Lack of expertise and training, main cause of miscarriages of justice in finance

  • IESE Prof. Pablo Fernández opened the Encuentros Degussa, organized by Proa Comunicación, with a presentation in which he analyzed real cases he has encountered in the more than 150 lawsuits and arbitrations in which he has participated.
  • On the decision of the President of the Government to change the law so that the banks pay the Tax of Documented Legal Acts, he pointed out that “it is like saying that the citizens are not going to pay for the water and that the communities of neighbors will pay it.”

Madrid, November 8th, 2018. The lack of expertise and training, as well as not asking for advice from specialists, is the main cause of errors committed by the judiciary and legal world when it deals with financial cases, according to IESE professor Pablo Fernández, who inaugurated this morning´s Encuentros Degussa with a presentation on ‘Errors of judges and lawyers in financial cases’, held at Madrid headquarters of the leading European company in the physical investment gold trade.

With very clear language and the use of concrete examples from his participation in more than 150 lawsuits and arbitrations, in boards of directors and in acquisitions, he pointed out that this lack of expertise is already appreciated in the legislation itself. The person who drafts the laws, “mainly state attorneys and lawyers in courts,” often does not differentiate between accounting, finance, and financial economics. “Although I also know very sensible state lawyers who don’t make those mistakes,” he said. Moreover, in this area, according to Professor Fernandez, “a lot of facts and opinions are confused.”

He considered it very important when making valuations of companies to differentiate between accounting and finance, “because they are very different.” “Accounting is interpreted as something that has to do with the value of the companies or with the money they generate and the profit, the money that comes in minus the money that comes out, which is the most typical error,” he explained. “Finance has more to do with expertise and is based on common sense, experience and some technical knowledge,” he said. And to underpin this theory he equated the valuation of a company with that of a cow, “the same factors are involved.” Because, in his opinion, finances are based on simple concepts, “money that comes in, money that goes out, risk of money that is expected to receive …”, which are complicated by synonyms, words that have nothing to do with what they designate and confusing terms, “especially if you listen to radio, read expert reports, receive alerts on the subject or visits several specialized websites …”

Using textual phrases from real sentences, he summarized in ten the most frequent errors in finance and accounting. These errors were contested one by one with great subtlety and a sense of humor. To illustrate his analysis he also alluded to specific cases, such as the Supreme Court’s ruling on the soil clauses of mortgages, distilling all the inconsistencies he considers it contains. “How can something that is perfectly understood by the parties of a contract at the time of signing be abusive?” he said, exposing the high court. Thus, he noted that the consequences of judgments like this “increase the legal uncertainty of companies and individuals, diminish the attractiveness of investing in Spain and also create Jurisprudence.”

To avoid rulings like the one in the example, he recommended that judges “consult people who understand the subject and who are not normally those who are often considered experts,” with whom he was very critical. It also recommended mandatory courses for commercial judges on business, economics, accounting, finance, classification, operation and use of financial instruments, in addition to the creation of a section with Commercial Magistrates in the Supreme Court.

His presentation sparked a lively debate among attendees, who, among other issues, were interested in Professor Fernandez’s opinion on the recent and controversial ruling of the Supreme Court that applies to buyers the payment of the Stamp Duty and about the announcement by the Prime Minister that the law will be changed so that this tax is paid by banks. “It’s like saying that citizens are not going to pay for water and that the neighboring communities will pay,” he responded ironically to the last part of the question.

The Encuentros Degussa are stable forums for the dissemination and exchange of ideas with the participation of outstanding executives, academics, politicians and professionals. Its aim is to foster “a genuine dialogue involving customers, partners, friends and suppliers,” explains Tomás Epeldegui, director of the German company in Spain. They deal with current affairs, economic analysis and others related to Degussa’s own activity, investment in precious metals.

Pablo Fernández holds a PhD in Business Economics and a Master’s degree in Business Economics from Harvard University. He also holds an MBA from IESE and is an industrial engineer from the Universidad de Navarra (San Sebastián). Before starting his teaching career, he worked as an analyst and financial coordinator for Pepsi Cola in southern Europe (Portugal, Spain, Italy, Libya and Malta) in Spain and also in Rome, at the same time as he combined it with the financial management of the Mediterranean region (Egypt, Turkey, Lebanon and Jordan) and Sudan.

Degussa is the leading company in Europe in the trade of physical investment gold, ingots and coins. In addition, at its headquarters in Madrid you can find silver coins, platinum, palladium and also jewelry and other gift items. All of them can be engraved and stored in the company’s rental safe deposit box service. Its products can also be purchased through its online shop (http://www.degussa-mp.es/onlineshop), which is open 24 hours a day. It also offers the possibility of repurchasing ingots and/or coins. It is accredited by the LBMA, the London Bullion Market Association, the world’s largest association of gold and silver market professionals.