Andersen Family Feud Teaches Painful Lessons

By: Rick Telberg

Aug. 9, 2000 (SmartPros) ? Joe Forehand was exultant as he brandished Andersen Consulting’s arbitration victory over Arthur Andersen. “They’ll be celebrating in the streets of 48 countries tonight,” he said.

To be sure, Arthur Andersen and Andersen Worldwide get to split about $1.2 billion among their 1,900 partners in escrowed payments and they get the use of the name Andersen Consulting.

But AC chief Forehand was facing down a possible $14 billion payout, plus the payments in escrow that went as high as 15 percent of profits annually. AC had offered billions in a buyout before the fracas went public in 1997. “We had offered to settle for billions,” Forehand said. “They turned it down.”

In fact, Arthur Andersen could have settled weeks ago and gotten a better deal, Forehand said. Perhaps it was no coincidence that within hours of the decision Arthur Andersen chief executive Jim Wadia moved to resign.

Forehand called relinquishing the Andersen name “a small price to pay for our independence.” But, in fact, there were no “small” prices in this decades-old family squabble. Both firms are phenomenally successful, but one can’t help wonder how much they could have accomplished if they hadn’t had this dispute to distract them.

The International Chamber of Commerce arbitrator found that their parent, Andersen Worldwide, failed in its contractual obligation to assure cooperation, coordination and compatibility. Andersen Consulting’s attorney called it a “dysfunctional” relationship. The relations had been so bad that Forehand could say, “I don’t know that we’ve had a referral from them for a number of years.”

Forehand will be unveiling the firm’s next moves at the worldwide partners conference in October. Choosing and promoting a new name could cost $100 million. And the firm will push the boundaries of the very definition of a so-called consulting firm. They are evolving into a new breed of investment banker, a mercantilist strategy that fits the 21st Century with outlays of capital, technology, manpower and know-how. Andersen Consulting will participate in eight initial public offerings this year. “Consulting hardly describes what we do anymore,” Forehand said.

Andersen Worldwide has said it objects to the decision, but there is no clear path to appeal. The fate of the firms may be sealed. Maybe it was sealed as far back as 1989 when the accountants let the consultants spin off. At the time, it was a pioneering, revolutionary initiative. But they built a time-bomb. The consultants were never allowed to take full charge of their fate and their wealth. The accountants always insisted on a measure of control.

The lesson of the Andersen family feud is one that every professional services firms, indeed every business, is facing today — encouraging innovation and enterprise, while assuring fair and flexible compensation. In the end, it’s about the money. Read more

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Posted on August 9, 2000
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What We Think We Know About You

By: Rick Telberg

Aug. 4, 2000 (SmartPros) ? If you are reading this, you are most likely an American male in your late 30s, a CPA working in a small or medium-sized enterprise firm. And you are reading this while working at your office.

You are also a hard worker, ambitious, and probably a fast-riser in your organization.

How do we know? Some 22,015 of the registered SmartPros users have told us. The surveys they fill out give us a much clearer picture of the SmartPros user and how to serve them. If you haven’t done so already, you too can fill out a survey at http://secure.smartpros.com/standard/member/survey.asp.

Here are some highlights based on the latest tally.

You are highly educated: Fifty-one percent in the survey are CPAs. Twenty-five percent hold master?s degrees in business administration. Eight percent hold a special credential in corporate accounting — 6 percent are certified management accountants and 2 percent are certified internal auditors. One percent hold a certified financial planner sheepskin or a juris doctorate. Three percent are Ph.D.’s.

You are a recognized leader in your organization: Thirty-five percent of SmartPros users identify themselves as a chief financial officer, controller or manager. Twenty-six percent are owners, partners, directors or the chief executives of their firms. And 24 percent are staff accountants or bookkeepers.

You make important spending decisions: Seventy-six percent of you participate in software selection and purchases. Education and training, at 69 percent, comes second, with computer hardware, at 55 percent. And marketing programs come in at 35 percent.

You are highly focused on your career: Thirty-four percent of self-identified SmartPros users are new to the profession, with five years or less on their resumes, and 20 percent are 6-to-10-year journeymen, which means that more than half of SmartPros users are in the rapid-growth stages of their careers, acquiring knowledge, skills, contacts and clients at a frenzied pace. The next largest experience cohort is the 16-to-25-year veteran, already well-established in his or her career and position, which makes up 20 percent of our users. Seventeen percent have been working in their careers for 11 to 15 years.

You are advancing rapidly in your career. The largest single age group is among the twenty-something?s, at 32 percent of our users. This is an age when professionals are laying the foundations for a lifelong career. By their 30s — and 31 percent of you are thirty-something?s, our next largest age group — they hit their stride and are accelerating quickly through jobs, opportunities and advancements. By their 40s, they are among the senior decision-makers in their organizations; and they constitute 24 percent of SmartPros’ users. Thirteen percent are in their 50s or 60s, mostly as chief decision makers.

You are representative of the profession as a whole: 48 percent work in corporate or management accounting, with 32 percent in public accounting. Another 13 percent work in education, with 6 percent in government.

You work in a small- or medium-size enterprise. Those of you in public accounting work in small, local firms: 38 percent. Thirty-three percent work as sole practitioners, 8 percent in regional firms, and 15 percent in national firms. If you work in corporate, 70 percent of you work in a company with fewer than 500 employees, which makes your role as an accountant absolutely pivotal.

You specialize in industries that are fast-changing and tech-savvy: The top industry sectors represented by SmartPros users are manufacturing (at 19 percent), professional services (14 percent), high tech (12 percent), and finance (11 percent).

You are well-informed: Twenty-one percent read a local daily newspaper and 18 percent read the Wall Street Journal. Your favored sources of professional information in print are Business Finance magazine (20 percent), your state CPA society newsletter (16 percent), the Journal of Accountancy and Accounting Technology magazines (each 13 percent), or a general business magazine, like Forbes, Fortune or BusinessWeek (at 15 percent).

You are hungry for fresh, practical information and resources: Sixty-one percent say they are interested in general accounting information, 52 percent in Internet technologies, 44 percent in accounting software, 40 percent in job resources, and 38 percent in educational programs.

And, finally? You are male: 62 percent? You use SmartPros either at work (73 percent), or at both home and work (39 percent) ? You visit us often and regularly. Forty-seven percent visit SmartPros weekly, and 12 percent go daily. Twenty-seven percent drop in once a month, and 15 percent once a quarter.

So, welcome back. And see you soon.

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Posted on August 4, 2000
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Cluster Map

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Posted on August 4, 2000
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Levitt Tries Writing History on the Backs of the Big Five

By: Rick Telberg

Aug. 2, 2000 (SmartPros) ? Securities and Exchange Commission Chairman Arthur Levitt appears to be attempting to undo almost two decades of regulatory complacence by taking an implacable line on auditor independence. Clearly fed up with three years of arrogance and foot-dragging by the Big Five accounting firms, Levitt is seeking to rend asunder auditing from consulting.

He’s making up for lost time. Over the last 20 years, the SEC has allowed the auditing profession to branch far afield from its government-granted franchise. And the auditors are right to scream bloody murder, because everything they have done has been done under the watchful eye and nodding aproval of the SEC. They could conceivably win their case in court. Of course, by then it could be too late.

Some say Levitt could force the break-up of the firms. But the Big Five themselves are hardly showing an iron front. Ernst & Young practically ghost-wrote Levitt’s plan, shortly after getting the SEC nod to take a $12 billion deal to sell its own consulting practice to Cap Gemini. And PricewaterhouseCoopers was hardly in a position to complain about a crackdown, after an independent investigator found four out of five partners in violation of the existing ethics rules.

That leaves KPMG, Deloitte & Touche and Arthur Andersen to protest. And protest they have. “The commission is rushing to judgment by means of a process that is fundamentally flawed, and without any factual justification,” they chorused in a joint statement.

But they have gotten little support from the American profession. Few rank-and-file certified public accountants have much empathy for the global goliaths. Second tier Grant Thornton, for instance, issued a statement rebuffing the Big Three. Grant called Levitt’s plan “a step in the right direction.” And the firm strategically distanced itself from the Big Three with the “hope that the commission will focus attention on the special needs of middle-market, entrepreneurial companies.”

But the firms have yet to bring out their big guns: Congress. Already they marshaled the efforts of women legislators who went on record saying the new rules would make it harder for dual-earning professional households. This is, of course, an election year in the States. Anything can happen. That may be why Levitt has been in such a hurry. He knows that should the Republicans take over the administration, his days are numbered. Reinforcing auditor independence could be one of the few legacies he leaves to history.

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Posted on August 2, 2000
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