Faith & Reason: It Is Not Just Corporate Culture That Needs a Clean- Up ; the Legal Line between Fraud and Clever Accounting May Be Clear Enough. but We Can't Leave It Just to Business People to Draw a Moral One
Vallely, Paul, The Independent (London, England)
WHAT WE need, in the wake of the Enron and WorldCom accounting scandals, said Patricia Hewitt, the Secretary of State for Trade and Industry, yesterday, is new rules to make sure that the relationship between company directors and auditors is not too matey. Perhaps.
Certainly there is no room for the smugness we have been hearing from some quarters in recent days to the effect that it couldn't happen here. Words like Maxwell, Barlow Clowes, BCCI, and Barings tell us that. At the other end of the scale there are even red faces at Christian Aid, when it became apparent that it was locked into a contract with WorldCom to provide its internet service. WorldCom had been chosen, Christian Aid admitted, after putting it through the charity's ethical screening process, which picked up that it had no links to gambling or pornography but was unable to spot improper accounting to the tune of $3.8bn which has damaged jobs, investment and pension funds around the world. Ooops!
Tightening rules can never be enough. No amount of regulation will prevent dishonesty. No matter how good the system, what's important is the people who enforce it - and the conduct of people is shaped by culture. That is why there was something rather hollow about the mounting indignation of George Bush as each successive scandal broke. Of course there is a clear legal line between plain fraud and business practice which cuts corners to go for the big profits from which to make donations to the Republican Party. But the moral line is far less clear.
There are many reasons why people behave well. Fear of being caught out is one - which is why there is now such furious activity among the UK's Big Four accountancy firms. They have embarked on a huge exercise to re- examine their clients' books. But the move has not been triggered by a sudden outbreak of moral rectitude, or fear of regulators, so much as by the dark warnings of the insurance industry.
Conversely the reasons why people behave badly are manifold. But the uncomfortable truth for George Bush is that the business world view he endorses is governed by the same impulses which prompt some to take that extra step into illegality. Very few people in corporate America express concern at the elaborate schemes for tax avoidance cooked up by top accountancy firms charging $750 an hour - even though the labyrinths of offshore shell companies are routinely used, according to the Manhattan district attorney, for tax evasion and bribery.
Such profits come from the pockets of ordinary people. Developing countries lose around $50bn annually from legitimate tax avoidance, Oxfam estimates, not to mention the way the US influences international tariffs and commodity prices in the interests of the rich rather than the poor world. …