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In July 2013 the Financial Reporting Council Disciplinary Tribunal (tribunal) made 13 findings against Deloitte & Touche and one of its partners including that they had failed to consider the public interest before accepting or continuing their engagements on relation to two transactions in relation to the MG Rover group of companies. The decision caused much anxiety among members who the profession struggled to understand the tribunal’s reasoning and the implications for the profession as a whole. In January 2015, the appeal tribunal overturned eight out of 13 the tribunal’s findings including on the public interest issue. The appeal tribunal was critical of the tribunal’s reasoning and analysis. This article provides a brief summary of the issues.
In 2000, BMW was looking to divest itself of MG Rover Group Limited (Rover) and ultimately accepted a bid from a group known as the “Phoenix Consortium” made up of, among others, four former directors of Rover who came to be known as “the Phoenix Four”. The bid by the Phoenix Consortium was much publicised and promoted as being a saviour of the business and a preserver of jobs in the Midlands. There was a great deal of public and press interest in the transaction and the people behind it.
Deloitte & Touche (Deloitte) advised the Phoenix Four in connection with the purchase of Rover and subsequently provided corporate finance advice on various transactions.
Rover collapsed in 2005 with the result that thousands of jobs were lost. Some of the transactions that had taken place prior to the collapse and on which Deloitte advised came under scrutiny.
In July 2013 the tribunal held that the conduct of Deloitte had fallen short of the standards reasonably to be expected of a member of the ICAEW in various respects in relation to the transactions on which it advised the Phoenix Four. There were findings in relation to breaches of Fundamental Principle 2 (objectivity in all professional and business judgments) and Fundamental Principle 4 (due skill care and diligence). One of the specific findings was that in relation to two transactions, Deloitte and the partner involved had failed to consider adequately the public interest before accepting or continuing their engagements and thereby failed to act in accordance with Fundamental Principle 2 and the guidance in the Guide to Professional Conduct under the heading “Safeguarding Objectivity”.
The tribunal’s findings can be summarised as follows:
The tribunal did not say anything about what Deloitte did or failed to do by reason of its failure to take account of the public interest.
Appeal tribunal findings
In January 2015 the appeal tribunal found the tribunal’s findings on the public interest issue to be troubling and wrong. The appeal tribunal set out all of the guidance that is available in the relevant versions of the ICAEW Guide to Professional Ethics and concluded that was vague and unhelpful. The appeal tribunal found as follows:
The appeal tribunal overturned the tribunal’s findings on the public interest charge and some of the other charges but upheld certain other findings including those in relation to conflicts of interest and contingency fees in relation to one of the transactions on which Deloitte advised.
There is nothing so disruptive and confusing to a profession as rules or guides which seek to impose strict standards of conduct backed with very serious sanctions for non-compliance in an ill-conceived, vague and/or confusing manner. The ICAEW guidance on the public interest issue is quite unlike anything that exists in, for example, the Solicitors’ Code of Ethics or the Bar Standards Board Handbook, neither of which suggests that solicitors or barristers must “select” their clients on the basis of outside perception. Further, the concept of public interest does not have a natural and ordinary meaning. It means different things in different contexts and even if the Guide defined what exactly is meant by public interest, this would not avoid the problem that the Guide encourages members to “consider” and “bear in mind” the public interest with absolutely no explanation of what this means and how it should impact on conduct.
The ICAEW Guide to Professional Ethics has been replaced by the Code of Ethics, which provides statements of principle about the responsibility of the accountancy profession to act in the public interest by taking into consideration the public interest when deciding when to accept an engagement.
Bree Taylor, Partner, Fladgate LLP (firstname.lastname@example.org)