There's a classic in the Irish Times this morning:
IT IS probably unfair to pick just one example of the conflicts that are rife among the people advising the Government on the recapitalisation, so let's pick two.
The most obvious one being PricewaterhouseCoopers. They are the auditors to Bank of Ireland who are desperately trying to avoid being taken over by the State. At the same time they were hired by the Financial Regulator to asses the quality of the banks' loans books, the bottom line being will the Government have to take them over.
Equally, Arthur Cox are advising the Minister for Finance while at the same time they are the lawyers for Bank of Ireland.
The stock response from professional firms is that such conflicts are unavoidable and they have robust rules for dealing with them which fundamentally rely on the integrity of the individuals involved. Quite so. Unfortunately, even though this may be the case, it can lead to bad decisions and poor advice.
How can PwC really take a view as to whether there is something systemically wrong with the way Irish banks are run without having to confront the possibly that there is something systemically wrong with PwC who audit one of the big two?
Equally, how can Arthur Cox advise the Minister that Bank of Ireland may have done something it should not have, without having to deal with the possibility that it was Arthur Cox that gave them the advice they could do it?
It may also seem a bit beside the point - given the scale of the banking crisis - to focus on conflicts of interest among professional advisers, but the failure of the Minister for Finance and the Financial Regulator to see the problem inherent in hiring Arthur Cox and PwC indicates a much bigger problem which is part of the reason we are in this mess.
How did PWC think they could do this? It seems to breach every possible code of ethics and accountant might have. They deserve to be drummed out of their Institutes for this.
Why did the Irish government not notice the massive conflicts of interest in here?
Why do they think those who helped create this mess, failed to signal this mess was coming, and gave these people a clean bill of health in the past can now get them out of this mess?
Why? Because our societies are riddled by a cronyism that is destroying wealth faster than anyone can create it. That is why.
It's why we in the UK had Sir James Crosby, who drove HBOS onto the rocks through reckless mortgage lending, telling the government how to solve the problem of mortgage lending.
It's why we had Sir Derek Wanless who helped wreck Northern Rock telling us how to reform the NHS.
And it's why some in government believe the Big 4 know the answer to everything.
They don't.
But there's a lesson to be learned. If these people not only did not know the answers, but helped destroy the value we had now is the time to listen to the other voices. Those who have delivered in the NHS (an organisation almost universally believed to deliver well by its users). It's time to listen to those who criticised the solutions the bankers offered. It's time to appoint successful head teachers to run banks. It's time for people who have run major NGOs to tell commerce how to get things right. It's time for trade unionists to appear in board rooms.
Unthinkable? Surely much, much less than thinking that the Big 4 and the bankers now know the answers.
Hat tip to Dennis Howlett
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[…] The latest bright idea from Richard Murphy. […]
Hi Ahem,
It is really time to think about “Change Management” the mess is getting bigger. I am certain Richard does not mean to replace 100 % of Management. Today, it really means to have people involved who serve the country and not their own burse. It is sad to say but the present disaster just does not allow to continue with the same people and organisations who were not able to keep Society away from this disaster. It is a disaster and that is what we have to face not only in the UK, it will happen in other countries as well. It is time to rethink the position and such thing has always an impact on brainware, software and hardware. Brainware comes first! If you take on a job you always are confronted with the fact “Do I have the right sort of brainware in my team”. If not you will replace people and I would replace people as well which fit not in the team. We are just at that point in many areas. Wait and see and not thinking out of the box will make the mess bigger. Dratstic measures are required without over-reacting.
The only hope we have today is to take decisions and taking measures which ar not popular and will hurt people. If we do not we just drive deaper into the disaster! It is time to bite the bullet, my friend and seriously challenge the big four, the bankers, the politicians. Either they deliver or they are out of the job and my view is they have not delivered yet!
Cheers,
Ruedi Elmer
You are far too easy on Sir Derek Wanless – ‘It’s why we had Sir Derek Wanless, who helped wreck Northern Rock, telling us how to reform the NHS’. Many will have forgotten that Wanless (plain Derek in those days) also ran NatWest onto the rocks in the late 90’s, following poor stategic decisions and a reckless foray into investment banking. Wanless was ousted and the weakened NatWest was taken over by RBS – the rest is history. My point is, Brown did not have to be prescient to know Wanless’ weaknesses, as the writing was already on the wall. The Wanless NHS Report resulted in Brown injecting £50 billion into a Black Hole aka The NHS. Most was trousered by the Consultants, GP’s and Mandarins, with nothing left over for life saving drugs. Wanless even had the audacity to recommend increasing taxes on junk food. Someone please tell him – with his reported £3,000,000 ‘payout for failure’ at NatWest in 1999, he can doubtless eat well from the organic counter at Fortnum and Masons. Unfortunately, the proletarian masses who are paying for his serial folly can only afford junk food ! Doubtless, were this charge placed to him his retort would be ‘ let them eat cake’ ! To my utter dismay, Wanless was Knighted courtesy of Brown, for his obediance in sticking to the NHS Report’s script. As you say, he was ousted again from Northern Rock, but even now he refuses to stay down. He sits oblivious to it all on Brown’s Board for Actuarial Standards. One can only assume this is a salutory reminder to the Actuarial Profession, of the dangers of avarice and not not applying due prudence.