The Rest Of The Mess – Beyond The Big 4
I’ve had some interesting comments the last few weeks about reports of terminations and staff cuts in the Big 4.
Some have said , “Who cares? Everyone is suffering right now.” Well, not exactly. Here in Chicago, we have had layoffs and budget cuts in city government, significant job loss as a result of the sale several months back of ABN AMRO to the Euro consortium and subsequent sale of LaSalle Bank to Bank of America, and news of other cuts and layoffs around town. But the city is on a high from the election of the home-town favorite as President and seems to be better off than some surrounding places like Detroit and Kansas City. There are still tons of people walking around Michigan Avenue, the main high-end shopping street here in Chicago, and restaurants still have full tables on the weekends and most evenings. Some neighborhoods do have more than a fair share of “For Sale” and ‘For Rent” signs on homes and it seems that the condominium building boom is finally slowing. Units planned for next year are in the hundreds versus thousands.
If you are looking for comments on ongoing “reduction in force” activities in the Big 4, look for comments on these posts:
The Messy Business of Reductions, Cuts, Terminations, Redundancies, and “Layoffs” – A good discussion of the impacts on partners seems to be developing with an “authoritative voice.”
Friday – Questions, Thoughts, Answers, and Impressions – This one also has comments regarding KPMG.
Follow-Up On More Big 4 Layoffs – This post seems to be attracting the updates on EY and KPMG, including some specific comments on KPMG Boston.
Some earlier posts have comments, also. To see all comments for a post, click on that post’s title to limit the page to only that post and its comments. I am planning a new blog format to be launched early December. I hope it will make seeing comments and tracking them on specific topics easier. Until then, it’s most useful to everyone else to put comments on the most recent relevant post. Or you can subscribe to the Comments feed, via RSS. The button is at the right hand side.
Some sites also make comment tracking even easier. One that found me on Twitter is Backtype. Check it out. This link is to comments on re: The Auditors. You can also look for comments I have made on any site by typing in my name in the search.
I often get asked, “Why do you only write about the Big 4? What about the next tier firms?” And most recently, I was chastised for not knowing about Rothstein Kass before reading the press release about their choice as favorite firm of hedge funds.
“You have never heard of Rothstein Kass and you are writing a blog about accounting firms??? Lady, you need to get out some more, I don’t have a blog but I am aware of other firms besides the big four…your comments sounded biased to say the least and its a shame you use this blog to trumpet your ignorance. Rothstein Kass was ranked within the top 20 firms nationwide…and anyone that knows the hedge fund industry, would know of the excellent work they perform. To interpret the assistance the offer to their clients in regards to FAS 157 as being other than independent, one would have to have a very unrealistic view of client service and independence. Read a book lady.“
To this helpful reader, worried about my knowledge of the Top 20 accounting firms, my social life, and my reading habits:
1) The blog is about the business of the BIG 4. No more no less, unless the spirit or the news moves me;
2) My social life is fine. I get out a lot. A girl can only do so much, in particular when it comes to knowing all the Top 20 accounting firms and their mission statements by heart, especially firms with limited public clients and limited global presence;
3) I read quite a bit. In fact, I am the one who buys every author’s first novel from the “Try this” shelf at Border’s and Barnes and Noble. In fact also, I read more than one book at a time. I balance ones about accounting and hedge funds with novels like, “The Brief Wondrous Life of Oscar Wao,” the Pulitzer Prize winning 2nd book by Junot Diaz. I own his first book, “Drown,” an exquisite collection of short stories published ten years ago. He has been writing Oscar Wao ever since. It was worth waiting for.
I want to go back to the first question, ‘Why do you only write about the Big 4?” I received an email this weekend from someone who worked most recently at Grant Thornton. He was apologetic almost for bothering me with news of the GT reductions in Dallas. Please never hesitate to write, no matter where you work. And I respect the work that is done by good people, in good faith, at all firms. But I thought I should explain why I write only about Big 4.
1) I know Big 4 audit and consulting the best. I have worked in professional services and in particular for KPMG Consulting, BearingPoint, and PwC since 1993. I have never been a small firm person. I was never comfortable in small companies, family-owned companies, and start-ups, including my own. Although the Top 20 firms beyond the Big 4 are not small firms by any means, their client focus is small to medium sized companies (few Fortune 500,) mostly private companies. So I can’t relate my experience as well. There is a huge gap between the size, number of public clients and other similar statistics between the Big 4 and the next tier. Everything about them says to me that things may work differently and, therefore, be different than what I know.
2)When I started the blog, I picked up on what I saw had been successful in others – focus. To gain a large audience, more focus rather than broader themes are more successful. This is primarily due to the power of Google to bring readers looking for a specific thing to you. It works best if you are very specific, succinct, consistent, and, frankly, repetitive in your coverage. So that is the “method” to that part of the “madness.” It has worked. I am happy with it.
3)It’s difficult enough to follow all the news for four large firms. It’s even harder to follow more. I find myself pulled in all directions by the news coming out in the current crisis, but I have to stay loyal to my focus and my theme. Which is also a critical one. I do not write about the happy, warm, and fuzzy stuff very often. I make an exception when I feel like it or when the story highlights something of the strategy, business decisions of leadership, and business model of the firms. So limiting the coverage of the firms allows me to go as deep and as wide as I like without the dilution that can occur when you end up just redistributing news.
I do have friends at Grant Thornton, in particular, and know that firm has been good to them and they have been good for that firm. However, my concerns, in particular about the litigation facing Grant Thornton and BDO, cause me worry about the survivability of any firm without critical mass. On the other hand “Small is Beautiful.” Oh well, it’s not easy for anyone, especially right now.
So all that being said, I give you this update from Grant Thornton in Dallas:
“Dear Francine,
I know your blog doesn’t really cover non-Big-4 too much, but I just wanted to let you know that GT laid off maybe ~15 people in audit, myself included, in their Dallas office on Monday (17th). The number doesn’t sound big, but our whole office (BAS, EAS, Audit, and Tax) is only around 300 ppl, so yea.
We really didn’t have any notice whatsoever. No formal meeting either, I was just called over by a partner and bam. People laid off were at the associate and senior level, the newest people laid off started in Jan. ’08.
The reasons stated by the partner were the economy, peer-group ranking, and keeping people busy. My schedule was booked through busy season and I had no reviews below “meeting expectations.”
The firm had over 20 new hires start this Sept. and they have all been sitting in the office doing nothing, unscheduled, and none were let go from what i’ve heard. My start group a year before was less than half that size.I spoke with a friend at KPMG Dallas who said their layoffs locally were maybe around 40 people. He was telling me about a co-worker of his on an engagement out in Midland, TX who was laid off over the phone. Pretty cold. He was really surprised
to hear about the layoffs at GT, since the firm has been taking clients from them recently.”
BDO is basically “Dead Man Walking”. I don’t know many of the facts of what went wrong for them. What is very unusual is that somehow the $521 million verdict has been set-aside pending the appeal. The chatter within the community is that BDO’s goose has been cooked and that they will shut-down their practice at some point. That is a shame, but points out the risk of this business model called auditing.
BDO may get the damages knocked down on appeal but it is still a knife to the jugular.
Francine – can’t wait to see the new layout and thanks for consolidating and putting up all the layoff posts in a new posts. Appreciate that and the info you collect and transmit here. Keep on, keeping on.
I feel bad for the BDO folks. I feel really bad for the partners. Odds are that if you are an average employee at BDO, and the firm collapses, you have a good chance of getting a job at another firm. Many firms are running lean right now because they either laid people off or they didn’t replace those who decided to leave.
If other firms pick up BDO clients, they will need people to staff those jobs. The partners on the other hand lose all the built up equity they had. That’s pretty rough. The risk-reward for being a partner might not be there anymore.
GT had laid off 16 people from audit in Southern California in March. Socal consists of 4 offices with about 300 people in all 4. Audit is around 130 people. So it was a significant percentage. They cut intern numbers nearly in half but have kept new hires around the same. Why? Well they see new business prospects and they need to be staffed given these prospects turn into actual clients. It does not always work out. Socal has to be one of the worst considering they lost several mortgage banking clients who were huge, 2 of which i believe were over a $1million. That is large for Grant, most assignments are around 1/4 of that with some BAS going over 500k.
If BDO Seidman goes down it’ll be interesting to see what impact it has on some of the large regionals. I have to assume BDO International would want to sign up one or more ASAP to fill the huge hole in its network.
@8:24…
You’re exactly right. My SPECULATION (with absolutely no basis other than my imagination) is that in the unlikely event that BDO goes down, BDO international would sign on another mid-market firm immediately and have the current BDO folks join that firm. A new firm, say “BDO Virchow” or “BDO Plante” would effectively be a merged firm between current BDO Seidman and another mid-market firm such as Virchow Krause or Plante Moran. (Virchow and Plant just came to mind quickly, however it could be any of a number of firms).
I say “unlikely” event because the Bankest case was shaky and had a judge presiding over his first-ever civil trial. Bankest was a private company, so they are being sued by owners and investors, most of whom are currently in jail (most big litigation awards that survive appeal go to shareholders of publiic companies, which is not the case with Bankest). Keep in mind that Bankest has been going on for several years and that nothing will happen for another year or two. While it looks like BDO did a bad audit, it doesn’t look like they were 100% at fault as the trial indicated.
Also, including Bankest, BDO has a relatively small amount of litigation outstanding. Keep in mind that all large firms have litigation over their heads and are one rogue judge or runaway jury from a serious headache, as evidenced by BDO now.
While this doesn’t appear to be the forum for tort reform talk, a failed BDO could be the poster child auditor litigation reform.
Francine:
I think your critics have no idea what market share the Big Four have of SEC registrants by market cap, about 98%! BDO, GT and McGladrey have about 1%, 1280 smaller firms about 1%. Why write about the Big Four? Because that’s where the dollars are!
Keep up the good work.
Independent Accountant,
It’s true that the Big Four have a large share of SEC registrants. However, if you look at the mid-majors, as I like to call them, they represent a sizeable chunk of revenue. I am talking about GT, RSM McGladrey, BDO, and to some extent Crowe. There’s a few billion in revenue there. When did billion with a b become some trivial amount?
With that said, I don’t care if Francine covers just the Big 4 or not. It’s her blog; let her write about whatever she wants.