Trust hard to rebuild

The Andersen saga will change business professions, says HAMISH McRAE.

And then there were four. The Andersen name now seems certain to disappear, bringing the number of large global accountancy firms down to four.

Whatever the final home of the constituent parts and whatever the outcome of the legal challenges it faces, the reputation of the brand is so undermined that it cannot survive as an independent entity.

So corporate misdeeds result in corporate death. End of story?

Well no, not at all. A bigger and ultimately much more important story is about to unfold.

For it is not just the accountancy profession that will be changed forever by the tale of Andersen, which is facing a criminal investigation over its work for energy trader Enron, which in December filed the largest bankruptcy in United States history.

Expect all the business professions, including management consultants, investment bankers and, I suspect, lawyers, to be changed, too. Somehow they have to recover our trust.

So who do we trust nowadays? Not many occupations, it would seem. Most people would have given a reasonable level of trust to accountants until recently.

Not any more. The problem is not that Andersen will disappear, but rather that all accountants' reports will be treated with more suspicion.

The reason for this goes far beyond Andersen. It is the extent to which the professions have moved from being reasonably impartial and careful of their reputation for independence, to becoming advocates for their clients' wishes - and prepared to bend the rules to collect the fee.

This has happened in investment banking. The whole Enron expansion was driven by Wall Street's encouragement.

Investment bankers cheered on the company's shift away from its core pipeline business into trading in financial instruments.

Companies need advisers who will say, 'No, don't do it'.

Lawyers, too, must carry some of the blame when companies transgress. The in-house lawyers of Enron were asked to look at the allegations of fraud when a whistle-blowing employee drew top management's attention to them.

But they gave an all-clear. A culture of "is it legal?" took over from one of "is it right?"

When giving private advice, lawyers need to be confident enough to warn clients if they feel they are sailing too close to the wind.

So, rebuilding trust is the absolutely central task. We need business people who don't cuddle up to ministers to get their knighthoods, but work hard for the various stakeholders in their enterprise.

We have to have scientific advisers who are properly independent of the government so that we trust them when they say that food is safe. We have to protect the political independence of the civil service.

All this will be a long, slow slog. It is a slog that has to start from the top - tricky when we don't trust our politicians.

You can't just declare that everyone should behave in a more trustworthy way, when it is evident that some people in senior positions don't.

So how do we move forward? Here are two suggestions.

The first is that trust has to be supported by a financial structure that rewards it. We need carrots and sticks - and have seen a powerful example of the stick in the case of Andersen.

We also need carrots. We need rewards for people who are independent and trustworthy and who take on tough jobs. We need to reward good people both financially and in status.

The second suggestion is that we need to use amazingly powerful new information technologies to reinforce trust. In a village, everyone knows the honest trader and the sharpster.

The more we know about people, the more we know whether we can trust them or not.

Of course, people must be able to put their mistakes behind them. But it is curious, is it not, that people who are bent when they are in their 20s remain bent all their lives.

I can think of a peer in jail who demonstrates that particular truth.

- INDEPENDENT