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Monthly Archives: May 2012

http://www.irishtimes.com/newspaper/breaking/2012/0531/breaking29.html

It would appear that at Bloxham Stockbrokers accounts have been falsified for several years and that the problem involved enormous figures. Now, reassurances have been issued to investors who might be worried. Little is heard, however, of the Bloxham staff who will lose their jobs.

This wasn’t an accounting error. This was wilful. This wasn’t a little backstreet, fly-by-night “enterprise” in fear of being audited. This was a prestigious company which was regularly audited. The fact that the auditors failed should lead to some very hard questioning.

Vincent Browne tackles the auditors. http://politico.ie/social-issues/8586-auditing-firms-banking-crisis-audit-the-auditors.html  He writes about very well-known companies who – despite repeated failure – continue to be taken seriously. Indeed they continue to be awarded work by the state, i.e. the state gives them official recognition of suitability and confidence.

However, because he focusses on these large accountancy/management consultancy firms Vincent doesn’t give due recognition to a couple of issues. Firstly, these failures go to the heart of auditing and its professional status. Secondly, the problem extends beyond the large private firms

The issue of professionalism is at stake here. An essay might be written on its definition which might refer to payment as opposed to being an amateur or to dispassionate as opposed to involved but there is another crucial part of the usual understanding of what it means to be a professional.  Here is the crux of the thing:  if auditors are to be regarded as professionals in the usual sense of the term, they must face their responsibilities individually. In short, when there are failings and problems, questions should be asked not only of the company which employs the auditor but of the auditor himself/herself.

Financial auditing is too important to allow failed practitioners to hide behind their employers. If an auditor has been irresponsible, negligent, incompetent he/she should face sanctions right up to being struck off. Indeed such a level of personal responsibility would countervail the risk that an employer might want a particular outcome.

The second issue absent from Vincent’ piece is that the nonsense extends into the state auditors, the office of the Comptroller and Auditor General. When it was reported that a former member of the board of Fás said that he’d been given assurances by staff of C&AG that all was ok, I wrote to the C&AG to ask if this had been investigated. I also asked had anything been learned from the years of failure to uncover wrongdoing at Fás, had auditing procedures changed, were the staff who had worked on these audits still in place? Many e-mails later, I’m still none the wiser. Well, that’s not entirely true; I was given the run-around rather than an answer but it is clear that nothing changed after Fás.

There seems to be a cumbersome route for initiating complaints against a professional auditor. http://www.iaasa.ie/faq/rms/index.htm What is not clear is whether  complaints are accepted from members of the public as opposed to clients and if this route is open, what is to be done when a member of the public doesn’t know the name of the professional beyond his/her employer.  What is needed is for auditors is something akin to the Irish Medical Council’s approach: http://www.medicalcouncil.ie/Public-Information/Making-a-Complaint-/Making-a-Complaint1.html

Before Ireland began the property scam the lending policy of building societies protected both the borrower and the building society from folly.

Some time ago I wrote here (https://colummccaffery.wordpress.com/2010/06/11/house-prices-available-mortgages/) about the “traditional” mathematical formula used by building societies to link the size of a loan to the borrower’s ability to pay. This formula [(Annual salary A X2.5) + Annual salary B = 75% of the value of the house.] was used in my piece to calculate the sensible price of housing as opposed to the market value of  housing. The latter is determined by whatever the purchaser is prepared to pay and was grossly inflated when banks and building societies abandoned the socially responsible and commercially viable formula and made crazy loans available.

This brings me to the point of this piece. The conventional formula could now be used to differentiate between sensible businesslike lending and foolish behaviour.

When a foolish loan was agreed, there were of course two parties to the foolishness: the lender and the borrower.  It is certainly true that borrowers behaved foolishly. They too could see that repayments – even if everything remained fine for them on the income front – were incompatible with comfortable living. They were, however, driven to excess by fear of rising prices and constant media and family advice to “get on the property ladder” at all costs. In short, they are responsible for their actions and they will pay for their foolishness for a very long time.

The lender is responsible too. The lender is responsible for knowingly and foolishly lending more than could be repaid while living reasonably well. The lender tempted and lured the foolish borrower.

Look at it this way. Reasonable living dictates that mortgage repayments do not constitute a crippling outflow of money each week or month. If a building society or bank lured a borrower to the extent that he/she abandoned common sense and borrowed far too much, the lender should be penalised by the amount of the excess. The excess can be calculated by reference to the pre-madness policy, i.e. by using the “traditional” formula.

Let’s turn to the question of money.  Let’s consider a well off couple both with good jobs seeking a mortgage at the height of the scam:  One has an income of, say, €40k p.a. and the other has an income of, say, €30k p.a. Let’s refer to the first as A and the second as B. Now remember that traditional formula: (Annual salary A X2.5) + Annual salary B = 75% of the value of the house.

Right let’s apply figures: (40k X 2.5) + 30 = 130k

What this indicates is that at the time the loan was agreed, any bank or building society which lent in excess of €130k to a couple with a combined income of €70k p.a. was behaving foolishly and could not possibly have expected the loan to be repaid. That they were aware of what they were doing is evidenced by the existence of the earlier prudent lending policy expressed in the “traditional” formula.

If we are talking about debt forgiveness or write-downs of mortgages, a sensible approach would be to go back to the loan application, look at the stated income/s and calculate the maximum loan that a sane, commercially minded lender would have advanced. It is now a matter of striking the value of the mortgage debt down to this figure. It could then be increased by, say, 10% in order to penalise the stupidity of the borrower.

None of this takes account of how the lenders will cope with the reduced value of the loans on their books. This, however, is true of any measure of debt reduction. What the proposal here does do is root a system of debt forgiveness/reduction in a clear and previously existing policy which worked for years and whose purpose was to protect the lender and the borrower from greedy madness.

Here is an article by Eileen O’Brien in The Irish Times of May 22nd 2012. http://www.irishtimes.com/newspaper/features/2012/0522/1224316501691.html

She is a teacher troubled by her past, “To every child I struck when I was teacher … sorry.” She invites victims to contact her so that she might offer individual apologies and “to open some sort of dialogue on the subject.” The intention here is not to make little of her public contrition. What she has done is brave and sadly unprecedented. There is, however, a problem with what she says.

The article could be naively accepted as a decent woman apologising for her participation in brutal behaviour which was permitted by the state. She is claiming not only that she regrets what she did but that what she did was permitted. The truth is that in this article she admits violating the rules governing her performance as a teacher and she should face sanction.

Firstly, she refers to her activities in the 70s and 80s. It needs to be established just how far into the 80s she went because corporal punishment has been prohibited in schools since 1982. Interestingly, teachers’ immunity from criminal prosecution was not removed until the passing  of the Offences Against the Person (Non-Fatal) Act in 1997, article 24 of which states: “The rule of law under which teachers are immune from criminal liability in respect of physical chastisement of pupils is hereby abolished.”

Secondly and on this there is certainty, she explicitly admits to breaching Department of Education rules. She describes keeping her stick available as a threat and for use on children. This despite a clear Department rule: “No teacher should carry about a cane or other instrument of punishment.” (The other rules re corporal punishment can be found here: https://colummccaffery.wordpress.com/2012/04/21/rewarding-guilty-teachers/)

It is usual for teachers who beat children to offer in their defence that it was common and approved at the time. It was certainly common but equally certainly it was highly regulated and those regulations were violated. It would be preposterous to accept by way of explanation that teachers weren’t aware of the rules; anyone in any job has an obligation to be aware of the regulations governing their post.

It is unacceptable that any public servant who flouted state rules should remain in employment or remain in receipt of any pension attaching to their job.

 

The concept of “groupthink” appears as evasive psychobabble in the BAI report on the Primetime libel of Fr. Kevin Reynolds. It is proposed that the critical faculties of journalists and managers at RTE were overwhelmed or blunted by “groupthink”.  Both Breda O’Brien* and John Waters** make effective use of the notion by locating an endemic anti-Catholicism within the RTE “groupthink”.  They are not entirely wrong but they are being selective both in focussing on anti-Catholicism and on RTE.

With a few exceptions journalists reflect the dominant views in society and don’t see their role as fostering public controversy. When journalists hold anti-Catholic views as fact or common sense, it can result in great personal harm but tends not to have significant political effect. However, that is not true of all the hardened beliefs common to most journalists. One such belief is in what Philip Bobbitt termed the “market state”.***

Irish journalists day in, day out promote the belief that the function of the state is to promote choice by way of increasing financial competitiveness in all aspects of life. That may be a plausible argument and it certainly deserves to be heard but it does not enjoy anything remotely like universal acceptance. It is a highly controversial position. The public discourse which relies on journalism demands that this and a wide range of contestable assertions be presented as controversy rather than as a matter of fact.

*http://www.irishtimes.com/newspaper/opinion/2012/0512/1224315982407.html

**http://www.irishtimes.com/newspaper/opinion/2012/0511/1224315906809.html

*** Bobbitt, P. (2002) The Shield of Achilles: War, Peace and the Course of History (Alfred A. Knopf):  213-242.

Think about the following. It’s from Noel Whelan’s piece in the Irish Times of Saturday, May 12th.  He’s referring to the BAI report re Primetime Investigates but the added emphasis is mine.

“Among the report’s most important revelations is that, contrary to some media reports, the key decision to proceed with the broadcast was not made on the hoof.  A formal, although undocumented, meeting took place the previous Friday, including the producer and reporter of the programme, the executive producer of Prime Time Investigates, the editor of RTÉ current affairs and the director of RTÉ news, together with legal department representatives.

There was unanimous agreement to proceed among production and editorial staff despite awareness of Fr. Reynolds’s willingness to take a paternity test. They were convinced their story was accurate, and made a series of ‘highly subjective assumptions, which served to reinforce their certainty’”. (http://www.irishtimes.com/newspaper/opinion/2012/0512/1224315982387.html )

I’ve already written (https://colummccaffery.wordpress.com/2012/05/06/the-prime-time-scandal-needs-plain-talk-and-a-realisation-that-management-practices-and-systems-are-seldom-unique/) about Irish journalism’s failure to call a spade a spade in commenting on this mess. There’s only so much refuge to be found in “groupthink”, “hubris” and ineffective management. Publishing an allegation of paternity about a man offering to take a paternity test was (Say the word!) stupid.  My piece also raises the question of utterly basic management and it is to this that I want to return.

Look again at the half dozen or so words to which I added emphasis: “A formal, although undocumented, meeting took place” .  The words sit there attracting not even their author’s comment, their significance lost. Those present at that meeting have many fine qualities, are high achievers and are people of ability but that they sat through a formal meeting without seeing the need to have a record of what transpired is alarming. Now, a meeting might have been called at which it was made clear that it was “unofficial”, that it was “just a chat among colleagues” and which didn’t seriously address the issue. This would attract a range of other criticism but it wouldn’t be quite so (Here comes the word again!) stupid or signal a complete absence of routine management.

The innocence of those present is as telling as the lack of subsequent comment. It suggests that slipshod practice is commonplace. Now that’s a depressing thought with implications beyond restoring trust in journalism.

Here’s a motion which twice failed to get the support of ordinary members of the Labour Party and so didn’t make it onto the agenda for Conference 2012.

As a first move in establishing a priority list for current public spending, Labour marks the maintenance of public sector incomes above 100k p.a. and public sector pensions above 50k p.a. as the lowest priority. That is to say, in the event of any further reductions in public spending, Labour identifies the first cut:  a 100k p.a. income ceiling for public sector workers and a 50k p.a. ceiling on public sector pensions.

Here’s the argument:

Let’s be clear

This proposal has nothing to do with taxation. If taxes were raised or if a new rate of tax were introduced and if the money so raised meant that there would be no need of further cuts in public spending, then this proposal would be redundant. The point here is this: if there are to be cuts, what area of public spending is least important, what should be cut first? This proposal answers: if there are to be cuts in public services and/or the incomes of relatively poor people who depend on the state, then those cuts should be considered only after the incomes of the rich who are on the public payroll have been capped at an affordable and sensible but generous level.

 

The immediate background

Leaving aside revolutionary and populist posing, the bulk of expressed opposition to cuts in state spending has involved particular pleading.  Then our media – in making no demand that something constructive be said – have compounded the problem. Journalists and presenters fail time and again to ask the most obvious question: “If there must be cuts and you feel that ‘X’ has to be maintained, which areas of spending do you think are less important than ‘X’ and should be cut first?” The lack of stated priorities has ensured that cuts are spread and this has tended to copper-fasten existing deprivation and inequalities.

I have been arguing on FaceBook and elsewhere that the rich among our public servants are the least of our concerns and that income (to include pay, bonus, overtime, allowances etc.) and pension ceilings should be introduced before any other cut. While there has been negative reaction, there has also been support and some of the support has been to the effect that the proposition should be put to a Labour Conference.

 

A fundamental question for Labour at this time

Because revolution and populist posing must not feature in Labour thinking, a major and significant question looms, and it demands an answer now: What remains of Labour values when state spending must be cut? Two very old and basic Labour tenets begin to harmonise and form at least part of the answer. Firstly, while equality is central to Labour’s ambitions, the Party has been slow to emphasise the most crucial and controversial aspect of equality: equality of income or – at least – reduced inequality of income. The time is ripe to put that right. Secondly, Labour has always sought to defend the meagre incomes of the poor. Never was this more urgent.

A pay ceiling on public service incomes and pensions would

  • accept that money is tight and that we cannot have everything but that some spending is vastly more important than others, and lay down a marker that a start has been made to setting priorities for Irish public spending;
  • make savings in public spending such that vital services and the pay of poor and middle income public servants could remain untouched;
  • reduce the bizarre and shameful spectacle of rich people beside poor people on the public payroll;
  • place inequality of income on the public agenda;
  • make it clear that Labour in bad times and in good times is serious about reducing inequality.

 

Arguments against

There are of course arguments against. Actually there are basically just three arguments against:

i)             The fairness argument

ii)            The brain drain argument

iii)           The Croke Park argument

 

i) The fairness argument says that public servants should not be singled out and that nothing should be done unless all rich people are tackled. In a sense this is a “what about?” A “what about?” is very much a conservative position which hides opposition to a change by diverting attention to other – often larger – issues. In this case, limiting the income of rich public servants is opposed by diverting attention to the income of other rich people. In another sense it is a crazy distortion of the notion of equality because what it says is that it would be unfair to reduce the incomes of one set of rich people unless all rich people were similarly treated. That is to say, it is a demand that all RICH people be treated equally!

It needs to be emphasised that it is public money that is in short supply, that cuts are happening now and that clearly public sector pay can be cut. In other words, there is neither time nor compelling need to be concerned about other rich people.

ii) The brain drain argument takes two linked forms. It is said that a reduction in top pay among public servants would result in a flight of talent abroad or into the private sector. It is certain that some may flee. However, the idea of a mass flight is fanciful. There may – just may – have been a time when a dissatisfied public worker could walk and pick up a job in the private sector. That certainly is not the case today. Moreover, this is a familiar threat raised by the rich from time to time. Remember when bank bonuses had to be paid or there would be a flight of talent? It didn’t happen.

 

Another form of the argument suggests that a ceiling would prevent the recruitment of exceptional talent. This rests on an abuse of the word “exceptional”. A pay ceiling would not rule out exceptional pay for an exceptional talent in exceptional circumstances. It would control the income of numbers of ordinary, unexceptional, rich workers.

iii) It is pointed out that the Croke Park Agreement rules out a pay ceiling. This is true. However, it does not rule out talking about a pay ceiling. Moreover, the extent to which the CPA guarantees that a group of rich people stays rich needs to be discussed and addressed.

 

Summing up

  • Let’s face it: 100k or a pension of 50k would appear a king’s ransom to the ordinary people who are made to pay these rich people or whose services are cut to maintain them. No one could seriously argue that these ceilings are not generous.
  • A public servant or potential public servant so in thrall to money that they will not serve unless paid more than 100k is clearly “the wrong stuff”. Get someone who understands the meaning of public service!
  • We live today in the kind of times so strange and fraught that a proposal once thought unimaginably daring becomes ordinary and feasible.
  • While in government in a time of crisis and austerity, Labour desperately needs to rediscover its radical voice and fundamental tenets.
  • It is possible without upsetting the troika too much to use what sovereignty we have left to make a start on a less unequal society.

The Broadcasting Authority of Ireland (BAI) has found that an RTE * programme in the series Prime Time Investigates, “Mission to Prey”, was not fair in that it broadcast serious, damaging and untrue allegations about Fr. Kevin Reynolds.** The reality is more serious. A good man was cruelly injured. He was trampled in a bovine lust for a story.

Once the truth emerged, the response of the media industry generally – in failing to call a spade a spade – has been ridiculous. Leaving aside management structures, guidelines, “group think”, standards in journalism, “best practice”, legal advice etc., something quite brutal needs to be said: On the verge of publishing an allegation of paternity, it requires an enormous level of stupidity to refuse to defer publication when the man concerned is offering to take a paternity test. While there can be many determinants of stupidity, the word still needs to be said without professional prevarication.

Incidentally, we all do stupid things from time to time. We learn from them. The costs of stupidity can be viewed as an investment in the avoidance of similar mistakes. It is therefore silly to get rid of an employee whose stupid error has cost the organisation a great deal. Look at it this way: It can be said with enormous confidence that such a person will be very careful in future. Their replacement comes with no such guarantee and the person in whom so much has been “invested” goes off to work – carefully – for someone else. In short, the stupidity has been compounded for the sake of creating a tough image.

Publication of the BAI report prompted the familiar balm: comments by industry worthies processed in ritual seriousness. However, the BAI investigation and report turns out to be a veritable rescue package for standards of operation that any thinking person would regard as ordinary – indeed, as minimal. Absence of records and notes, and failure to perform checks do not constitute a problem specific to journalism; this would be maladministration in any industry or organisation. It is a description of inefficient, wasteful chaos.

It is impossible to believe that such chaos existed in one isolated area and that word of its existence never reached the outside world. It is more likely that it was learned and accepted in RTE, in the media industry and very probably in industry generally.

A long time before “managerialism”, management was in trouble. It was fluttering from fad to fad, guided by well-meaning people who thought they had found a career in promoting some fundamental truth. Routine, well-tested, ordinary – even boring – management was interrupted by or abandoned in favour of a series of fashions. Let’s put it this way: The study of management in order to make it better is desirable and necessary but like life in general, there is no blinding liberating truth and proposals for change have to be plausible. Moreover and much more importantly, there are basics which if removed, draw the enterprise into inflicting and incurring damage. The chaos that was Prime Time and which the BAI reveals is all too familiar: The triumph of a slipshod, bogus iconoclasm over planning, minutes, research, questioning etc. – all very likely dismissed as “bureaucracy”.

* I worked in RTE for more than three happy decades. I seldom criticise the organisation now for a few reasons. Firstly, there are fond ties of loyalty. Secondly, if tempted, it would be wrong to use insider information in argument. Thirdly, while RTE is subject to all of the fads which pass through industry generally and while RTE journalists are too like journalists generally, it remains an exceptionally good organisation which deserves to be spared overly harsh criticism.

** http://www.rte.ie/news/2012/0504/baireport.pdf    http://www.rte.ie/news/2012/0504/baireport1.pdf

It’s difficult to imagine that anyone gets through life without occasionally having their integrity tested. (http://plato.stanford.edu/entries/integrity/) There are rare situations where showing integrity might bring appalling consequences – even death – and in such a situation fear unto dishonesty is understandable and forgivable. In most other situations the risk is small. Indeed the most common motivation for failing to act or speak with integrity is an ambition for career advancement. Now, let’s be quite clear here. If someone feels compelled to dishonesty for fear of being sacked, then that may be forgivable if the matter is relatively minor. However, a person who abandons their integrity for the hope of career advancement reveals a paradox: They progress by being precisely the kind of person who is unsuited to a position of trust or of any importance.

It is true too that in our times a calculating, professional, strategic way of thinking tends to be lauded and this provides a ready cover for acting without reference to good or bad.

Today there are calls for the resignation of Cardinal Seán Brady who acted in a professional manner rather than doing what was right. (http://www.herald.ie/news/i-didnt-realise-impact-of-child-abuse-brady-3097772.html http://www.bbc.co.uk/programmes/b01h7m8r) As a mature man of 35 years, well into his career, his integrity was tested. He failed the test and is proven to be “the wrong stuff”, i.e. a person lacking in integrity and unsuited to a position of responsibility. The consequences of his failure were dire for a number of abused children. The risk to him of acting with integrity was slight. His life, his family, his livelihood were not on the line. All that was at risk for doing the right thing was a petty hope of promotion.

There are ordinary people who pass such tests. They are rarely dealing with matters so serious. They do however speak up and/or act according to what is right – either morally or for the good of the organisation that employs them. In the short term they accept that they will anger the boss and their career will stall. In the long-term they may never recover that impetus for promotion or they may come to be seen as having integrity, precisely what is required in a more senior position.

Integrity is at the core of another, older post on this blog. (https://colummccaffery.wordpress.com/2010/11/24/time-for-a-clear-out-who-misled-and-who-remained-silent-as-a-completely-irish-made-fiasco-developed/ ) As the Irish property bubble/scam was developed with deliberation, there were those in banking, management generally, media, politics, the professions, education, public service, consultancies etc. who knew that it could end only in tears. Few of them passed the test: They lacked the integrity to speak up time and again. They preferred to take their chances by pretending that they believed in nonsense.

It is true that chancers lacking in integrity often make career progress. However, when they are found out, it is right that they be identified as “the wrong stuff” and asked to go.

There are two linked errors in Tom Garvin’s article in the Irish Times of Mayday.

http://www.irishtimes.com/newspaper/education/2012/0501/1224315400547.html

Firstly, managerialism is not exclusive to UCD or to universities generally. It had infected and depressed many other industries before it arrived quite late in education. Secondly, Tom links managerialism to business and argues that business approaches have no place in university management. Now, the latter may be true but the former does not support it.

To get a hold in an organisation, managerialism must first oust efficient managers; it is no friend of business. The bizarre language used cloaks futile activity in terms that give the impression of innovation, progress and effective decision making. It also creates a layer of employees who live off information processes that effective management would never tolerate. It is a very, very serious problem and dealing with will be difficult because its adherents now hold key positions and because doing away with it would result in many job losses.