How much is a company’s reputation worth?
For Deloitte, the world’s largest accountancy firm, the answer must surely be in the billions. Integrity, independence and professional judgement are fundamental to its business. Trust is arguably the most valuable thing it sells.
Extraordinary revelations
This makes the extraordinary revelations about Deloitte’s work for Russian oligarch Roman Abramovich all the more astonishing.
An investigation by BBC Panorama and the Bureau of Investigative Journalism – summarised in this 30-minute documentary being broadcast today – has uncovered evidence from 400,000 leaked documents that Deloitte’s Cyprus operation knowingly signed off misleading accounts and endorsed falsified documents that enabled Abramovich’s companies to evade vast sums of tax.
In one case, assets worth $672 million – including superyachts, private jets, helicopters and luxury properties – ‘disappeared’ from a set of accounts after documents were backdated to make it appear they’d been transferred out years earlier.
The investigation found Deloitte signed off the acccounts as a “true and fair view” of its client’s company, despite knowing they were not.
In another case involving a company holding almost $2 billion in cash, Deloitte appears to have helped to “falsify” its accounts – “rewriting history” to make it look like the company did not own the money – to avoid tax on the interest.
Andrew Mitchell KC, a barrister specialising in financial services, describes the actions as “straightforward” tax evasion. He talks of “professionals who are prepared to bend and break the rules of their profession and therefore the law, and will stop at literally nothing”.
Lord Prem Sikka, Professor of Accounting at Sheffield University, says the accounting firm was acting as a “fiddle factory.”
Deloitte Cyprus has said it is “unable to comment” because the documents are more than 20 years old and no longer accessible. Hardly a convincing defence!
Deeply uncomfortable question
Panaroma’s evidence raises a deeply uncomfortable question.
How could an organisation whose reputation is so extraordinarily valuable allow itself to get embroiled in a scandal like this?
I don’t know the answer for sure, but it feels likely to lie in the enormous commercial temptation of working for one of the world’s wealthiest men.
The fees for managing Abramovich’s vast, complex financial affairs must have been highly seductive. Did the desire to retain that business overwhelm the professional judgement that should have governed the relationship? Or did Deloitte get huge extra fees for carrying out the “dodgy dealings” that have now come to light?
Assuming the commercial value of the relationship was a major factor, this is a spectacular example of short-term gain being allowed to jeopardise a vastly more valuable long-term asset.
Whatever fees Deloitte earned from Abramovich, aside from the core fact that the firm’s behaviour was just plain wrong, how could they possibly justify the potential damage to its corporate reputation?
That damage goes to the heart of its business.
When an accountancy firm signs off a company’s accounts, investors, regulators, clients and others are entitled to trust they give an accurate picture of its finances. And that trust is fundamental to the firm’s commercial value.
Yes, these events took place years ago, and they involved Deloitte’s Cyprus operation rather than necessarily reflecting the conduct of the whole organisation. But reputations don’t respect corporate boundaries – to most people, Deloitte is Deloitte – and there’s no expiry date on a scandal.
There’s also a wider lesson for businesses of every size.
We often think of adverse events leading to an immediate crisis that harms reputation. But this shows that bad actions can have major reputational repercussions years later.
A lucrative contract, an important client, an opportunity to boost revenue can all bring temptation in the moment to compromise principles, which seems like madness in the cold light of hindsight.
The financial benefits are immediate and measurable, while the reputational risks can seem distant and intangible.
Until, suddenly, they aren’t.
Real test
The real test of an organisation’s commitment to integrity isn’t what it says about its values. It’s whether it is prepared to turn down profitable business if it would mean compromising them.
For Deloitte, the challenge now is to convince the world that the integrity on which its business depends can still be trusted.
Whatever the outcome, this case is a powerful reminder that no client, however wealthy, is worth sacrificing your reputation.
You can watch the Panorama documentary on the BBC iPlayer here.
For advice on managing your reputation, see our crisis communications services.
