Professional advisers are paid to see clearly, yet history shows that clarity sometimes becomes selective when eyesight threatens revenue. The phenomenon is not complex. Advisers are commercial actors. Their income is often derived from the very organisations whose behaviour they are meant to scrutinise. When scrutiny risks termination of fees, a curious psychological recalibration can occur, one in which questionable conduct is reclassified as peripheral, temporary, someone else’s problem, or simply inconvenient to address this quarter.
Consider a starter scenario. Company X has a small number of directors. The founder invites Person W to join the board. Another director later observes that W has made false statements to Companies House. This is raised with the finance director, who is also advised by external professionals. The response is silence, inaction, and continued invoicing. No report is escalated. No clarification is sought. Nothing happens. From a behavioural perspective, this is not apathy. It is an economically rational pause. Acting would introduce friction. Friction risks income. In a small company, the adviser knows exactly who signs the cheque.
Psychology helps explain why intelligent professionals can remain comfortable in these situations. Motivated reasoning allows people to interpret facts in ways that preserve existing incentives. Normalisation of deviance turns small regulatory breaches into background noise once they are not immediately punished. Diffusion of responsibility allows each adviser to assume someone else will act, ideally someone with fewer commercial consequences. There is also simple loss aversion. Losing a client feels worse than the abstract risk of future regulatory exposure, particularly when that exposure seems probabilistic rather than immediate.
The problem is that once more than one director exists, selective blindness stops being a private risk and becomes a shared one. Directors have collective duties. Advisers who facilitate inaction can place every board member into a zone of personal exposure. The humour, if it can be called that, is that the adviser’s attempt to avoid jeopardy can ultimately multiply it, much like refusing to check the smoke alarm because it might interrupt dinner.
This pattern is visible well beyond hypothetical Company X.
One widely cited example is Enron and its auditor Arthur Andersen. Internal concerns about accounting practices were documented, yet the firm continued its audit relationship until collapse. The fees were substantial. The outcome was not. Andersen effectively ceased to exist as a major audit firm, illustrating that protecting short term income can eliminate long term income entirely.
Wirecard provides another case. EY signed off accounts for years despite repeated external warnings and internal red flags. Billions in cash later turned out not to exist. German regulators, advisers, and auditors all faced scrutiny. Several reports noted that concerns were raised internally but not acted upon decisively.
Theranos offers a legal advisory parallel. The company relied on reputable law firms and consultants while making claims about its technology that were later found to be false. Advisers were not accused of inventing the claims, but their continued association lent credibility that discouraged deeper challenge. The reputational consequences extended far beyond the company itself.
In the financial sector, the collapse of FTX highlighted how professional service providers, including auditors and legal advisers, operated in proximity to a founder whose governance practices were later shown to be deeply flawed. Subsequent commentary focused on how standard risk indicators were visible but not escalated with urgency.
Volkswagen’s emissions scandal provides a different angle. Engineers, compliance teams, and external advisers were involved in a structure that masked regulatory breaches. While not all advisers were aware of the full picture, the case demonstrated how complex organisations can reward silence over curiosity until regulators intervene.
A final example lies in global banking scandals related to money laundering, such as cases involving HSBC and Danske Bank. Internal and external warnings were documented years before enforcement action occurred. Advisers and compliance professionals were present. The issue was not total ignorance but delayed response, often justified by commercial priorities.
Across these cases, the pattern is consistent. Advisers rarely wake up intending to ignore misconduct. They wake up intending to retain clients. The blind eye is not a moral failure so much as an economic reflex. Yet regulators do not assess reflexes. They assess actions and omissions.
The irony is that advisers are often best protected by early discomfort. Asking difficult questions early is cheaper than explaining silence later. In multi director structures, silence does not remain contained. It spreads liability sideways and upwards. The hand that feeds today may be the same hand that points tomorrow.
The lesson is not that advisers should be adversarial, but that professional independence is not an abstract virtue. It is a practical risk management tool. The humour lies in how often this is rediscovered only after invoices stop.
So if you are in any Company with other directors, beware…
References
UK Companies Act 2006 sections on directors’ duties
Financial Reporting Council reports on audit quality and independence
US Department of Justice documentation on Enron and Arthur Andersen
German parliamentary inquiry reports on Wirecard
US Securities and Exchange Commission filings related to Theranos
Court filings and bankruptcy examiner reports on FTX
US Environmental Protection Agency case materials on Volkswagen emissions
Regulatory enforcement reports on HSBC and Danske Bank anti money laundering failures
