Why didn't the auditors spot the problems, how is it possible for a company to be given a clean audit only to go bust a few months later, and what do we pay these people for if not to give fair warning that all is not as it seems, was the general thrust of the criticism? The legacy is a string of legal actions for alleged negligence, some of them of gigantic proportions.
In the hunt for retribution and compensation, auditors are a soft and easy target. The 150 former and current partners of Binder Hamlyn who face financial ruin following a pounds 105m High Court judgment may have captured headlines, but the amount is a flea-bite compared with others waiting in the wings. The scramble among big firms towards the haven of limited liability reinforces the impression of highly-paid professionals attempting to wriggle out of their obligations. Always there when lucrative fees are in the offing, however disreputable the client, it is hard to see these people for dust once the balloon goes up. In some cases the audit firms are doubly open to criticism since by association they lend credibility and respectability to those who might otherwise be considered suspect.
While all this is fair enough comment, however, it is equally reasonable for the big firms to seek ways of limiting exposure to the "nuclear" claim. The partnership structure, in this country at least, positively attracts the big negligence law suit since the potential pot of damages is so large - not only the assets of the firm can be claimed, but those of any employee with partnership status, too. Audit fees are not as poor as most accountants would have you believe, but for many partners they no longer justify the risk of being held liable for somebody else's cock-ups.
Limiting the liability without surrending the considerable tax benefits of partnership is a far from easy thing, however. In other countries, such as the US, partnerships can have their cake and eat it; they can keep the tax and other benefits of partnership and limit their liability at the same time. One solution, therefore, is to go offshore. As KPMG appears to have acknowledged in rejecting it, the problem with this approach is that it looks suspicious.
Though some territories such as the Channel Islands and the Isle of Man have long had their arrangements accepted by the British courts, it is difficult to escape the view that taking this step looks like running away. Even those now understood to be considering such an approach are keen to point out that they want none of the tax advantages associated with such havens for fear that would diminish their standing. Furthermore, it is by no means clear the British courts would in practice accept such a cosmetic limit on liability.
Reform of the law of joint and several liability to allow limited partnership is the obvious long-term solution, but whether sympathy for the plight of accountants and lawyers is sufficient to create the parliamentary time for it seems open to question. In the meantime, accountants need to do far more to rehabilitate the whole process of audit. Public expectations of what auditors do and what can be expected of them may be unrealistically high, but by the same count, past failures are so dramatic that the scope for improvement must still be considerable. If accountants are to get the privilege of limited liability, they should also be willing to take on board the extra burden of ensuring that companies have adequate internal controls - a Cadbury recommendation which most auditors are resisting fiercely.
For Lord Wolfson read Lord Wolfson
On the face of it, the management succession announced yesterday by Great Universal Stores was just what you would expect from a family business. One Lord Wolfson, 68, steps down as chairman. Another Lord Wolfson (his 59-year-old cousin) steps up to take over the family firm. Surely this is a classic example of a fuddy-duddy, nepotistic business dynasty ignoring the needs and wishes of external shareholders and looking after its own? Not quite.
While it is true that the board did not exactly scour the globe for an external candidate and says it voted unanimously for Wolfson, there are a number of things that make this case different. First GUS has done well to keep the business in the family this long. Many business dynasties founder when they reach the third generation as they run out of plausible candidates to run the company. Younger members have different agendas, or want to cash in their stake. One need look no further than the strife- ridden Littlewoods for an example of what can go wrong.
Apsrey's, the jeweller, has also fallen out of family control after 200 years. Pilkington is no longer run by a Pilkington. Sainsbury's is a rare example of a large public company that has flourished under family ownership, though it, too, has had problems recently. The remarkable thing about GUS, founded in the early part of the century, is that it has lumbered on quite nicely and in its latest Lord Wolfson has found a third generation who is, if anything, more highly regarded than his predecessors.
Lord Wolfson of Sunningdale to give him his full title, is clearly not the family duffer. He spent 18 years at GUS and became chairman of its key mail-order business before leaving in 1978. He was later chief of staff at the political office of 10 Downing Street for six years. More recently he has overseen the recovery of Next, the once stricken high street retailer where he is chairman.
He is also a more open, City-friendly type. You never know, shareholders might actually find out what is going on in this notoriously uncommunicative company once he gets into the chair. His appointment could also mark a change of direction for GUS.
Under Sir Isaac who bought a controlling stake in the company in the 1930s, GUS was an aggressive takeover operator. Under the current chairman it has been a more cautious animal, edging up profits each year and squirreling away a pounds 1bn cash pile. It has also ignored the City, only recently bowing to pressure to enfranchise its non-voting shares. Remarkably, its first analysts meeting was just three years ago and even then told the audience precious little.
Things could be about to change.
Cryptic George keeps City guessing
Attempting to reading meaning into what Eddie George says seems to have become the latest version of Kremlinology. It should perhaps be called Bankology. Whether his comments to the Treasury and Civil Service Select Committee means he is going to oppose a base rate cut at his meeting with the Chancellor next week is still anyone's guess, however.Reuse content