It’s deja vu all over again at El Paso Corp., with two major proxy advisory firms recommending this week that shareholders fire the company’s auditor, replace the chief financial officer, and withhold votes against some of the directors. The annual shareholder meeting is set for Nov. 18 in Houston.

Last year, a dissident shareholder group led by major shareholders Selim Zilkha and Oscar Wyatt Jr. lost a bitter proxy fight to replace El Paso’s entire board and revamp the company (see Daily GPI, June 18, 2003).

This year, Institutional Shareholder Service (ISS) and Glass, Lewis & Co. are recommending that shareholders vote against ratifying PricewaterhouseCoopers LLP (PWC) as the independent auditing firm the 22nd year. The accounting firm was given a one-year contract last year. Although the item is not on this year’s board agenda, Glass Lewis also recommended ousting CFO Dwight Scott.

ISS and Glass Lewis are recommending shareholders withhold votes for El Paso’s audit committee, which includes Chairman Juan Carlos Braniff, John Bissell and Ronald Kuehn. The reports noted that the committee failed to properly monitor PWC’s accounting.

ISS also has recommended withholding votes against board members Joe Wyatt, John Whitmire, J. Michael Talbert, Anthony Hall, Robert Goldman and James Dunlap for failing to implement a “poison pill” proposal recommended by a majority of shareholders at last year’s annual meeting. A poison pill provision is designed to prevent a hostile takeover. All board members are up for election annually.

“ISS believes that the ratification of PWC as the company’s independent audit firm is not warranted due to its failure to identify and flag these accounting issues over several years,” the ISS report said. “ISS also notes PWC’s long-standing relationship with El Paso spanning over 21 years.”

The ISS report noted that even though El Paso “no longer has a poison pill, it should adopt a policy which would require any future pill to be submitted to shareholder vote.”

Glass Lewis analyst Noam Katz wrote, “We are not claiming these individuals bear sole responsibility for the current situation; yet, the evidence indicates controls and oversight were deficient to such a degree that keeping these individuals in their current roles would be a disservice to shareholders.”

Katz noted, “In our opinion, PWC bears significant responsibility for what we believe is a lack of proper oversight with regard to the company’s deficient controls and improper accounting. “We believe PWC was in a position where it should have known of the extent of the deficiencies in controls at the company and should have reported them to management or the audit committee.”

The Glass Lewis report was not completely critical of the company, and noted that El Paso was “on the mend” following its brush with bankruptcy in early 2003.

Both proxy reports come just weeks after an open letter was sent to El Paso by the AFL-CIO, a major shareholder. The labor organization said El Paso did not go far enough in assigning blame for a $1.9 billion loss in 2003, nor for the write-downs that led to the losses. It also indicated in the letter that it would ask for advice from the ISS and Glass Lewis regarding this year’s shareholder meeting.

ISS last year recommended shareholders vote out the management team and elect the energy professionals proposed by the dissident group, and it also recommended a new board of directors (see Daily GPI, June 4, 2003). Glass Lewis recommended shareholders oust three incumbents last year, and said the company should reduce its 12-member board (see Daily GPI, June 10, 2003). Both recommendations were defeated.

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