Alex Cobham ■ KPMG and the false objectivity of the ‘Big Four’
This is cross-posted from Huffington Post, South Africa.
It’s time to recognise the big four firms for what they are – or we’ll continue getting stung, says economist and Chief Executive of the Tax Justice Network, Alex Cobham.
And so another international firm providing ‘professional services’ has thrown its reputation away, revealed to have taken enormous fees in South Africa for activities that are — at the very least — completely unprofessional. But, while KPMG and its senior staff may face serious consequences, there is a wider point: we, the public and the media, should completely revise our expectations of the ‘big four’ accounting firms. These are not the guardians of financial probity they purport to be. They bring technical expertise, sure; but that expertise is bought and sold, just like so much else.
To begin: KPMG is not Bell Pottinger, and the cases are different in important ways. Bell Pottinger’s past activities and client list were sufficiently well-known, that their role in PR was only effective if they were hidden from view. KPMG, in contrast, and their fellow big four firms Deloitte, EY and PwC, are valued precisely for their visibility.
A policymaker says their plan is good? Well, they would. But enter the big four, and the news sounds more like: ‘independent experts support plan’.
A company says it pays the right tax? Well, they would. But here come the big four, and the headlines offer no suggestion that the claims could be dodgy.
An institution dismisses allegations of corruption? Well, they would. But look again: here’s the big four to produce a report confirming everything was above board. Phew! We can all relax.
These are not the guardians of financial probity they purport to be.
But there are deeper similarities between KPMG and Bell Pottinger, and this is where we should learn lessons. Neither are independent of those who pay their fees: and we should treat them as such.
The big four accounting firms present themselves globally as international technical experts: professional, objective and politically neutral. Aside from their paid assignments, their policy commentary — not least in lower-income countries — is typically reported as objective criticism of government or opposition positions.
And yet the big four are — by definition — for hire. In fact, it would be extraordinary if their commentary did not reflect their clients’ interests. Those clients, by and large, are large companies: and so their policy positions tend very much to reflect those interests. Ask yourself, for example: have you ever heard the big four oppose a corporate tax cut? But it’s not their fault that they lobby for the corporate interests that pay their fees. It’s our fault if we don’t realise.
The view of the big four’s technical neutrality may be rooted in the old sense that the accounting profession are staid, boring-but-important guarantors of financial probity. But both accounting itself, and the big four, have changed dramatically.
And yet the big four are — by definition — for hire.
Accounting has moved far from its origins as a service to the public, ensuring — yes — accountability. Accounting standards, and accounting industry bodies now openly privilege investors above all other stakeholders. Only a few decades ago there was consensus that the public, in the form of government, media and civil society, were at least equal stakeholders in the quality of companies’ accounts. But gradually that has been undermined, leaving the owners of the capital identified above all others as the users of accounts.
Alongside that loss of a sense of public service, or a wider role in promoting good governance, the big four have changed even more. No longer are they accounting firms, but professional services firms. They now offer a range of services to clients, including such highly lucrative ones as tax advice — even when these might, on the face of it, risk a conflict with the duty to ensure accounts are straight.
As a direct result, the big four have been shown to be central to major scandals of financial secrecy, corruption and tax abuse — from the Panama Papers to the systematic corporate tax dodging uncovered in LuxLeaks.
KPMG have had their share of scandals — for example, the arrest for alleged tax evasion of their senior partners in Northern Ireland; or KPMG’s role in the collapse of major UK bank HBOS; or the massive, $456m fine paid back in 2005 to settle allegations that it promoted illegal tax shelters in the USA – allegations that could well have seen the firm collapse if criminal prosecution had followed.
And so the departure of the senior management of KPMG in South Africa is not entirely unprecedented, within this firm or the big four more generally. Failures in respect of the audit of Gupta companies are, equally, not unheard of.
But the role of KPMG in bringing down Pravin Gordhan, then head of the most assertive and respected tax authority on the continent, stands out even against this background. It would be a surprise if apologising now for the firm’s actions in 2014 was enough to move on.
More importantly though, we should all ask ourselves what should have been expected in that situation from one of the big four. While the government might have been paying the bill (that’s you, taxpayers), the great weight of fees comes from those who see an effective SARS as the enemy, or at least the opposition. Really, what should we have expected?
KPMG have invested a great deal lately in positioning themselves as the leading big four firm on ‘tax transparency and responsibility‘. At the Tax Justice Network, we don’t see their positions as terribly progressive. But you know you’re leading a debate when your long-term, implacable opponents try to capture your language. So no complaints. And it’s not as if all KPMG staff are bad people — there’s a great many expert folk there who genuinely understand the value of real transparency, and of tax justice.
The big four have changed even more. No longer are they accounting firms, but professional services firms.
The ultimate point to take from this is not that KPMG are a uniquely bad presence in the world. It’s that we should adapt our expectations of the big four. The similarities with Bell Pottinger are, it turns out, bigger than the differences. The big four are not objective, or neutral, or in any strong position to judge corruption elsewhere. They are service providers, led by financial interest.
We should treat them as such. We should report on their statements in the media as such – the lobbying of and for interested parties. And we should treat their policy lobbying the same way. And we should certainly limit any public employment, and be highly skeptical of all those kind offers to second staff into government agencies to help draft legislation, or tax reforms, or – frankly – anything else.
It’s time to recognise the big four for what they are — or we’ll keep getting stung.
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