An Appeaser Is One Who Feeds A Crocodile…

An appeaser is one who feeds a crocodile, hoping it will eat him last.
Winston Churchill

I’ve recently become acquainted with Jim Peterson and his column in the International Herald Tribune, 2Cents’ Worth.

This one and this one have been inspirational recently.

“Billy Rose, the legendary Broadway producer of the 1920s and 1930s, offered a maxim to anyone hoping to replicate his success: “Never invest your money in anything that eats.” Rose was referring to showgirls and racehorses, but his admonition could apply equally to accountants and auditors.

In a report released in mid-March, the U.S. Chamber of Commerce, a trade group and lobbyist for American business, advanced the notion that client service by the four remaining global accounting partnerships would be better provided if the accounting firms could bring in outside investors, like private equity or venture capitalists…

But on the issue of outside capital, for several reasons, the report is wrong. It is not a solution. For starters, what would be the real role of venture funding or private equity in a global accounting partnership? The business model is that the firms are capitalized by their partners’ collective contribution, and the partners share in the profits. But the Big Four firms already manage to run their global operations today on the modest working capital provided by their individual partners. Simply put, they don’t need the money.

And since no capital comes cost-free, the accounting partners would have to vote away major portions of their current personal profits to pay the handsome return on investment that private equity investors would demand.
If the idea is that fattening the firms’ balance sheets would cushion a huge litigation charge, then it’s doubly perverse. If increased capital acts as a form of self-insurance, a simpler solution is immediately available: New insurance companies might provide the Big Four with the high-limit coverage that is not available today.

The trouble is, the business case goes the other way: Billion-dollar coverage is not to be had at any price. Rational insurance industry decision makers see the accountants as effectively non insurable at levels meaningful to their survival.
And for the other perversity, exposing any additional capital to the hazard of plaintiffs’ claims would only feed the beast of litigation. It’s basic economics: Prices rise to eat up available subsidies. If dog food costs $1 a can, and for public policy reasons a subsidy of $1 is made available, the consumers’ cost immediately becomes $2…”

An Appeaser Is One Who Feeds A Crocodile…

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