The Saddest Thing

I was feeling a little depressed, oppressed, and stressed yesterday. I pulled the “Auditors and Gambling” post out of the ether, really. The subject had been on my mind. The survey activity prompted a few to ask me if I had thought about how to make money off the process or the results. The cacophony of carnival barkers on CNBC provided a backdrop to my thoughts of the casino like nature of our very existence these days.

We bet on which school to attend. Will I get the classes I need, the instructors I want, the grades I require to get out of there with something of value?

We bet on our first job. Will it be the launching pad for  a career or just a way to pay the loans and bills?  Is it a good place?  Will there be people I can learn from?  Will they like me?

We bet on a partner for life. (I won’t dwell on that here. It’s too fraught with emotion for me.)

We bet on buying a house. More than ever that was a gamble in the past and for some it paid off, for others they’ve found it to be less of the “nest egg” than they’d hoped.

We bet on our employer and other companies as good choices to invest our savings. We hope that those we trust to provide reliable, transparent, timely and accurate information are doing so.  We approach the exercise in good faith.

We bet on our brains, and our brawn in some cases, to carry us through. We work hard, have faith, and trust those in positions of responsibility and stewardship to fulfill their vocations honorably.

I have actually been told by some that I am still too optimistic about the profession. Maybe there are people to whom I have given the benefit of the doubt, and more, on this blog, who don’t deserve it. If  you feel the game can still be played fairly, with reason and discussion, under a predictable set of rules, with expected results, then you play. You write your little blog, and hope to influence those that are in a position to make changes that will help.

But, then you start to see that the game is probably rigged, that there’s no more “best interest,” only “self-interest.”

What’s a girl to do?

The unexpected thoughtful responses to my post on the wage and hour suit PwC is facing in California, one originally intended to be more informational than insightful, weigh heavily on me. Are the Big 4 firms profit-making private partnerships that have a right to do whatever is in the interests of their partners only, according to those partners level of contribution and influence in the firm? Are the partners really the only ones that matter given this model?

Or are the firms part of the capital markets structure, part of the business community, part of local communities, with employees, customers, vendors,  and other stakeholders who must be considered? Is a private profit-making partnership the best model for carrying out the responsibility, the obligation of protecting shareholder interests in this complex, global market environment we find ourselves in?

Finally, the saddest thing for me is the ongoing dialogue I have with those at the beginning of their careers. It may surprise you to hear that I rarely, if ever, dissuade someone who has set their entire course, worked their tail off, ran towards that light at the end of the tunnel that is a job in the Big 4 at graduation, from taking one of those positions. I may counsel them about a particular firm or office at a particular point in time. I may insure they know what they want and have asked the right questions. I  may encourage open dialogue with a sponsor or mentor early in the process in order to insure that they have the benefits of kind and generous career and personal support I had at KPMG Consulting.

But until a few days ago, I had never considered advising anyone to look at other options.  Until a few days ago.

That saddens me.


Here’s a link to an article in the ABA Journal regarding the Sidley and Austin case referred to by our most recent commenter. The article also includes a link to the consent decree signed by Sidley. The settlement by Sidley sets an important precedent and is of interest, I think, to all those “partners” in the audit firms, who are in effect, merely “employees” given the lack of control they really have over their careers and management of the firm.  If the going gets any tougher out there, we may actually see partner demotions and cuts in the Big 4.

Although the firm didn’t admit wrongdoing in a consent decree (PDF) approved yesterday by a federal judge, the case is important to law firms because of the precedent it sets concerning the definition of partnership. As discussed in an ABA Journal cover story in 2005, the EEOC contended that a number of Sidley partners were actually employees–and hence protected by laws against age discrimination—because the firm treated them as employees even though it called them partners.

In the consent decree, Sidley “made a significant concession,” reports the Los Angeles Times. It was: agreeing that “each person for whom the EEOC has sought relief in this matter was an employee” for the purposes of the Age Discrimination in Employment Act.

The case—which was brought by the EEOC itself rather than individual partners—resulted from an October 1999 demotion by the firm of 32 partners, allegedly based at least in part on their age. Financial details of the settlement are discussed in another post.

“Up to now, with no particularly good reason that I can discern, people in control of law firms said that if they called someone a partner … they didn’t need to worry about federal employment discrimination laws,” says John Hendrickson, the EEOC’s regional attorney in Chicago.

“What the Sidley case says is that you have evidence that people are called partners, but in reality are not active in the governance of the firm and don’t control their own destiny in the firm,” he tells the Times. “You can call them whatever you want, but for the purposes of the Age Discrimination Act they are employees.”


Here’s a link to my post where I discuss the problem of size in a partnership.

9 replies
  1. Independent Accountant
    Independent Accountant says:

    I agree with your friend. You are too optimistic about the future of the CPA business. Only a major shakeup, which arise from a few large firm bankruptcies and dozens of Big 87654 partners checking into “Club Fed” might change things for the better. I’ve felt this way for decades.

  2. Anonymous
    Anonymous says:

    Although a long-time reader, I think this is the first time that I ever commented.

    I did my due diligence: I spent nights dawdling the Vault message boards; I read this blog; I talked to friends who were in Big 4; I talked to FRIENDS of friends who were in Big 4; I did a winter internship and saw/heard of the grittier aspects of the profession. Nevertheless, I will become an audit associate for one of the Big 4 next summer.


    Because of the collegial culture.

    No. Just Kidding.

    I won’t pretend to know why I do the things I do, but the main reason I joined Big 4 was because of the soul-crushing truth that the 4’s monopoly on auditing has cemented their clutch on the entire profession. To wit, any decent acct/finance job requires 5 years of Big 4.

  3. Francine McKenna
    Francine McKenna says:

    @Anon New Commenter/Loyal Reader
    Thanks for all. At this point, the experience, if you choose to accept the mission, should be “used”. And I mean that in the most opportunistic, mercenary way. If you meet good, smart, nice people along the way, you have been blessed.

  4. Independent Accountant
    Independent Accountant says:

    For whatever it’s worth, the best people I ever worked with were at Big 87654. The Big 87654’s problem is: economics and the “classical agency problem”. Most Big 87654 partners are afraid to admit the truth and become “real” businessmen as opposed to polite paper shufflers. Can you imagine David Einhorn or Bill Ackman as a Big 87654 partner? I can’t.

  5. Anonymous
    Anonymous says:

    “Are the Big 4 firms profit-making private partnerships that have a right to do whatever is in the interests of their partners only, according to those partners level of contribution and influence in the firm? Are the partners really the only ones that matter given this model?

    “Or are the firms part of the capital markets structure, part of the business community, part of local communities, with employees, customers, vendors, and other stakeholders who must be considered?”

    You talk about the two as if they are mutually exclusive. If a firm does not serve the capital markets, it will die and the partners will die with it. All is not lost.

  6. Francine McKenna
    Francine McKenna says:

    @Anon I think they are mutually exclusive. Public accounting is a profession, with practicioners who are licensed and who must abide by a code of ethics that require them to put the client’s interests first. However, both the partnership model and the model for the firms makes this impossible for auditing. The client is the company paying the bill, but the interest that must be served are those of the shareholders. We have seen, time and time again, SOx or not, that management and the Board of Directors are not serving all shareholder interests but narrow interests of only a limited number of shareholders. In the worst case scenario, they are completely self-interested and their vendor, the auditor serves them not the shareholders.

  7. Anonymous
    Anonymous says:

    The auditor should be hired and fired by an independent audit committee (AC). The shareholders should pick the AC. Are individual investors always protected? Probably not. However, that’s not the fault of the auditors. That’s the fault of the AC and the board. If you regulate firms more, you’re going after the wrong people.

  8. Anonymous
    Anonymous says:

    Francine, I’m sorry to see you saddened … and I think I’m going to add a bit of weight to your angst. Here goes: I think you missed an important question or two.

    Is a partnership the right model for such a large entity? How can 2,000 or more “equal” partners agree on anything? How can decision-making happen? Does Coase’s Theorem (or common sense) lead one to the conclusion that the power is concentrated in the hands of a few while the rest simply follow along?

    Add in the fact that the partnership selects for “collegiality and conformity” and that boat-rockers are dead-ended. How are professional standards enforced in that kind of environment? Where is individual accountability for stewardship of the firm’s current and future resources?

    Now might be the time to post a link to the Sidley Austin EEOC settlement (if you haven’t already done that before I joined your posse of loyal readers), where we learned that even partners can be classified as employees, and that one law firm’s leadership promotion process was described as “apostolic succession.”

    I don’t think the partnership model is effective at this scale. I don’t think it would be effective if the Big 4 made cars, pencils, or served burgers with fries.

    Final thought. I was there when the double-doors were replaced by the orange ball and I remember that culture well. Individualism was NOT encouraged. Now I’m at another firm and, once again, individualism and innovation are “coaching” correction points while collegiality and conformity and being a “well-rounded athelete not a subject matter expert” are the keys to getting that promotion. I see the same things happening again and again, and nobody seems to learn and nobody in leadership is being held accountable.

    “Am I bugging you? I don’t mean to bug you. Play the blues, Edge.” — Bono

  9. Francine McKenna
    Francine McKenna says:

    Thanks for your additional thoughts. Yes, size does matter. Don’t let anyone tell you otherwise. It’s the way the firms expand the leverage model geometrically. Unfortunately, it makes for a bad user experience and bad quality. I’m going to post the Sidley info later today at the end of the post. I think I linked to it in one of my first posts and I’m sure I have it. It is very instructive when you’re looking at things like where responsibility for quality and accountability for errors and ommissions should lie. I will also link back to an early post which posits that, for professional services firms, partnership is the preferred model but ‘small is beautiful’ is the caveat. The problem is audit firms are not professional services firms in the strict sense anymore.

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