Speaking of accounting firms, do you think what happened to Andersen was justified?
No. I think that action was very unfortunate. A lot of good people were hurt, and accounting reform was set back because competition was reduced. The new heads of the accounting firms appear to be aware of their responsibilities. Are they still lobbying and trying to defend themselves? They are, and I would do the same if I ran an accounting firm. But I think they understand the reputational damage they've sustained, and some of them are trying in constructive ways to change that.
How should CFOs manage their relationships with external auditors?
I think it should be an arm's-length relationship. But I think this is a lesson that the accountants have learned as well: their franchise is on the line, and they're not going to be the poodles that they were in the past; they'll become more Doberman pinschers. The lesson for CFOs is to understand that, and not try to persuade them to do what the CEOs necessarily want them to do.
Do you still think it's a good idea for individuals to buy stock?
I think the stock market is still the best possible investment for individuals, and it would be a dreadful mistake for them to pull out.
But most individuals who are investing less than $100,000 a year, in my judgment, shouldn't make their own investment decisions unless they are prepared to devote the time to researching securities. Most investors belong in index funds or using their 401(k)s as their principal investment source.
Overall, are you optimistic or pessimistic about the prospects for reform?
I'm optimistic, not because I think [the] Sarbanes-Oxley [Act] will necessarily be hugely effective, but because boards have changed so dramatically and the attitudes of CEOs so enormously. Humiliation and embarrassment have brought about changes that legislation could never bring about. And with a chastened universe of executives, investors, and boards, we're in a much better position today [for reform] than we have been at any time in the past two decades.
Reader Comments» Post a comment