And then there were four. The Andersen name now seems certain to disappear, bringing the number of large global accountancy firms down to four. Whatever the final home of the constituent parts and whatever the outcome of the legal challenges it faces, the reputation of the brand is so undermined that it cannot survive as an independent entity.
So corporate misdeeds result in corporate death – end of story?
Well no, not at all. A bigger and ultimately much more important story is about to unfold. For it is not just the accountancy profession that will be changed forever by the tale of Andersen; expect all the business professions – including management consultants, investment bankers and, I suspect, lawyers – to be changed too. Somehow they have to recover our trust.
Who do we trust nowadays? Not many occupations, it would seem. Certainly not politicians, nor, I fear, journalists. In most surveys the two of us, along with estate agents, form a trio at the bottom of the trust league.
Business executives do not in general have a great reputation either – unsurprisingly, since in films and television shows they are frequently portrayed as being crooked. Our armed forces still retain a high reputation, but our police perhaps less so. Even the medical profession seems to be losing public confidence and our Chancellor believes it appropriate to attack the banks. But most people would still give a reasonable level of trust to the accountancy profession, at least until a few weeks ago.
So when a government wants a report done on some economic or financial issue it usually gets a firm of accountants to do it. Does a PPP project give good value? Hire Andersen.
Not any more. The problem is not that this particular company will disappear, but rather that all accountants' reports will be treated with much more suspicion.
There is a reason for this that goes far beyond Andersen. It is the extent to which the professions have moved from being reasonably impartial and careful of their reputation for independence, to becoming advocates for their clients' wishes – and prepared to bend the rules to collect the fee.
This has certainly happened in investment banking. The whole Enron expansion was driven by Wall Street's encouragement. It was investment bankers who cheered on the shift of the company away from its core pipeline business into trading in financial instruments. Not only did the investment bankers collect large fees for their advice and fund-raising, but their analysts advised clients to put money into Enron shares almost up to its moment of collapse.
In any case, companies need advisers that will say no. It is a very tough decision for an investment bank to warn a client off a deal from which the bank will make large fees. But if they genuinely think the deal to be ill- advised, then they really should say so.
There does not seem to be any suggestion of illegal behaviour on the part of the advisers to Marconi, which carried out the disastrous policy of selling good but boring businesses and buying fancy telecom ones in the US. Nor did the Marconi managers do anything illegal – they just made terrible decisions and have had to take the blame for them. But the City is partly guilty too, because it acted as cheerleader for this policy. The professionals did not apply proper professional caution.
Lawyers, too, must carry some of the blame when companies transgress. The in-house lawyers of Enron were asked to look at the allegations of fraud when a whistle- blowing employee drew top management's attention to them. But they gave an all-clear. A culture of "is it legal?" took over from one of "is it right?"
Of course when it comes to a contest, lawyers always have to fight as hard as they can for their client, even if the client is on pretty dodgy ground. But when giving private advice lawyers need to be confident enough to warn their clients if they feel they are sailing too close to the wind.
The candid friend – it is one of the hardest roles to play in any human situation, but that is surely the task of the good professional adviser. You need someone who will encourage you and help you to achieve what you want to when you have a good idea, but someone who you trust enough to warn you off when you have a nutty idea.
So it really does come back to trust. Rebuilding that is the absolutely central task for our whole society. We have to have business people who don't cuddle up to ministers to get their knighthoods, but work hard for the various stakeholders in their enterprise. We have to have scientific advisers who are properly independent of government so that we trust them when they say that food is safe. We have to protect the political independence of the civil service and the BBC.
All this will be a long, slow slog. It is a slog that has to start from the top. That is tricky because we don't trust our politicians. You cannot just declare that everyone should behave in a more trustworthy way, when it is evident that some people in senior positions don't. I happen to think that by developed world standards (and particularly by EU standards), we have a reasonably competent and corruption-free central government. But I fear those standards are not very high.
So how do we move forward? Here are two suggestions. The first is that trust has to be supported by a financial structure that rewards it. You need carrots and sticks. We have seen a powerful example of the stick in the case of Andersen. It is pretty miserable that tens of thousands of people around the world should be punished for the activities of perhaps only a few dozen in America. But it gives a powerful demonstration.
We also need carrots. We need rewards for people who are independent and trustworthy and who take on tough jobs. We need to reward good people both financially and in status.
The second suggestion is that we need to use the amazingly powerful new information technologies to reinforce trust. In a village, everyone knows the honest trader and the sharpster. The more we know about people the more we know whether we can trust them or not.
Of course people must be able to put their mistakes behind them, but it is curious, is it not, that people who are bent when they are in their twenties remain bent all their lives. I can think of a peer in jail who demonstrates that particular truth.Reuse content