September 24, 2018

Clearly Not Everyone at KPMG Got the Memo About the ‘Raise-Your-Hand Culture’ at the Firm

Photo: A higher proportion of hand raising than at KPMG.

kpmg pcaob conspiracy

Here’s a Forbes interview of KPMG CEO Lynne Doughtie that I read for you. If you feel compelled to read it for yourself, go right ahead, but just know that I’ve been reading these puff pieces for many years, and I assure you, you are not missing much. In this case, it’s basically a continuation of Doughtie’s essay from last month where she announced that KPMG would add outside directors to its board. In the interview, Doughtie says that the PCAOB leak conspiracy scandal “was reported internally, and we immediately started an independent investigation to get to the truth.” She goes on to elaborate on this:

One of the things that we highly value at KPMG is having a “raise-your-hand” culture and speaking up. If you even suspect something is amiss, it is exactly right that you should question it. At our company, the responsibility for the ethical environment is not your boss’s. It’s everybody’s, whether you are a brand-new intern or the most senior partner.

However, if you read the indictment of the former KPMG partners1 and PCAOB employees2 involved — and I highly recommend that you do so — you might question the “raise-your-hand culture” claim. Francine McKenna’s report explains:

The alleged scheme required a joint effort by the named defendants but also the complicity of others in the firm, including partners referred to in the DOJ complaint as Partner-1, Partner-2, Partner-3 and Partner-4 who were explicitly told by Sweet that their audits would be inspected before that formal announcement came from the PCAOB and used that information to fix audits ahead of those inspections, including audits at seven KPMG bank clients.

“Partner-5” was the person who eventually “reported the scheme to that partner’s superiors and then to the firm’s general counsel, who reported the misconduct to the regulators.” So, yes, someone did raise their hand, but if even a few parts of the allegations in the indictment are true, then a whole bunch of people did not raise their hands.

And I suppose that’s understandable. When kids walk into kindergarten, they’re almost universally told, “If you’d like to talk, please raise your hand.” Inevitably, however, there will be kids who talk without raising their hands. Does that mean kindergarten doesn’t have a “raise-your-hand culture”? Meh. Who really knows about these things? But I’m pretty confident no kindergarten teachers are strutting around, talking about the raise-your-hand culture in their class.

Anyway, in KPMG’s sample, you have three fired partners, and four others who didn’t raise their hands, so that’s a total of seven people who didn’t raise their hands; then you have one person who did raise their hand, so you have a 12.5% successful hand-raising rate. I don’t have evidence to back this up, but it seems to me that if you only had 1 in 8 kindergartners raising their hands when they wanted to talk, you’d have a pretty out-of-control classroom.

Which isn’t to suggest that KPMG is chock full of auditors passing around a cheatsheet; but a raise-your-hand culture? Are you sure?

[Forbes, MW]

1 David Middendorf, Thomas Whittle, David Britt
2 Cynthia Holder, Jeffrey Wada. A third PCAOB employee, Brian Sweet, cooperated with the investigation and pleaded guilty to conspiracy.

Image: iStock/monkeybusinessimages

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