While established players may appear on safe ground, recent events have revealed some unsteady ships in investment's murky waters
There is nothing like the feeling of betrayal to ferment bitterness and revenge. Mere victory by a better opponent is honourable but there is something about being made a fool of, especially publicly, and something to do with the doubt cast on your own judgement, that creates lasting rancour.
For example, when the scale of the Marconi muddle first became apparent, many fund managers simply refused to believe what they were hearing. Your humble columnist was among them. At least one colleague, familiar with the track record of Lord Simpson et al, had been warning me for years. It was a standing joke: he would taunt me about Marconi, and I would taunt him about BA.
Think of every corporate scandal over the past few years, and you can invariably remember hearing one or two small voices of protest that were shouted down, or the odd snippet of information too speedily dismissed. Clamours from the press were a joke. Who would challenge the good name of industry giants? In a bull market, who cares if procedure slips a fraction? A rising tide floats all boats. Recently, however, choppy waters have exposed some vulnerable vessels.
A UK crown court heard recently how a £22m fraud perpetrated through the mid-1990s could have wiped out DIY retailer Wickes. It was brushed under the carpet until an outside finance director blew the whistle. The auditors, Anderson, claim they were misled by errant executives of the company.
Enron was a core holding in many portfolios. Just how successfully its problems were concealed can be measured by the degree of misery now being experienced by shareholders and staff. It is not just retail investors who have been burned, institutions are pretty fed up with being kept in the dark as well.
Enron will change corporate life. Until now, it has been acceptable, even desirable, for corporates to walk the fine line between illegality and clever practice. If they were caught, all the weapons in the establishment armoury could be rapidly deployed: the blue chip name, the ennobled chairman, the defences of commercial confidentiality and devotion to the free enterprise, and the aggressive lawyers.
However, fund managers are beginning to realise the reputational hazard of holding any company that might be taking such a risk. They don't like it. Like the old patrician bluster: 'Do you know who I am?,' the spin doesn't work any more. In fact, it is more likely to be counterproductive. Each new scandal gives the regulators, and the public, a stronger justification for their general scepticism.
Lonrho chief executive Tony Rowland was once dubbed 'the unacceptable face of capitalism.' Enron's demise, says the Economist 'confirms some unattractive features of American public life.' This kind of public comment is as close to a condemnation by the wider financial community as you are likely to get. What it means is that tolerance for borderline behaviour is over.
Britain can recall its own auditing scandals of the 1980s. Self regulation was deemed a sufficient response. Even five years ago, fund managers might be commiserating with corporate executives about the extra regulatory burden. But they have been wiping egg off their faces too often. Auditors, like fund managers, have to ask the right questions and get the right answers. It is difficult enough with an honest company. They will be cheering tough new audit reforms all the way to the bank.
To promote 'long-term investment'
Switching 'hard and expensive'
Smaller funds still packing a punch
To drive progress