Chiefs of accounting firms don’t often make headlines. So it was surprising to see KPMG Chairman Michael Andrew tell a reporter that the insider-trading scandal involving a former partner was not a big deal. Is that really the best message for the CEO when his colleague commits a crime?
Andrew was quick to dismiss the revelation that a partner had disclosed confidential client information to a friend who later traded on it. In a remarkable interview with the Financial Times, he described the incident as a ”one-day wonder:”
“Michael Andrew downplayed the global prominence of the controversy involving Scott London, a senior audit partner who has admitted leaking client secrets to a golfing partner who traded on the information. He told the Financial Times that the story grabbed headlines “because it was a slow news week”. However, he conceded that the scandal “will probably hurt” the firm’s business in China, where Mr Andrew is currently on a visit to Shanghai.”
KPMG withdrew its audit opinions on Herbalife and Sketchers, two companies under London’s supervision. Shares in Herbalife, already battered by a showdown between two big investors, lost more than $100 million in market value after the news.
So it’s likely the companies and their shareholders aren’t treating the matter as lightly as Mr. Andrew. Nor are prosecutors, who filed criminal charges against London, the former KPMG partner.
But for his part, Andrew doesn’t seem at all upset that one of the most senior executives at his firm did the worst possible thing where a client is concerned. It would have been nice to see at least a little bit of outrage.
More than that, it appears KPMG has learned nothing from the episode, and has no plans to make changes in its processes, controls or staff training. That doesn’t inspire confidence in the firm or its ability to avert problems in the future.
It’s fine for the CEO to try to turn the page on a scandal. And it’s natural to point out that no organization can be completely safe from the actions of a corrupt senior executive. But that should not be the end of the message.
Accounting firms have for years insisted that they are not to blame when things go wrong. When their audit clients are revealed as frauds, they portray themselves as passive bystanders who relied on information from company management when examining the books. And when the firm itself has a problem, it’s brushed off as an isolated case rather than an endemic flaw.
Reading the entire interview, it seems that the KPMG communications strategy is simply to downplay everything. Proposals by regulators to name individuals behind company audits? Not necessary! Investigations of audit work at now-bailed-out banks? Nothing wrong there! Fines and settlements for selling dubious tax shelters? Water under the bridge! Dispute over audit cooperation with China? Not a “burning issue”!
At some point, minimizing the seriousness of the issues catches up with you. Clients turn away, your good people leave. Worst of all, you’ve lost precious time, and addressing the issues becomes even more difficult. If it keeps to its current strategy, KPMG has a difficult road ahead.