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Business is built on one entity vouching for another

  • April 11, 2023

Last week I took a trip to London to see some dear friends getting married. Arriving on an early morning train, I headed straight to the pub at Paddington station for breakfast. Tucking into my baked beans and scrambled tofu, I listened in to the conversation at the table next to me. 

Two men, in their early 40s. One was a music booker, the other a DJ. They were meeting to discuss a potential partnership. As they talked, the balance of power swung subtly from one side to the other. The booker, seeking to woo, said he believed passionately in artists maintaining their creative freedom. The DJ, seeking to test, said he couldn’t stand those self-indulgent bios they make you write for press packs. The booker nodded: totally cringeworthy. Still, he insisted quietly, those narratives are important to the media. They bonded over their shared experience of being divorced dads and agreed to meet again in a week’s time. I did not know which way it would go. Who needed whom more?

Adler and Wirecard: Auditors won’t touch them

DW columnist Kate Ferguson
DW columnist Kate Ferguson

The innocuous exchange served not only as a pleasant diversion while I waited to check into my accommodation but also as a microcosm for the complex power relations that govern business at all levels. 

Two recent cases spring to mind. The first concerns the Adler group, a distressed real estate giant that owns tens of thousands of apartments in Germany. In the past few days, in a courtroom not too far from Paddington station, the company has been arguing the case for proceeding with a radical cost-cutting plan that disgruntled creditors say would harm them more than a full-scale insolvency would. 

Getting the green light for selling its entire property portfolio and cutting hundreds of jobs is just one of Adler’s worries. The other is that it has sunk to an unparalleled level of friendlessness in business: It cannot find an auditor. Last year, KPMG, an accounting firm, ditched the company after refusing to sign off on its 2021 financial report. Adler tried in vain to find a replacement. In the end, a Berlin court reappointed KPMG to finish the job. But KPMG remains steadfast in its refusal. This is a big problem for Adler, which cannot access capital markets without an auditor.

KPMG’s determination not to go near Adler again is likely to have been heightened because of what happened to fellow big four accountancy firm EY. Having failed either by incompetence or design to flag outrageous irregularities within German payment group Wirecard’s accounts, EY has now been banned from taking on a listed German company for two years. Quite apart from the reputational damage to EY, the case has forced German regulators to up their own game and to take their job of overseeing the overseers far more seriously than they had previously. 

Good business relies on good vibes

The demise of Wirecard and the Adler group are cautionary tales in an industry that has traditionally relied on good vibes as its guiding force. The promise of a — finally! — innovative German payments company and a real estate giant ready to capitalize on a market of rising rents was initially enough to lure the auditors to take on the job of vouching for their clients. The reality looked different. Good vibes turned to bad. 

Back in the pub at Paddington station, the booker and the DJ hugged before they descended into the bustle of a morning rush hour in London. The following evening, as my newlywed friends danced under a starlit sky on a boat gliding along the Thames, I took in the magnificent sights of the city: Tower Bridge, Big Ben, the London Eye. All of them built on a promise — one entity vouching for another. 

Edited by: Rob Mudge

The Big Four – Accounting firms under scrutiny

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