This strikes me as the theoretical opinion of someone who does not work for a big company. I am reminded of one of my business ethics classes. The prof asked us what we we do if we had big stock options in some company but we felt that the CEO was acting in an unethical manner. People gave all these answers like “I wouldn’t work there”, “I would do this and that”. I’m like “what?..I’m going to quit my job, lose a ton of money and potentially have to move to another city just because the CEO is a jerkoff? I don’t think so.” The point being is that for 99.999% of employees, work is a necessary evil to be endured and not some academic exercise that they can walk away from at the drop of a hat if things aren’t perfect.
I happen to be a management consultant for one of Andersens Big-5(4, 6 whatever it is now) competitors. There are tens of thousands of people in my company all around the world in dozens of groups working on hundreds of separate projects. I have about as much influence over or knowledge of what the senior partner of the Audit group does as you do. Which is to say “none”. I work on my little project. Other people work on their little projects. Technically, we aren’t even really supposed to talk to each other about what we are working on. The idea that I should be held responsible for some partners actions seems ridiculous to me.
Now Crusoe alluded to independence issues between consulting groups like mine offering advice while the audit groups measure the performance of the company. The conflict of interest being, if I give shitty advice (say something I read off this board instead of actual research), the audit group may gloss over the problem in order to keep the lucrative consulting engagements. There is also a lot of talk these days about what to do when consultants give bad advice. I’m not sure how I feel about that idea.
To a certain extent the whole thing is a big game. You can do x y z to make money but if you do x y g, that’s bad. cmkeller’s idea is probably the best. I say let them get rich as they want as long as the rest of the company is successful. Too many CEOs don’t have enough personal stake in the success of the company.
That’s all the more reason to make it clear, in law, that bad things will happen to them if they tolerate, or allow others to tolerate fraud. As things now stand, the average employee only finds out about trouble when the stock tanks, and congress starts asking pointed questions of the CEO. By that point, the noble college students refrain of “I wouldn’t work there" is likely to be enforced by the failure of the corporation.
Since layoffs and bankruptcy are the consequences of corruption anyway, there’s no reason not to make those consequences explicit. That way the employees will at least find it harder to delude themselves into thinking that they can profit by tolerating dishonesty.
But I’ll bet you at least know what’s going on in your little group; and probably something about the groups you interact with as well. If everyone in the company were to apply whatever knowledge they have to keeping things legit we’d have less corruption and greater job security. Sure, secrecy has its place, it’s just been carried to the extreme where corruption flourishes. How can that be good for you, or the company you work for ?
Yes, that holds true for FRAUD THEY ARE AWARE OF OR ARE REASONABLY EXPECTED TO BE AWARE OF. Why should the janitor or Bob from marketing or the receptionist lose their job because someone else in the company screws up? Your statements are so ignorant that it makes me shudder. The regular average employees at Enron who expected to retire but who now have worthless pensions ad no job are just as much a victim as any shareholder. But you think that somehow the execs would learn a lesson by having those employees left penniless? The average employee probably doesn’t even have the business accumen to realize that fraud was being committed.
Why would the execs have to learn a lesson ? Everyone who heard of such a debacle taking place would take a good hard look at the company they work for and make sure, to the best of their ability, that the execs were not pulling any funny stuff. The janitor acting alone can’t keep a company honest, but the earnest and proactive desire of all the employees to run a clean organization could have a tremendous effect. Similarly, if shareholder’s money were a hostage to corporate honesty, they would never approve the appointment of executives with a reputation for playing fast and loose with the law. Over time that would change the nature of corporate America.
Limiting individual responsibility to “FRAUD THEY ARE AWARE OF OR ARE REASONABLY EXPECTED TO BE AWARE OF” is an incentive for the unethical to create secretive organizations where no one ever has to take responsibility for anything.
Squink - I suspect you have never worked in a large company. You seem to have no idea how layered and compartmentalized they are. You also seem to have a misunderstanding of peoples motivation. Your idea leaves employees with two options:
Rat out their boss. Impossible since most employees never see an executive officer but thats besides the point. If I rat out my boss to the SCC, I’m out of a job since the company will be disbanded as punishment.
Keep quiet and keep my job.
Simple enough. So where is my incentive to keep everyone honest under your plan?
Squink, the proposition that all employees should bear the costs of business decisions is ludicrous. I don’t know how much employees have a say in company affairs at your place, but I’ve never worked anywhere where anyone but a few had access to decision making responsibility, nevermind knowledge of bookeeping and company funds.
How??! They don’t have access to employee salaries. They don’t have access to inventory costs. They don’t have access to bookeeping. In short, they have no potential for monitoring, and probably not the know-how anyway.
Less so than the status quo were no one associated with a company bears responsibility for corporate ethics.
The employees already bear the costs of shady business practices in layoffs, lost wages and shutdowns. What makes it such anathema to formally recognize this ?
Since, as you say, most employees lack acess to inventory, salaries and bookkeeping, it would be in their interest to organize methods whereby they can track the health of their workplace. Of course, the captains of industry would fight that tooth and nail.
I find it so ironic that the same people who favors the death penalty forinividuals wouldn’t favor it for corporations that kill other corporations, as well as the public trust. AA killed at least three so far this year. This is mass murder on the supply side.
The Squink Mark I plan deserves our careful consideration:
Translation: Chapter 11 for fraud of $1 billion +. Stockholders lose their shirts. Management is at the mercy of the new owners.
Employees? As long as the company remains in operation AND they are not fired by their new owners, they are back where they started.
Actually, the Squink plan extends the mayhem onto the bondholders, banks and (most controversially) suppliers and customers. It’s getting a little out of control, guy.
Still, I like your style, Squink. Keep it up.
The problem with Squink Mark I is that while it improves the incentives for additional shareholder oversight, it does not detail the sorts of reforms that would enable such oversight. So Squink’s idea is complementary in nature, not a panacea. IMHO.
For example, if we want to strengthen shareholder oversight, we’re probably going to have to pay the Board of Directors more. Furthermore, the Board is probably going to have to be held accountable to some person or group. Elections and proxies would have to become more than a formality.
I might note that employee oversight would be strengthened under Squink Mark I, to the extent that short sellers would find themselves monitoring anonymous websites such as Fuckedcompany.com. Presumably more verifiable methods of information transmission would develop.
Whistleblowing laws would have to be rewritten to cover employees who pass information to short sellers or shareholder advocates. There may be certain intellectual property issues involved.
mssmith: "The idea that I should be held responsible for some partners actions seems ridiculous to me. "
Ok, but all partners should be held responsible for every other partners behavior, right? That’s what a partnership is. If you don’t like it, you should form a limited liability corp. (I’m not claiming that you are a partner, btw. I’m just making a clarification.)
Ok, with some embarrassment, I now present one of my more whacked-out ideas. I hope this doesn’t detract from Plan 9 From Flowbark’s OP, which I take a little more seriously.
Incan Justice
Under the rule of the Inca (Peru before the conquest of the Spaniards), the elite and the ordinary person were subject to different levels of punishment for identical crimes. Elite punishment was, IIRC, twice as harsh. (Interestingly, if an ordinary person stole both he and his boss received punishment as well.)
Today:
That a multimillionaire would feel sufficiently impoverished to find it necessary to break his or her country’s laws is a special sort of outrage. Sorry, bud, but nobody accumulates vast wealth on their own; they are invariably enabled by our society’s rich social, physical and historic infrastructure. It is a debt that cannot be repaid.
Also, the top legal help that the privileged have access to lowers their exposure to legal unpleasantness.
Finally, there’s the fact that white collar crime’s complexity makes it difficult to convey to a jury. Which makes it difficult to prosecute.
Under Incan Justice[sup]TM[/sup], we do away with such liberal innovations as, “Equal justice under the law”. Instead, those defined as “privileged” (eg Net worth above a couple of million OR Annual Income above a cool half million OR President, CEO, CFO of a Fortune 500 corp OR US President, VP, Congress person or State Governor) - those privileged few receive doubled penalties if they are convicted of a crime.
Squink, your idea is still ludicrous. I also have to question whether you’ve ever worked in a large company.
Fraud isn’t usually obvious. The overwhelming majority of staff, even in relevant positions, are not qualified to spot complex accounting fraud. I work in the audit practice of a Big Four firm, but I’m an IT consultant. Even though I work out at clients with auditors on a daily basis, I wouldn’t have a clue what their work means. I don’t have access to all of the work papers and I don’t have the training to interpret them. I don’t even have the time.
You seem to be demanding that in addition to doing their own job, employees at every company in every industry become experts in complex accounting practices (effectively, becoming trained, qualified accountants). Where does this leave room for doing a day job?
This is the first thing I thought of and I have not thought it through. There is a certain poetic justice to it, but I don’t know if it would work. I’m certain it would never be approved, but…
…have Large Corporation X’s books audited by Large Competitor Y.
Competitor Y would have the ability to detect if X is fudging things badly and would have no reason not to say so.
Like I said, probably never happen, and there’s probably a squintillion problems with the idea. But worth a laugh at the Enron rock-breaking water cooler.
That happens already–sort of. Big Five firms perform ‘peer reviews’ of a sample of audit work performed by each other, and they are taken very seriously indeed internally.
Depends. There are probably a thousand partners at my firm. Should the sr partner of the Audit practice in Chicago be held responsible for the actions of the Reals Estate partner in Singapore? it’s almost like a completely diferent business.
Since we have decided to wave bye bye to reality here, I suppose I will sugest an idea. How about having some 300 lb goon from the SEC randomly walk into firms and punch an executive oficer in the head. “That was for nothing! Wait until we catch you doing something!”
msmith: I’m surprised by your response. If the partners of your firm don’t want to accept liability for the actions of their far-flung associates, it sounds to me like they should reorganize as a limited liability corporation. Or perhaps they have grown too large.
In practice, they may prefer to substitute ample liability insurance for the protections of incorporation.
Interesting idea regarding the proposed merger of the WWF and SEC. I will repeat the point I made earlier however: a mild (and reasonable) tweaking of Squink’s idea would insulate employees from the shenanigans of upper management.
I should also note that, with all due respect MSmith, nobody has forced you to wave bye-bye to reality. For example, most of my 10 points are pretty mainstream, though not without controversy. There is plenty of scope for debate of the felt-hat variety.
But that’s the beauty of it! After they completely fail to monitor activities they have no control over or education to understand, they will be able to be fired for not adequately performing their duties. In this way, they will be shielded from poor mistakes!
I’m good; I wasn’t aware of the LLC form of organization. Thanks.
Some definitions from the web:
Limited Liability Partnership (LLP): Another name for a Limited Liability Company, often used by professional associations.
In California:
LLP in general: California allows attorneys and accountants to operate their practices as a limited liability partnership. This formation is a General Partnership that elects to be treated as an LLP by registering with the Secretary of State. Many attorneys and accountants find the LLP as a very attractive alternative since it shields the partners from vicarious liability, can operate more informally and flexibly than a corporation, and is accorded full partnership tax treatment. Note, in California, with certain exceptions, the LLP is only available to attorneys and accountants.
No, most of my 9 ideas have not been implemented. AFAIK, none of them have been implemented via legislation or regulation.
And voluntary actions by accounting firms can be reversed.
How??! They don’t have access to employee salaries. They don’t have access to inventory costs. They don’t have access to bookeeping. In short, they have no potential for monitoring, and probably not the know-how anyway.