It’s hard to say which is the greater tragedy: the LTCM hedge fund disaster or the Allied Carpets false accounting fiasco. The tragedy of the LTCM affair is the billions of dollars that have been thrown away by bankers – even central bankers – who, it turned out, weren’t investing in what they thought they were. The tragedy of Allied Carpets is the damage that has been done to careers and shareholder value, even though there isn’t a single copper penny out of place. These seemingly unrelated corporate cock-ups lie at opposite ends of the same spectrum. Both represent the failure of top management – especially financial management – to control, to police, to exercise their first duty of stewardship. Whether cash disappeared (as at LTCM) or not (as at Allied Carpets), neither instance is characterised by traditional fraud, theft or embezzlement. But in each case, it is probable that bonuses would have been “earned”, jobs “kept”, perhaps even promotions “deserved” – and all on the basis of rotten numbers that looked good. These have not been isolated instances. Indeed, they join Barings, Wickes, Azlan, Powerscreen International, Allied Textiles, Deutsche Morgan Grenfell, Symonds and countless others yet to be uncovered. It’s a growing league of fiscal abuse that, back in January, we termed “performance-related stress” – the growing pressure to do anything to meet targets, beat budgets, fiddle the figures and hope to God you can unwind the fiction in the next financial period. It’s going to get worse. As economies deteriorate and financial markets worsen, the pressure to perform is going to intensify. At middle-management level, there will be more pressure to borrow from tomorrow so as to make today’s report look good – Micawber accounting, if you like, based on the desperate hope that something will turn up. At top management and treasury level, there will be growing pressure to rob from Peter to put up the collateral to borrow from Paul – Maxwellian funding, as it were. It’s all theft – theft of time, theft of risk, theft of trust – and financial directors should be the cops on the beat.
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