Harvard Business Review Article on KPMG Near Death Experience

Robert G. Eccles and Eliot Sherman, KPMG (A): A Near-Death Experience, Harvard Business School (9-408-073 rev. 6/2/09)

Here's the description:

Describes the way in which "Big Four" auditor KPMG dealt with an indictment stemming from the firm's sale of tax shelters. In 2005 Tim Flynn has been KPMG Chairman for a matter of days when he learns that the government is preparing to indict the firm on charges of selling illegal tax shelters. Flynn has to decide whether to fight the charges and risk the dissolution of his firm, or cooperate with investigators, effectively keeping the firm safe but sacrificing the tax partners involved in the shelter sales. Further, the case describes the government's prosecution of former KPMG tax partners and asks students to determine whether prosecutorial tactics during the government's investigation were warranted or represented a case of overreaching.

And, here's the footnote description of the authors and the caveat:

Senior Lecturer Robert G. Eccles and Research Associate Eliot Sherman of the Global Research Group prepared this case. This case was developed from published sources. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.

The authors conclude:

The results of the KPMG tax shelter fraud case had significant ramifications for the way the government would be able to prosecute white-collar crime going forward. For industry observers, it also left several questions. In the case of KPMG partners’ trial, had justice been served, or violated? For KPMG, responding to the tax shelter fraud case involved many difficult decisions about how best to move past its former partners’ wrongful conduct.

I think it is important to note that none of the former KPMG partners who were with KPMG when the allegedly fraudulent shelters were conceived and marketed were convicted of any crime.  Two of the defendants ultimately convicted on the much diminished trial had been with KPMG prior to the date the tax shelters conceived and marketed, but KPMG successfully disavowed their connection to KPMG for purposes of imputing wrongful conduct to KPMG.  So, I think it is a bit extravagant for the authors to assert without qualificaiton that the KPMG partners engaged in wrongful conduct.