Maxwell - How PwC partners kept their heads

In a week when Glen Hoddle was sacked as manager of England’s football team for his ill-judged comments about reincarnation, it is hardly surprising that questions have been asked about why heads haven’t rolled at PricewaterhouseCoopers for the firm’s failure to police the corrupt Maxwell empire.

The profession’s watchdog was merciless in its criticism of Coopers & Lybrand last week when it unveiled a damning verdict on the firm’s dealings with the dead media tycoon.

As it imposed the largest fine in the profession’s history, the Joint Disciplinary Scheme said Coopers had ‘lost the plot’. Much of the British public was probably thinking the same about Hoddle.

But despite this, the four surviving individuals who were most closely involved in the Maxwell audits continue to enjoy the lucrative benefits of partnership in the accountancy supergiant formed out of last year’s merger of Coopers and Price Waterhouse.

The leniency of the punishment also raises serious questions about the effectiveness of regulation of the accountancy profession. The JDS stopped short of suspending or expelling them from the profession, and they have apparently suffered no internal disciplinary action at PwC.

In the aftermath of last week’s events, there have also been comparisons of the #3.3m penalty imposed by the JDS with the many millions more earned by Coopers from its work on Maxwell’s companies. Coopers is, after all, thought to have earned #4m in audit fees from Maxwell in 1991 alone.

The perceived softness of the penalties has prompted the usual barrage of criticism from the band of MPs and academics who make up the profession’s harshest critics. Does the JDS, they ask, have a hard enough bite to act as the profession’s watchdog?

Plans are already in hand to replace the JDS with a new independent Investigations and Discipline Board, managed by an executive committee of which at least 60% would come from outside the profession. At the moment, only three of the eight members of the JDS committee are external. But those hoping the new watchdog will have more bite to match its bark could be disappointed.

Leading figures refute the suggestion that the new body will necessarily take a harsher view of professional shortcomings than the JDS. And, they say, there is no reason to expect the new body to handle matters any differently.

‘I think the experience of the profession’s disciplinary process is that those within the profession take a tougher view than those outside it,’ says Ian Plaistowe, chairman of the Auditing Practices Board, English ICA president Chris Swinson – and the key player in the overhaul of regulation – argues there would be exactly the same risk of the new body choosing not to dismiss someone when some commentators thought they should, as exists under the current system.

Swinson disagrees with those who say the penalty imposed on Coopers by the JDS is inadequate.

‘I see the point about an easy comparison between the level of the audit fee and the fine,’ he acknowledges. ‘But I understand there have already been considerable payments made by Coopers in relation to the creditors of Maxwell. The fine is not intended to compensate people. It is intended to mark the seriousness with which it is taken by the profession.’

PwC managing partner Peter Hazell says he regards the penalty imposed on the firm as large by any measure. He also says the firm has reviewed the performance of the four partners criticised in the JDS report in the years since Maxwell, and that no other questions have been raised about them.

‘The important thing is that our clients know we have made mistakes, but have put things right,’ says Hazell.

He emphasises that the JDS report recommends the partners concerned continue to work and serve the public as auditors. ‘I think this has been a painful process for the partners involved,’ he adds.

And, as the Hoddle affair demonstrated, that sort of acknowledgement often is not enough. Whether the profession’s new regulatory regime is, remains to be seen.

GHOST OF MAXWELL SHOWS STAYING POWER

The ghost of Maxwell could haunt the corridors of PricewaterhouseCoopers until 2002 and beyond, as it wrestles with a lawsuit which may cost more than #400m.

Rather than finally exorcising Maxwell, last week’s penalty was merely the second of three bills faced by Coopers & Lybrand, subsequently merged into PwC, as a result of its involvement with the fraudulent tycoon.

The firm has already made what it describes as a ‘substantial’ contribution to the Maxwell pension funds, understood to be in the region of #50m.

The #3.3m penalty it incurred last week could now also be dwarfed by the lawsuit being brought against PwC by Grant Thornton, administrator of Maxwell Communication Corporation. The liabilities are thought to total around #400m. Costs and interest charges would push up any PwC payout.

Scott Barnes, Grant Thornton’s head of corporate recovery, says the firm’s lawyers are preparing for a court case which is unlikely to take place before 2002, although an out-of-court settlement could be reached before this date.

Barnes says the firm and its lawyers are analysing the Joint Disciplinary Scheme findings to see if there is anything helpful to its case. And he suggests the findings of the JDS may affect PwC’s attitude towards avoiding a painful legal battle.

‘It paints a picture of the audit work done by Coopers which may have an impact on its attitude towards a settlement,’ he says.