tag:blogger.com,1999:blog-2546602206734889307.post973302209680168399..comments2024-03-28T04:29:22.717+00:00Comments on mainly macro: A rotten corporate cultureMainly Macrohttp://www.blogger.com/profile/09984575852247982901noreply@blogger.comBlogger7125tag:blogger.com,1999:blog-2546602206734889307.post-16045753334627518142018-05-24T20:31:11.408+00:002018-05-24T20:31:11.408+00:00In this post you ask "...have economists come...In this post you ask "...have economists come up with a better idea to offset this market failure at the centre of modern corporations?" Answer: YES, increase workplace democracy and employee ownership. Why? Because it is the people who work in a corporation who are in a much better position than absentee shareholders to monitor management each and every day; increasing workplace democracy and employee ownership would augment both their means and incentive to do so.<br />This could be in the form of codetermination<br />https://www.socialeurope.eu/codetermination-enters-the-american-political-debate<br />and ultimately by democratizing corporations, so that they become democratic communities of the people who work in them:<br />Distribution or Predistribution? http://philsci-archive.pitt.edu/12776/<br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-21335507426025187822018-05-24T12:19:22.474+00:002018-05-24T12:19:22.474+00:00gosh drat that dastardly NHS which provides better...gosh drat that dastardly NHS which provides better outcomes than most health services in the world. we really need some sensible disruptors to remove this stalinist affront to dignity.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-50825243330854271742018-05-23T21:57:42.427+00:002018-05-23T21:57:42.427+00:00Surely the problem is that the auditor is chosen b...Surely the problem is that the auditor is chosen by the board, and the board will want to choose the most compliant auditor. The market provides strong selection against good governance.Michael Greennoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-16368707082536559272018-05-23T11:12:31.391+00:002018-05-23T11:12:31.391+00:00I was reading a piece in the Guardian about Philip...I was reading a piece in the Guardian about Philip Green and people like him and it made a very good point about running corporations for "wealth extraction" vs. "wealth generation." <br /><br />Economists ought to be concerned about promoting the latter and disincentivizing the former. The way that compensation has been disconnected from performance and driven to great heights (although the top execs in Europe seem to be pikers compared to those in the US--you mention £1.5 million salary as if it is significant, for a US CEO that would be a rounding error) is of course a big element of this.Richard Laymanhttps://www.blogger.com/profile/02765521217875752850noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-46749015096014204762018-05-22T13:58:00.250+00:002018-05-22T13:58:00.250+00:00I think the issue is more one of general morality....I think the issue is more one of general morality. If you look at the works of Adam Smith he assumes that the capitalist system will only work within a system of morality and he was right. What you call a rotten corporate culture is in effect a condemnation of a general culture.<br /><br />The problem within any serious failure like this one is that it casts a shadow over the whole of business and there will be an attempt to "not rock the boat" and cause "too much" criticism. Will Hutton may be right but regulation is unlikely to provide the answer; that is a question of more general morality.Robert Joneshttps://www.blogger.com/profile/03593742130088640939noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-73799294547965359312018-05-22T12:53:09.596+00:002018-05-22T12:53:09.596+00:00Note: badly-run companies do collapse and change ...Note: badly-run companies do collapse and change happens.<br />Just imagine how bad the situation gets when badly-run institutions are funded with public money (see 'socialism').Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-18547672299469440742018-05-22T10:24:45.783+00:002018-05-22T10:24:45.783+00:00On the auditor point.
I worked in the management c...On the auditor point.<br />I worked in the management consultancy of 2 audit firms, and dealt with auditors of other clients, e.g. when selecting/installing accounting systems.<br />The conflicts of interest were manifest:<br />1. the demand to up-sell the audit to a consulting client. <br />2. Same applied to tax clients, and also the reverse for audit clients. Inevitably, the integrity of advice could be impacted.<br />3. the appointment of auditors by the managers, thru a token vote at the AGM - I have never found data on how many reappointments were voted down.<br />4. Finance directors are usually trained by audit companies. Again I have yet to find robust data on how many FDs appoint their alma maters.<br />5. With vertical integration of consulting services from strategic advice down to programming, audit firms' consulting divisions can be involved in developing/configuring/installing accounting software for their clients.<br /><br />Investors have an interest in audited accounts whether or not they hold shares, likewise HMG, and HMRC in particular, neither of whom have any influence over the audit process.<br /><br />Large corporations are so complex that auditors require time and effort to familiarise themselves with the practices of the business. However, the audit teams for each client evolve over the years, as new young staff are given experience, and older staff are promoted on and up, or leave to become finance directors.<br /><br />FWIW a few ideas on improving the integrity of the audit process:<br />Step 1 would be to bar auditors from offering other services to their clients. This has been proposed and resisted since time immemorial, but the argument doesn't go away.<br />Step 2 would be to limit the number of years a single auditor could be re-appointed. For global corporations, which employ multiple audit firms, typically from the big 4, some rotation of duties is essential, and should be beneficial, assuming no active cooperation (cartel) between firms at the same client, which could be difficult for the client to detect and prosecute. A variation, which could be applied to all large companies, would be to have more than one auditor, reappointing one at a time, to ensure some continuity, while limiting the scope for, let's call it, over familiarisation.<br />Step 3 Getting seriously radical: look at who the clients of the audit report really are. The original purpose of audit was that the shareholders used the auditors to hold the shareholders' appointed managers to account. There are now other parties who have an active interest in the audit process, including potential investors, and the government. It is therefore worth considering restructuring the audit appointment process. Ideally, all clients of the audit process should be involved directly, but that may create too much complexity???<br />As a first suggestion, quoted companies could have their auditors appointed by the markets on which the companies are traded; with many global corps traded on multiple markets, the market authorities would have to cooperate; with markets supervised by national governments (including tax authorities), that would have additional benefit of improving international, governmental, cooperative, direct supervision of global corporations. The audit fee could be recovered from corporate market membership fees, and from investor market trading fees.<br />For unquoted companies, partnerships, etc., the national tax authority/-ies, HMRC in the UK, could appoint the auditors from a pre-selected panel. The audit fee could be recovered through the taxation system.<br />No doubt there are other solutions.<br />The increasing sophistication of audit software may yet render current concepts of audit obsolete. <br />There will always be incentives for powerful people to game the system. The need for integrity to be enforced will never go away.<br />Serious debate on the audit function is long overdue.Jim Cuthberthttps://www.blogger.com/profile/08854078644617098338noreply@blogger.com