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Wednesday, 26 June, 2002, 17:18 GMT 18:18 UK
Why more WorldComs are inevitable
Poster in the City of London
In today's market, getting caught is the only crime


"Enron and WorldCom can't happen here," is the typically smug response to scandals from the UK accountancy and business and establishment.

This self-induced amnesia does not want to remember BCCI, Maxwell, Equitable Life, Resort Hotels, Wickes, Lloyd's, Queens Moat Houses, Transtec and other scandals.

In each case, company executives made a fortune whilst accountancy firms collected their hefty auditing and consultancy fees.

None noted that company accounts were massaged, roasted and cooked.

As always, ordinary people picked up the real cost through lost savings, investment, pensions, jobs and homes.

Teamwork

It is easy enough to place the blame on one or two bad apples, but most major frauds are carefully planned and executed.

The tendency to individualise the frauds deflects attention away from the systemic issues and the organisational values and cultures that give rise to problems.

Frauds are institutionalised because the expansion of capitalism has not been accompanied by moral constraints that require consideration of the social consequences of the get-rich quick schemes that dominate corporate life.

In such an environment, numerous practices are considered to be acceptable as long as they generate private profits.

Those excelling at such practices are considered to be entrepreneurial and given bonuses, salaries, share options and other rewards, which in turn fuels a frenzy for more of the same.

Crime and punishment

The failure is not seen to be connected with using dishonourable, predatory or anti-social practices but in being exposed or caught and limit the possibilities of securing profits.

The likelihood of being caught and punished can stimulate reflections upon corporate practices.

Such possibilities can be created by developing strong and effective regulatory arrangements, both within and outside the organisations.

However, the state's ability to intervene is constrained by deregulationist ideologies that limit its ability to create independent regulation or bring radical changes to corporate governance.

The increasing reliance of political parties and governments upon private monies also constrains the state's ability to institute regulation when it is opposed by major businesses.

Who audits the auditors?

Faced with numerous contradictions, the state has done little to check predatory practices.

Amongst other things it expects auditors to regulate businesses.

But auditing firms are private commercial organisations, subject to the usual ethos of big business.

The basic auditing model is also flawed. It expects one bunch of capitalist entrepreneurs (accountancy firms) to regulate another (companies and their directors).

Each is driven by the need to make profits and serving the "public interest" does not form any part of their business ethos.

So the emerging recession is bound to throw up more Enron and WorldComs.

 WATCH/LISTEN
 ON THIS STORY
Professor Prem Sikka of Essex University:
"The basic audit model is flawed and has failed again and again"
WorldCom

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15 Jun 02 | Business
24 Jun 02 | Business
10 May 02 | Business
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08 Feb 01 | Business
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