also under fire
Glass Lewis recommended investors withhold votes for three board members -- Frank Borelli, Jill Considine and former Time Inc. CEO Reginald Brack -- who served on the audit committee during the period of the recent restatement. "We believe members of the audit committee bear the responsibility for ensuring that the Company is pursuing careful application of [accounting principles] ... that ensure fair and reliable disclosure to investors," the adviser wrote. "We do not believe the committee has performed that responsibility to the satisfaction of shareholders."

Interpublic in a statement responded: "We support the election of all nominated board members. We disagree with the Glass Lewis opinion, which does not represent the prevailing view among leading institutional proxy and corporate governance analysts. The board of directors led our comprehensive financial review and restatement process. They continue to be actively involved in leading the company as it moves forward."

The most controversial issue on the ballot comes from a small activist shareholder, Charles Miller, who submitted a proposal calling on the board to sell the embattled company. The board unanimously opposed that idea; ISS, Proxy Governance and Glass Lewis sided with the board and management.

Why IPG shouldn't sell
ISS considered the sale, among other issues, in a 14-page report that laid out the pluses and minuses of such a move: "On the plus side, hiring an investment banker to seek alternatives to enhance share value often results in a higher stock price, as investors expect the company to seek competing merger offers soon. ... On the downside, a period of poor stock performance is often the worst time for a company to be 'put into play' because 'bottom feeders' are likely to approach a company with offers that represent a premium to only a few short-term investors and speculators seeking a quick profit, to the detriment of long-term shareholders."

"In our opinion," ISS concluded, "there is no compelling evidence that the drastic measure described by the proponent is in shareholders' best interests."

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