Does Anybody Really Know What Time It Is?
PricewaterhouseCoopers (or PwC) is the world’s largest professional services firm. It was formed in 1998 from a merger between Price Waterhouse (PW) and Coopers & Lybrand, both formed in London. When I joined PwC in 2005, I heard stories about the factions that had been created in the firm by the merger of PW folks and Coopers. I had worked with PW and later PwC in Latin America during the JP Morgan Year 2000 Project. PW was JPM’s auditor and I was the PMO Director for the initiative for the region.
Stories I heard represented PW as the global firm, the professionals with a worldly view and accustomed to working with the largest global companies. Coopers professionals were characterized as more provincial and more “middle market.” When I started auditing in PwC’s Jersey City office, home of their Global Independence and Compliance functions, I also heard more about the Coopers & Lybrand independence violations that the firm had inherited during the merger. The consequences of these violations for the firm have been significant and long lasting.
It wasn’t until tonight, when I had the pleasure of meeting a long time reader of the blog, that I heard the PW wristwatch story. My reader is a former PwC partner, elected to the partnership prior to the merger by PW.
He told me that, prior to the merger, when PW professionals were elected to the partnership they received a beautiful and expensive watch as a gift from their fellow partners, the firm. The face of the watch had a subtle, classy PW logo. Partners were proud to wear it and it was a none-too-subtle reminder that you were, “always on the clock for your clients.”
After the merger took place, no similar custom developed immediately for the new partners of the new merged firm. In fact, there was great resentment and acrimony over the wearing of the PW watch. Coopers partners complained that it was a slap in their face, a divisive sign that clearly identified which partners were PW and which were Coopers in partner meetings, at clients, at events.
Eventually, the merged firm leadership decided to ban the wearing of the PW watch in the office and for all firm functions. My reader says he probably still has the memo. The firm forbid PW partners to wear the watch! My reader, although a newbie partner at the time of the merger, said his feeling was they would have to pull the watch off his dead body to stop him from wearing it. The tenured PW partners were even more vocal. They flatly refused to comply. The Coopers partners were insulted and hurt over PW partners wearing their watches and the PW partners were insulted and hurt over being forbidden to wear a treasured memento of their accomplishment.
The firm later created a new gift for partners with the PwC logo. This new watch, however, was, according to my source, a cheap imitation of the one the PW legacy partners were accustomed to. In my reader’s opinion the post-merger partners were definitely gypped.
i was a new hire at PW when the merger occurred and after a month of work we “merged” with coopers and it was very interesting how the watch phenomenon was very real but only with first year’s it was our leather Franklin day planner (which we got to pick out) and Lands End PW fleece. The Coopers new hires got a plastic planner and a hanes sweatshirt. Just got a chuckle reading about the watches as I know that was a very real situation. I was told not to wear my “PW” fleece to work on Saturdays. Funny post!
How cute! It’s like a partner version of a high school melodrama.
I do agree with the PW partners who told the combined firm to stick it.
That’s a great story! Quite funny, really, how little things like that become huge issues. We all want to feel valued just as much as others. Some people want to be valued MORE than others! 🙂
I am hoping you posted this because you heard increased rumors of the PwC-BE purchase, otherwise i feel like i need to go back a few years to make this even a little relevant. I usually dont feel like i wasted my time reading your blog, today, however, is different.
It's been 10 years since the merger. Since 1998 there have been 10 (11?) classes of new hires entering PwC without any carryover baggage from the legacy firms. By and large, the staff doesn't have any emotional ties to either PW or C&L. The partners, however, still identify themselves by the legacy firm they came from, as if it matters to anyone but them. (I watched a manager get "counseled" out of the firm for — among other very real performance-related issues — continuing to call the firm PW and leaving out the "C". Not smart when one's primary relationship partner came from C&L.)
Until the legacy firm partners all enter retirement, PwC will continue to struggle with its cultural identity.
A perhaps amusing story from 1998 or 1999: The combined firm was looking for its new name/identity and ran a contest seeking submissions from employees. (Naturally the firm chose the most imaginative and creative name for itself. *eyeroll* But at least it didn't choose a day of the week for its name, which is nice.)
Anyway, I wasn't with PW or C&L or PwC, but I campaigned with my friends within the firm to submit P&L — which I thought would be an excellent name for an accounting firm.
P&L — Poopers & Lyehouse.
For some reason, the name did not get submitted. I can only assume it did not get submitted because if it had been submitted, it would have been a sure winner, right?
— Tenacious T.
Well I joined PW in London- in the UK firm if you were PW and you passed your final chartered accountancy exam first time you got a 3k GBP bonus, and the 2nd year exams a 500 GBP bonus a big deal in those days, but the coopers people didnt get anything.
So there I was sitting the exam in the same room as my coopers colleagues and working with them on the same audits and I got my 3000 and they got 0 for passing- I loved being PW- when we had to go to the Coopers Uxbridge office, the carpet was that of a pub- disgusting and worn out, the PW office was next to Windsor castle- Coopers worked 9:30-5:30 and got their parking paid for and we worked 9-5:30 and didnt- seemed that after the merger when there were initially 2 offices the PW partners made up for the shortfall, but the coopers ones didnt- I loved being PW
I can say that the PW partners are the superstars of the team and I would support them wearing the watch. I mean how weak are legacy C&L people to actually care about that. I am siding with the PW folks.
Typical political BS in a public accounting firm. People will fight over anything, however insignificant. Someone once said that people who stay in public accounting are those who never want to grow up. It seems that there is an element of truth.
I joined PwC shortly after the merger, but was hired by the PW side. As a staff/senior on the PW side, it was normal practice to cc your partners/managers on e-mails. Sort of an FYI. Well, the Coopers culture found this practice offensive. We were asked why is was necessary to cc everyone. So, anything a cc note when out, someone on the Coopers side got offended.
Too many anonymous comments. Make us show ourselves!
PwC is the elite big 4 of today. No doubt about it, it has since became a formidable force. Long live PwC!
When PwC HK acquired the Greater China region AA back in 2003 also struggled for the initial years, some former AA partners fled away from the merged PwC due to “cultural differences”, these days people still talking who and who were from PW or AA, and people tends to love the AA remnants as they were more American style when compared to those UK or local brews…
Cute story, but…
What does it mean about anything?
I work at PwC now. I have no watch. The only thing I am ‘watching’ is the layoff rumor mill. Do you have any news on that?
Anonymous @ 2:46 PM,
I just had lunch yesterday with a friend of mine, an Advisory Director. I heard that the mid-year touchpoint sessions were used to identify potential layoff candidates. Well, duh, because that has always been the situation (for the past few years anyway). The difference this year was that potential layoff candidates included the “will meet expectations” folks as well as the “will not meet expectations” folks.
The layoffs related to the mid-year sessions have already happened, but quietly, with performance being used as the rationale. If you survived you should be good … for a few months, anyway.
Will there be more layoffs at year-end? Who can say? Certainly, those folks with partner relationship problems and/or utilization shortfalls should be nervous.
There was some other gossip about PwC Advisory reorganizing (yet again) but I think I’ll leave that off this post and wait until mid-April to see if it happens. It’s not clear how the planned reorg will affect Advisory’s results. As with all mid-year changes, it will destroy the budgets, plans and forecasts, and thus partners will spend inordinate hours for the next quarter and at year-end explaining to leadership why they have such huge variances. (Leadership will of course suffer “convenient memory syndrome” and pretend the reorg did not affect anything.)
On a related note, the planned reorganization appears to be Mr. Pate’s second envelope. I’m not going to rehash that old management joke here; those interested can Google “three envelopes joke” and get it all. But I will say that there are only three envelopes. Mr. Pate would seem to have only one left to open.
— Tenacious T.
Tenacious T – same thing happening at Deloitte. They are still trying to spin the layoff of good candidates as performance issues. Then, they don’t have to admit to weak business and layoffs. Once the layoffs officially start, people begin to refer to rounds, which is bad PR. Bad performance, however, seems to be at the partner level. When you suck, blame somebody else. Why? Because you can.
Who cares and how is this post relevant to anything that matters?
in these times, why do we care about a gift of a watch from 10 years ago- who cares- most readers didnt work at PW or C&L and dont care about some watch story!
On another note, I have a friend whos an analyst and she thinks the entire audit is focused on the wrong thing, the areas which auditors dont focus on are
-EBITD – why spend hours on end on the tax and depreciation
-Companys only care about meeting the forecasts they have given anaysts- if they dont meet them- the share price tanks- the auditors dont concentrate on companies that "barely" make analysis expectations….
-Bank covenants- why isnt enough time devoted to this
To be honest people dont spend excessive time on the 10-ks, by the time they come out its almost Q1, the analysts and readers of the financials are more interested in the earnings release- again the auditors are note concentrating on the areas which investors care about!
PwC rocks. It will not fall.
anonymous @ 5:22: Analysts make horrible auditors, and shouldn’t be giving them any advice.
1. Auditors do not focus on EBITDA because EBITDA is not GAAP. EBITDA is prohibited from being shown on the face of the financial statements. Auditors spend “hours on end” on depreciation and taxes because they ARE GAAP and, in the case of taxes, are some of the most complex and most often incorrect areas of the financial statements.
2. I was the manager on a Fortune 500 audit client for 2 years, and every quarter we did a sensitivity analysis on how any proposed adjustment to the financial statements would impact EPS, and whether it would impact the company meeting or not meeting its EPS target. This was standard practice at the Big 4 firm I worked for.
3. Review of bank covenants is a required GAAS audit procedure. On every engagement I was on in 9 years at a Big 4 firm, we recalculated bank covenants to assess if there had been a violation.
4. Don’t spend excessive time on the 10-K because it’s not timely enough. This almost doesn’t deserve a reply, but obviously this is ludicrous. Perhaps your friend thinks if an auditor waits long enough, they can short-cut all their audits, since they won’t be timely enough? The 10-K is the single most important document investors have at their disposal to make investment decisions, and you’re proposing we audit it LESS? You do realize that the earnings release is just an unaudited, abbreviated version of the 10-K, right?
I’d love to hear your analyst friend’s other ideas….
Not trying to be too sarcastic, but anything this….well, dumb is the only word I can think of… deserves a direct response -C College
To the Anonymous talking about auditors focusing on the wrong things. I can say from the experience I’ve had that all public company audits at PwC at least have an assurance team and a tax team specifically auditing the tax disclosures. The tax team spends huge amounts of time looking at the disclosures, probably even disproportionate to the time spent looking at other individual areas by the assurance team.
As to depreciation and bank covenants, while a lot of time may not be spent on them, it doesn’t mean they aren’t carefully scrutinized. It is that they are both easy to test and you get comfort over most of the information for determining whether a company is in compliance with its covenants not from specific testing of the covenants but from audit work done in other processes.
And one last thing, I’ve never heard of, at any firm, staffing levels being dictated by whether or not a company is expected to meet earnings. If anything, the struggling company is going to get more staff, not less.
LOL – I remember those PW watches. Just confirms my belief that the partners are children who never learned to play in the sandbox with other kids.
Lots of great comments on this post. I tell people all the time, there’s no guessing what’s going to get people to write, good or bad, critical or not.
I’ve been busy with some other writing assignments, and I hope I can point you to some exciting posts in other major pubs in the next few days. I’m a writer. It’s my prerogative…
In response to those who say why write about watches… Well, I spent some time with an interesting person who had lots of stories. This was only one. It doesn’t always have to be about anything. Lighten up. Read some short stories or even poetry. Go to see a foreign film. Do something that isn’t “productive.” I never promised to be your daily newspaper. Expect the unexpected, relax, and enjoy a slice of life. Then you’ll never be disappointed.
In response to the thread about layoffs… I have some updates to do on that topic. Actually, I need to put a numbers summary together and will be asking each firm to confirm. Or not. Whatever happens I will tell you about it.
Another topic I need to update is Madoff. With the alleged involvement of Madoff’s wife in the coverup and redirection of funds, it’s starting to get really spicy. I also still need to read the full Markopolos testimony. But that should be fun, if not time consuming.
And, finally, with regard to what auditors do, what they should be focused on, whether they can find fraud, whether they should have to… That’s what’s called the “expectations gap” ( http://www.abrema.net/abrema/expect_gap_g.html)
between that and how auditors define their cost benefit or audit risk (http://www.aicpa.org/download/auditstd/arm_prelim_drft_513.pdf) from performing more procedures. A dirty little secret of the business. What do the auditors get paid for an why do we need them to do it anyway? More to come on this subject.
Those receiving the boot and interested in counsel should google “employment” and “plaintiff’s attorney” in your area. The initial consultation is usually free. If your firm asks you to sign away your life in exchange for severance, you should have an attorney review the documents. Never let them force you to sign anything without sufficient time to review. Otherwise, it is duress and the document will not stand up in court, if you can prove duress.
I think the point is, by the time the 10-k is released its out of date- the auditors should AUDIT ebitda, this is what investors are looking at- ok its not gaap- but this is the expectations gap here.
The issue is the auditors dont audit to the needs of the users of the financial statements- this is a big problem, does the share price change when the 10-k is released – never- its old news- of course the 10-k should be right, but the focus should be on the needs of the investors/users of the financial statements otherwise the audit is pointless!
It must be a slow for you if all you have to comment about is watches with a merger that happened over 10 years ago. What a waste of time to check in. Your relevancy is waning, and the chip on your shoulder seems have become an unfortunate and permanent graft.
Francine, judging from the comments, you seem to have “attracted” quite a few PwC readers. I am surprised that people would get so angry about a watch story. At 11:51 am, why don’t you save your self some time and stop reading? It must have wasted more of your time to post a comment on a story that is a “waste of time to check in.”
Don’t fret, PwC readers. If your partners thought this was a battle worth fighting, there is no need to be embarrassed and attack Francine.
Just to clarify, i don’t think auditors not reviewing a company’s press release has anything to do with the expectations gap. The expectations gap has to do with things the public can actually expect a firm does based on what it actually does (i.e. they’re auditing the financials so the financials are completely free or errors or fraud). No where is it even implied a firm looks at the press release.
And as for EBITDA, even though the SEC has guidance for what should or shouldn’t be in EBITDA, there are various applications of this from company to company (for example using EBITDA as defined in a debt agreement). All an auditor could do is say EBITDA agrees to the definition used by the Company, they can’t opine on it. So what real benefit does that even give to an analyst?
As a “PwC reader,” I find this post quite amusing. Oh, I’d die for that beautiful and expensive watch with a subtle, classy PW logo. Perhaps I will make to the partner as well for never wanting to grow up!
Hey, why should we care how this post is relevant to anything that matters? In fact, who decides what matters or not? Relax, kids.