Do watchdogs have the stomach to take on the likes of Deloitte?
Outlook: Accountancy’s Big Four have the financial clout and the wherewithal to fight their regulator
There’s a stark difference in their reactions, when faced with disciplinary measures, between banks and the accountancy firms that audit them. Typically, when the former get caught with their pants down they’re quick with the crocodile tears, rapidly issuing apologies together with promises to be good boys in future after the hammer has fallen.
They generally do their best to assume the position and settle quickly, paying up even though their private views on their treatment will often differ markedly from their public pronouncements.
Not so auditors. Yesterday Deloitte and its former partner Maghsoud Einollahi lost their appeal against charges by regulators that they failed to manage conflicts of interest in relation to advice given to MG Rover and to the disgraced businessmen, known as the Phoenix Four, who spent five years getting rich while the company spiralled towards oblivion. Incredibly, given that MG Rover breathed its last in 2005, this may still not be the end of the matter as the firm looks at whether there are points on which other appeals can be lodged while furiously attacking the ruling.
“Surprised and disappointed,” poor old Deloitte was moved to opine, warning of potentially dire consequences for the sort of advice its staff will be able to provide to businessmen in future. One might question why we should be at all worried about this if it prevents them from getting bad advice. But, as Deloitte was quick to point out, the quality of the advice it gave to the Phoenix Four and MG Rover was not actually questioned by the regulators. Nor (incredibly) was the audit work carried out on MG by, you’ve guessed it, Deloitte.
There may be very good reasons why the watchdogs chose to take Deloitte on over what look to be rather limited, and rather technical, breaches.
When you are faced with an aggressive opponent armed with the best lawyers money can buy, it’s often advisable to narrow your field, concentrating your fire on areas in which you stand the best chance of winning.
That’s why Al Capone was eventually imprisoned for tax evasion rather than for high crimes and misdemeanours.
The Big Four accountancy firms have the wherewithal and the financial clout to fight their regulator, and they have proved to be more than willing to do so. It’s not in their interests to allow the development of an active and aggressive watchdog to oversee their activities. Tangling disciplinary action in red tape through the use of endless appeals is one way of doing that.
If the Financial Reporting Council, which has taken on the role of watchdog, is really interested in improving the regulation of accountancy firms it will have to have the stomach for more of these battles. It may ultimately need to get down and dirty, and to make adroit use of resources such as (perhaps) the Treasury Select Committee and even the media.
Is it willing to do this? That’s not altogether clear. It’s worth noting that despite the pointed questions raised by the Parliamentary Commission on Banking Standards, it has still not launched formal proceedings against the auditors either of HBOS or of Royal Bank of Scotland. Even if it does, we’ll probably still be waiting for the result in 2020.
A merger threatened by a clash of egos
Omnicom and Publicis reckon they can save their shareholders $500m (£325m) through their $35bn tie-up.
The marriage of the second and third biggest advertising firms is being dressed up as a merger of equals, so, in theory at least, there’s no premium to either set of shareholders. Which means that those savings are a rather important part of the package.
Unfortunately what could be one of the biggest single savings – on the salary package of one of the two existing CEOs – won’t be made. John Wren, Omnicom’s boss, and Maurice Levy, chief executive of Publicis, are slated to be “co-CEOs” if the deal is completed.
Such mega-mergers are a risk at the best of times, particularly when you operate in industries reliant on the fostering of creative talent.
Their rival WPP, and its various affiliates, will be watching closely as the two try to jam their various bits and pieces together. These other firms will be well aware that you can often achieve as much by spiriting people away from rivals as you can by buying those rivals.
There is still a rationale for the merger beyond cost savings. A combination could help this new behemoth bulldoze its way into lots of exciting growth markets – provided that two powerful chief executives with big salaries and big egos can successfully pull off their double act: a set-up which doesn’t have the happiest of histories.
That’s one reason why another powerful CEO with a big ego may not feel all that concerned today. WPP’s Sir Martin Sorrell might just enjoy watching this one from the sidelines.
A high-flying way to promote your brand
Fancy seeing your brand on the fuselage of a plane next to that of Ryanair? Yes, the low-cost airline is planning to sell ad space on its aircraft. They will still bear the Ryanair logo, but other companies will be able to add theirs for a small(ish) fee. An excellent idea, you might think, and why not? After all, what better brand to hitch your wagon to? As Michael O’Leary keeps saying, it’s the world’s favourite airline. Ryanair absolutely loves its passengers, and treats them like gods. Flying with Ryanair is a wonderful experience, and everyone who does it arrives at their destination rested, relaxed and ready for a laughably short journey into the centre of the City they’re planning to visit.
The tickets are cheap, and other charges, such as for luggage, credit card use, replacing lost tickets, are minimal, etc, etc. Why on earth wouldn’t you want to hitch your brand to all that?
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