It's still the human element that counts

Merrill Lynch, Morgan Stanley, Citigroup and UBS have been lamentable. Deutsche Bank and JPMorgan seem to have known when to duck and have emerged unscathed while Goldman Sachs, albeit we say this through gritted teeth, has aroused admiration for turning the disaster to its great advantage.

They all have access to capital on broadly similar terms, operate in essentially the same markets and produce and sell similar products to similar clients. There are nuances between them, differences of emphasis and local strengths and weaknesses, but these are more than matched by the similarities. The gulf in performance therefore cannot be a function of any of these factors because they are common to all.

What did appear to matter was the culture within the firms, the peer pressure, whether they were silos or collegiate, and all the other things that contribute to the effectiveness of management within the culture. Arguably, as this is the key differentiator, it is also the key factor in determining the value of an investment bank from a shareholder perspective.

The papers have been full of reports of how auditors are going to take a tough line with banks and the valuations they attribute to those troublesome derivatives when they start reporting in earnest in a few days. Clearly, they are terrified of being sued, and the sound of stable doors crashing shut is deafening, given that they accepted all the values without demur last year.

But there is no aspect of accountancy or auditing even in these troubled times that addresses human talent and managerial effectiveness. Audit is totally focused on verifying the numbers. It does not seek to measure the things which, as we have just seen, really matter because they really make a difference.

It has become a cliché in annual reports for the chairman or chief executive to thank those who work there and say it is the quality of the people that makes a difference. But that is true across the board, not just in investment banking.

Capital is a commodity, and everywhere firms are offering broadly similar products to broadly similar customers. The entire business world is getting like the airline business - same planes, same routes, same customers. The only difference between them is the people they employ and how effectively their talents are put to work.

Although no one is yet ready to admit it, the conventional audit is probably no longer worth paying for. It would be a relatively simple matter for systems of real-time monitoring to be created, allowing a virtual real-time audit that monitors performance and alerts regulators or analysts to serious departures from the norm.

Intelligent computers could analyse, check and deliver an opinion with just as much confidence as a human does, given that human auditors are now far too scared to do the one thing which could add value - exercise a judgment.

Accountants tend to be far too busy making money - at least £750,000 a year average for a London Big Four partner - to think much about the future, and besides a desire to look ahead was not why most of them became accountants. They would be well-advised, however to, get out more and note how the world is changing.

The Prime Minister, in a speech in India, spoke at some length about how the governing institutions of the world would have to adapt and change in response to the shift in power from the West to the East. His focus was on things like the IMF, the World Bank and the Security Council, but his point applies equally to business.

THE Anglo-Saxon model of the corporation reflects Western culture. An Asian business culture might evolve quite different structures - and certainly models where the emphasis and principles of stewardship and accountability are different.

The life-cycle of companies is plummeting, and businesses may soon be expected to launch just one product before they wither away, wiped out by a technical advance elsewhere. The compact of loyalty between people and their employers has been fractured by the changes of recent years, so that companies too can be destroyed when key people decide to move on and set up against them.

The entire global business culture may change as America declines, power shifts to China and the key investors of the world are sovereign funds. But with a doggedness you have to admire, the accountants press on as if nothing was changing. Maybe that is why they became accountants.