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Monday, June 16, 2008

He who pays the piper

In recent years, we had several corporate scandals, involving accounting irregularities. The accounting firms were appointed by the management of these companies. These professional firms received large fees and were suspected of not doing their work diligently in discovering the irregularities.

In more recent years, we have the subprime crisis. The rating agencies were appointed by the issuers of the collateralised debt obligations. They are now suspected of having a conflict of interest in giving a favourable rating to these complex structures.

Consultants are appointed by management to give advice on business strategy. These consultants are likey to be selected to give advice that are favourable to the management's thinking.

There must be a better way to have access to independent professional advice, especially on matters involving the public interest. The current approach is not working well. As the saying goes, "He who pays the piper calls the tune".

What is a better way to protect the public interest?

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