Accounting/Consulting Splits Could Take Years to Complete

Accenture Arthur Andersen

At every level--personnel, financial management, marketing and branding, computer network integration, billing and cross-selling mechanisms--the accounting firms and their consulting units will have to make a clean break, observers said.

Without such a split, they risk rejection from clients who want no whiff of perceived conflict of interest to tarnish their partner, as it has Andersen.

Andersen provided consulting and accounting services to Enron, which recently filed for the largest corporate bankruptcy in history. Accenture does mainly IT and business consulting. However, sources say Andersen retained some consultants after the break with Accenture.

As a result of the unfolding Enron debacle, firms like Cap Gemini Ernst and Young, which bought Ernst and Young's consulting arm in 2000, and Accenture, which began the separation from Andersen in 1990, have moved to reassure clients and the public as a whole that they have already taken steps against perceived or actual conflicts of interest.

Some 12 years after its initial split from Arthur Andersen, Accenture's former associations with the accounting firm have put it on the defensive.

"Accenture is not and never has been engaged in the practice of public accounting," read in part a statement Accenture issued several weeks ago as Andersen's role in the Enron scandal was coming to light. "Accenture had no involvement in Arthur Andersen's audit services, including services to Enron."

Experts pointed out that the distinction between these companies' accounting and consulting units remains nebulous even after a division between the two has been undertaken.

"The firms are splitting off their consulting businesses, but what are they actually splitting off?" said James Cox, a professor and accounting expert at Duke University School of Law. "Is the audit part of the firm still going to provide services that compromise the independence of the accounting side? We have to know exactly what is being spun off."

"It's far from clear that even Big Five accounting companies who have tried to distance their consulting business from their auditing business have actually cleared up the conflict issues," said a Boston consultant, who requested anonymity.

Chris Lochhead, a consultant to systems integration and consulting firms and Scient's former chief marketing officer, said the consulting businesses that were spun off from or sold by their audit-services counterparts need to soundly underscore that separation with current and potential clients.

Confusion abounds, Lochhead said. "Customers can't distinguish the names, and they don't understand the relationships," he said.

What's more, the Big Five label must be discarded, noted Stephen Lane, market analyst with Aberdeen Group, Boston. He said the model still referred to as the Big Five hasn't really existed since Andersen and Accenture went their separate ways. Yet the name persists.

Other observers said the former Big Five firms have to completely reconfigure their sales models.

Peter Misek, a software research analyst at Scotia Capital, a Toronto-based investment firm and a former Deloitte consultant, said the amount of cross-selling that historically went on between the accounting and consulting sides is significant.

In fact, Deloitte employees were compensated based on how much cross-selling they did, he said.

Executives at Deloitte Consulting, whose parent, Deloitte Touche Tohmatsu, was the last accounting/consulting firm to say two weeks ago that it will split off the consulting arm from the rest of the company, acknowledge that the bad publicity dogging Andersen harms the entire sector.

"In the discussions we had with our people [as the Andersen/Enron mess unfurled, we said there could be disruptions [in business opportunities, but only if we allow ourselves to be distracted," said Stephen Sprinkle, global director of strategy, innovation and eminence at Deloitte Consulting.

The remaining former Big Five initiated their own intra-company divisions some time ago. In 2001, KPMG Consulting was separated from KPMG LLP in an initial public offering and now trades on Nasdaq. A year before that, Paris-based Cap Gemini bought the consulting arm of Ernst and Young.

The human cost from the Enron/Andersen scandal, arguably the hardest to quantify, is potentially the most damaging.

"You are going to see an exodus of people from these [accounting and consulting firms," said Frank Dzubeck, president of Communications Network Architects, a Washington-based research and consulting firm. "Their personal credibility is at issue."

"Working for IBM [Global Services, EDS or a small firm is a hell of a lot better than working for an Andersen or PricewaterhouseCoopers at this moment," Dzubeck said.

At this point, "it's guilt by association," he said.

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