Years ago I attended a memorable lecture by Al Capp, the rude and raucous American cartoonist (1909-1979), whose irreverence included a lesson on the Bronx-cheer pronunciation of his hapless character Joe Btfsplk, who went through life attracting misfortune with a dark rain cloud hovering over his head.
Joe came to mind recently, over lunch with my friend and blogging colleague Francine McKenna, who had just written with her usual enthusiasm to kick at the PCAOB’s sometime-dormant suggestion that the United States should join the many European and other countries that require audit reports to be signed in the individual name of the lead partner, or otherwise require disclosure of the lead partner’s identity.
Having previously expressed my views -- that in context of far more substantive pending issues and concerns, this one is a tempest in a very small teapot and unworthy of the dedication of any but a trivial amount of energy – I will briefly expand.
In summary, the passionate arguments of the US profession against partner naming are undercut by the absence of serious difficulties under the practice in Europe – even though, as shown by the perfervid finger-pointing around Edward Snowden and the daily revelations of global spy-mongering, European concerns for personal confidences and resistance to privacy intrusions by government run as deep if not deeper than in America.
Yet, the case that individual partner performance quality would be positively affected by name disclosure is not supported. Definitely not in Europe, where a vacuum of favorable evidence combines with an absence of elevated professional virtue.
Nor in the US where a “name-that-partner” exercise would leave gaping holes in the base of information. That is:
First, of course, the discovery of rogue partners such as the information-sharing guilty pleaders, Scott London of KPMG and Tom Flanagan of Deloitte, involved post-exposure revelations – as to which any prior personal disclosure would have provided no informational value at all.
Second, to be serious, arguments in favor of the disinfectant effects of disclosure should require publication of entire partner lists. That’s because the Big Four routinely move senior-level partners into consultation, concurrence, job review or standard-setting – which under pending proposals would not require either individual rotation or disclosure unless there should be a hugely expanded set of naming requirements.
Francine’s own fussing about the naming of PwC’s lead partner on its engagement for now-accused Jon Corzine’s failed MF Global makes the point –that partner seems to have had broad industry-based involvement across the firm’s financial services clients, but not in the putatively disclosable capacity of lead partner.
Other examples are to the same effect:
- E&Y’s national office head was dinged by the SEC in 2009, over Bally Total Fitness, not in an engagement capacity at all, but on the basis of one problem-oriented telephone call in 2003.
- KPMG’s engagement partner on Xerox, for only one of the four years for which it was charged by the SEC, went on to a senior-level role from which he eventually retired.
- And the Arthur Andersen partner who figured in the government’s criticism of the application of the firm’s document retention policy in Enron, had been the subject of a prior SEC proceeding in 2001 related to Waste Management, not as engagement partner but as an audit practice director in 1995.[1]
Third – going back to poor Joe Btfsplk – the firms themselves are powerfully incentivized to evaluate and manage any exposure created by the activities of their personnel under legal or regulatory scrutiny.
Early in my courtroom career, my law firm defended one of the then-Big Eight in an entire portfolio of lawsuits involving the clients of a single audit partner – who in his genial ineptitude was not just a Joe Btfsplk, but a virtual Typhoid Mary of litigation exposure.
Briefly put, that firm quite rightly deserved the expanded exposure it attracted, for failure to identify and firewall this at-risk partner as soon it appeared – as a viral exception to its usually high quality standards – that every job he touched was infected.
With that, a large-firm partner ensnared in a major lawsuit, investigation or enforcement proceeding is, to use the euphemism, already “career impaired.” The protracted and unpredictable timetable of judicial proceedings is personally deadening to the soul and the spirit; no useful purpose is served by publicly drenching such a partner under Joe Btfsplk’s black cloud.
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[1] Believing as I do that partner identity disclosure is not desirable even contemporaneously, I am consistent in principle here, to omit these partners’ names as gratuitous. For anyone voyeuristic enough to care, the records are public and readily searchable.
Dear Jim,
We agree that some of the proposals are too limiting to have any impact. Just having a partner signature on a report is useless. My proposal has been for years, and one that I think the PCAOB might actually consider, is to have a full registry of key partner roles available at the PCAOB based on submissions of details about every public client on the Annual Report the firms submit to the regulator each year. The PCAOB must be keeping their own registry/tracking of all partners assigned to each engagement. How would they otherwise insure compliance with partner rotation and make comments about partner workload as they did in the PwC Part 2 report disclosure? They should make this info public. I'd also like to see disciplinary history and litigation history. McGowan was not named as a defendant in the Madoff Feeder fund litigation but her name is splashed all over every complaint on that subject where PwC is a defendant. It's less meaningful as a public relic without knowing what else she is working on. She was probably lead on some others like Knight Capital but her wonderful, now edited, LinkedIn profile doesn't say.
Posted by: Francine McKenna | July 15, 2013 at 10:26 AM