Independence of new BTR boss questioned

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The Independent Online
SHAREHOLDERS of BTR are unhappy about the appointment of Elwyn Eilledge as the group's new pounds 225,000-a-year chairman because he was, until June, the senior partner at the company's auditors, Ernst & Young.

The conflict of interest has alarmed some of the conglomerate's biggest shareholders. Graham Allen, managing director of the ICI pension fund, said: "It's certainly not ideal. It is questionable whether Mr Eilledge is totally independent."

Mr Allen, who is also vice- chairman of the National Association of Pension Funds investment committee, said the committee would discuss the appointment.

He pointed out that Mr Eilledge was once personally involved in auditing BTR when at Ernst & Young. Moreover, he then worked alongside Kathleen O'Donovan, another E&Y employee, who is now the BTR finance director.

"Ultimately, it is down to the individual shareholders," Mr Allen said. "At some stage he [Mr Eilledge] will have to be re-elected. It will be down to the shareholders to decide whether that is appropriate."

The head of another large institutional investor said: "I have some concerns. He doesn't meet our definition of independent." However, he had decided not to take the matter further, having come to the view that BTR - always a maverick when it comes to corporate governance - was at least heading in the right direction.

Mr Eilledge, who retired from E&Y three months ago, was named last week as successor to Norman Ireland, who retires next May. He will join the board on 1 October. Unless there is a change in practice, as board chairman he will also chair the audit committee, which appoints auditors, decides their fees, and listens to any concerns they might have about accounting policies in the company.

The appointment was blasted by politicians and academics. Austin Mitchell, the Labour MP for Grimsby and a keen critic of the accountancy profession, said: "I think it's monstrous. It would be called incest if it were a family matter. It poses several questions about conflict of interest. It seems to me impossible for Ernst & Young to go on auditing BTR."

Prem Sikka, professor of accounting and finance at East London University, was equally scathing: "It's absolutely awful, frankly. His one-time juniors are now going to audit him. There are psychological barriers that will make it difficult for them to ask searching questions of their one-time senior."

Mr Ireland defended the appointment. "I've heard no adverse comment, but I've always been prepared to speak to any shareholder, large or small, if they have a problem," he said. "I don't believe there is a conflict of interest. If anything Elwyn will have to be holier than thou."

Mr Eilledge, who continues to receive a fixed annuity from Ernst & Young, said he was well aware of the perceived conflict of interest. "I'm so concerned about it, I'll be demanding much more than the next man," he said.

The ethical guidance note of the Institute of Chartered Accountants allows accountants to join firms they have audited as long as they make a clean break with their former firms and inform their superiors at the first opportunity.

Research by the Independent on Sunday shows that Ernst & Young has received no less than pounds 66.4m in audit fees and other payments from BTR over the last 10 years. The audit fee alone last year was pounds 6m, and E&Y received a further pounds 2m for consultancy advice.

Mr Eilledge defended the pounds 6m fee. "You're talking about a worldwide organisation with a turnover getting on for pounds 10bn. That's one hell of a big company, though I'm not suggesting that pounds 6m isn't a lot of money, too," he said.