vol. XV no. 2

				How Jim Copeland Copes with Change at Deloitte & Touche   continued... "When I first heard about Enron, I was distressed because it looked like another big, high-profile problem. There have been several of those over the last few years, and you never like to see financial reporting coming under question, particularly if you are part of the auditing profession. But I think the part that really grabbed me was when allegations were made about shredding documents. That piece suddenly changed the whole complexion of this discussion. You were no longer talking about a business problem or a business failure or even a questionable audit. You were talking about criminal activity. At that point, I knew we had a huge problem, and sure enough it seems to have damaged not just Andersen but all people in our profession which I think it is unfortunate and unfair, but nevertheless something we need to deal with." Changes hit Deloitte & Touche within a month. National attention was focused on the fact that Andersen made almost as much in fees from Enron for consulting services as from auditing, a glaring conflict of interest to many observers. Yet such synergy was a key part of Deloitte's long-term strategy ­ to offer multinational corporations a wide array of services, including accounting, tax, risk management and consulting. Copeland began assessing the ties between his firm's audit business and Deloitte Consulting. The privately held Deloitte's revenues in 2001 were $12.4 billion, of which about $3.5 billion came from Deloitte Consulting. According to Fortune magazine, Copeland told Manoj Singh, head of Deloitte Consulting's American operations, that the day was approaching when "you're going to come to me and say that we have to separate consulting from the rest of the business. I hate it, but I think it's unavoidable." The next day, after Singh discovered that a big audit client was concerned about the perception of conflict of interest with Deloitte Consulting, he went to Copeland's office, where they put together a five-hour conference with other top partners. "They emerged with tears in their eyes," Fortune reported, and announced that Deloitte & Touche would separate from Deloitte Consulting. "We think it's sort of a step backwards as far as reform is concerned, but this was a situation where the market was going to create the negative consequences anyway because of concerns about negative publicity from having auditing firms provide consulting services," commented Copeland. "That put our clients in a very awkward position. They wanted to use us as the best consulting firm and the best auditing firm, but they now had to choose one or the other. So we agreed to make those separations to allow them to choose the best of both worlds." Deloitte & Touche takes pride in its reputation for audit quality ­ the company is "auditor's auditor," as Fortune put it. The firm "believes it has a better auditing record than any of the other large accounting shops," according to the magazine. In an earlier era, its conservative reputation, along with the firm's refusal to enter into price wars with competitors, was sometimes viewed as a negative. No more. After the Enron scandal, major companies began dropping Andersen and going to the "Final Four." For example, Delta Air Lines selected Deloitte to be its auditor after dropping Andersen, despite the fact Copeland's firm was one of the higher bidders. For a brief period, Deloitte considered the possibility of acquiring the reeling Andersen. But Copeland decided against it. In fact, he points out, Deloitte & Touche had opposed the earlier merger that created PricewaterhouseCoopers. "We felt like that was a bridge too far in market concentration. But once we concluded that Andersen was going to have a difficult time surviving as a free-standing entity, that meant the market was going to concentrate anyway, so we started thinking about an orderly concentration in the market that would allow clients and people to make a transition from one firm to another without quite so much upheaval. After learning more about law in this area than I ever wanted to know, it became clear that we would not be able to do a combination in the United States. We then proposed to consolidate on a country-by-country basis. We have been able to do some consolidations and have the Andersen firms join the DTT network in 16 countries, including the United Kingdom, Canada, Spain and Taiwan." In speeches around the country, Copeland has recommended major changes for his industry, asserting the aftermath of the Enron/Andersen crisis is a once-in-a-lifetime opportunity for comprehensive, lasting reform. "The financial reporting process, the capital market system and the accounting profession do need improvements," he said. "But those improvements need to be real, comprehensive and without unintended consequences that are worse than the problems they were intended to cure." Top | Next Page

Copyright © 2003 Robinson College of Business/Georgia State University.