Politics & Policy

Accounting for Preferences

Racial bookkeeping.

On May 15, the Advisory Committee on the Auditing Profession published for public comment its draft report to the U.S. Department of the Treasury. The committee was established last year by Treasury Secretary Paulson “to examine the sustainability of a strong and vibrant auditing profession.” It is co-chaired by Arthur Levitt Jr. and Donald T. Nicolaisen and includes 19 other experts in accounting and related fields.

The draft report makes a number of recommendations, the second of which is to “Improve the representation and retention of minorities in the auditing profession so as to enrich the pool of human capital in the profession.” The accompanying discussion is disappointing, disheartening, and all-too-typical. The committee was created in large measure because of concerns about improving audit quality; it is, therefore, ironic that its draft report should urge measures that inevitably undermine an insistence on hiring and promoting the best qualified individuals possible.

At the outset, it should be noted that, while the term “minorities” is used throughout, this is misleading. Asians, for instance, seem to be doing well enough in the profession — using the report’s own numbers — and there is no suggestion that, say, Jews or Americans of Middle Eastern descent are what the report has in mind either. Rather, it is only African Americans, Latinos, and Native Americans who matter.

The report’s crucial paragraph laments that such minorities “are significantly under-represented” and that this is “unacceptable from both a societal and business perspective.” It declares: “As the demographics of the global economy continue to expand ethnic diversity, it is imperative that the [auditing] profession also reflect these changes.” But why? Apparently because “investor trust cannot be maintained unless the profession itself is viewed as open and representative.”

This is nonsense. There is no moral or economic reason that the accounting profession has to “represent” the world with a politically correct racial and ethnic mix. To the contrary, if a client refused to accept a firm’s auditor because of his or her ethnicity, that would be immoral; and if an accounting firm hired someone other than the best qualified applicant, that would be bad business — for the firm and its clients.

Concluding this introductory call to arms, the report declares “the importance of setting goals and measuring progress against these goals.” That is, it urges racial quotas. Four means to achieve the report’s ends are then elaborated.

First, rob Peter to pay Paul. That is, “Recruit minorities into the auditing profession from other disciplines and careers.” But won’t this exacerbate the “under-representation” of blacks and Latinos among, say, lawyers, which is also always complained about?

Second, lower standards. If, for instance, auditing firms complain that “`individuals who only have associate degrees [from community colleges] typically will not have sufficient qualifications to satisfy state licensing requirements,” then accredit those programs and — presto! — problem solved.

Third, embrace a discredited and illegal rationale for discrimination. The report recommends that accounting firms and historically black colleges and universities use “cross-sabbaticals,” whereby the former’s “seasoned professionals” work at the latter, and the latter “require one member of their accounting faculty annually” to work at the former. (There’s no discussion here of any academic freedom issue that might arise from such a requirement, by the way.) The report emphasizes the “role model” justification for matching the races of teachers and mentors with that of their students and industry protégés — which the Supreme Court rejected 22 years ago, with Justice Powell observing, “Carried to its logical extreme, the idea that black students are better off with black teachers could lead to the very system the Court rejected in Brown v. Board of Education.

Fourth, support segregated programs. Or, as the report delicately puts it, “Increase the numbers of minority accounting doctorates through focused efforts.” These “focused efforts” are “dedicated programs” to increase the number of minority accounting professors. The example given is the KPMG Foundation’s “PhD Project,” which is “available to anyone of African-American, Hispanic American and Native American descent.” Those of other colors need not apply.

The overarching problem here is that the report urges accounting firms to get their racial numbers right. Inevitably, this means making hiring or promotion decisions based on an individual’s racial or ethnic background, discriminating against those with the wrong skin color or whose ancestors came from the wrong country. This violates Title VII of the 1964 Civil Rights Act, which makes it “an unlawful employment practice” for public- and private-sector employers “to discriminate against any individual” or “to limit, segregate, or classify” employees or applicants for employment “because of such individual’s race, color, religion, sex, or national origin.”

The costs are not limited to potential lawsuits, however. The discrimination will, for instance, create resentment. In an increasingly multiracial and multiethnic society, where individuals themselves are increasingly multiracial and multiethnic, what is “unsustainable” is a profession that classifies and rewards people on the basis of skin color and national origin.

The discrimination will also stigmatize the purported beneficiaries. Professor Richard Sander of UCLA law school has documented how mismatching young minority lawyers and law firms in the name of diversity has hurt the former, and there is no reason to doubt that the same phenomenon should occur among accountants and auditors. Finally, as noted earlier, when the best qualified people are not hired and promoted, the work of the firm is compromised.

That a committee of experts on accounting and the like (not sociologists) appointed by the Bush (not the Gore or Kerry) administration would draft such a report shows how embedded the “diversity” fraud has become in corporate America.

Comments on the report are due June 13.

Roger Clegg is president and general counsel of the Center for Equal Opportunity.


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