Because “dumbed
down” education is a poor trade-off for political correctness, it is
unfortunate that the Uncle Remus stories no longer flow through children’s
literature into popular culture.
A favorite from my
childhood involved the wily Br’er Rabbit, who was caught up by Br’er Fox’s tar
baby, but duped his nemesis by imploring, “Please, don’t throw me in that briar
patch.”
Even though my
father’s rural twang made strange work of the concocted plantation dialect of
Joel Chandler Harris and his 1880’s adaptation of African-American folktales,
the didactic moral in the rabbit’s witty strategy was clear – the briar patch
was where escape and safety lay.
It’s the same today
for the large accounting firms in the United States, who confront a dilemma in
the legislation proposed by Senator Arlen Specter (D-Pa.) to overturn the
January 2008 decision of the Supreme Court in the Stoneridge case (here),
so as to broaden and extend civil liability claims against gate-keepers and
other secondary actors for violation of the American securities laws. (For a
very nice and concise summary, see Kevin LaCroix’s D&O Diary.)
The auditors’
position is particular. Despite blizzards of careless commentary, their
litigation risk in the classic big-ticket shareholder actions was unaffected
by Stoneridge, since the public
availability of their reports distinguished them from the equally essential but
backroom roles of the bankers and the lawyers -- for whom the Specter proposal
offers a clear and present threat of massive new liability.
So the lobbying
will be focused and furious. But like Br’er Rabbit, if the auditors are well
advised they will recognize the opportunity that lies in amendments suggested
by Columbia Law Professor John Coffee (here)
– offering the auditors a briar patch within which they might at last find
relief for their threatened survival.
As a bone to the
considerable influence of the lobbies of potential new defendants, Br’er Coffee
suggests liability limits for secondary actors – a concept that for the
auditors is essential (if not sufficient – see here) if they are to attain survivability in the face of their
over-hanging and potentially ruinous litigation exposures.
Not that Professor
Coffee has his dollar formula remotely within politically achievable limits. With
the recent generation of schemes and corporate failures measuring well into the
hundreds of billions, investor representatives will rail that damage ceilings
of $ 2 million for individuals and $50 million for corporations are off by at
least two orders of magnitude.
Coffee does go on
to suggest a “wealth ceiling” of ten percent of income, net worth or market
capitalization. This is a test that the Big Four accounting firms could survive
– if based on the $ 10 billion that is the roughly-averaged 2008 income of
their practices in the US-dominated American region. (And interestingly, a $ 1
billion damages ceiling for US exposure would also be consistent with Big Four
survivability under research done for the European Commission – here. )
Could the Big Four
persuade Br’er Specter to throw them into that liability patch? Several reasons
would indicate skepticism:
There is the
challenge of vision. Leadership of the profession has been notoriously
squeamish, and several vials short of the testosterone level needed to propel them forward
in support of a holistic legislative program for their own survival.
Further, the
complex political calculus in Washington suggests that the administration of
President Barack Obama will toss something to its left side. If so, lobbying
dexterity will be tested to the extreme to insert and maintain liability limits
into the Specter plan. In this process the accountants will need to align
forces with the other gate-keepers – a logical if historically rare occurrence.
Put another way,
there is the simple matter of legislative effectiveness, at which the
accounting profession’s dismal track record is perhaps best cited to the
description given by Crash Davis (Kevin Costner) in the 1988 baseball classic, Bull Durham: “Couldn’t hit water if they
fell out of the (freaking) boat.”
Inaction and
passivity will leave the large firms where they are -- stuck to the tar baby of
their litigation exposure. Initiative, subtlety and cunning may not be in long
supply, on the other hand – but in the animal kingdom of Washington, they offer
a best hope.
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