I’m Now Blogging For The Huffington Post!
By Francine • Mar 16th, 2009 • Category: Writing for Others
I’ll be posting something on the Huffington Post’s Business Blog once a week or so.
My first post, The Button-Down Mafia: How the Public Accounting Firms Run a Racket on Investors and Thrive While Their Clients Fail was posted on Monday afternoon.
Take a look and pass the info along.
An excerpt:
There’s a popular Sicilian proverb:
Cu è surdu, orbu e taci, campa cent’anni ‘mpaci.
“He who is deaf, blind, and silent will live a hundred years in peace.”Enron, WorldCom, HealthSouth, Tyco, Parmalat, Adelphia…You would think enough lessons had been learned…And the largest global public accounting firms — KPMG, PricewaterhouseCoopers, Deloitte, and Ernst & Young — again failed to prevent, warn, or mitigate the desperate financial situation, the national crisis of significant proportions we now find ourselves in.
Francine is
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Francine McKenna (@retheauditors) has more than twenty years of experience in consulting and professional services including tenure at two Big 4 firms, both in the US and abroad. For more info, check the "About" page.
Enron…..KPMG, PricewaterhouseCoopers, Deloitte, and Ernst & Young
So which of the 4 are you blaming Enron on?
Nice article. Prominent use of the phrase “circle jerk”. Classy.
Great artilcle in the post! The big 4 definitely need to be brought up on charges of extreme negligence.
Back when I first started in public accounting I said that I should stuff my retirement money in my mattress based on the crap I saw. If only I had listened to myself.
And yes, I did find the use of the term “circle jerk” to be rather peculiar as well.
@Anonymous ex-KPMG 2:33
If you liked the use of the term “circle-jerk” you’ll really like this post.
I manage to squeeze it in as well as the terms “bend over,” obscene, and pornographic.
The post is about directors and their role in setting executive pay.
http://retheauditors.com/2008/01/say-on-pay-tell-it-to-the-source-the-bendable-directors/
I feel some of you have not being paying attention until now.
Francine
I hang on nearly every word you say. My dad has been saying the ‘good ol boy’ country club of board memberships for years.
@John 3:38 Thanks, John. That means a lot to me.
fm
Well said. Vocab too.
Fabulous post and I like your vocabulary. Congrats!!
circle jerk: (Adult / Slang)
1. A circle of (adolescent) males masturbating individually or each other, often in a contest to see who ejaculates first. Synonym: sewing circle.
See also: dealing; double jacking; dual masturbation; jack off party; jack-off session; M and M; mutual masturbation; playing chopsticks; pole vaulting; Swedish culture; swordfighting.
2. In military terms, a meaningless activity, a waste of time.
@anonymous 8:50
You thought there were some readers unfamiliar with the term? Boy, you guys really do not get out much. LOL
I read the article today, and it is clear that the accounting industry, the Big 4 in particular, have some issues. However, many of these issues are the same that are pervasive to the rest of industry for similar reasons. The reasons many of these things go on the way they do is because of the incentive structure. The industry concentration doesn’t help anything; when you have misaligned incentive structures, it exacerbates the matter.
At the end of it all, what do you propose as a good solution to the problem? The article only seems to indicate increased legal sanctions. Will more legal consequences mitigate future problems or just make us feel better for punishing bad guys? Do we just let the government take it over and run it so well as they run everything else (then there will really be no legal recourse for mistakes)? Do we make changes in industry regulation to increase competition among accounting firms in an attempt to lower the market concentration? What would you do?
Congrats Francine!
External Audits are a recession-proof comodity.
The conflict of interest is totally obvious. Companies PAY their own auditors. But what is the solution? Create a new government agency to audit these companies? Just what we need, another inefficient government regulatory body. Or, should the government pay the auditors (thereby eliminating the inherent conflict, but also eliminating the profit structure that attracts professionals to the industry in the first place)?
Don’t forget, in the post-Enron world the auditors are also audited – by the PCAOB. Has the PCOAB also failed the shareholders?
hey look – It’s Ariana Huffington…who’s got a camera phone? Since you are now writing for her blog, maybe you could lobby for a better picture. Or use photoshop.
@ Current Big 4: I really hope you’re a first year and can just plead ignorance on how the audit business works. Audits are NOT recession proof (although they are a commodity). While audit will lag the economy due to fixed fees which are contracted for a year, now that auditors are negotiating next year’s fees clients are pushing back and want their auditors to “share the pain.” How much in audit fees do you think a Company that blows up and goes under pays? The answer is zero. When Bank A, which has a $100 audit fee acquires struggling Bank B which had an audit fee of $100, how much do you think the new Bank AB pays? Its not $200. That doesn’t even count the extra fees audit firms get above their base audit fees for overruns due to transactions, growth, etc, which completely dry up during a recession.
fm seems to have an awful lot of 20-20 hindsight. Seems to be armed with lots of problems and zero solutions. It is too easy to complain. Take the challenge – try solving a problem. See if you can change anything with a magical pill, or find an overnight solution. Or maybe your solution is to anger the populus and hope for a revolution. Destructive solutions rather than constructive solutions may work, the question is how to balance short term pain with long term gains. I’m curious what the grievance is really all about — seems like a lot of excess baggage comes along with all these opinions.
Much of the accusations require a proof of “intent” — while there are clearly problems with the system… is there really “intent” by every auditor, every audit firm partner, etc, etc?
@Anonymous 7:54
I’ve had a lot of coffee today. And it was a busy day. So I’m a little tightly wound. Talking to FT ad WSJ about KPMG/New Century, too. So I’m just going to laugh at your mention of my 20-20 hindsight. Maybe if you’d been reading since October of 2006, you’d see that I’ve been talking about the same things for the last two and a half years. And if you know anyone who knows me, you’ll hear them say I’ve been talking about the same things for the last ten years of my twenty-five years in the business. I’m a frickin’ broken record. I’m not complaining. I’m informing. I’m not the one responsible for developing solutions. The legislators, regulators and, in the end, the professionals themselves are. At least now they’re actually feeling some heat to do so.
I’m very satisfied with the level of attention that the inner workings of the audit industry is now getting. I’m very happy with discussions of the potential for culpability on the part of audit firm leadership and certain partners for the failures of companies and the loss of jobs and wealth by shareholders and other stakeholders.
I may be carrying more pounds than my Latin America days but I have no baggage.
I know. You’re just a little touchy since you work for KPMG. Bad day today, huh? Ex partners going to jail. $1 billion dollar lawsuits. And still so many more potential hits like Fannie Mae, Citigroup…
Yikes.
Don’t want to depress anyone.
Here’s something to cheer you all up.
Francine congrats on being quoted in the WJS today! (http://online.wsj.com/article/SB123860415462378767.html)
Keep up the good work.
@18 — from where do you get KPMG? If KPMG partners are guilty of the allegations — jail is fine by me. Nothing about KPMG makes me “touchy”. Inflammatory language decorated with colorful terminology intended to rile up the emotions of those that want to be lead around by the nose — that is not a good way to make a living. Colorful language is good in a novel, usually fiction — in journalism and efforts to report facts and news, it is irresponsible. I’ve seen very insightful, responsible, constructive and useful messages from you — stick to that.
We have a Big 4 Kool aid gulper in the room *cough* #17/20 *cough.
On a side note, since when has an author of his/her own blog not been allowed to challenge someone’s opinion in the form or delivery he/she chooses…provided he/she still gets his/her point across effectively?
Kool-aid comes in many flavors. Seems the flavor you have choosen contains the poison. Seems the author of this blog is pouring that Kool-aid out to the naive.
@22 – the naive being those who do not hold units in a public accounting firm – like yourself? Has partner unit value gone down for you
Are you upset that that Francine and her readers are telling it like it really is? What an impediment it must be for the Big 4 to continue to manipulate? Never fear, that’s why you guys get paid the big bucks.
@23 — you really are making assumptions that not only are incorrect, but are none of your business AND are completely irrelevant to the discussion. Francine’s messages are academically intriguing – they are not upsetting. What I find a sad commentary on the world is that people follow a zealot who uses language to incite and targets emotion. Extreme-ists of all kinds exist and their input is worth listening to – but be careful who you give God/Goddess status to. Blindly following is what I do not respect. It is why so many cults have been lead to their death. Francine is just a different extreme. Remember — reality is an illusion… people perceive reality differently and while it would be really nice if we had a concensus that there is one true reality that is “the way it is” — that just isn’t the case. Even when the economy comes back and we are all happy again… the perceptions of what happened will all be different. I merely encourage you and everyone else to examine ALL sides of the story and know that Francine’s opinion is an extreme. Don’t believe things on face value and don’t allow yourself to be dragged into a philosophy just because you are upset about something. That applies to a partner’s opinion as well as Francine’s opinion. The language used in these blogs is very cult like… a ton of ‘group think’ rather than honest debate and discussion. A person with a differing opinion is called an ahole, and attacked for having an opinion. While the economic situation is scary and the politics of business are often corrupt and scary too… what is more scary is a world in which group think and cult behavior can create the next Hitler. Be a little rational — think for yourself. Listen to a variety of opinions.
The part you should consider is the idea that ALL partners are bad, that the ENTIRE motivation of the B4 is corrupt. Words like “ALL” are generally incorrect. Should we shoot ALL the partners because a few are bad — what is the real percentage — 10%, 70%? Is it the partners that are causing the problem or are they just another part of the system that was put in place that has loopholes some people will take advantage of? Is it the partner at fault or is it the system? Is the profession one that is reactive rather than proactive? Can one compare the job of the auditors to the job of police? Do you blame the police for the crime that was committed, for not solving the crime, for not preventing the crime? Are there corrupt police — sure… are they all currupt? Would it be better if the government played the role of police rather than the B4? Would the government be immune to corruption (doubt it)?
These are all good questions — an attitude of blaming all partners for issues that are relating to a few partners or to the system which has loopholes… that attitude is what is scary.
This article is really unfair. The mafia runs various illegal operations that harm people, like running drugs. The public accounting firms perform a public service, ensuring that accurate financial information is provided to investors and other stakeholders. How is public accounting any more like the mafia than investment banking, lawyers, sports teams, and hollywood? Plus many people go into public accounting because they can remain independent and not have to take a client advocacy position like lawyers and bankers. What type of message are you sending to young people who may want to get paid a decent wage to work in the financial industry in a positive way? By cherry picking the inevitable failures in a profession that overall works hard everyday to maintain a level playing field you are really coming across as vicious. And how does the fact that the public accounting firms audit the credit rating agencies and their clients have anything to do with their audit performance? That’s like saying because all the CEO’s eat breakfast everyday breakfast is the problem. I’m all for trying to improve the system, but you seem to be arguing for something else here.
Oh, and when you find yourself throwing Lynn Turner under the bus for not being nasty enough you know you have crossed into uncharted territory. This is amazing. A guy with, if nothing else, an unimpeachable record of standing up to the firms, and you throw him to the lions when he says the firms weren’t the cause of the current crisis. Why would you do that? It reminds me of the French Revolution or Stalinist Russia where if you weren’t quite revolutionary enough you’d end up getting executed by the very process you had set in motion and supported… I’d hate to live in a country run by FM–would anyone be safe?
@lazarus
Accountants, especially licensed accountants, are a profession just like doctors and lawyers. You are supposed to be an advocate, to stand in your client’s shoes in front of management, your client being the shareholders of the companies you audit. Or don’t they teach that in school anymore?
With regard to Lynn Turner, well, you must not subscribe to his newsletter. He sent out my post about the problems with PwC buying BearingPoint to his readers week before last. http://retheauditors.com/2009/03/is-a-big-4-firm-buying-bearingpoint/
I don’t think Lynn Turner needs protection from some pushing from little old me.
client =
1) a person or group that uses the professional advice or services of a lawyer, accountant, advertising agency, architect, etc.
2) a person who is receiving the benefits, services, etc., of a social welfare agency, a government bureau, etc.
3) a customer
4) anyone under the patronage of another; a dependent
Interesting that the definition (from dictionary.com) covers both the company paying the audit firm and the share holders.
fm has a point that there is an inherent conflict in the fact that the firm’s paying client and those the audit firm serves (shareholders) may not have the same needs, and the incentives of the audit firm can become confused. This is the reason why audit firms require independence from their clients – in order to reinforce the perspective that they work to serve the shareholders. Moving to a government auditing agency will not change that fact unless the agency is paid by taxpayers and not the companies being audited… and in that case the government agency will still be vulnerable to bribes and the like.
Seems like an arrangement where the shareholders are actually the paying client is the better plan. But the logistics of a true arrangement of that nature are challenging. The average shareholder is not that involved in their investments, especially if they are mutual funds. So the question is how do we get the exchange of money (which causes a conflict of interest – even if the auditors are independent in their investments) between the party being served and the party serving them?
Anonymous @ 24
Congratulations on confirming Godwin’s Law! You do understand that is generally understood to mean “Thread Over,” right? I.e., once Hitler or Nazism is invoked, rational discussion is no longer possible.
I had a lot more to say about your post, especially the parts such as “Remember — reality is an illusion …” but I decided to save the bandwidth. I’m going with Godwin and saying that rational discussion is no longer possible on this thread.
– Tenacious T.
Glad to see your leftist credentials are official now.
Congratulations on making it to the HuffPo!
MoveOn.org is next I’m sure to compliment the ACORN membership.
@Stu Nod
Well! Where have you been? I think this was no secret to you. I am what I am . Read or not. Whatever.
Francine
@29
Incendiary unfair comparisons invite incendiary unfair responses. I’d like to heard what FM would do with the accounting firms she so hates. I’d also like to know how she thinks people get promoted at them, if not based on hard work and smarts. It seems like the firms are much more meritocratic than most employers.
@29 – point simple — no 2 people will ever agree on what the actual truth really is. They may get close, but everyone on this earth perceives reality differently. Who is to say what is an absolute truth? Are there any real “absolutes”? Seems the only people who believe there are are, generally live in their own reality which no one can enter into unless they completely agree with them on all things… examples include religious extremists of all faiths, and unfortunately regimes such as Nazi Germany. It isn’t thread over — it is something to consider.
@32… while the fact that the firms offer a road to promotion is a good thing (as opposed to waiting until the person above you dies or retires in corporate accounting), I wouldn’t say its 100% based on “hard work and smarts.” If it was truly based on that, the firms would evaluate each person every year to determine if they should be promoted. That’s not how it works. Instead, you need to put in X years at a certain level, THEN they’ll look at you for promotion. And guess what? it’s not just the hardest working and smartest people who are going to get that promotion, the promotion is the default decision, unless you’re completely incompetent, don’t have your CPA, etc. You don’t earn the promotion, you just try not to lose it.
I’d liken the promotion process to some of the worst public grade schools, the firms practice social promotion. If you have the same # of years as everyone else who’s getting promoted, and they’re nothing glaringly wrong with you, you get the promotion.
@34 – I have observed these promotion tactics in some offices, by some partners and by some practices. I believe you are correct and it is more the norm than the exception. I too disagree with this way of giving people promotions — it should be based on some kind of assessment of talent, value, intelligence, successes/failures, etc. That said, recognize that it isn’t just about being smart. Smart people often lack the ability to time manage, people manage, client manage, or other softer skills like facilitate brainstorming. Smart people often believe they know better and are less open to listening. On the other hand, those with better soft skills may market well but not manage people well and all kinds of other things. Commonly they are feel threatened (due to insecurity) by the smart ones — and that makes them pretty nasty leaders. In the end, it is a trade off between all these various talents that matters and not everyone can/should be promoted for the same reasons.
I also caution — the B4 tend to promote people way too fast. In the model you present, I see people making manager in 4-5 years. This puts young people around 28 years old in a management position. You should recognize that some skills simply do come with time because they are a matter of experience rather than a matter of something you can study and learn. For example, you should work with 4-5 different managers (not the B4 idea of a manager — but a real manager who runs a practice or a division) before you really can assess what styles work for you, which ones you can implement, which ones you really do not want to emulate, etc. I believe that 10-15 years before manager is more realistic in order to be a good manager. So, that means that the B4 idea of what a manager is — really isn’t a manager in other companies where it takes 4-5 years to become a team lead, and 10+ years to be a manager.
And finally, my practice area does not promote based on years served. It is taken into consideration, but as a general rule, it is the minimum requirement to get promoted. So we are not on the plan you describe. There are exceptions. The problem is that those in my practice/region have a lot of resentment towards others who are promoted on a time basis in the practice but in a different region. But, on the other hand — those in my region generally succeed much better when they are promoted. Pick your poison I guess.
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