Arguments for and against saving KPMG from its sins
SHOULD KPMG SA live or die? This is a question being hotly debated.
It might soon be an academic one if things continue on last week’s trajectory. It could all be over for KPMG by the end of the week.
As Bell Pottinger and Arthur Andersen have shown, when a firm goes down it goes down fast and there is hardly time to put a rescue strategy in place.
KPMG SA is adamant it is not contemplating a rescue plan – as in looking for a buyer – and that its objective remains to save the firm in its present form, along with its name.
But the problem is an angry public that wants blood.
There are also political interests on both sides of the ANC divide that want retribution.
Apart from the South African Reserve Bank, which sees a potential financial stability problem with the demise of one of the big four auditing firms, the company is isolated.
The arguments for “saving” KPMG include the financial stability issue.
As each of the big four banks need two auditors and should also rotate auditors, if one of them was to go, banks and insurers might have difficulty finding appropriate auditing services.
A second argument for saving KPMG is that because this crisis is caught up in politics, the sentiment against KPMG is really pent-up frustration with the Zuma government.
As this can’t be displaced now, other victories must be won. Bell Pottinger was first, KPMG must fall next and McKinsey after that.
Linked to this argument is the question of what is the appropriate sanction for KPMG.
Surely, it is sufficient that some of its people have been fired, the money is to be paid back and sorry has been said?
A third argument is that in the end, South Africa will be the biggest loser.
The country will be damaged by losing a firm with the size and international profile of KPMG; it will also be damaged because, for outsiders, the risk profile will rise. It will be perceived that Bell Pottinger and KPMG went down not so much through their own doing, but because they got caught up in South Africa’s political crisis, underlying the risk of doing business in such a volatile environment.
There are counterarguments to all of these.
On the first, the moral question is whether KPMG should get off lightly because, like a bank, “it is too big to fail”. This means there should be special measures for audit firms and that we can overlook some of their failings.
But special treatment undermines the integrity of the fight against corruption in general.
It undermines the principle that private business, just like state-owned companies and public officials, should be held to account if we are to gain anything at all from the entire awful episode.
A response to the second argument centres on the question of the appropriateness of the sanction.
What KPMG did, with regard to the South African Revenue Services (SARS) report and the auditing of the Gupta family’s bank accounts, was more than to fiddle the accounts in an audit.
It made itself a central player in the project of state capture.
This could not have been innocently or unwittingly done.
There was more than enough information in the public domain about the suspicious behaviour of the Guptas and over events at SARS and the Treasury for KPMG to be aware that it had been drawn into the centre of an increasingly risky business.
But not only did the company not take due caution, it behaved in the most unethical way imaginable: it cut and pasted the recommendations that SARS’s lawyers said it wanted into its own report on an alleged rogue unit, even though this was not justified by its own findings.
So, the senior staff members at KPMG who have been asked to leave the firm deserve their fate.
They also deserve sanction through the professional bodies to which they belong.
But what of the firm? Was it really only a case of a few rotten apples among an ethical and professional workforce of thousands? It is hard to believe that it was only a few who had veered off the ethical path.
Given the numerous public warnings and the blatant breach of ethics, it seems that at its core, the culture of the firm was morally lax, if not questionable.
In a moral world, the ability of a new leadership to change this culture should be the deciding question on whether KPMG should live or die.
But as our world is anything but this, it will be the strength of the competing arguments above that will decide its fate.
Surely, it is sufficient that some of KPMG’s people have been fired, the money is to be paid back and sorry has been said?