Re:Balance -- Jim Peterson

A Personal Note: Mother Takes Her Leave -- Teaching Us All the Way

Our 92-year-old mother’s family gathered, to say good-by, and to honor and celebrate a life well lived.

Each such loss is grievous in its own way. We count ourselves fortunate that, because her malign intruder had not yet reached its tipping point, we had the special benefit of her lucid presence and participation.

With integrity, discipline and personal and family responsibility – amply leavened with humor and curiosity – she raised a family, inspired her students, re-invented herself in comunity service through both retirement and widowhood, and re-married in wonder and delight at age 85. The same principles have now been on full display. Her medical instructions were terse and precise -- "no intrusive measures" -- and her affairs and estate are in meticulous order.

That this should be so is no surprise. In February 2006, my letter recognizing the inspiration and character with which she embarked on her magnificent new marriage became one of my most-read columns in the International Herald Tribune.

That testimonial to the guidance of her life’s inspiring example is worth sharing here. It also serves to alert Saint Peter and the other gate-keepers – Michael and Gabriel and the whole team of angels: Elizabeth is coming – so be on your toes:       

A TOAST FR0M THE KIDS
February 3, 2006 -- the International Herald Tribune

                "Oh, Momma, get married today!
                    - "Gypsy," lyrics by Stephen Sondheim, 1959


Over Christmas dinner, my mother, 85 and widowed 15 years ago, shared with her assembled family the news that she and Don - until then known only as her "very good friend" - were engaged to be married.

Mom is fortunate: She is in good shape, given the vicissitudes of age and their toll on health and energy. Despite limited means, she kept us all fed and clothed and sheltered, yet was disciplined to do the planning and saving that now keep her in modest comfort. And she is grateful. She has found a companion her own age, and her four children were unreservedly delighted.

She and Don have insisted that there be no gifts. So instead I make this tribute, both as a wedding present and to pass along some of the inspiring good sense I was privileged to grow up around.


Dear Mother,

On behalf of all the children and grandchildren, congratulations on your wedding! We applaud and endorse your plans. We especially appreciate the grace and style with which you and Don are dealing with the many decisions involved in this grand venture.

For starters, you remind us of the importance of direct control of critical choices. When I jokingly suggested that Don should have asked me, the eldest male, for your hand, your reply - "Forget it, kid!" - made clear that you retain authority over your own business.

We offspring have always been grateful for the explicit and active role you have taken in the management of your financial affairs:

By doing the research and planning for your recent move into an extended-care facility, you have given us the confidence that your daily needs are well and professionally looked after.

Because you have kept up to date your estate plan, living will and medical-care instructions, we need never go through the uncertainty or undignified family disagreements over the intentions of a loved one.

And though, of course, you consulted with lawyers and financial planners, you and Don have kept in your own hands the hard and diligent work of writing your prenuptial agreement.

Hammering out that 40-page document can't have been easy, but you are entitled to some good form of celebration for documenting the undertakings and obligations the two of you are exchanging, and fitting them into the management of your financial resources. The details of the agreement are none of our business, except to have the comforting assurance that you have each other's interests both at heart and in view.

In all these areas, those much younger and more spry will put off or deny the value of the kind of work you have done. But having clarity for yourselves also means that none of us will ever have to worry about your well-being or about the dispositions you are entitled to make.

During recent years as an expatriate, I was separated from you physically over extended periods and thousands of miles. I have all too often seen our overseas friends forced under stress and panic, and for lack of your kind of planning, to make choices and take responsibility for the condition of their elderly parents.

As my middle-aged generation knows, those parent-care challenges are tough enough in close proximity; at a very great distance, they can be overwhelming. So for your investment of energy in meticulous self-care, we thank you.

We know, too, that you have deftly handled myriad nonfinancial details, especially in areas where sentiment intersects with good sense.

You have the same lively task as any newlyweds, to combine your households: furniture, accessories and, in your case, two separate nine-decade accumulations of memorabilia. The demands of selection and dumping surely vindicate your robust injunction, "No gifts."

And it was a creative touch to publicize the event by posting a wedding announcement on the bulletin board of your residence. You may have set tongues wagging in the cafeteria line, but you also saved lots of postage.

In closing, let me say how very classy it was of Don to celebrate your engagement over a bottle of Dom Pérignon. Although the vintage doesn't quite approach your own, any Champagne that retails in the high three figures a bottle makes an elegant reminder of the many experiences that remain vital and pleasurable at any age - including the well-timed splurge.

Again, congratulations, Mom, and Godspeed.

Your loving and respectful son,

Jim

 

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RIP Daniel Pirron -- Deloittes Mourns the Loss of a Partner -- And We Should Too

What internal demons impel a suicide?

No reaction but sorrow seems appropriate, for the self-inflicted gunshot death on August 13 of New York-based Deloitte partner Daniel Pirron.

Limited attention has been paid in the accountancy media (here and here). Of which, some comments are tracking his family’s suggested linkage to Deloitte’s UK client Standard Chartered Plc, and the Iran-related money-laundering scandal in which, the week before, the bank had agreed with the New York Department of Financial Services to a $ 340 million fine.

That speculation is unfortunate, for reasons only starting with Pirron’s scope of work itself, in the office of Deloitte’s general counsel, and the firm’s statement that “he was not involved in any way” with its work for Standard Chartered.

Focus here on suicides proximate to financial and corporate wrong-doing – an area of my concern long-predating my unhappily accurate prediction on December 16, 2008, that it was a "safe but unfortunate bet…that at least one remorse-driven suicide will further color the already tawdry (Madoff) tale” – coming only too true a week later with the suicide in his Madison Avenue office of Rene-Thierry Magon de la Villehuchet, the founder of a fund whose investors lost millions with Bernard Madoff. 

That context is difficult enough – initially because the sample size is miniscule, making attempts at meaningful generalizations intensely hazardous. The conditions are, however, readily distinguishable from the impulsive acts of the emotionally immature – fortunately most often not effective – or the reasoned acts of the gravely ill – movie director Tony Scott’s recent fatal leap being perhaps explicable by a report (since disputed) of his terminal brain cancer.

A non-comprehensive survey of scandal-related suicides starts with one point of interest – that with the exception of the recent failed attempt by Peregrine CEO Russell Wasendorf Sr, those driven to act are not the principal perpetrators.

Which should be no surprise. The necessary level of introspective regret and remorse would not be in the DNA of the typical white-collar criminal. Think of the egos both of those actually brought to book – a sample including Bernie Cornfeld, Bernie Ebbers and Bernie Madoff – and those of tattered moral fabric although escaping the formalities of prosecution – “Chainsaw Al” Dunlap and Donald Trump and Angelo Mozilo and Dick Fuld.

Instead it’s the secondary players – the lower-level executives and the gate-keepers – Frank Shuch, the least of the accused triumvirate at Connecticut’s Colonial Realty (1992); Cliff Baxter at Enron (2002); Bernie Madoff’s son Mark (2008); or the reported attempt by Satyam CFO Srinivas Vadlamani (2009).

Even so noted, extreme personal acts are not in character for those choosing careers in professional services, particularly accountancy – there being perhaps some dignifying comfort behind the tradition of ill-founded ridicule of the bean-counters’ brown shoes and green eye shades.

True enough that accountants are neither saints nor angels. As with any fallible system of human design, the firms’ best-tuned screens for personal quality will let slip the rare exceptions – those challenged by intelligence or discipline, the addict or the abuser, the venal or the pliable. And while public accounting is not a vehicle for great wealth accumulation, those shifting to entrepreneurship or the executive suite are on occasion seduced or suborned.

But in the four decades of my broad experience across the profession, only a handful have met the defined standards of the criminal mind. Practitioners of independent assurance -- first delivered to Victorian-era public companies starting in 1850 with the report by William Welch Deloitte himself on the accounts of the Great Western Railway -- have overwhelmingly been people of stability, intelligence, good faith and honorable intentions.

The best scholarship on human behavior and choice-making counsels us to resist the instinctive impulse to construct simplistic stories in a futile search to comprehend the irrational.

So – rather than press an inexplicable coincidence, genuine mourning by the profession is in order – joining with his family, friends and colleagues – for the sad death of troubled Dan Pirron.

 

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Sarbanes-Oxley, Ten Years After -- Are We Having Fun Yet?

It has not been difficult, through this summer of discontent and turmoil in the world’s financial markets, to ignore with enthusiasm the comprehensively vacuous observations of the tenth anniversary of the Sarbanes-Oxley law. 

Readers will recall my long-held skepticism about that knee-jerk post-Enron exercise, going back to my July 20, 2002 observation in the International Herald Tribune about the preliminary Senate vote, that “any legislation receiving the bipartisan margin of 97-0 is bound to be fundamentally defective.”

Nor has the decade horribilis given any reason to change.

Of the smug and fatuous self-congratulations of the bill’s eponymous sponsors (webcast on July 30, 2012), the less said the better. As the English essayist Charles Lamb wrote about a blame-worthy poetic effort:

“It would be an insult to my readers’ understandings to attempt anything like a criticism on this farrago of false thoughts and nonsense.”[1]

Rather, some unasked questions should be advanced.

Regarding the self-interested back-patting of those with careers to be served by the inflictions of Sarbox –- the PCAOB’s members and staff and the spokesmen for the accounting oligopoly dependent on its compliance revenue:

“Would the elves in Santa Claus’s toy shop be expected to vote against Christmas?”

As for those purporting to see some claim of benefit, yet propounding no solutions to the continued eruptions of financial chicanery (here, here and here), the challenge remains that the cyclical nature of market bubbles makes inevitable a post-scandal period of cleansing and temporary return to virtue – political dynamics notwithstanding.  

Put another way, the storm of both scandal and outrage after Enron and WorldCom was bound to clear, no matter what. So instead of the wrong question, whether post-Enron corporate behavior is now improved, under both the Sarbanes-Oxley law and the law of unintended consequences, the proper operative question should be:

“Would financial reporting and assurance not be better if Sarbanes-Oxley had not been passed at all?”

First, American law since 1934 has pronounced it illegal to make false statements in connection with the purchase or sale of securities. So – as confirmed by the absence of prosecutions under the redundant Sarbox requirements for executive certifications of financial results (summarized by Michael Rapaport and Francine McKenna) -- that exercise has from the outset never been more than optics and cosmetics.

Second, a decade of PCAOB intrusion into the relationships between auditors and clients has engulfed the corporate reporting process in cost, paperwork and degradation of the assurance function (here and here) – while, into the bargain, failing either to advance coordinated global-scale assurance regulation and oversight in most of the world’s major capital markets (here) or to prevent (among others) the wave of securities malfeasance of off-shore origin, notably from China.

Third, as to the law’s centerpiece obligations on internal controls reporting and assurance, it was always true, even pre-Sarbox, that most decently-controlled companies would do reasonably well on compliance, most of the time – while a parade of horribles since then has made it clear that, for reasons of scope limitation or plain enforcement dysfunction, the law has been ineffectual against the rare but all-too-frequent and truly consequential cases.

A brief post-Sarbox sampler illustrates that – as generally true of large-scale challenges to risk identification and management -- it is the “outlier” cases that really matter:

• The control failures that brought down Bear Stearns and Lehman Brothers

• The “buco nero” at Parmalat and the ghost employees at Satyam

• The in-house looting by the chief financial officers of Koss in Milwaukee and the city of Dixon Illinois

• The undetected Ponzi schemes of Bernie Madoff and Alan Stanford, unremarked by gate-keepers, regulators and out-of-control client advisors and abettors alike 

• The valuation fantasies behind the window-dressing at Fannie Mae and Freddie Mac

• The incentives-driven perversions in the mortgage businesses models of Washington Mutual, Countrywide and New Century

• The derivatives and trading fiascos at UBS, JP Morgan Chase, MF Global and now Knight Capital

What then is the purpose of law-making? Sarbanes-Oxley has manifestly not ameliorated the flaws persistent in the nation’s corporate reporting and assurance structures -- then of what use or benefit has it been? 

And, if only the mis-leading politically-motivated placebo that it appears, what more should be expected both of our elected representatives and of those aspiring to hold them to account?

 

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[1] “On the Tragedies of Shakespeare,” 1811.