“First and foremost, people have to believe that you’re trustworthy,” he says. “If people don’t believe they can trust your word and they don’t think that you care about them and that you’re only in it for the money, that’s really a slippery slope.”
Gary Holdren, Former CEO and Chairman of the Board of Huron Consulting, being interviewed about the economic downturn, layoffs, and managing through crisis this past May, How Gary Holdren prepared his people for hard times to keep Huron Consulting Group focused on success, Smart Business.
Make no mistake.
Gary Holdren was in it for the money.
Huron Consulting Group went public in the summer of 2004, barely two years after bailing from the sinking Arthur Andersen ship in May of 2002. They had a big advantage over other start-ups. They had a group of employees and clients that could be taken with them with no “non-compete” agreements to stand in the way.
May 2002: “Newly founded Huron Consulting Group said it had recruited the largest group of Andersen professionals yet, also landing senior executives from other top accounting firms as it opened a headquarters in Chicago and other offices in Boston, Houston, New York and San Francisco.
The firm said it was already working with more than 75 clients brought over from Andersen, providing litigation consulting and corporate advisory services. It said it plans to expand quickly both in the United States and internationally. The 25 former Andersen partners are a majority of its 34 directors. Chicago-based Andersen reached agreements for the formal release of the Andersen employees on May 10, Huron President Gary Holdren said. Huron opened for business three days late.”
I remember seeing the announcement of the IPO and thinking that it had all been set up quite nicely. The Andersen partners would be able to cash-out on the “risk” they had taken in setting up the new firm. They were now able to monetize the clients and engagements they had brought from AA in ways they had probably been anxious to do for a while. Venture capital funding was secured quickly based on the run rate of those existing billings. Huron’s key executives, no one more so than Gary Holdren, took a piece of equity. When the IPO was completed, they all got a big chunk of the money, rather than it going into the business. The IPO was designed to pay off investors/VCs and themselves. Nothing more.
From the London Times:
“FORMER Arthur Andersen consultants who escaped the blighted accountancy business as it collapsed under the Enron scandal are set for a multimillion-dollar windfall in a $100 million (£57 million) flotation of their new firm.
Gary Holdren, a former Arthur Andersen partner, is to float Huron Consulting on the Nasdaq in New York with a valuation of at least $100 million. Mr Holdren, Huron’s president, and eight colleagues on the board could be awarded stakes in the firm worth at least $5 million each, according to the flotation documents. The documents say Mr Holdren and his board colleagues could get stakes in the business worth 5 per cent of the total share capital….
Huron is 94 per cent owned by Lake Capital Partners, a Chicago-based private equity company, while Mr Holdren, the rest of the board and 30 individual investors own the remaining 6 per cent of the firm. But the proceeds from the flotation, which will all be directed back into the company and to the beneficial owners, would not be allocated based on the current ownership structure, a source said. “The company has a complex ownership structure and will be even more complex following the IPO,” the source said. But the current management would take a sizeable chunk of the new shares once they were made available on the market, the source added.”
Huron has grown quickly since the IPO. Their niche – expertise in litigation support, due diligence, troubled company turnaround, and accounting standards/GAAP consulting and regulatory compliance – has been hot. One of their legacy clients from Andersen, United Airlines, provided a windfall when it filed for Chapter 11. Huron also helped uncover accounting shortfalls at mortgage giant Fannie Mae, which eventually led the SEC to charge Fannie Mae with fraud. Huron was also a huge presence at Navistar during the height of its problems with investigations and lawsuits, even more so after it bought a smaller staffing firm, Calloway Partners which also had hundreds of people working at Navistar.
In 2007, Huron was named among BusinessWeek’s hot growth companies and last year was ranked on a Fortune list of 100 fastest-growing U.S. companies. Until the news got out about their accounting scandal and CEO, CFO, and Chief Accounting Officer resignations, they had performed well for their shareholders.
From The New York Times today:
“Huron shares lost more than two-thirds of their value on Monday…Gary Holdren, once a senior Andersen partner and a member of its executive committee, on Friday resigned as Huron’s chairman and CEO after Huron said it would restate more than three years of earnings because of misreported costs related to acquisitions.
The chief financial officer and chief accounting officer are also departing…
Attorney Hamilton Lindley of the Kendall Law Group, a Dallas-based law firm, said he expected a class-action complaint to be filed on behalf of shareholders this week.
‘It’s natural to look into whether the culture of Arthur Andersen bled over into the culture of Huron Consulting,” Lindley said. “That’s a question we will pursue in our investigation.’
Huron’s audit committee discovered shareholders of four businesses Huron bought redistributed portions of their payments among themselves and to certain Huron employees. Huron said payments were not “kickbacks” to Huron managers.”
Adrienne Gonzalez quipped:
“So the guys who were publicly commenting to the SEC on “auditor independence” and other critical facets of the industry are also fudging their numbers?”
I’ve written about Huron a few times as an independent alternative for GAAP/IFRS advice that companies should look to. Certainly they had many qualified professionals. And companies should not be asking their auditors, for sure, to give advice on accounting treatment for transactions then turn around and expect an independent opinion on those decisions when audit time comes around.
Unfortunately, the Arthur Andersen link is an easy and convenient one to use to characterize the culture of the firm. Like Protiviti, the risk advisory firm under the Robert Half umbrella that is also an AA-from-the-ashes story, senior management of both firms is Arthur Andersen through and through. And they tend towards aggressive. The “type” is well known here in Arthur Andersen’s hometown, Chicago.
The CFO, Gary Burge, may not be AA but he does have a Big 4 pedigree. He bled green-dot Deloitte blood. He was interviewed by the Chicago Tribune for its Career Path series – an honor also bestowed on his infamous Deloitte colleague, accused inside trader Tom Flanagan.
Q: Did anyone mentor you?
A: Yes, but a bigger impact in my life has been my class from Deloitte. There’s a group of seven of us, peers of mine, who are still friends 30 years later, even though we live in different parts of the county.We get together several times a year to do fun things, talk about business issues. I bounce ideas off of them and trust what they say. I also met my wife, Mary, when she was an auditor at Deloitte…
The accusations are devastating for a firm that makes its money keeping others out of this kind of trouble.
Compliance Week today:
“…Huron said the purchase agreements for the four acquisitions now under scrutiny involved earn-outs, or payments made over time contingent upon achieving certain performance targets. In its restatement announcement, the company said its Audit Committee recently learned that “the selling shareholders had an agreement among themselves to reallocate a portion of the earn-out payments to an employee of the company who was not a selling shareholder.” Huron said the sellers have recently amended their agreements related to these payments and anticipates that the non-cash compensation charges causing the restatement will not continue past July 31.
Huron didn’t identify the employee who received payments, nor did it provide any cause for Holdren’s departure. Lynn Turner, managing director in forensic accounting at LECG, said Huron’s published statement suggests “there was some sort of kickback payments being made, which raises serious business and ethical questions.””
However…You can’t say the warning signs weren’t there. Huron Consulting had not yet been reviewed by Audit Integrity and so did not make it to their 300 Worst Companies for Corporate Governance Risk list that I blogged about back in March. Audit Integrity did put out a report in April that spelled out the situation very clearly. Can’t say you weren’t warned about those “aggressive” Arthur Andersen alumni. If only their “auditors”, PricewaterhouseCoopers LLP, had seen it coming.