Sunday, August 28, 2005

KPMG: Creating Corporate Havoc

$456 million is a lot of money, but is it enough? 

Will it include funds for the individuals that were wronged by the conduct occurring here?  Will it be a global settlement? Remember the settlements with Salomon (1992) and PSI (1994), agreements that included funds for restitution and in the case of PSI a special fund of $330 million.  And if not a plea of guilty to something as this appears to be strictly a deferred prosecution agreement, will it include a special fund like the one for $350 million in the Drexel case of 1988.  Or is this a settlement where the government takes all?

Clearly when a company has its back against a wall and the firing squad is about to kill you (y'all remember Arthur Andersen, LLP) there is little bargaining room for the company. In the meantime the company has the prospect of a huge wave of civil litigation that will erupt upon a plea of guilty, not to mention the cases already filed.    So global settlements can be very inviting.

Will there be agreements accompanying this deferred prosecution agreement with individuals within the company? Who will be charged with crimes? And will the company now be the first witness in the prosecutions against these individuals?

The more important question is - which company would you, as an employee, choose to work for? Would you rather work for a company that protects its employees or one that sells them out? And perhaps it makes a difference if the company tolerated individuals bad behavior because it financially enhanced the company? (Did I hear correctly that the agreement here is for deferred prosecution on a charge of conspiracy?  - see Wall Street Journal here)

Some may question whether KPMG will suffer more in the end because of failing to provide all documents up-front to the government (see NYTimes here - BTW- co-blogger Peter Henning is quoted).  But I will continue to say that there is a difference between destroying documents and dumping everything on the doorstep of the government. 

Many will advocate that dumping is the best route for a company- but is it?  What will be the long term effect within the company and among employees?  Companys are not just answering to the government.  They also answer to the public and to the employees within the company.  A company ethos of good corporate governance needs to be instilled and maintained within a company.  But will that happen when individuals within a company are constantly looking over their shoulder wondering if the company decision will be to send them down the river the minute the government decides to ask questions, or implicate the company in some wrongdoing.  Good corporate policy requires both the individuals and company working together to operate ethically.  Looks like we'll find out Monday if the government and KPMG take that position. Stay tuned.

(esp)

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