Did the CC finally come down hard on the Big Four?

Functional stupidity.

In the aftermath of England’s crushing defeat of Australia in the second Ashes Test last weekend, the Times’s chief sports Writer, Simon Barnes, described two sorts of England fans

There were, he wrote, the “glass half-full sort” who felt the result reflected how well England had played and how good they know are as a cricket team. But there were also the “glass half-empty sort” for whom the result showed how bad Australia were and are.

Readers of the Competition Commission provisional recommendations on remedies to fix the UK audit market this week might have fallen into the same trap. Depending on your perspective, the Commission either came down hard on the Big Four (at last) or didn’t listen as intently as they might have to the demands of the mid-tier firms looking to break the Big Four’s dominance of the audit market. In other words the report apparently had something to please everyone and yet ended up pleasing no one.

The one group whose interests failed to get a look in were the boards of the businesses now expected to organise a tender for their audit every five years. One senior FTSE 100 audit committee chair pointed out that while this sounds like good practice in principle, for his business it means tendering in 140 countries every five years. As well as putting extra work on audit firms, he pointed out this would also place considerable extra demands on boards (and audit committees in particular) without demonstrable evidence it will improve the quality of the audit. It is the sort of regulatory burden the coalition government has made a lot of noise about reducing.

Putting to one side the vexed question of whether the Competition Commission is the right body to be setting the rules for audit (it is not), there is the danger once again of well-intentioned regulatory change not delivering to the intended outcome, imposing unexpected burdens and having unintended consequences. It is a great example of what André Spicer, professor of organisational behaviour at City University’s Cass Business School and Mats Alvesson, professor of business administration at Lund University in Sweden call “functional stupidity”. In a recent paper for the Journal of Management Studies, A Stupidity-Based Theory of Organizations, Spicer and Alvesson found that the unintentional encouragement of organizational stupidity might have been one of the major causes of the financial crisis.

“Our argument is that stupidity is different from irrationality,” Professor Spicer explained in an interview with Cass Business School’s InBusiness magazine. “Irrationality is an outcome, but stupidity is a process.”

It seems that the Competition Commission is in danger of imposing a whole raft of new process measures in an attempt to fix a specific problem that not everyone agrees is a problem. There is also a widely held view that auditors could have done more in the run-up to the financial crisis (when several banks were given unqualified audits), but if audit did fail in that instance, where is the logic to support the notion that auditors looking over their shoulder at a likely retender would have done anything different, or offered a more robust questioning of the basis for the valuations of loans or the pricing of risk at financial institutions? The measures announced this week would not have made a significant difference to that outcome had they been in place in 2007/8. For some this is because they are too lenient and don’t go far enough, while for others they are simply tackling the wrong problem.  

The imposition of new audit regulations and accounting regimes is an inevitable consequence of any major business collapse. Often these changes are made without questioning the role and purpose of audit.

This time at least we have projects such as the Finance Innovation Lab’s Audit Futures initiative, which is investigating exactly what role audit should play in society and business in the 21st century. The outcome from this sort of intelligent and thoughtful approach will be more beneficial to business, auditors and society than the alleged remedies proposed this week.

What is perhaps most disappointing is that this reaction to corporate failure isn’t a new phenomenon. I recently rediscovered a Demos report by Michael Power called The Explosion of Audit. In it he points out that increased auditing does not necessarily lead to greater organisational transparency. Further he suggests that audits have a near miraculous ability to be invulnerable to their own failure. As he writes, “Rightly or wrongly, corporate collapse is always accompanied by scrutiny of the role of the auditors… One of the surprising features of these experiences is that they tend not to call into question the role of audit itself. Where audit has failed, the common response has been to call for more of it. Indeed, the great puzzle of financial audit is that it has never been more a powerful and influential model of administrative control than now, when many commentators talk of an auditing crisis.”

What’s really alarming is that he was writing not last year or even 10 years ago, but in 1994, in the wake of scandals at BCCI and with Robert Maxwell’s media empire. Perhaps more alarming is that as he was writing, a little known energy company in the US (which had not long changed its name to Enron) was just starting to establish a number of limited liability special purpose entities.

The rest is history. And still we didn’t learn. Perhaps more than anything else, that is the epitome of Spicer and Alvesson’s definition of functional stupidity.

This piece first appeared on economia.

 

KPMG. Photograph: Getty Images

Richard Cree is the Editor of Economia.

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With the BBC Food’s collection under threat, here's how to make the most of online recipes

Do a bit of digging, trust your instincts – and always read the comments.

I don’t think John Humphrys is much of a chef. Recently, as his Today co-presenter Mishal Husain was discussing the implications of the BBC’s decision to axe its Food website (since commuted to transportation to the Good Food platform, run by its commercial arm), sharp-eared listeners heard the Humph claim that fewer recipes on the web could only be a good thing. “It would make it easier!” he bellowed in the background. “We wouldn’t have to choose between so many!”

Husain also seemed puzzled as to why anyone would need more than one recipe for spaghetti bolognese – but, as any keen cook knows, you can never have too many different takes on a dish. Just as you wouldn’t want to get all your news from a single source, it would be a sad thing to eat the same bolognese for the rest of your life. Sometimes only a molto autentico version, as laid down by a fierce Italian donna, rich with tradition and chopped liver, will do – and sometimes, though you would never admit it in a national magazine, you crave the comfort of your mum’s spag bol with grated cheddar.

The world wouldn’t starve without BBC Food’s collection but, given that an online search for “spaghetti bolognese recipe” turns up about a million results, it would have been sad to have lost one of the internet’s more trustworthy sources of information. As someone who spends a large part of each week researching and testing recipes, I can assure you that genuinely reliable ones are rarer than decent chips after closing time. But although it is certainly the only place you’ll find the Most Haunted host Yvette Fielding’s kedgeree alongside Heston Blumenthal’s snail porridge, the BBC website is not the only one that is worth your time.

The good thing about newspaper, magazine and other commercial platforms is that most still have just enough budget to ensure that their recipes will have been made at least twice – once by the writer and once for the accompanying photographs – though sadly the days when everyone employed an independent recipe tester are long gone. Such sites also often have sufficient traffic to generate a useful volume of comments. I never make a recipe without scrolling down to see what other people have said about it. Get past the “Can’t wait to make this!” brigade; ignore the annoying people who swap baked beans for lentils and then complain, “This is nothing like dhal”; and there’s usually some sensible advice in there, too.

But what about when you leave the safety of the big boys and venture into the no man’s land of the personal blog? How do you separate the wheat from the chaff and find a recipe that actually works? You can often tell how much work a writer has put in by the level of detail they go into: if they have indicated how many people it serves, or where to find unusual ingredients, suggested possible tweaks and credited their original sources, they have probably made the dish more than once. The photography is another handy clue. You don’t have to be Annie Leibovitz to provide a good idea of what the finished dish ought to look like.

Do a bit of digging as part of your prep. If you like the look of the rest of the site, the author’s tastes will probably chime with your own. And always, always, wherever the recipe is from, read it all the way through, even before you order the shopping. There is nothing more annoying than getting halfway through and then realising that you need a hand blender to finish the dish, just as the first guest arrives.

Above all, trust your instincts. If the cooking time seems far too short, or the salt content ridiculously high, it probably is, so keep an eye on that oven, check that casserole, keep tasting that sauce. As someone who once published a magic mince pie recipe without any sugar, I’m living proof that, occasionally, even the very best of us make mistakes. 

Felicity Cloake is the New Statesman’s food columnist. Her latest book is The A-Z of Eating: a Flavour Map for Adventurous Cooks.

This article first appeared in the 26 May 2016 issue of the New Statesman, The Brexit odd squad