But 21-year former Andersen exec gives Andersen vote of confidence
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DiamondCluster International CEO Mel Bergstein, a 21-year Arthur Andersen veteran, said he expects some new business opportunities in the wake of the Enron-Andersen scandal, but also gave his former partners a vote of confidence.
"This will create business opportunities for all the independent firms," said Bergstein, who co-founded Chicago-based technology consultant DiamondCluster eight years ago. "We intend to get our share of that."
Bergstein said, "Everybody has a game plan for going after this business. We are looking at who the auditors [at many companies are, and trying to figure out if they have consulting people" on-site.
Although there is no public information on what percentage of the auditing companies have consulting relationships, Bergstein said that the "conventional wisdom" is that about 20 percent to 50 percent of the consulting business at the big accounting companies comes from audit clients.
Bergstein believes few customers have moved their business yet because they are "trying to figure out what to do and be careful how they do it.
"If you are working with the same consultant and auditor, you don't want to throw away all that investment," he said. "There is going to be some sort of transition."
As for the Enron-Andersen alleged conflict of interest, Bergstein said Andersen's consulting work was probably audit related. "I doubt they were doing heavy-duty consulting for Enron," he said. "I don't think it is as egregious as the press is trying to make it out to be."
Still, Bergstein said that doing the audit and the internal audit function at Enron put Andersen "in somewhat of a difficult position, but it is hard to know without knowing all the facts."
Bergstein said in his 21 years at Andersen he never saw a "conflict of interest" between the audit and consulting side of the house. "The reason was when we worked as a team with audit and tax people we all knew there was only [one guy who would face criminal penalties," he said. "As a consulting partner, I was not going to jail if I made a mistake."
"There was never a question of the independence of the auditor," he said. "They would make calls based on their own exposure and the responsibilities they carried. Never in my 21-year career did I ever see an audit partner compromised."
Bergstein said the Enron-Andersen debacle is "much more of an industry issue than an Andersen problem."
"We need to decide more clearly what the role of the board, the auditor and audit committee is and how they interact," he said. "We need to rethink those things. This is a broader issue, not an Andersen problem. It's an accounting industry issue."
The role of the sell-side analysts must also be examined and rethought, said Bergstein.
Bergstein praised Andersen CEO Joseph Berardino's handling of the Enron crisis. "Berardino is doing exactly the right thing," he said. "He's getting out in front of the issue and being direct. He is telling it like it is."
"You feel for these guys with the beating they are taking from the press and Congress, which I think is a bit over the top," said Bergstein. "But on the other hand I think they will endure. ... I think they will go back to their roots as one of the leaders in accounting policy. I think they will come out stronger, but it is going to be painful."