Lawyers and Accountants Once Put Integrity First

Lawyers and Accountants Once Put Integrity First

So asserts Mark W. Everson, commissioner of the IRS from 2003 to 2007, in an opinion piece for the Sunday NY Times:

Three or four decades ago, investors and regulators could rely on these professionals to provide a check on corporate risk-taking. But over time, attorneys and auditors came to see their practices not as independent firms that strengthen the integrity of capitalism, but as businesses measured chiefly by the earnings of their partners.

. . . Recent decades have seen a new model take root: a business plan tied to partner earnings. Obviously, to pay employees more and to increase partner pay to its present, staggering levels, billings needed to grow. Perhaps today’s approach to fee generation by leading law firms was best stated in a recent Wall Street Journal article about partners billing over $1,000 per hour. Said one such lawyer, “The underlying principle is if you can get it, get it.” Imagine a doctor saying that, for attribution, about an organ transplant.

Lawyers and accountants who were once the proud pillars of our financial system have become the happy architects of its circumvention. Nowhere is this more the case than in the world of tax law. Companies (and wealthy individuals) pay handsomely for tax professionals not just to find the lines, but to push them ever outward. During my tenure at the Internal Revenue Service, the low point came when we discovered that a senior tax partner at KPMG (one of the Big Four, which by virtue of their prominence set standards for the others) had advocated — in writing — to leaders of the company’s tax practice that KPMG make a “business/strategic decision” to ignore a particular set of I.R.S. disclosure rules. The reasoning was that the I.R.S. was unlikely to discover the underlying transactions, and that even if we did, any penalties assessed could be absorbed as a cost of doing business.

What should be done? Everson believes Congress should take a hard look at the doctrine of attorney-client privilege as it applies to corporations. Communications pertaining to patents, or threatened or actual litigation, should remain protected. But communications about, say, commercial transactions and financing and even government-mandated filings and disclosures might not.

Simply stated, Everson thinks lawyers will be less likely to stretch the acceptable to earn a high fee or secure repeat business if their counsel is subject to more outside scrutiny.  What do you think?