Last Friday I met with Jeremy Newman, BDO’s global CEO. I had been anticipating this meeting for some days. It is rare for a global head of a large accounting firm to meet with lowly, ‘never under opinionated’ bloggers like me. It added a certain edginess to the encounter. I also had the sense I’d be meeting a person willing to speak with passion for a profession that I and others believe needs to change. It is perhaps a reflection of the liveliness of our discussion that what was meant to be a one hour meeting turned into nearly two hours of debate that only ended because we each had other things to conclude that day.
To set the scene, Jeremy had arrived in the UK from Hong Kong at 5.45 am, dashed home for breakfast, had a day of back to back meetings and then sat down with me at 5 pm. On a Friday. That requires reserves of energy and a willingness I can only admire. I should also say that there were certain aspects of our conversation that were ‘off the record.’ This should not be construed as a collusive effort to conceal but a recognition that certain things would naturally emerge in conversation that should not be put into the public domain.
My first question had to be about BDO’s exposure in regard to Banco Espiritu. Some of us armchair quarterbacks believe that BDO is at risk of failure – along with others. He was unequivocal: “It will be dealt with and we’ll move on. And no, we’re not at any risk.” I have no reason to disbelieve him even though we both agreed that the reputational risk arising out of the post financial meltdown is worrying. “All we have is our reputations which we have to defend.”
We then moved on to discuss the role the profession has (or has not) played in the undermining of confidence in the financial sector. I argued that auditors could have done more to at least alert management’s attention to the risks attached to some of the trading activities that have ended up with the fall of Lehmans and others.
“Could’ve, should’ve, maybe. It’s a valid argument, But you have to understand two things. First, the regulatory environment is incredibly difficult and complex. If the rules say you do things this way then what can you do? Regulation is not being made by accountants although I acknowledge there are accountants on IASB. There’s a political dimension on which I’ve already expressed my views. Do these people really understand? Second, we now live in a highly litigious environment. If we point out to one but not another we get sued. We might easily get sued if we do point out a risk that turns out to have been over emphasized.”
Jeremy also talked about the role of the credit agencies and other regulators: “Right now I think we live in a blame culture and at the moment it seems easy to point the finger at auditors when intelligent thinking people know there’s a lot more to it than any problems on our side. But then it is difficult to get that message out without appearing as though you’re either making an excuse or pointing the finger yourself.” It is a fair point though I would be happier to see the profession move forward and engage or even start the discussions that draw a line in the sand and find new ways to ensure – as far as possible – that we don’t see a repeat of what has happened in the last few years.
It seems this fear of litigation is over riding what could otherwise be a robust debate about the interplay between regulation, oversight and quality. I suggested that if the big firms don’t like what they see then surely they should stand up together and make a noise about it? “A friend once said I don’t know if I’m a lawyer because I’m cautious or I am cautious because I’m a lawyer but I know I’m cautious,” was how Jeremy chose to characterize the profession. One where the fear of dire consequences is getting in the way of fighting back at the appropriate time.
While I appreciate the caution I can’t help but think that this is representative of a tortoise mentality where you withdraw and keep quiet in the hope that things will calm down. As Jeremy rightly pointed out: “As auditors, we’re not used to being pro-active but reactive. That makes it hard for any one firm or person to put their head above the parapet or even do so collectively.” Understandable but as I responded: “Evil thrives when good men stay silent.”
We then moved on to discuss derivatives, how they were valued and the ability of IR39 to act as a measure against which to assess value. I explained that in the early adoption days, I’d concluded that IR39 was unworkable because auditors were being asked to certify what amounts to a gambling chip: “Companies made a lot of money over a long period of time so it wasn’t all bad but could we have done more to ask questions about the risks later on? I’m sure we could but I think as a profession we were constrained by regulation and concern about where the line falls between doing our job and treading into advisory waters. That’s a problem, especially in the US.”
While I understand and have sympathy for that point of view I believe the climate has changed. We didn’t have time to explore this in any depth but I would argue that at a time when increased transparency is being demanded, surely this is the right time for auditors to stand firm, recognize where they can exert influence and move the debate about the future role of audit. Otherwise, the risk is that the profession’s future is dictated to by others and remains mired in circular arguments about roles and responsibilities.
I asked how current economic conditions are impacting the firm: “We’re having a very good crisis. The quality and number of graduate applications is soaring. I am very hopeful we’ll recruit first class people.” Asked whether he would still recommend the profession he mused: “Of course I have to say that I would wish my son to come into the profession but there are some days when I look out at what we’re having to deal with and wonder.”
I concluded by challenging Jeremy to differentiate his firm by being more transparent, perhaps issuing a sustainability report. “That would likely get me sued but we already produce more information than we’ve ever done in the past and yes, we could produce more.” He then went on to explain that one of his biggest headaches is trying to satisfy all the regulatory bodies. “Information I can disclose in the UK doesn’t always satisfy other regulators. I’ve had to refuse access to certain papers because I’m not allowed to under UK law. Part 2 of PCAOB findings in the US is considered private yet I get demands to turn those papers over in other jurisdictions. I wish it wasn’t so because it is frustrating to everyone but what can I do when the law prevents me?”
As we parted company I sensed a CEO at odds with the world in which he has to operate, who experiences immense frustrations, who endeavours to do the right thing but who ultimately has to choose his words with extreme caution: “I’m sure you know there is much more I could say but I have to remain careful.”
Some might argue this is a timid position to take, others might see it as pragmatic in light of the as yet unknown litigation that may yet bring one of the large forms down. Either way, I got to see for the first time, a different face of the profession and one which we should at least acknowledge is trying to come to terms with itself.
If the profession is to change, then it needs people like Jeremy Newman to not feel as though they’re constrained, that they can voice an opinion that isn’t going to be seen as the entry point for yet another law suit. The profession has plenty of issues to contend with but for as along as it remains silent, it will not have a voice. It will not be part of the change process. Regardless of what anyone thinks about the relative complicity of firms in the demise of the banking sector, that’s not a good thing. In any civilised court of law, even the guilty get their chance to be heard. Should the court of public opinion be any different?
At the top of this post I dubbed Jeremy as the ‘cautious maverick.’ During the whole of our conversation, there was no PR person keeping him on message, he does make counter points that have not been aired before and which could be seen as contentious. He also knows however that there are enormous risks in speaking publicly about these topics. I hope he can continue to prod at the boundaries, even if it is one inch at a time and in doing so, perhaps encourage others to step forward.
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