Crikey has been sent this juicy inside account of embattled accounting firm Arthur Andersen’s woes from a worker at the coal face. Read on for the insider’s view.
While the Enron disaster in the US was always a worry the moment it broke – and became more of a worry as the more incriminating evidence came to light – operations in Australia were largely unaffected.
Of course, while we here in Australia had (and continue to have) our own concerns with HIH, the noises emanating from the top brass here have been positive on the HIH front. The message has always been that the Australian firm was a fair bet to get through that one, albeit with some pain.
The handling of the HIH disaster from a PR perspective was interesting. Outsiders looking in could be forgiven for thinking that Andersen had gone to ground when the issue heated up. But that was a result of a deliberate policy – the firm recognised that in the early days it was going to be a fight played out in the media, and they would not play that game. Early in 2001, everyone had an opinion on the issue and plenty of mud was being flung Andersen’s way, but the top brass were prepared to sit out the trial by media and wait their turn to be heard at the Royal Commission.
The firm was reasonably confident in its handling of the HIH audit (as confident as you can be when you’ve signed off on a company which soon thereafter collapses to the tune of $4 billion), with two factors giving it cause for optimism. First, the audit opinion was as qualified an audit opinion as you’re ever likely to see. Secondly, the audit partner responsible for HIH, John Buttle, had threatened to go to ASIC and blow the whistle on HIH if HIH didn’t own up to their wrongdoings themselves. Buttle’s threat triggered the resignation of former CEO Ray Williams and has just now come to light after Buttle took the stand at the Royal Commission.
And Andersen Australia didn’t see any immediate incriminations arising from HIH. After all, their audit of Bond Corp is only now being debated in the courts, more than a decade after that company’s collapse. So even if Andersen were found liable for their audit of HIH, it would be a long time before that turkey came home to roost.
While everyone would have obviously preferred that HIH didn’t happen, the message from the top was that it wouldn’t destroy the firm in Australia and whatever impact it did have would not be for some time.
Enron was another matter.
In the early days after the Enron collapse, the message we in Australia heard from the US was again that everything would be alright.
That all turned awry when some cowboy in the US went to town with the document shredder and the US Government got involved and indicted the firm.
It’s an occupational hazard of the audit caper that a client will collapse. Rival bean-counters never stand on the sidelines and cheer when their competitor faces a spot of bother, because they know that their own HIH or Enron could be just around the document shredder.
But none matched HIH in Australia or Enron in the US for magnitude. Andersen, like the other big bean-counters, have a fighting fund stashed away to assist the partnership’s worldwide member firms meet crises like HIH. So while there is a risk that HIH could result in a record payout for Andersen in Australia, the firm’s worldwide fighting fund could have met whatever that cost might have been.
That was, until Enron.
Much to the chagrin of many Aussie employees, that was definitely not the message we heard from on high. In the early days after the Enron collapse, we were told loud and clear that everything would be alright, we’ll fight this one out, and we didn’t have a worry about our jobs. Then all of a sudden, word came from across the Pacific that the Yanks were up the proverbial creek. Andersen US basically told the rest of the member firms around the world “we’re going down, you guys go your own way and cut the best deal you can for yourselves”.
Morale was further lifted no end when Andersen’s now-departed worldwide CEO, Joseph Berardino, sent around an email to all staff with the subject line “Your future”. He then went on to wax lyrical about everything but “our future” – in fact, it was all about his future. And that future involved getting as far away from Arthur Andersen as he could. In saying absolutely nothing at all about “our future”, Berardino then went on to say “adios dudes” and packed the golf clubs into the back of the ute and hit the links.
Speculation abounded for weeks as to who we in Australia would merge with. Deloittes had the early running, but dropped out of the picture. KPMG were looking at acquiring Andersen worldwide (except for the US practice), so in Australia they were obliged to look at the merger notwithstanding that KPMG were the liquidator of HIH and would have to resolve that difficult conflict to make any merger here work.
The word around KPMG Australia was that Andersen Australia simply had nothing to offer. Andersen Australia’s 2 biggest clients, News Corp and BHP-Billiton, couldn’t be taken on if KPMG and Andersen Australia merged because of a conflict of interest with KPMG’s existing clients.
A few of the older stagers around here noted with some mirth that Andersen dropped their braggadocio now that we were the ugly sister at the ball hoping to have our dance card filled in. Back in 1998, they recalled, soon after the PricewaterhouseCoopers merger when a merger between Ernst and Young and KPMG was on the cards, Andersen’s chief partner in Australia at the time, Chris Knoblanche, addressed staff. He poured scorn on the KPMG – EY merger, saying “I think of it like this. If you’ve got one pile of shit here and another pile of shit there, all you do when you put them together is have a bigger pile of shit.”
Funny then that a few years down the track, Andersen would be courting both piles of shit as potential merger partners!
The KPMG merger went perilously close. We heard whispers that an email went around to Andersen Legal partners announcing a merger with KPMG on the day that the press was reporting the same, so obviously it just about got over the line.
But we the humble drone bees were left in the dark while the deals were being cut behind closed doors.
Interestingly, while all of this has been going on, Andersen Australia has still been going gangbusters. There is certainly no shortage of work around here at the moment and while clients are fleeing from the US, most are staying loyal here. Some of the big international clients have pulled the pin on Andersen worldwide, such as Sara Lee and pharmaceutical company Abbott Laboratories. And other non-clients which use Andersen for some consulting work (e.g. Apple) have issued edicts internationally to not use Andersen at all.
But most of our clients here in Australia who have the choice are sticking with Andersen.
So while we humble drones were buzzing along working on our new telephone greeting – “good morning, KPMG, Andy Arthursen speaking” – out of the blue comes the merger with Ernst and Young.
A lot of us were seriously peeved that we hadn’t been given the full story right from the start. Instead of telling us that everything was hunky dory, we could have been told that the firm was in trouble and a merger was on the cards. Even as late as January this year, the message we were getting was to proceed on the basis that the firm was a going concern.
Now that the deal has been cut to merge with Ernst and Young, Andersen Australia are imploring their Australian employees to stick around and everything will be alright. At a recent staff meeting we were told “thanks for your loyalty in sticking with us, the future looks bright” and all the rest, but the message just isn’t quite as convincing any more.
Obviously the deal with EY will require Andersen to bring across a certain number of employees when the firms merge, hence we’re being asked to stay with the firm so the partners can deliver on their deal with EY.
There are a few nervous Neddies and Nellies at Andersen, despite the firm having guaranteed that all Andersen employees will be moving across to EY. The question is, how many employees will they have to shed before then?
As with any merger, there will be some fat trimming, so plenty of CVs are being touched up around here.
Another interesting fact is that at this stage it doesn’t look like too many Andersen people will be filling the top positions at the merged firm, hardly surprising given that this is not nearly a merger of equals.
However, it has been announced that the head of Andersen Legal, Adrian Ahern, will be the head of the merged legal division. Andersen Legal has consistently been the firm’s worst performing division from a profitability perspective, and Ahern hasn’t had a great deal of success in righting the ship in his time at the helm since he took over following a mass exodus of partners and staff back in 1999. But Ernst and Young don’t have an established legal division by all accounts, so Ahern falls into the job by default. (Homer Simpson’s two favourite words!) While the division has just crept into the black, staff turnover is reasonably high, nobody really seems to know where the whole “multi-disciplinary practice” thing is going and we’ve heard that quite a few of the partners, especially up in Sydney, have their CVs in the market.
So while all this jostling goes on, we worker bees keep buzzing away. Who said life as a bean-counter was all brown suits and pencil sharpening?