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Consulting Summit, 2004
L e a d e rs h i p &G row t hin the New Regulat o ry Env i ro n m e n t
As consulting leaders gat hered at this yea r ’s Consulting Summit, they re ported new demand for consultings ervices, but also observed fundamental and permanent changes to their profession.There is, Summit attendeesagreed,a new business climate or attitude — one far removed from that of the late 1990s.Such a change,likemany others, attendees deemed positive for the consulting profession,because it calls for the diffusing of a new
ge n e ration of business ideas and management tools.The fo l l owing offe rs some of the highlights from the gat h e ri n g ’s candid discussion.
“Good corp o ra te gove rnance must include both auditing fi rm s
and the other pro fessional services fi rms that advise th e m .
T he re was a time not long ago
when leaders of auditing and
consulting firms understood this
and fought for bette r g ove r-
n a n c e .
Marvin Bower, the legendary head
of McKinsey, believed passionate-
ly in the importance of manage-
ment consultants’ independence.
Time and again, he argued th a t
M c K i n s ey consulta n t s should
not serve on the boards of publicly
held c o mpanies. Bower didn’t want the appearance of any
i mp ro p ri e t y.
Si m ila rly, Harvey Ka p ni ck — chief execu t ive of Arthur Andersen —
resigned from that post in 1979 when his part n ers re j ected his pro-
posal to spin off the fi rm’s consulting business in order to pres erve
a udi tor independence.
If only th ey had listened ...
We need this type of forward-looking leadership once again.”
Arthur Levitt, Former SEC Chairman:
“I believe that our business model is in the “public interest” in our
role as professional services providers to public companies — even
when we assist as auditors.
My st ro ngly held view is th a t
Deloit te is the “most indepen-
dent” of the Big Four in relation to
our audit clients.
Cont rary to the views of some, I
believe that by retaining consult-
ing, independence is enhanced
rather than threatened. [This is
shown] by simple math — Deloitte
fees from audit clients are a much
smaller percentage of our total
fees, smaller than [that of] any of our Big Four compet itors.
Our success as a firm is not solely
dependent on growing audit share. As a consquence, our client
acceptance decisions and the professional judgement s
we make could be considered more objective and discrim ina t in g ,
and, accordingly, more “independent.”
In the battle to split off consulting from accounting, there has been no greater champion than Arthur Levitt, the former chairman of the Securities and Exchange Commission. And there was no greater resister to splitting off consulting than Deloitte & Touche. In fact, Deloitte is the only Big Four accounting firm to not split off consulting. For the first time ever, the two came together to share their divergentpoints-of - v iew before a gathering of consulting leaders.
Jim Quigley, CEO, Deloitte & Touche, USA:
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Deloitte’s Jim Quigley (right) confers with Former SEC Chairman Arthur Levitt (left) as Kennedy Information CEOJoe Bremner (center) stands by.
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Consulting Summit, 2004
C o n s u l t i n g N ove m b e r / D e c e m b e r 2 0 0 4 4 9
Summit Attendees Query Levitt
If you were to advise the next President of
the United States, what would you choose to say?
Levitt: I would advise him to stay clear of the weeds. Now, what
I mean by that is that it’s ve ry easy to allow some of these issues
to fall into a po litical arena, which would be tragic. Without get t in g
political, President Bush became the first President in history to
c o n c e rn himself with an accounting sta n d a rd. Wi thin the fi rst six
m o n ths of his incumbency, he came out aga i n st expensing sto ck
options. Fo rt u n a te ly, he has stayed away from that issue eve r
since then.
There are two issues — at least two issues — in America that defy
the political process. One is closing military bases and the other is
establishing accounting standards. And it’s simply inappropriate for
that to be morphed into the political arena, certainly by the
President of the United States.
I would urge the President to stand back from the kinds of issues
that really should be decided by the public sector. And most impor-tantly, I would urge the President to keep uppermost in his mind the
importance of speaking about these issues, about the importance
of independence, about the importance of disclosure, about the
importance of preserving a system that has stood this country in
such good stead, and not neglecting it, and, certainly, making
appointments to key regulatory agencies that respect the indepen-
dence of those agencies.
For years, the SEC has been a nonpolitical body. And I think it’s
critical that it continue to be that. And I think that the FCC is anoth-
er such agency that should be nonpolitical.
But I think that like anyone else the President must be a role
model, and this must be an important issue because the landscape
for corporate America is built upon the fundamental conviction that the system is not rigged for one part of the population vs. the other,
so that we don’t have shareholders battling against stakeholders
and against management.
The next President must, th rough his actions and his speeches,
t ry to bring to ge ther the inte re st of the va rious elements th a t
m a ke up our markets. He can do that by speechmaking. He can
do that by a special convening of those groups. He can do th a t
by per sonal behav i o r. There is a lot that can be done by the new
P resident or the continuing President to bring us to ge ther ra th e r
than pull us apart .
Can you share some pers p e c t i ve
on the recent insurance scandals?
Levitt: I do believe that the insurance scandals, which took me by
total surprise, really are far more pernicious than almost any other
scandal of this decade. While the mutual fund industry [scandal]
hurt very few individual investors, the implications of this to our
markets and their trustwor thiness and the backlash in terms of the
appearance of commercial bribery is very, very serious for U.S. mar-
kets and U.S. companies. And I think that this is an issue that has
to be dealt with directly rather than hysterically.
The best cure is from the companies themselves and the boards
of directors themselves. This is terribly important for all of us, and
the boards are going to be held more accountable than they ever
have been before. And what’s playing out in Wilming ton is singularly
critical because it’s not just the plaintiff’s lawyers who are going to
create heartache for direc tors and make it more difficult to recruit
competent directors. I believe that you’ll see reg ulators paying muchcloser attention to other directors who are doing their jobs.
And the whole area of corporate responsibility has come into
question. I think that consultants and accountants and journalists
have got to think hard and long about how we deal with this issue
responsibly, because independent directors really are the bedrock
of our system. And whether they have been good or bad, in gener-
al they’ve been terrific and better than any other system in the
No one person has arg uably had greater impact on the consulting profession over the last ten years than Arthur
Levitt. Whether it was his battle to divorce consulting from the Big Five accounting houses or the generous
c o n s u l t i n g o p p o rtunities his re g u l a to ry legacy has brought fo rth, Arthur Levitt has exposed to the wo rl d
c o n s u l t i n g ’ s vast reach as well as its limitations.
For the first time ever, the fo rmer chai rman of the Securities and Exch a n ge Commission came befo re theco nsulting profession to peer into the future and reveal the complex challenges that will confront consultants as
they advise clients in an economically integrated world.
“ I do believe that the insurance
scandals, w h i ch took me by to tal surp ri s e ,
really are far morepernicious than a l m o sta ny other scandal of this decade.”
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What can you tell us about how you view electro ni c
markets and the future? Will there, for instance, be a
New York Stock Exchange?
Levitt: I think that we will have a New York Stock Exchange. I think
that we’re certainly not going to have a floor the way the floor is
p re s e n t ly st ru c t u red. I certa i n ly hope that we have a blended
m a rke t such as we have today, consisting of both auction/dealer
and electronic markets.
We’ve got the best auction market, the finest, best -reg ulated dealer
market, and the fastest growing electronic market in the history of mar-
ket s. But there has been no time in history when our primacy in market s
has been more jeopardized internat ionally, because of the very evolut ion
of electronic markets that makes it so easy to compete against us.I hope that regulators understand the meaning of balance and
that our legislators do as well. I hope that the market participants,
the brokerage firms, the market leaders, their boards understand
the importance of getting their acts together collectively rather than
fighting among themselves in a self-destructive war. So I think that
market st ruct ure is an issue you haven’t thought about but is crit ical
to the future of U.S. business.
From my perspective and the issues that I’ve dealt with, I think
that this is terribly important. And I think that we all have a stake in
it. I wish that we had our institutional America, which has been
empowered by recent scandals, working to create a better-educated
investor community.
Right now, we have an investor community that goes with the wind.When there are scandals, they want to st ring up every accountant and
every corporate execut ive. I think that what happened to Arthur
Anderson is a national economic tragedy, and it didn’t need to happen.
We got caught up in a killing environment at that point in time.
I think that for the future, we can’t afford the luxury of politicizing
issues that must be dealt with thoughtfully rather than emotionally.
That’s what calls for balanced leadership, and I would hope that
you as consultants would give some thought to aspects of the issue
that often get lost in the development of numbers and formulas and
PowerPoint presentations.
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world. We’ve got to preserve that system of independence, and this
goes hand in glove with a system of disclosure that is not just so
open that it’s confusing, but clear disclosure that’s understandable.
And that’s a responsibility of government. It’s a responsibility of the
legal profession and it’s a responsibility of boards themselves.
What are you hearing about the pace at which
Eu ropean nations might either reach agreement or
clear disagreement with the principles that underlie
S a r banes -O x l ey ?
Levitt: The issue on a global basis is quite serious. No market in
the world has the cultural heritage of shareholder ownership that
U.S. markets have. No market in the world has the culture of disclosurethat we have in the United States. There is great resistance to morph-
ing overnight into the kinds of disclosure and the kinds of reg ulat ions
that Sarbanes-Oxley has imposed upon companies that choose to
list in U.S. markets.
Yet it’s very diff icult to create any kind of two-tier regulation, and
I believe that we simply are not going to do that. It is troublesome,
but so are accounting standards troublesome.
Right now, we have a huge battle going on with the International
Accounting Standards Board, which has come out with very rig orous
standards, and in some regard the European Union has rejected
c e rta i n aspects of those standards. But they’re far ahead of U.S.
standards with respect to expensing stock options.
This is a question of communication. And it’s not going to happenovernight. There are companies that will not list in the U.S. That is
a loss to U.S. capital markets, and there is going to have to be
some measure o f comp romise as we move along, and a lo t of
d i alogue. It’s a very serious problem because in my judgment, we
are moving within the next three to five years to globalize electronic
markets. And if we have globalized electronic markets, we’re not
just talking about stock exchanges and electronic markets. We’re
talking about the way business is regulated, the way standards are
set, and it’s terribly important that we move in a cooperative rather
than a confrontational fashion.
And if we have globalized electronic marke t s , we ’ re not just talking about stock exchangesand electronic markets. We ’ re talking about th e way business is re g u l a ted, the way sta n d a rd sa re set.”
“ … we are moving within the next three to five years toglobalize electronic markets.
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