Deloitte’s New Shift Index – Elegant Framework For A Complex World

We were intrigued by Deloitte’s newly unveiled “Shift Index” which “pushes beyond cyclical measurement and looks at the long-term rate of change and its impact on economic performance.” The Shift Index is “designed to measure the rate of change and magnitude of these long-term forces that spawn the extreme events currently observed in today’s business world.”

And here is how this is put together: the Shift Index has three constituent indices:

First Wave: Foundations Index
This involves the evolution of a new digital infrastructure and shifts in global public policy, quantifying the rate of change in the foundational forces taking place today. A leading indicator since it shapes opportunities for new business practices.

Second Wave: Flow Index
Increasing flows of capital, talent, and knowledge across geographic and institutional boundaries, shifting the sources of economic value from “stocks” of knowledge to “flows” of new knowledge.

Third Wave: Impact Index
How companies are exploiting foundational improvements in the digital infrastructure by creating and sharing knowledge, and what impacts those changes are having on markets, firms, and individuals.

And what has this shift index shown?

U.S. firms’ ROA has steadily fallen to almost one-quarter of 1965 levels at the same time that we have seen improvements in labor productivity
The ROA performance gap between corporate winners and losers has increased over time, with the “winners” barely maintaining previous performance levels while the losers experience rapid performance deterioration — falling from positive returns in 1965 to largely negative ones today
The “topple rate” at which big companies lose their leadership positions has more than doubled, suggesting the “winners” have increasingly precarious positions
The benefits of productivity improvements increasingly accrue not to the firm or its shareholders, but to two stakeholders: top creative talent, or knowledge workers, who have experienced significant growth in compensation, and customers, who are gaining and wielding unprecedented power as reflected in increasing customer disloyalty

A write up on the index and the actual report (142 pages in pdf) are available here:
http://blogs.harvardbusiness.org/bigshift/2009/06/measuring-the-big-shift.html
http://www.deloitte.com/dtt/press_release/0,1014,cid%253D267047,00.html


The construct is fascinating – can you really take multiple indices and track foundational and secular changes in the economy? How can you distinguish between the multiple and oftentimes counteracting forces which shape today’s complex global economy? Can we really model all the elements of an economy a la the Unified Field Theory? And many such intransigent questions…

Going through the report, we were impressed with the amount of thought invested, the elegant presentation and a formidable attempt to bring together disparate measures in a simple explanatory framework. The conclusions are in sync with what equity markets know and incorporate into stock prices, in that returns on capital which are above cost of capital are generally competed away and eventually all super-normal returns on capital “fade” away to the cost of capital, however, the extent of fade varies across industries and companies. Sectors with low entry barriers generally attract a lot of competitors and such sector returns on capital are just slightly over the cost of capital. Proprietary knowledge and high capital investment costs provide high barriers to entry and thus help maintain excess returns on cost of capital.

The only way to maintain high returns is to “beat the fade” and continually reinvest in technology and processes to keep raising the bar and thwarting imminent competition. That US companies’ return on assets have dropped 75% over 40 years vindicates the fade concept and shows that competition from other countries has intensified and driven down returns from a period when US companies ruled the global marketplace.

The Shift Index has gathered attention from the Harvard Business Review and Financial Times, and though the authors themselves acknowledge that additional work is needed to make it practical and impactful, we look forward to any unique insights that this can bring to the confusing and complex world we live in and how to effectively deal with large-scale changes and big shifts to create benefits for ourselves.

Q2-2009 IPO Activity Grows Seven-Fold Over Q1-2009, Signals Some Deal Optimism

Ernst and Young has just released its Q2-2009 global IPO report, and while activity in this quarter was substantially over previous Q1-2009 quarter, it was far below 2008 levels and driven largely by 3 key IPOs in developing countries. We blogged about the dismal conditions in the Q1-2009 report at http://bigfouralumni.blogspot.com/2009/04/ey-report-shows-q1-2009-ipo-activity.html

Global IPO activity was higher in Q2-2009 with 76 IPOs worldwide compared with 52 in Q1-2009; deal value was up seven-fold to US$9.9 billion from just US$1.4 billion. However, Q2-2009 remained far lower than Q2-2008 which saw 269 IPOs raise US$38.2 billion in capital.

Three key IPOs: Brazil’s VisaNet (US$3.7 billion), the largest IPO worldwide so far this year and Brazil's biggest ever; metals company China Zhongwang Holdings Ltd (US$1.3 billion); and Vodafone Qatar (US$0.95 billion) accounted for 60% global capital raised. Together, Brazil and China were two-thirds of worldwide capital in Q2-2009.

This quarter, the most active country was South Korea with 17 IPOs (8 IPOs in Q1). China and Canada followed, with 13 and 9 IPOs respectively. US also experienced an uptick in activity rising from 1 IPO in Q1-2009 to 8 in Q2-2009. Not surprisingly, emerging markets accounted for 53 of the 76 global IPOs.

Global IPO activity is one measure of how the global economy is performing and recovering from the worst recession since the Great Depression. Activity levels were rock bottom in the first three months of the year, but since March, equity markets all over the world have been on a tear, rising 20%+ from multi-year lows, and this has created a sense of some confidence in investors and promoters. Banks in the US have rushed to the capital market as their stock prices have smartly increased and the bravest of the IPO candidates in the pipeline have ventured out. Rosetta Stone in the US, which markets language learning software, had a nice run on its IPO on opening day.

But it is clear that emerging and developing markets is where the action is, these markets have risen 40% plus in just three months and that two-thirds of IPO activity concentrated in these markets is not surprising.
Q2-2009’s substantial increase over Q1-2009 level is a matter of cheer, and perhaps defines the level of the “new normal”, and the heady days of 2007 seem but a distant memory.

It’s been only a few days since the quarter ended, and thanks to E&Y we have a near-contemporaneous indicator of global equity health. While the firm believes that conditions will remain difficult in the coming months, according to Gil Forer, Global Director of IPO initiatives at Ernst & Young, “However highly successful IPOs tend to emerge from post recession periods. These companies, having survived the ultimate stress test, are often leaner and have demonstrated the resilience of their business model. It’s a good time for dynamic entrepreneurial companies. And the high performance of stock exchanges around the globe in the second quarter has resulted in renewed interest in companies around the world to go public.”

And that comment pretty much sums up the cautious yet resilient sentiment in global equity markets today.

Accenture Q3-2009, Big Change From Prior Quarter – Investors Love It

In March 2009, Accenture (NYSE: ACN) delivered a shock to investors when it reported revenues and EPS for Q2-2009 under what investors were generally expecting and then dialed down expectations. For Q2-2009, Accenture’s EPS was 63 cents, 1 cent better than consensus expectations of 62 cents, but revenue of $5.27 billion was far less than what Wall Street was expecting at $5.53 billion. At that time, Accenture shares sank $4.60, or 14.4 percent, to $27.36 in morning trading on Friday, March 27, 2009. Management’s Q2-2009 commentary was sobering, and talked about sudden and dramatic shifts in clients and projects.

See our blog post on Q2-2009 earnings: http://bigfouralumni.blogspot.com/2009/03/accenture-indicates-profound-and.html
Things seem to have turned around quite well for the company this quarter Q3-2009. Yesterday Accenture reported EPS of 68 cents, a full 4 cents better than consensus of 64 cents and revenues of $5.15 billion, just shy of analyst consensus expectations of $5.2 billion. Investors were pleased with these results and the stock marched up 5% after hours on Thursday to almost $33 dollars, and staying at $32.79 mid-day Friday June 26, 2009.
Investors seem to be now happy with ACN, and Accenture’s stock has come back smartly to levels in early 2008 recovering much of the double digit% loss in March. The machine rolls on at Accenture, here are some notable factoids:

Q3-2009 cash was $4.0 billion, up from $3.6 billion in Q2-2009
Q3-2009 operating margin improved to 14.2%, new bookings $6.6 billion (consulting $3.2B and outsourcing $3.6B)
Q3-2009 revenues were impacted negatively by 12% from same period as the dollar strengthened substantially in this time
Q3-2009 consulting revenues of $3B decreased 20% in U.S. dollars, but outsourcing revenues of $2.2B decreased only 9%
Q3-2009, Accenture was smart enough to purchase or redeem about 10 million shares for $283 million from a combination of founders and open market purchases, at an average price of just $28.45 per share, that action already producing shareholder value of $450 million.

It is clear that outsourcing is getting ahead of consulting, as clients seek real cost savings and stay away from getting advice.

If we dig through the earnings call transcript, the key seems to lie in CEO Bill Green’s comments below, which is a marked shift from the defensive & inability-to-predict position in the previous quarters’ call. Reading between the lines, Accenture has shifted quickly to match the current external environment, focusing on its top clients, recognizing that the work is out there and executives just have to chase it down despite caution and deliberation at clients.
According to CEO Bill Green, “I think we put a lot of work looking at our diamond clients and looking at the initiatives that they have. We have done a lot of work looking at the leaders of our client companies in terms of the constant of people in the market place and the confidence has improved a lot and yet people are still thoughtful and cautious. I think it is going to be an interesting question about when you cross the line into 2010 calendar what really happens. So the difference between our first two quarters and our last two quarters could be dramatically different. I guess the other thing is there is still a lot of conversation and activity out there. So I think it is working its way through the system and as a result it is sort of hard. You can see the first couple of quarters and say this thing is going to get off to a slower start but it has the potential to ramp because as I said the work hasn’t gone anywhere. The needs are there. The work is there. The people that have the global agendas around consistent operating platforms and performance improvement things are all there. People have been taking small bites and I think somewhere along the line here we are going to get back into the bigger, more transformational type assignments.”
Thanks to http://seekingalpha.com/article/145458-accenture-ltd-f3q09-qtr-end-05-31-09-earnings-call-transcript for transcript details.
And Accenture laid out some forecasts:

Q4-2009 revenues $5-5.2 billion, with (8)% FX impact
2009 full year new bookings $23-25 billion, operating margin 13.4-13.7%, annual effective tax rate 27-29%
2009 full year EPS $2.67 to $2.70, operating cash flow $2.65 to 2.85 billion

And so, as we have said earlier, the machine rolls on, nothing seems to stop the onward push of this extremely well managed company. We have always admired Accenture, and in these worst of times to pull off such a quick turnaround just shows its tremendous global depth and breadth, acumen and competitiveness. Investors saw some of this light yesterday!

High Net Worth Individuals Lose $8 Trillion In Just One Year!

We have blogged in prior years about the Capgemini Merrill Lynch World Wealth Report, since the results are fascinating and the numbers are simply mind-boggling. The 13th annual 2009 report was just released hours ago, and we bring you their (rather sobering) findings and our take.

See our 2006 post - http://bigfouralumni.blogspot.com/2006/07/capgemini-tells-you-more-about-uber.html

See our 2008 post - http://bigfouralumni.blogspot.com/2008/07/10-million-wealthy-folks-own-astounding.html


Simply put, at the end of 2008, global HNWI (High Net Worth Individuals) population dropped 15% from 10 million in 2007 to 8.6 million in 2008 and their wealth dropped 20% or $8 trillion from $41 trillion in 2007 to $32.8 trillion in 2008. As Capgemini says, “The declines were unprecedented, and wiped out two robust years of growth in 2006 and 2007.”

Don’t feel sorry yet for this loss, as the average HNWI still had a nice pot of $3.8 million at the end of 2008 after enduring 16 months of ravaging global stock and real estate bear markets. The bigger story is that 1.5 million folks did drop out of the HNWI population, which means their wealth fell below the threshold of $1 million.

What caused all this drop? Sinking stock markets, especially in emerging markets in late 2007 and much of 2008 led to a lot of wealth destruction, coupled with falling real estate, rising commodity prices, global economic slowdown and general business malaise had their unfortunate effects on the ultra rich. As expected, many of them moved quickly to safety putting their money in cash, short term instrument and T bills to escape further deterioration.

In terms of geography in 2008, North America had 2.7 million HNWIs, 31% of the total, followed by Europe with 2.6 million (30%) and Asia Pacific with 2.4 million had 28% of all the world’s HNWI. The annual % drop in HNWI population was most pronounced in North America with 19% as 600,000 folks dropped below the threshold from 2007 to 2008. In Europe, half a million individuals didn’t make the cut and in Asia Pacific 400,000 had to be content with not calling themselves HNWIs.

The wealth destruction of these 10 million individuals was a staggering $8 trillion from 2007 to 2008 or a loss of about $800,000 per individual. We did some math to try to reconstruct somewhat the underlying numbers behind these results:

The number of global billionaires dropped from 1, 123 in 2007 to 793 in 2008 (according to Fortune magazine), and the total wealth of this jet-set dropped around 40% from $4.8 trillion to $2.8 trillion, and these thousand-or-so folks accounted for a staggering drop of $2 trillion from one year to the next. On a per individual basis, the decrease for this uber-rich billionaires was $2 billion. Those who had the most, appropriately enough, lost the most!

The number of Ultra High Net Worth Individuals (UHNWI – those with assets greater than $30 million) dropped from about 103,000 in 2007 to about 78,000 in 2008, and their net worth dropped (by our estimates) from about $15.6 trillion in 2007 to $12.9 trillion in 2008 or a drop of about $2.7 trillion. On a per individual basis, the decrease for these UHNWIs was $29 million.

For the subset of UHNWI minus the billionaires, the wealth destruction was around $700 million or about $7 million per individual.

Then come the folks don’t belong in these two above exclusive segments - just the run of the mill millionaire - with a net worth between $1 million and $30 million - dropped from 10 million folks to 8.5 million and their net combined worth dropped from $24 trillion in 2007 to $19 trillion in 2008 or a drop of about $5 trillion. On a per individual basis, the decrease for these HNWIs was only $0.6 million.

After you generally get used to the trillions of dollars that are bandied about in this report (but then of course, you need to be talking in trillions to get attention today!), wealth advisors can dig deeper to see how to help these folks manage their riches. Others can simply delight in the miseries of the ultra-riche and be comforted that even they were equally impactd by a global crisis which has not left anyone untouched.

A fascinating read, and you can find it at http://www.capgemini.com/resources/news

Miami Jury Finds BDO International Not Guilty – Huge Implications

We recently blogged on the recent ongoing trial on BDO International vs. Banco Espirito Santo in Miami, Florida with a jury in session to decide on the issue whether BDO Seidman, the US country firm, was an agent of BDO International, and whether the global umbrella firm should hold financial responsibility for the liabilities of the US firm.
(http://bigfouralumni.blogspot.com/2009/05/bdo-seidman-vs-banco-espirito-case.html)

There were two separate charges against BDO Seidman which were upheld in another court, one for compensatory damages of $170 million and the other for punitive damages of $351 million for a total of $521 million. Earlier, Judge John Schlesinger had ruled that the BDO International would not be held responsible for the punitive damages of $351 million, leaving only the $170 million to be decided by the jury.

We just listened to the 10 minute verdict delivered by the foreman of the jury (supplied to us courtesy of http://http://www.courtroomview.com/): BDO International is not responsible for the penalties imposed on BDO Seidman and the US firm was not agent of the global umbrella organization.

And the six member jury did not take long (barely an hour) to return an unanimous verdict. To the singular question, “Was BDO Seidman was an actual agent of the BDO International BV?”, the jury simply said “No”.

A clear win for BDO firms and perhaps an ever greater precedent-setting case with far reaching implications for accounting firms and the accounting industry, and in particular global firms such as the Big4 firms which operate as country partnerships under a global management organization. Clearly a guilty verdict would have created a host of troubles for Big4 firms, as this would have set a precedent in conferring liabilities upwards from child firms into the parent organization. A not-guilty verdict is very supportive but perhaps not entirely ruling out similar verdicts in the future.

BDO Seidman has clearly escaped a difficult situation, and while BDO International’s overall financial position may not be impaired, the US firm still has to come up with hundreds of millions of dollars to fulfill earlier damages. The source of this money is not that obvious, BDO Seidman has already said it will need to cut large number of employees to locate the funds. BDO Seidman is already appealing that earlier $521 million verdict. Meanwhile, the firm seems to be operating as usual.

The other case, which is likely to follow is Satyam Computer in India, along with its auditors, PwC India and then correspondingly PwC International. Under Indian rules, local auditors can be immediately charged with criminal cases, and as it happened two PwC India partners were jailed for conspiring in the Satyam scam. There has been no suit as yet against PwC India or PwC Global (most likely in the works), but surely shareholders or other parties will sue PwC local and international firms for auditing and certifying statements when clearly there was fraud going on at Satyam. There must be an audible sigh of relief at PwC on this verdict, and if there are extraordinary financial damages imposed on the Indian firm, the damage is likely to be localized and not travel up into the global organization and deeper pockets for larger sums of moneys to plaintiffs. Obviously, a guilty verdict in the BDO case would have been devastating precedent on the PwC case but a not-guilty verdict is no guarantee that the international PwC firm is shielded watertight from severe financial damage.

Two big verdicts for the defendant’s lawyer Mark Raymond sets him up far above a dual negative punch for plaintiff’s lawyer Steven Thomas. It is not clear at this time how these two lawyers will be involved in the BDO appeals case.

We hear there is another case looming in Florida with Ernst and Young defending its auditing and consulting at the defunct Superior Bank of Chicago (with key involvement by Hyatt’s Pritzker family), which was taken over by the FDIC in 2001, and that calls into question another prickly issue for Big4 firms, conflict of interest when both consulting and auditing are provided by the same firm (eventually which led to sale of E&Y’s consulting unit to CapGemini, sale of PwC’s consulting unit to IBM and spin-off and bankruptcy of KPMG’s consulting unit – BearingPoint)

We’ll be watching both on BDO’s appeal and the E&Y case as they unfold in the future.

Grant Thornton Survey Indicates Optimism Returns to Pre-Recession Levels

A little under a month ago (May 14, 2009) we blogged about a number independently conducted recent surveys by the Big 4 firms as a gauge for the depth and breadth of the global economic crisis and any nascent signs of its ending.

http://bigfouralumni.blogspot.com/2009/05/big4-firm-surveys-uniformly-indicate.html

At that time, surveys were uniformly negative and echoed much pessimism about current conditions and future prospects. There were only a few glimmers of hope among participants for any chance of near-term recovery.

We have been brought back to this topic again by Grant Thorton’s Business Optimism Index, a confidence measure of U.S. business leaders, which jumped sharply to pre-recession levels and offered a case for much optimism.

The index jumped very sharply from a (historic) low of 35.6 in November 2008 to 54.5 in May 2009 just a tad below 54.7 in November 2007 when the US recession just began.

When asked, “Do you feel the U.S. economy will improve/remain the same/get worse in the next six months?”, 45% of participants said improve, 43% said remain the same. Only 13% said it will get worse, down sharply from 63% in November 2008

When asked, “How optimistic are you about the growth of your own business over the next six months?”, 9% respondents are very optimistic, 53% are somewhat optimistic (up from 37% in November 2008), 38% are somewhat or very pessimistic.

Finally, a very interesting question, “Do you expect the number of people you employ will increase/remain the same/decrease in the next six months?”. And surprisingly, the results were:
Increase: 20%, up from 9% in February 2009
Remain the same: 50%, up from 43% in November 2008
Decrease: 30%, down from 45% in February 2009

Grant Thornton also asked another pointed question, “When do you think the economy will come out of recession?” 15% said second half of 2009, 54% respondents said the first half of 2010, 24% said sometime in the second half of 2010 and 6% said not until 2011.

The full survey is available at http://ow.ly/dlIq

We turned to other Big4 surveys and found some support for this optimism.

In KPMG’s March and April 2009 survey of insurance executives, they report, “
The results show that more than half the respondents expect an improvement in organic growth (55 percent) and expect an improvement in growth by acquisition or take-over (53 percent) during the next 12 months. Respondents are also positive about their business prospects as they relate to premium volume (say 53 percent), expense ratio (say 53 percent) and capital reserves (say 47 percent). They are least positive about their share price, with only 40 percent of respondents expecting to see an improvement in this area.” (http://ow.ly/dlIl)

Deloitte looked at UK hotel performance from January to May 2009, and found that, “Whilst revenue per available room (revPAR) is still negative, the pace of decline is reducing and some markets are actually showing gains on 2008 numbers with strong leisure demand driving up weekend occupancies and revenues. There is also a trend of improving performance in the weekday corporate business market in London.” (http://ow.ly/dlId)


Today, June 10, 2009, PricewaterhouseCoopers’ Private Company Trendsetter Barometer shows, “Efforts to succeed in the current climate include both cost-cutting and revenue generating measures. More private companies are focused on cost reduction than on new revenue generation, even though those companies focused on new revenue generation report much stronger projected revenue growth over the next 12 months than their cost-cutting counterparts (7.4 percent and 0.6 percent, respectively). Those planning a combined approach fell to the middle at 2.3 percent.” (http://ow.ly/dlI7)


On 28 May 2009, The Ernst & Young Mining eye index gained 29% over Q1 2009, supported by steady upward momentum in the prices of some key traded metals, a big change for an index that lost 46% during the previous quarter and 75% over 2008. However, the Mining eye still remains some 71% below its 2008 (and record) high and 26% below its 2004 base level. Further, “ Quarter one showed signs of cautious optimism for AIM’s junior miners with secondary fundraising in the sector totalling £239 m, compared with £147 m in the previous quarter, and £295 m in Q1 of 2008, indicating that funding is available for the right projects. However, the full impact of the global economic slowdown has yet to be realised. AIM’s miners continued to warn of critical working capital constraints and some entered into voluntary administration arrangements or defaulted on credit payments. The number of mining companies delisting also rose to nine this quarter” (http://ow.ly/dlHV)


In our previous blog, we said, “These surveys conducted by reputable organizations surveying different group of business leaders and using different methodologies yet arriving at similar results indicates that uniformly economic sentiment remains very weak among company executives, worries about future growth, continued recession and dull employment prospects seem to predominate. The most recent KPMG survey seems to offer some green shoot of promise and we may begin to look at these surveys from all the Big Four firms as another leading indicator of sentiment and action as the world hopefully pulls itself of this economic mess in the short term to everyone’s great relief.”

And Grant Thornton’s larger scale US surveys, supported by unrelated data points from other Big4 surveys, seems to indicate that optimism to a large measure has returned to the executive mindset and managers seem to be positively oriented towards higher growth and better future prospects. Economists all across the world are saying that the worst seems to be over just about now, (and while not fully loosing our skepticism), we may cautiously join in that refrain.

KPMG Advisory Reorganizes From 9 Lines To 3 Groups

We see from KPMG’s website this morning that there is an internal reorganization of its KPMG Advisory Service Line with a new operating model and reducing its currently nine different service lines:

1. Accounting Advisory Services
2. Business Performance Services
3. Corporate Finance
4. Financial Risk Management
5. Forensic
6. Internal Audit, Risk & Compliance Services
7. IT Advisory Services
8. Restructuring
9. Transaction Services

into three larger service groups effective October 1, 2009:

1. Performance & Technology
2. Transactions & Restructuring
3. Risk & Compliance.

According to Global Head of Advisory Alan Buckle, “Our Advisory practice needs to evolve with the market. Our firms’ clients need rapid assistance in three broad areas: how to improve performance — especially by harnessing technology; how to execute transactions and restructure; and how to handle risk and compliance. Our business will now directly align to these needs.”

Changes and reorganizations are not new to the Big4 firms, which have constantly evolving internal structures, groupings and alignments as new leaders bring fresh ideas, ossified structures get revamped and market forces demand appropriate response. The primary reason for this particular one appears to be a combination of external demands and perhaps multiplicity of organizing internal units. This follows a key reorganization at Capgemini with the recent formation of its Global Consulting Unit.

If you look at the other Big4 firms and their internal organization of their Advisory unit, this makes KPMG having the smallest number of divisions. We see the leadership is generally remaining the same with some reshuffling of responsibilities, and we’ll have to see truly in the marketplace if this is a truly different business model with a radical change in its go-to-market or consulting strategy or just a periodic reorganization. Nonetheless, this is still a big change since it affects a multi-billion dollar business unit and around 30,000 employees.

KPMG Advisory is the second largest (32%) of the three groups with $7.3 billion revenues in 2008 and an impressive growth of 13% from previous year. Audit, the largest has 2008 revenues of $10.7 billion and grew 14%, while Tax, the smallest had 2008 revenues of $4.7 billion, but grew a creditable 18%.


In terms of other Big4 firms and their structure of their Advisory units:

PricewaterhouseCoopers - Advisory
1. Strategy
2. Operations Management
3. Human Resources
4. Business Advisory Services consulting.

Ernst and Young - Advisory
1. Actuarial Advisory Services
2. Business Advisory Services
3. Business Risk Services
4. Financial Services Risk Management
5. Fraud Investigation and Dispute Services
6. Technology and Security Risk Services

Capgemini - Consulting
1. Marketing, Sales and Service
2. Finance and Employee Transformation
3. Supply Chain Management
4. Transformation Consulting

Accenture - Consulting
1. Finance & Performance Management
2. Process & Innovation Performance
3. Talent & Organization Performance
4. Strategy
5. Customer Relationship Management
6. Supply Chain Management

Deloitte – Consulting
1. Financial Advisory Services Home
2. Analytic & Forensic Technology
3. Anti-Fraud Consulting
4. Anti-Money Laundering Consulting
5. Business Intelligence Services
6. Business Valuation
7. Capital Projects Consulting
8. Corporate Finance Advisory
9. Corporate Investigations
10. Deloitte Discovery
11. Document Review Services
12. Foreign Corrupt Practices Act Consulting
13. Forensic Center
14. Litigation & Dispute Consulting
15. Real Estate Consulting
16. Reorganization Services
17. Tangible Asset Valuation

PwC Buys BearingPoint Commercial Services, Pays $19 MM More

Another development in the BearingPoint bankruptcy saga, after the finalization of the Federal Services unit sale to Deloitte for $350 million, the bankruptcy court has authorized the sale of the
North American Commercial Services business, including its Financial Services segment and
associated Global Delivery Centers, to PricewaterhouseCoopers (PwC), the highest bidder for this service line. Under the terms of its winning bid at an auction, PwC will acquire the majority of BearingPoint’s Commercial Services unit for $44 million, subject to contractual adjustments. Subject to customary closing conditions, the sale is expected to be finalized by the end of June.

This is actually $19 million higher than the previously announced $25 million number expected on the sale on April 17, 2009, and in BearingPoint’s official press release. It’s not clear why the final price was higher, perhaps due to other bidders in the auction process, or the scope of the units was expanded. If any of our readers have more insight, we would love to hear.

This completes one of the three previously announced intentions of sale to Big Four firms, the others being Federal Services to Deloitte and BearingPoint Japan to PwC Japan. Which leaves the fate of the European and other international units still to be finalized, reports were that internal management teams would try for an MBO, but nothing official as yet on the BearingPoint site.

Accenture To Leave Sunny Bermuda For The Emerald Isle

Yesterday, Accenture’s Board of Directors unanimously approved a plan to change its place of incorporation from Hamilton, Bermuda to Dublin, Ireland. This will be put to shareholder vote in the next four months.

First, some history:

Prior to 2001, Accenture operated as a group of more than 40 locally owned partnerships and other entities in 46 countries. In 2001, Accenture's 2,500 partners chose to move to corporate form and seek a public listing; and voted to incorporate the parent company, Accenture Ltd, in Bermuda. If shareholders and the Supreme Court of Bermuda approve, Accenture PLC, an Irish company, will replace Accenture Ltd. as the parent company.

Second, the background:

President Obama’s administration recently announced significant changes in US tax policy, with a view to target companies which are basically operating in the US but are incorporated in tax havens outside America, and bringing their worldwide income under US tax jurisdiction.

Accenture is not alone, just in the past six months, the WSJ reports that Tyco International Ltd., Foster Wheeler Ltd., Weatherford International Ltd., Transocean Inc., Covidien Ltd., and Ingersoll-Rand Co. have all announced plans or finalized plans to change their places of incorporation.

Third, the motivation:

According to William D. Green, Accenture's chairman & CEO, "After a careful review, our Board of Directors has determined that changing our place of incorporation to Ireland is in the best interests of Accenture and our shareholders. We believe that incorporating in Ireland will provide Accenture with economic benefits and help ensure our continued global competitiveness.…”

Reading between the lines, we believe here are the key reasons for making this change at this point in time:

Continue Low Effective Tax Rate

Clearly there are financial benefits accruing to Accenture, while Bermuda imposes no corporate income tax, Ireland does have a such a tax around 12.5%, but doesn't impose it on various intra-company transactions, thus making it relatively easy to avoid. Accenture will have to do some strategic tax planning to ensure that the increased corporate tax rate in Ireland is effectively neutralized versus Bermuda. In 2008, Accenture paid $910 million taxes on a pretax income of $3.1 billion, almost 30% and less than the statutory US federal plus state tax rate of 39.5% on corporations.

Avoid Adverse Litigation

In addition, tax treaties signed in 1997 between US and Ireland can provide some form of protection for Accenture against any adverse litigation and potential double taxation.

Avoid Tough Proposed Legislation

Recent proposed legislation could be a problem for companies changing their place of incorporation from one tax friendly jurisdiction to another. Senators Levin and Doggett submitted bills that both require that companies controlled and managed in the US, regardless of where they are incorporated are subject to U.S. corporate-income tax. By moving at this time, Accenture can avoid the aftermath of this or any similar legislation.

Escape Public Criticism

“We have become concerned that the ongoing criticism of companies that are incorporated in Bermuda has raised questions that we need to address,” said Jim McAvoy, an Accenture spokesman.

US companies based in Bermuda are likely to face political and public criticism in the first wave following tax loophole eliminations as they are nearest to home country, US companies based in Europe may comparatively face less scrutiny at least on a relative scale.

Move Geographically With The Business

Almost 50% of Accenture’s business comes from Europe region which is the company’s largest region ahead of the 40% business coming from Americas. This is in line with other Big4 firms whose European revenues also exceed US based revenues and are growing at a faster rate.

Finally, there are some things that will not change:

No material change in operations, financial results or tax treatment
Continue to be registered with the U.S. Securities and Exchange Commission
Shares will continue to trade on the New York Stock Exchange.
Subject to same SEC reporting requirements as NYSE companies

How did investors react to this? The news was released at 4pm on Tuesday after markets closed and ACN stock fell by 1.5% on Wednesday in line with the general downturn in the market. In summary, investors don’t really seem to think that this has any shareholder value impact.

Accenture is a financially very savvy company, and this move illustrates the agility and acumen of their operating and financial management. The company is not shy to take tough quick decisions to make or save money. Its original intent to incorporate outside the US caused some furor but the company effectively managed that and continued to pursue its original intentions. The current move is equally smart, and we have little doubt that Accenture will get this voted by shareholders and consummate the change in Q3 of this year. If by any chance, the shareholder vote is not in favor, we’ll be back to talk about this in a few months.

BDO Seidman Vs Banco Espirito Case - Trial Begins Tomorrow in Florida Court

BDO Seidman Vs Banco Espirito Case - Trial Begins Tomorrow in Florida Court

In August of 2007, we had blogged about a large $521 million financial judgment against BDO Seidman in its audit of Banco Espirito Santo of Portugal. At that time, we said,

“Banco Espirito Santo claimed it partnered with Bankest Capital to form E.S. Bankest in late 1990s relying on (BDO Seidman's) faulty audits that Bankest Capital's income had nearly tripled from 1995 to 1996. The bank also relied on later audits from BDO Seidman, which certified audits for E.S. Bankest accounts totaling some $225 million, of which only $5 million represented legitimate income.The bank is understandably happy with this verdict, but BDO Seidman will appeal it vigorously, by posting a $50 million bail. As expected, the firm will argue that senior management at Banco Espirito Santo was aware of this fraud and was also complicit.”

Also, we analyzed the relationship between BDO Seidman, the US firm and its global parent, BDO International, which is about 6 times its size:

“BDO Seidman USA is allied with BDO International, which coordinates companies with about 30,000 partners and staff and reported total fee income of $3.91 billion in 2006. In the US, BDO Seidman had revenues of $589 million in 2006, 3,800 employees,. 250 partners and 34 offices.”

See our entire blog post here:

http://bigfouralumni.blogspot.com/2007/08/bdo-seidman-ordered-to-pay-521-million.html

After much legal wrangling, the case has come to court again for a 10-day trial tomorrow at the 11th Judicial Circuit of Florida, Miami-Dade County, before Honorable John Schlesinger. The court is to establish whether BDO Seidman was an agent of BDO International. An earlier trial court had ruled that Banco Espirito's evidence presented could not have established agency, but the Florida Court of Appeal ruled that the plaintiff was entitled to a trial on whether BDO Seidman had acted as the international accounting network's agent.

What’s at stake? Might the international accountancy network be vicariously liable for judgment against its network member BDO Seidman, and in a larger sense potentially liable for the $521 million judgment against BDO Seidman, with consequent financial implications for both plaintiff and defendant?

The question of “agency” and “agent” is a critical issue for all Big Four firms, in that they are in some sense a conglomeration of country partnerships held contractually together under a global firm organization umbrella. Take the case of Satyam Computers, where the Indian government is arguing that PwC India was a unit of PricewaterhouseCoopers global firm and any judgment against the member firm stands against the global firm, which PwC firmly disputes.

More so, if claims against the child firm were transposed to the parent firm, then plaintiffs and juries may well be inclined to levy huge financial penalties which while being considered huge by a child firm, could be small in the scope of the global parent. This could lead to a partial or total rewrite of contractual relationships between parent and child.

If you’re interested in the outcome of this trial, Courtroom View Network’s on-demand offering of the Banco Espirito v BDO International trial is available for purchase on its website, www.courtroomview.com.

We’ll be following as well and report on the proceedings and its ultimate result shortly,

Deloitte Social Media Survey Results May Surprise You

Deloitte has just released its 2009 Ethics & Workplace Survey with some fascinating findings and implications for professionals, employers, social networks and internet behavior. It shows the stark differences between the views of employers and employees and the blurring lines between professional and personal lives, the tensions between the benefits from participating in social media, balanced against reputational risks of any missteps.

First the stand-offs between employers and employees: 60% of business executives believe they have a right to know how employees portray themselves and their organizations in online social networks. But 53% of employees disagree, saying that their social networking pages are not an employer’s concern, more vehemently so by 18-34 year old workers, who think employers have no business monitoring their online activity. However, all employees understand risk, 74% realize they can damage a company’s reputation.

According to Sharon Allen, chairman of the board, Deloitte LLP, “…a single act can create far reaching ethical consequences for individuals as well as employers.”

Thankfully for employees, only 17% of executives have programs to monitor and mitigate risks from use of social networks. While 25% of businesses have formal policies, that does not deter 49% of employees.

It seems clear that mandates don't work fully, it is better to rely on prudence and values. Again, Allen, “…it is critical that we continue to foster solid values-based cultures that encourage employees to behave ethically regardless of the venue.”

Here’s some more interesting and surprising findings:

How often do you visit social networking sites? 45% say 1 to 5 times a week
If you use social networking sites, do you access them during work hours? 52% don’t during working hours, 26% cannot access thru company networks
“The content on your Facebook, MySpace or Twitter pages prevented you from getting a job.” 89% say False, this seems to be a prevalent urban myth
Our CEO is on Facebook: 31% say Yes
We utilize social networking for recruiting purposes: 23% say Yes
“My company has formal policies that dictate how employees can use social networking tools.” 72% say False

By curtailing social media, is business impinging on an employee’s privacy and freedom of speech? By inappropriately posting on the internet is the employer bearing otherwise avoidable risk? These are tough questions to deal with….

All in all, this survey shows the wide gap between businesses and their workers, and the complexities involved in appropriately managing an online presence versus curbing employee activities set against risks of potential rogue behavior. Social media has taken professionals by storm, especially recently, and organizations appear to be grappling with all aspects of this avalanche. As with all such phenomena, either a cataclysmic event will lead to regulations across the board, or evolution combined with reasonable give and take will yield acceptable norms.

Big4 Firm Surveys Uniformly Indicate Weak Sentiment, Some Recent Hope

We looked at some survey results from independently conducted surveys by the Big 4 firms in recent months as a gauge for the depth and breadth of the global economic crisis and any nascent signs of its ending.

The most encouraging outlook comes from a May 2009 survey of KPMG Business outlook for EU services, which shows that the economic crisis in the region may abate over the next 12 months, though most survey variables remained at historically weak levels. KPMG found that net balances for business volumes, revenues and incoming new business all improved in April compared to those posted six months earlier. Nearly 40% of EU service providers expect volume growth, while only half 21% were expecting declines. Also, inflation fears appear to be receding as commodities decline and payrolls stay flat.

Also in May 2009, Deloitte reported some not so good news on consumer spending. The Deloitte Consumer Spending Index dropped in April as falling housing prices and rising unemployment claims offset gains from real wage growth, reduced tax burden and lower energy prices. The Index, comprising four components ― tax burden, initial unemployment claims, real wages and real home prices ― fell to 1.46% from an upwardly revised gain of 1.95% a month ago. Significantly, initial unemployment claims continue at record pace since the Fall of 2008, and real wage growth posting only small gains due to falling energy prices for energy. The final impact on an already stretched consumer are decreasing home prices, though tax credits help, mortgage financing remains scarce.

On the IPO front, an indicator of confidence in new business and capital markets, sentiment remains dull. In April, Ernst & Young found that global IPO activity continues to stall, There were a miniscule 50 IPOs worldwide in Q1-2009 raising just US$1.4 billion in capital, with only two deals raising over US$100 million. This compares with 78 IPOs worth US$2.6 billion in Q4-2008 and a rousing US$41.2 billion in Q1 2008. There seems to be some hope in the pipeline, with some companies continue to ready themselves to go public while waiting for market conditions to stabilize.

In January 2009, in sync with the World Economic Forum at Davos, PricewaterhouseCoopers revealed its 12th Annual 2008 Global CEO Survey, which painted a gloomy picture in the corner office. CEO confidence plunged to its lowest level since 2003, with only 21% of global CEOs saying they were very confident of revenue growth in the next 12 months, down from 50 per cent in last year's survey. And more than a quarter of CEOs said they were pessimistic about prospects for the coming year. CEOs worldwide were also gloomier about longer term growth as well, predicting a slow recovery. Only 34% seemed very confident of growth over the next three years, down from 42% last year

In April 2009, Grant Thornton LLP, the U.S. member firm of Grant Thornton International Ltd, found that 77% of US CFOs and senior comptrollers said the U.S. economy will remain the same or get worse in the next six months, and 39% expecting their company's headcount to decrease. Only 31% expected their company's financial prospects to improve. More significantly, 87% thought that the U.S. economy will remain in a recession through the end of 2009.

These surveys conducted by reputable organizations surveying different group of business leaders and using different methodologies yet arriving at similar results indicates that uniformly economic sentiment remains very weak among company executives, worries about future growth, continued recession and dull employment prospects seem to predominate. The most recent KPMG survey seems to offer some green shoot of promise and we may begin to look at these surveys from all the Big Four firms as another leading indicator of sentiment and action as the world hopefully pulls itself of this economic mess in the short term to everyone’s great relief.

Capgemini Q1-2009 Results Stable, Investors Push Shares Up 3 Percent

Capgemini released its Q1-2009 results with revenues of €2,205 million, up 0.9% compared to Q1-2009 of €2,205 million but down 0.3% at constant exchange rates.

Outsourcing Services increased 1.1% and Technology Services edged up 0.4%;
Sogeti declined 0.7% while newly-formed Consulting Services dropped 9.8%.

By geography, United Kingdom & Ireland rose strongly at 7.0%, France and Benelux revenues dropped 0.8% and 0.6%, respectively. North America sales had the worst results, falling 6.9% than Q1-2008.

Q1-2009 bookings were €2,221 million versus €2,172 million in Q1-2008, but results across service lines were mixed: Outsourcing Services grew a dramatic 40%, while Consulting, Technology and Local Professional Services bookings dropped 9%

Capgemini said, “These results are in line with expectations and bolster the Group's confidence in its guidance for the first half of 2009 that like-for-like revenues would see a modest decline of around 2% and that operating margin should remain above 6.5% (first-half 2008 operating margin was 7.6%).”

Our take:

Q1-2009 holds up for Capgemini, revenues are actually up modestly and operating margin should drop by about 1%, but some of all this was expected

North America drop shows the dramatic decline for consulting services demand in the US, but Europe seems to be doing fairly well

Outsourcing booking increase demonstrates that clients continue to cut costs and look for cheaper alternatives. Drop in consulting bookings shows hesitancy to engage in large scale consulting or IT engagements.

Capgemini seems comfortable with their original guidance, no surprises here, at least at this moment. From WSJ, “The guidance is positive given the current climate," said one analyst from WestLB Jonathan Crozier.

This echoes somewhat what we saw from Q2-2009 results from Accenture, but with a slightly more positive outcome. Different from Accenture, where investors pounded the stock down 9% on earnings announcements, Capgemini’s stock was up 3.2% in early trading as investors liked what they saw and expressed their enthusiasm by buying up the stock.

NVCA Wants to Broaden Big Four to Global Six

The National Venture Capital Association (NVCA) has come up with four key recommendations to help US venture-backed companies, to kick start the IPO market, which decreased in 2008 to only 6 IPOs in the United States. Taking recommendations from capital market leaders, the NVCA focuses on the venture capital industry, investment banking, accounting professions, law firms, stock exchanges and the government to to restore a vibrant IPO environment once the economy comes back.

Recognizing that today’s market environment is challenging especially for small cap IPOs, due to the high costs of going public, the constituents involved in the process, and the restrictions placed on potential public companies. To fix these issues, the NVCA has come up its “Four Pillar Plan” to restore the Venture-Backed IPO Market. We want to discuss the first pillar in detail as it deals specifically with the Big4 accounting firms.

But first pillars 2 to 4 in brief:

Pillar II: Enhanced Liquidity Paths
Since the distribution system connecting sellers and buyers of venture-backed company new issues is broken, the NVCA endorses concepts such as Inside Venture, Portal Alliance (NASDAQ), SecondMarket and Xchange., where “cross-over investors” commit to hold stock for the long term. Another point of interest, the NVCA will help raise awareness about proactive M&A roll up strategies of smaller portfolio companies to achieve IPO critical mass and global alternatives to the U.S. public markets.

Pillar III: Tax Incentives
The U.S. government must maintain tax policies to encourage VC investment to stimulate the pipeline of promising IPOs, further, Congress should consider adopting new tax incentives which would stimulate IPOs, at least in the short term.

Pillar IV: Regulatory Review
The NVCA will advocate for a full systematic review by the SEC of recent regulations which impact small cap companies, including interpretations of SOX, pre-IPO financial reporting requirements, the separation of analyst and investment banking functions, and private placement requirements, since recent sweeping financial regulations have created unintended consequences for small pre-public and public companies.

Finally, Pillar I: Ecosystem Partners

Here’s the exact language from the NVCA press release” Within the last decade, venture-backed companies have been faced with fewer choices as it relates to investment banks and accounting firms that will assist in the IPO process. While the major investment banks continue to operate, the “four horsemen” boutique investment banks of the 1990’s (Alex Brown, Hambrecht & Quist, Montgomery Securities, and Robertson Stephens), which specialized in IPOs of venture-backed companies, no longer exist. Further, the fall of Arthur Andersen and the resulting pressure placed on the Big Four accounting firms has, in many markets, left a void in terms of quality auditing services available for these smaller companies.

Against this backdrop, the NVCA believes that the venture capital industry must do more
to promote alternative ecosystem partners while engaging with existing members to
identify ways to better serve the needs of emerging growth companies. The Association
has begun to engage in talks with boutique and major investment banks as well as the Big
Four and other public accounting firms about how they can also better serve the needs of
small cap companies. The NVCA also intends to encourage the use of a broader array of
service providers such as the “Global Six” including Deloitte LLP, Ernst & Young LLP,
Grant Thornton LLP, KPMG LLP, PricewaterhouseCoopers LLP and BDO Seidman LLP.”

Our take on this Pillar:

The fall of Andersen has certainly reduced the choice for all public companies, and much more so for smaller companies. Earlier, companies could choose from one of five global auditing firms, leaving ample choice among the remaining four for tax and advisory consultants. Andersen’s demise and Sarbox has drastically cut down both these avenues for larger companies, and as the Big4 firms have grown dramatically over the past few years, they have gravitated away from smaller companies, not always by choice.

The NVCA points out that out of 21 IPOs from November 2007 to February 2009, Big4 firms were involved in 16 and non-Big4 firms were involved in 5 of these IPOs. So, the
NVCA wants to increase the population of global accounting firms to include Grant Thornton and BDO Seidman and call it the new moniker “The Global Six”. While this does increase the sheer number of providers, the Big4 firms are huge compared to GT and BDO, and there is inherent inertia among VC firms to select name-brand firms to (hopefully) maximize their outcome from the IPO. Despite all good intentions and eventual efficient outcome, we think it will be a while before the Big Four move to the Global Six.

The NVCA “intends to encourage the use of a broader array of service providers” – we applaud this, but is a tough challenge to change public perceptions, and we’ll be watching if they do succeed in this effort.

Of course, there are many views on this, some quite opposite ours, and we welcome comments from our readers – what have you experienced? where do you think this is headed?

Big4 Firms Make Top 250 in Latest Fortune 500 List

Fortune Magazine just released its Fortune 500 list of top US companies by revenue for the year 2008. Not surprisingly, the top companies in this list were oil giant Exxon at a staggering $443 billion, followed by ubiquitous Walmart at $406 billion, multinational oil companies Chevron at $263 billion & Chevron Phillips at $231 billion and international conglomerate GE at $183 billion. After the top ten, there is a steep drop with number 11 Bank of America at $113 billion and then down the list, number 50 Safeway with $44 billion, and then number 90 Alcoa with $28 billion.

And where do the giant Big4 accounting and consulting firms stand in this list? Now, given that these are private partnerships (except Accenture and Capgemini) and not the US publicly traded companies which are in the Fortune 500 list, but it is interesting to see that four of the Big4 firms made it to the top 100 and all six made it to the top 250.

Leading the Big4 list, PricewaterhouseCoopers with 2008 revenues of $28.2 billion stands tall between hospital operator number 88 HCA and chicken producer number 89 Tyson Foods. Close on PwC’s heels is Deloitte & Touche with 2008 revenues of $27.4 billion, between oil & gas producer number 93 Murphy Oil and electrical conglomerate number 94 Emerson Electric. Third in line is public company Accenture (which would have made this list, but its HQ is Hamilton, Bermuda, which is outside the USA) with 2008 revenues of $25.3 billion, ranked between electrical conglomerate number 94 Emerson Electric and industrial manufacturer number 95 3M. Just behind Accenture is Ernst & Young with 2008 revenues of $24.5 billion placing between paper giant number 97 International Paper and oil producer number 98 Occidental Petroleum.

Below the top 100 ranks are KPMG and Capgemini. KPMG, the smallest of the Big4 Accounting Firms with 2008 revenues of $22.7 billion stands between pharmaceutical company number 110 Wyeth and US airline number 111 Delta Airlines. Far below, but still in the top 250 rank is Capgemini with 2008 revenue of $11.6 billion between telecom company number 229 ITT and natural gas producer number 230 Chesapeake Energy.

This interesting compilation shows that Big4 firms are truly huge partnerships, perhaps some of the largest in the world, and rank among the largest companies in the US. Not only that, they are also extremely profitable with profits usually increasing proportionately with revenue. Compare this with the Fortune 500 whose total profit actually fell 87% from a whopping $645 billion in 2007 to a puny $99 billion in 2008. The Big4 firms clearly have no such troubling trends, the firms actually grew revenue double digits from 2007 to 2008, and while the growth from 2008 to 2009 may not be that high, there are no drastic falls in profits which may encumber some of their corporate peers.

The mega partnership model obviously works mainly in the low-capital intensive professional service sector, and the Big4 firms over a 100 years seem to have evolved a robust business model, which perhaps keeps them out of the Fortune 500 list but also out of the vagaries of profit fluctuations.

Here are the details:

88. HCA $28.4
PwC $28.2
89. Tyson Foods $28.1

93. Murphy Oil $27.5
Deloitte & Touche $27.4
94. Emerson Electric $25.3

94. Emerson Electric $25.3
Accenture $25.3
95. 3M $25.2

97. International Paper $24.8
Ernst & Young $24.5
98. Occidental Petroleum $24 .4

110. Wyeth $22.8
KPMG $22.7
111. Delta Airline $22.6

229. ITT $11.7
Capgemini $11.6
230. Chesapeake Energy $11.6

Capgemini Has New SBU – Consulting, Largest in Europe, 4,000 Consultants

Capgemini just announced a new Strategic Business Unit, Capgemini Consulting Services with revenues of EUR 700 million (8 % of Capgemini 2008 revenues of EUR 8.7 Billion) and over 4,000 expert strategy and management consultants in more than 30 countries as part of a corporate reorganization.

The firm appears to be responding to clients’ need for “action-oriented business
transformation, from strategy to execution to enable them to transform and perform
through technologies”. With this, Capgemini claims that its Consulting unit will become the largest European consulting firm. In addition, it enhances the brand, much like Deloitte Consulting, and brings together existing country-focused consulting units into a global umbrella in order to provide clients with seamless industry-specific or issue-related expertise from a common single platform.

The intent: help clients better manage through this unprecedented economic crisis with an integrated approach.

There are three Global Practice Networks in this structure, all focused on “Transformation”:

Strategy & Transformation: helps clients adapt their strategy and business to radical shifts in the market;

Operations Transformation: optimizes processes in Marketing, Sales & Service (MSS), Finance & Employee Transformation (FET) and Supply Chain Management (SCM);

Technology Transformation: help choose right technology IT levers and in IT transformation

One point we found of interest is that Capgemini will help clients with “Social Networking tools and communities, which enable both direct collaboration between clients and the relevant Capgemini experts..”

Interestingly, the 4,000 consultants comprise about 4% of the 91,000 Capgemini staff but account for 8% of the revenues, which indicates that these professionals have generally higher billing rates than the average, as also that they are a select few within the larger organization.

This brings together several elements which we have seen before in other consulting organizations:

Brand identity: A new name, new organization and a new start, much like Deloitte Consulting
Globalize: Bring disparate country-focused consultants into a worldwide organization
Match Multinational Clients: Provide a single point solution to increasingly global and complex needs of international clients
Thought Leadership: Enable real consultants to craft unique solutions to client issues and win engagement at the C-level
Separate from Outsourcing: Distinguish higher-end Consulting from lower-end Outsourcing, much like Accenture

This is somewhat new ground for Capgemini and they are quite open that it is in response to client needs in a tough economic environment. The challenge is now to bring together all the pieces in an integrated way, build brand-identity with clients and start to compete more head to head with some established players in this space.

We’ll see how this plays out in the marketplace.

If there are Capgemini Consulting folks out there, we would love to hear your comments on this change.

EY Report Shows Q1-2009 IPO Activity Completely Stalled – Only 50 Worldwide

As widely expected, exit strategies through initial public offerings to investors took a beating in the last three months, testimony to a slow capital market and unenthusiastic investors. Ernst & Young confirms that in its just-released Q1-2009 Global IPO update. There were just 50 IPOs worldwide in Q1-2009 raising about US$1.4 billion in capital, with only 2 deals over US$100 million.

Compare this with 78 IPOs worth US$2.6 billion in Q4-2008 and down a whopping 97% from Q1-2008 where 251 IPOs raised US$41.2 billion in capital (including Visa with US$19.7 billion, largest US IPO in history).

The top 3 IPOs accounted for 75% of capital:
1. Mead Johnson Nutrition - US$828.00 million, NYSE
2. Real Gold Mining Ltd - US$133.01 million, Hong Kong SE
3. Etihad Atheeb Telecommunication Company - US$80 million, Riyadh SE

The balance $350 million was raised by 47 companies or average of just $8 million per company, putting them barely in the small-cap range!

The deal threshold to make the Top-20 list has decreased from US$126.9 million in Q1-2008 to only US$6.84. By number of deals, most active countries were actually in Asia and Central Europe: South Korea (8 IPOs); Japan (7) and Poland (6); with emerging markets accounting for 34 or 68% of the 50 global IPOs.

More ominously for the M&A world, Dealogic indicates that 37 IPOs have been postponed or withdrawn in Q1 2009, following 85 similar in Q4-2008.

This is clearly a sorry state of affairs for all involved in mergers and acquisitions – accountants, transaction service professionals, investment bankers, commercial bankers, lawyers, tax expert and the like. According to E&Y, things are expected to continue along in a similar vein for a while till company performance, markets, confidence and investor sentiment improves.

Gil Forer, E&Y Global Director of IPO Initiatives echoes a hopeful thought: “Past recessions have shown that successful companies often emerge from the toughest times. The recovery of the IPO market will require at least two to three quarters of macroeconomic stability and for confidence to be re-built. However when the markets open and valuations improve, high quality companies will be poised to take advantage.”

More details on E&Y’s website http://ow.ly/2ieb

Mark-to-Market Accounting Moves to Center Stage

FAS 157, the FASB rule which determines how financial institutions evaluate the value of their financial assets on their balance sheets has been brewing as a hot topic for a while and today moved to center stage based on a meeting of the Financial Standards Accounting Board which relaxed some of the guidelines on how this rule can be applied in the illiquid credit markets that we are now operating in now.

Essentially, FAS 157 indicates how companies should mark their assets to a fair value based on market conditions, which under normal & deep and liquid markets is based on recent transactions, exit prices, and reasonably known standards.

However, when liquidity dries up, counterparties fail and no recent transactions are available, companies are forced to write these assets down to very low values to comply with the strict guidelines of FAS 157. Banks with complex financial assets have been most affected by this and the enormous billions of dollars of writedowns are largely driven by FAS 157 mark to market accounting.

In fact, some like prior FDIC chairman William Isaac have blamed FAS 157 for incorrectly portraying values of bank balance sheets and asked for a holiday period from mark to market guidelines till credit markets return back to health. Others, such as Arthur Levitt, former SEC Chairman have been in full favor of FAS 157.

Today’s FASB meeting relaxations include allowing entities to determine fair value taking into account circumstances and evidence, especially in distressed situations to provide the best translation to an “orderly process”. In addition, FASB allowed companies to take advantage of this in Q2-2009, with some freedom to start this as early as Q1-2009. Banks stocks, which stand to benefit the most soared today 5%+ on this news.
What is FAS 157? Essentially, it is a set of guidelines which companies have to follow to value their assets at fair value, with fair value being determined by the market, rather than the subjective evaluation of the company. We point you to the following for some excellent explanations on this complex topic:

http://en.wikipedia.org/wiki/Mark-to-market_accounting
http://www.fasb.org/st/summary/stsum157.shtml
http://blogs.wsj.com/marketbeat/2007/11/15/a-fas-157-primer/

When complex accounting becomes the hot topic, Big4 firms would not be far behind, expect to hear more from the Big Four firms as this subject moves ahead.

PwC Finds 2008 Internet Advertising Robust, Growing and Resilient

An industry survey conducted by PricewaterhouseCoopers and sponsored by the Interactive Advertising Bureau (IAB) just released today shows that US internet advertising revenue is strong, growing and fairly resilient to the economic slowdown.

US internet advertising revenues were $23.4 billion for the entire year of 2008, with $11.5 billion coming in the first half and $11.9 in the second half. Full year 2008 revenue was an astonishing 10.6% higher than full year 2007 of $21.2 B, keeping in mind that traditional advertising may have shrunk in this period. Q4-2008 revenue of $6.1 B sequentially increased 4.5% from Q3-2008 and 2.6% from Q4-2007. Note that internet advertising was only around $2 billion in 1998, and has grown twelve-fold in just ten years!

This is what Randall Rothenberg, President and CEO, IAB had to say about this significant shift, “We are seeing an ongoing secular shift from traditional to online media as marketers recognize that ad dollars invested in interactive media are effective at influencing consumers and delivering measurable results. In this uncertain economy, where marketers know they need to do more with less, interactive advertising provides the tools for them to build deep, engaging relationships with consumers—the experience marketers gain from this will deliver dividends especially after the economy turns around.”

In other words, internet advertising is working for advertisers! They can get customers, immediate results and good ROI, compared to traditional advertising, where reach, measurement and effect are much more diffuse.

What’s working within internet advertising?

Search continues to be the leader at 46% of total spend, banners follow at 21%, classifieds at 13%, lead generation at 7% and rich media at 7% of Q4-2008 revenues.

However, online advertising is really concentrated. The ten top ad-selling companies, accounted for 72% of Q4-2008 revenues, companies ranked 11-25 accounted for 11% and companies ranked 26-50 accounted for 8%.

And some additional good news for Google and Yahoo: Search revenues were $2.8 B, 46% of total Q4-2008 revenues, up from $2.5 B or 42% of total revenues in Q4-2007. Google’s Q4-2008 US revenue was $3.8 B of which around half was US revenue, so $1.9 B. Thus Google’s share of total US search revenue comes to $1.9B/$2.8B or 68% which generally corresponds to its percentage share of the US search market.

By industry, retail advertisers were 22% of 2008 revenues, followed by Financial Services at 13%, automotive advertisers at 12%, computing advertisers at 12%, telecom companies at 9% and Media accounted for 5%.

Another significant trend seen in this study that Performance Based advertising is steadily gaining over CPM or Impression Based advertising.

This study has critical implications for advertisers, publishers, marketers, internet companies, consumers and investors. If internet advertising continues to grow at this rate and steal share from traditional advertising, the net may quite be the place to be in the future!

The full study is here http://ow.ly/1IEE

Accenture Indicates Profound and Dramatic Shift At Clients, Shares Swoon

Accenture had its Q2-2009 conference call yesterday at 4:30pm and we summarize for you the key points of that call. Accenture’s stock fell 11% upon release of Q2-2009 earnings, although they beat the Q2-2009 EPS estimate by 1 cent (actual 63 cents versus consensus 62 cents), the revenue was less than expectations and the outlook for the third quarter and the year was lowered quite significantly. We were anticipating a Q2 beat, but certainly not expecting such a sharp decrease in out-quarters, and this we found was equally surprising to the company, analysts and investors. ACN dropped its revenue and EPS guidance for the year, citing uncertainty, FX headwinds and lack of visibility, which did not sit well with investors.

The conference call was very revealing, it demonstrated the depth and breadth of the global economic turmoil deep within companies. Accenture, which was riding high, and seemingly unaffected by this slowdown was caught unaware of the dramatic change in consulting environment from December, when things seemed fine, to January where clients were apparently in a state of shock, numbed and facing upto a very uncertain 2009.

KPMG was the last Big4 firm to report, and its full year 2009 ended September 2008, a full three months after the other Big4 firms reported their full year 2009 ending June 2009. KPMG’s revenue growth was a bit below the other Big4 firms as its year covered more months of the global crisis. Now we see Accenture talking about a “profound difference” between December 2008 and January 2009. And that just a month can make a huge impact on such a large and diversified company such as Accenture shows the enormity of what is going on in client companies.

The market today is lower as it digests the surprise from Accenture and ponders on implications for operating results and professional service companies.

We’ll summarize / paraphrase what each Accenture player had to say both in remarks and in answers to questions, some we have left verbatim as it just conveys better the emotions around what is happening in the marketplace:

Bill Green, Accenture Chairman & CEO

“…Accenture's second quarter was a solid one. Revenues were $5.3 billion, an increase of 3% in local currency. We grew operating income 6% and expand operating margin by 150 basis points, We delivered solid EPS of $0.63, and new bookings of nearly $6 billion. We continue to generate significant amounts of cash, and we have a very strong balance sheet with no debt.

At the end of the day, our visibility isn't any different than it's been. But, our predictability, right, is not as good as it used to be. The difference between December and January was profound. People came back to work after the holiday in January, and things just slowed down. Because if you would look at what happened from mid-December through the beginning of January as it relates to the economy, it was very profound. There was a whole lot going on. As people came back to work, people just took a pause. And the pause, that had been what we described last time was deer in the headlights -- became an institutional thing as everybody sat there uncertain about what direction the economy was going to go in.

Some of our clients -- they don't even have their '09 budgets finalized yet. If you think about that, really what we are trying to account for here is that -- the plain uncertainty -- the work hasn't gone anywhere. There is a lot of things to do. There are some people that have laundry lists of things they have to get at. People are just very uncertain out there. It was really a January, February, phenomenon, and it is uncertain sitting here right now to know, how that is going to thaw and play out. That's really the reason for the range that we put in there. Just because the client environment is just so unpredictable on a global and on an industry-by-industry basis, and we don't want to be surprised again.

And all that stuff just happened as people's mental models said we get '08 behind us, and as soon as people got into '09, I think they said we don't see '09 being much better. And in fact, it may be worse. And that was the light switch, if you will, that happened in January, and those were the pieces. The other thing is the pipeline had been a little fickle, not in terms of its quality but in terms of speeds of decision. As we crossed into '09, everyone decided -- you don't get any points for initiating a new project in the middle of challenging economic times. So there has been slowdown in converting pipeline to revenue, particularly in the consulting type of work, which is the stuff that converts within a month from pipeline to revenue. Those are the things that happened that, frankly, were a surprise to me.

…I think what has happened in March is people are getting their minds around how they are going to play the hand for '09. Because there have been personnel actions in most large companies. And so, people are recasting their '09 operating plans, their budget, and where they think the year is going to come out. They are re-examining the priorities of their initiatives in the work. Some of this demand and drive and activity around outsourcing has come out of -- what are the actions they are going to take to get their economic house in order for '09?”

Pamela Craig, Accenture CFO

“Net revenues for the second quarter were $5.27 billion, a decrease of 6% in US dollars and an increase of 3% in local currency over the same period last year. Q2 revenues were below our guided range of $5.45 billion to $5.65 billion, reflecting FX impact of negative 9%.

Consulting revenues were $3.03 billion, a decrease of 10% in US dollars and 1% in local currency. Outsourcing revenues were $2.24 billion, a decrease of 1% in US dollars, and an increase of 9% in local currency.

There has been a noticeable change in the demand environment as clients grapple with how a macroenvironment full of continuing economic challenges impacts their priorities.

For Q3-2009, expect revenues to be $5.1 billion to $5.3 billion, which assume a FX drag of approximately 12%. We expect operating margin this fiscal year to be in a range of 13.4% to 13.7%. Taking into account the updated revenue growth outlook, we now expect new bookings to be in the range of $23 billion to $25 billion. EPS to be in a range of $2.60 to $2.67. “


Steve Rohleder, Accenture COO

"Clearly, the global marketplace has shifted dramatically over the past few months. Beginning in January, we saw heightened marketplace uncertainty, which led to a systemic pause in certain segments of the market. This resulted in three factors affecting our consulting business. First, clients have started deferring decisions about new work, which has resulted in a slowdown in converting our pipeline to revenue in the quarter. Second, the small extensions and add-ons, that normally come through each quarter, did not come through at the rate we have seen historically. In fact, some clients are still operating without approved annual budgets. And third, in some cases, clients have asked us to work with them on reducing the run rate on existing consulting projects.

In this environment, companies are rethinking their priorities, looking at projects that will provide meet an immediate return on investment, deferring large, new, transformational IT projects, and turning to outsourcing to lower their cost structures. These shifting priorities are affecting each of our growth platforms in different ways.

In Management Consulting, clients are focused on sustained cost reduction and operational improvement. We are seeing an increase in CEO-sponsored efforts in areas such as customer retention, supply chain optimization, and M&A integration.

In Outsourcing, demand for application outsourcing remains strong as clients are seeking opportunities for near-term cost reductions. We are also seeing demand in BPO, particularly in finance and accounting and procurement . This demand coupled with the increased activity we are seeing in the pipeline, clearly supports our view that there is an acceleration in outsourcing opportunities. Our focus is on accelerating the conversion of the opportunities in our pipeline to bookings and revenue."

The Big Four Blog Is On Alltop

Yes, our blog has been selected to be featured on the Accounting topic of Alltop, an aggregator of the top blogs on the internet.

We’re excited to be part of Alltop, along with other related leading blogs on this subject, such as CPA Trendlines, Re:The Auditors, Skeptical CPA, Alex Malley, Deloitte and others.

This inclusion will help direct folks who are interested in Accounting, the Big Four firms, and all related topics to our blog, for them to read all the stuff we talk about and provide comments. We look forward to the added traffic on our site.

Check it out, we are on the bottom right corner…

http://accounting.alltop.com/

For those who are not familiar with Alltop, here is a synopsis in their own words:

“We do this by collecting the headlines of the latest stories from the best sites and blogs that cover a topic. You can think of Alltop as the “online magazine rack” of the web. We’ve subscribed to thousands of sources to provide “aggregation without aggravation.” In a nutshell, Alltop is an information filter to help you find your nuggets of gold.
Q. How do the Alltop sites work? A. We import the stories of the top news websites and blogs for any given topic and display the headlines of the five most recent stories”

You can also customize Alltop to create your own page of the all the blogs that you like in one single point at http://my.alltop.com/. It’s fairly simple and very useful to keep up with the blogosphere.

Grant Thornton Finds Sobering Outcomes for 2009 Executive Pay

We step beyond the Big Four firms for this blog post, going to the home page of Grant Thornton (GT) for an interesting and very relevant study on executive compensation. This is fresh off the press as it captures sentiment as of February 2009. The findings are quite sobering and the ultimate impact of the slowing economy is being felt where it hurts the most – the executive wallet.

Clearly, all companies have re-thought their compensation structure and programs and made some tough choices on where and how to allocate a smaller pool of dollars. GT surveyed 227 top companies all across the US with the following conclusions:

Base Salary
About 50% of companies are freezing executive base salaries in 2009, and 75% are holding or reducing their 2009 salary budget as compared to 2008. 34% of companies are decreasing 2009 salary budgets while 15% are actually reducing salaries, indicating companies will very selective in giving merit increases in 2009.

Bottom Line: Expect the same pay in 2009, likely more work and responsibility.


Bonus Plan
More than two-thirds companies’ 2008 bonuses have been below targeted levels; and 25% did not pay any bonus at all for 2008. And to compound this further, 2009 bonus budgets will be same or lower than 2008 bonus budgets. And the bar is higher in 2009 than in 2008 to get bonuses

Bottom Line: Annual bonuses are no longer a sure thing


Long-term Incentive Plan
Most companies did not adjust long-term incentive (LTI) grant practices in 2008 but about half are downward adjusting grant values and/or the number of underlying shares granted in 2009.

Bottom Line: Long term incentives look unlikely

Underwater Stock Options
Many companies don’t yet have a plan to deal with underwater stock options, a key issue impacting 2009 executive compensation plans. Owing to the huge fall in stock prices, 75% of public companies have more than 75% of their outstanding stock options underwater. But more than 50% of these companies have put in place or are putting in place a re-pricing or exchange program to fix this, and a number of companies are either making supplemental stock grants or are granting equity incentives other than options.

Bottom Line: Some hope that say $60-floor options may reprice to $6-floor options

Special Retention
25% of companies have already implemented or considering a special retention program; and those with a significant percentage of underwater stock options are more likely to consider a special retention program..

Bottom Line: If options are getting repriced, good chance retention schemes may follow

Obviously, this is a sobering commentary on the state of affairs in US companies and the crackdown on salaries has been recent, rapid and drastic. Executives will have to manage on lower incomes during these challenging times and can hope for the economy to improve before more money flows into the personal balance sheet.

The entire study is available on http://tinyurl.com/cnzdum, and is worth reading.

BearingPoint Breakup Imminent, Business Parts Sold to Multiple Buyers

BearingPoint is very likely to break apart very soon, and sell all its businesses to either other Big4 firms or to local management teams. According the company’s press release on March 23, 2009, all parts of BearingPoint have been sold / in the process of being sold / likely to be sold in different parts to different parties as below:

“BearingPoint and Deloitte have entered into an asset purchase agreement by which Deloitte will purchase a significant portion of BearingPoint’s largest business unit, Public Services, for a price of $350 million, subject to adjustment and customary closing conditions. “

“BearingPoint has signed a non-binding letter of intent to sell a substantial
portion of its North American Commercial Services business, including its Financial Services segment, to PricewaterhouseCoopers LLP for $25 million.”

“PwC Advisory Co., Ltd. (PwC Japan), a PricewaterhouseCoopers firm operating in Japan, is also in advanced negotiations to acquire the Company’s consulting practice in Japan.”

“BearingPoint is in late-stage negotiations with its local management teams to sell its
European and Latin America practices.”

“Further, BearingPoint is in separate negotiations with other parties and local management to sell various Asia Pacific practices, separate from Japan.”

While only the US part of BearingPoint was declared bankrupt with international organization remaining outside bankruptcy, it appears that a total sale of the company including domestic and foreign entities was the only feasible solution.

First, it appears that the big pieces of BearingPoint are “staying within the Big4 family” the key Public Services franchise and North American Commercial Services are being sold to Deloitte and PricewaterhouseCoopers.

Second, the total known sum of sales comes to $375 million plus the amount to be realized by sale of international businesses. The Public Services unit was strong and had good inroads into government consulting project, Deloitte will certainly strengthen its government consulting business. Consider that Public Services had revenues of $1.4 billion in 2007 and gross profits of $263 million, so the sale price is only 1.5X gross profit.

Third, the sum-of-parts valuation turned out to be clearly higher the than trading value of BearingPoint. On the day of announcement, March 23, 2009 late in the day though, the stock moved up to almost 20 cents a share, with market capitalization of 4.4 million shares * 0.2 = 0.8 million, prior to announcement, the stock was trading at 10 cents a share, and today March 25, 2009, it has come back to 9 cents a share.

As we said before, we mourn the passing of one of the Big4 firms, the KPMG Consulting spin-off, but given all the challenges faced by BearingPoint and the precipitous decline in share price and investor confidence, an internal breakup and sale were the only sensible solutions available at this time.

Successful Growth At True Partners Consulting In Just 3 Years

March 25, 2009

Three years ago, almost to the day (March 22, 2006), we blogged about True Partners, a a niche tax and advisory consulting firm in Chicago, with 25 Andersen alumni and CEO Cary McMillan, who was head of Andersen’s Chicago office and then CFO of Sara Lee. At that time, the start-up had 25 personnel and offered an alternative to SOX-restricted Big Four firms.

At that time, we also said, “TPC’s performance in the marketplace will bear close watching.”http://bigfouralumni.blogspot.com/2006/03/andersen-alumni-launch-true-partners.html

We were brought again today to True Partners Consulting while researching another completely unrelated topic, and were pleasantly surprised to find terrific growth in personnel, services and recognition over these three years. Clearly, they have established themselves in the marketplace and appear to be doing well despite the current difficult environment in professional services.

Here’s what Crain Chicago says: “With revenue expected to climb as much as 35% this year, to $43 million, Mr. McMillan says the firm will add 50 more professionals to its staff of 225 consultants.”So by the end of 2009, TPC will have 275 professionals, which is a 11x growth from its small beginnings just three years ago, and more than $40 million in sales, up remarkably from a small (but unknown) level in 2006.

TPC was also gained 9th place in Crain’s Chicago’s 20 Best Places to Work, with this testimonial, “…True Partners believes it\'s essential to create opportunities for staffers to interact. So there\'s free beer and wine after 5 p.m. and a big-screen TV, Nintendo Wii game system and pingpong table for quick escapes from the daily grind. True Partners won’t hire anyone who can\'t pass the collegiality test and will not keep anyone on board who doesn't display respect and selflessness toward peers.”

With an expanded set of services:
Tax and Business Consulting
Federal and State Compliance
Private Equity Services
Tax Risk Management
Unclaimed Property

and now at 9 locations in US and Europe, TPC seems to have had a great start and terrific growth. Kudos to Andersen alumni for this success. We’ll come back to see how TPC is doing, hopefully in less than three years from now.

Tough Q2-2009 Bar for Accenture, but Likely to Match Expectations

Accenture is reporting its Q2-2009 (for the three months from November 2008 to February 2009) results on Thursday March 26, 2009, and the consensus Wall Street analyst estimate for earnings is 62 cents per share compared to year-ago 64 cents per share in Q2-2008, 3% lower. This is the average estimate from 18 analysts who follow the stock and have varying estimates between 58 cents and 67 cents per share.

In terms of revenues, the consensus Wall Street analyst estimate is $5.54 billion compared to year-ago $5.61 B in Q2-2008, 1.2% lower. This is the average estimate from 18 analysts who follow the stock and have varying estimates between $5.40 B and $5.71 B. For the fiscal year 2009, analysts expect Accenture to earn $2.79 per share compared to $2.65 earned in fiscal year 2008, a 5.2% increase.

In terms of the 19 Wall Street analysts rating the company, 5 rate it a Strong Buy, 8 rate it a Buy and 6 rate it a Hold. For example, on October 15, 2008, Argus Research raised its rating from Hold to Buy.

The mean target of 13 analysts for the stock price is $37.56, with a range of $33.00 to $43.50. Currently the stock trades close to $31, which is lower than the bottom of the range, and clearly far below where analysts expects the stock to be at in the short term.

Richard Moroney, editor of Dow Theory Forecasts, appears to be a strong believer in Accenture, and last week, reminded his clients that Accenture is a buy in his opinion, and noted that the company was steadily moving up in rankings in his quantitative numbers-based ranking system called Quadrix. Morningstar also expects Accenture to make the estimate. Even Jim Cramer, the hyper-uber stock analyst at CNBC’s Mad Money likes Accenture at $30.
We believe that Accenture is in a strong position, and very likely to meat or even beat these estimates, despite the tough bar being set by Wall Street. It has a very performance oriented culture, and has been able to successfully avoid the downdraft from the slowing global economy. Revenue shows no signs of slowing as Accenture increases its Consulting and Outsourcing footprint deeper into existing and new clients by providing innovative solutions which reduce operating costs. Moreover, it has a very strong balance sheet with $2.8 billion in cash and only a nominal debt of $1.1 billion. Two additional positive factors - consultant utilization for Q1-2009 was 83% same as Q1-2008 and attrition was 13%, a full 4% below 17% in Q1-2008.

In terms of its own forecasts, Accenture expects Q2-2009 revenues to be $5.45 billion - $5.65 billion, with a negative impact of 8-10% coming from FX and an appreciating US dollar. And the company expects diluted EPS for FY 2009 to be $2.78 - $2.85

Traditionally, the second quarter has the lowest earnings among all four quarters, reflecting the seasonality of the business. But that is not to say that the company may not blow past these earnings consensus. For the quarter Q1-2009 ending November 2008, Accenture’s actual EPS was 74 cents 8.8% higher than consensus of 68 cents. For the last four quarters, the company has been consistently and handily beating analyst consensus EPS estimates.

Accenture reports after the market closes on March 26th, and we are anticipating news which will please investors.

Deloitte’s Employability Initiative Gets New Boost in the UK

Deloitte has been supporting the Employability Initiative since 2001.

In London it called again for major UK employers to “help champion skills training and tackle the chronic shortage of “employability” skills.”

In an event, attended by senior business leaders, government and education providers, and who will join the firm in championing and supporting this type of training for all young people.

Here’s the facts straight from the Deloitte press release:

“Deloitte has an exceptional commitment to the support of education in the workplace, exemplified by its flagship Employability Initiative. Working together with nine regional Deloitte Employability Centres, Deloitte aims to train a total of 800 teachers to deliver employability courses, reaching 40,000 students across the UK, helping them develop the skills, attitudes and behaviours they need to secure and sustain employment. The firm has invested £2.6 million in the initiative to date, with a further £1.2 million planned in 2012. Deloitte’s total commitment to educational projects exceeds £1 million each year.”

But here are some interesting aspects of this effort:

First, it seems ironical and somewhat counter intuitive that while we are in the middle of a global economic turmoil with raging unemployment that college graduates do not have the requisite employability skills to make effective entrances into the business world and immediate contributions to their jobs.

Second, we recently saw PwC and E&Y both start making inroads into the student population. PwC recently launched its “Recession-proof your job search” initiative aimed at undergraduate seniors to help them identify and locate the right jobs for their skills and goals; and E&Y gave as an example $400K to Bentley University to start freshmen on accounting and finance courses and make changes to their curriculum. All these Big4 firm efforts indicate that there is some kind of underlying issue with the quality of personnel entering the workforce and in a selfish way the Big4 firms.

Finally, Sir Mike Rake is Chairman, UK Commission for Employment and Skills, who spoke at this event also supported the Deloitte initiative. But he was, as many may recall, the Chairman of KPMG International from 2002 to 2007, which is creditable firm crossover for an illustrious Big Four alum!

Kudos to Deloitte to jump start this in the UK with major public and private support.

We’ll check around to see what the last Big4 firm KPMG is doing on this front.

Want to Recession-proof Your Job Search? PwC Shows How-To

We recently came across a very interesting and useful resource PricewaterhouseCoopers has recently provided on its website. It is a free new career toolkit to give college students a competitive advantage in their job search, and has short video vignettes with career tips, a video Q&A for students' career questions and downloadable worksheets for career planning.

This free resource, with sound, objective career advice is aimed at graduating seniors, and underclassmen seeking internships. PwC is actively distributing this to career services offices and faculty at more than 200 U.S. colleges and universities.

Why is PwC doing this?

"PricewaterhouseCoopers is committed to helping college students and recent graduates overcome the obstacles they are facing in the wake of the current recession," said Bob Daugherty, US Partner and Sourcing Leader at PricewaterhouseCooopers. "By educating students and young professionals with sound, objective advice, we hope to boost their chances of realizing their career goals."

The title, “Feed the Future, Recession Proof your Job Search” is intriguing and the content is actually pretty good and useful. These career tools, focused mainly on students in their last year of undergraduate studies, is very relevant for that group, but equally useful and engaging for all other job seekers.

There are a number of pithy videos by Lindsey Pollak who has partnered with PwC to produce these videos. Lindsay (http://www.linkedin.com/in/lindseypollak), best selling author of “Getting from College to Career”, offers focused advice on strategies and tactics to find a job in this difficult recession.

By offering unbiased advice (there are no obvious or subtle pushes toward accounting or even salesy pitches for joining PwC), the firm is positioning itself as a reliable, friendly source for career planning. There’s clearly good publicity for the firm, but also appears to be an underlying desire to genuinely help senior who are facing perhaps the toughest job environment in over 50 years. PwC hired about 3,000 seniors in 2008 and expects to hire that same level in 2009, and these career resources will certainly play its part in attracting the best and the most aggressive/innovative talent to the firm.

The website is hidden deep within PwC.com, but you can find it here:

http://tinyurl.com/9zj5c9

KPMG Is Number One Best Big Company to Work For in the UK

KPMG is the “Best Big Company to Work For in 2009” in the United Kingdom according to The Sunday Times of the UK. It beats 2nd place Bourne Leisure and 3rd American Express. This is from one of the most respected newspapers in the island and widely quoted list, so kudos to Big Four firm KPMG for securing this top honor.

This is no one-time flash in the pan - KPMG has been ranked in the top 3 for the last three years, and in the top 10 for the last five years. According to the magazine, “It is also the winner of lifetime achievement award for having been in the top 10 Best Companies rankings over the past five years. And its almost 12,000-strong workforce seems to agree with Day’s assessment, according to our 66-point employee questionnaire. The company has top 10 results for 48 questions and 10 of those are the best scores nationally.”

In the same “Best Big Company to Work For in 2009” ranking, PricewaterhouseCoopers is number 7, Deloitte& Touche is number 9 and Accenture is number 12.

PwC is high on communication…”An online PwC UK news channel was launched this year, bringing employees the latest news across the company every morning, including web and podcasts.”

For Deloitte, its the employee who give it a top grade, “Employees are proud to work for the company, earning it an 81% positive score. Confidence in the leadership skills of senior management is high (80%), workers think the organisation is run on strong principles (73%) and are inspired by senior partner and chief executive of the UK operation, John Connolly (69%, a top four score).”

In Accenture’s situation, its personnel believe that their careers are on solid track, “Staff think the experience they gain at work is valuable for their future, earning the firm a 77% positive score in our survey, and say the job is good for personal growth (76%).”

How does The Sunday Times come up with the The Best Companies? The process consists of two elements:

An Employee Survey
Company Questionnaire

At least 90% of the company’s score is from the employee survey and depends on how highly people score the company on eight factors the survey measures. There is a discretionary 10% of company score that can be derived from the Company Questionnaire.

GM Defends Viability Plan Against Deloitte Doubts on Going Concern

In the recently issued March 4th financial year 2008 10-K annual SEC filing for General Motors Corporation, Deloitte & Touche, its public auditors surprised everyone by expressing serious doubt about GM’s ability to continue as a going concern in their auditors opinion to GM’s financial statements. Not that the auto industry’s woes are not publicly known, but a definitive statement on “substantial doubts” on a “going concern” are strong words to place in a public document. This can immediately trigger a number of covenants and provisions in bondholder contracts to potentially lead to repayment of principal and eventual bankruptcy. However, GM has been able to negotiate with its lenders to forgive at least this breach of covenants.

Nonetheless, GM’s stock cratered 15% yesterday March 5th on release of the 10-K and Deloitte’s opinion. Which just shows the awesome power that the Big Four firms have over their clients’ market capitalization and perhaps even survival.

So this is what Deloitte said rather crisply in its opinion in the 10-K:

“…The Corporation’s recurring losses from operations, stockholders’ deficit, and inability to generate sufficient cash flow to meet its obligations and sustain its operations raise substantial doubt about its ability to continue as a going concern.”

And this sort of serious doubt by public auditors does generally mean that bankruptcy under Chapter 11 or 7 may be the only option left for GM.

Not so.

Today, Steve Harris, GM’s VP of Corporate Communications refuted this in his FastLane GM Corporate Official Blog http://fastlane.gmblogs.com/:
“Restructuring the business out of court remains the best solution for GM and our constituents. We’ve established a clearly-defined plan to restructure our business and restore GM to long-term viability, and we are aggressively executing that plan through a series of actions we outlined on February 17.

As a prudent business measure, we have analyzed various bankruptcy scenarios, yes. (We were asked to by the government, don’t forget.) However, we firmly believe that an in-court restructuring would carry with it tremendous costs and risks, the most significant being a dramatic deterioration of revenue due to lost sales.

That’s the deal, folks. We haven’t changed our thinking. You analyze every option, but you move ahead with the one you think is best for the company. That’s what we’re doing.”

So, GM continues to believe that its Viability Plan executed out of court and out of bankruptcy is its best option. Deloitte have indeed set off a public relations firestorm for GM, with the corporation doing its best to thwart off negative opinion among the public. With the audit opinion done, Deloitte may have little role to play as the drama goes on between GM, its investors, the Obama Administration and GM’s bondholders.

We’ll continue to track development on some of most storied names in Corporate America.

Capgemini Posts 2008 Revenue Growth of 5pp and Increase in Operating Margin

Capgemini recently posted its full year 2008 financial results, creditable performance given the heavy economic global turmoil that has affected every country and industry all over the world.

2008 revenue at EUR 8.7 billion was up 5% on local currency terms versus 2007 revenue, but was flat on Euro terms to the reported 2007 revenue of EUR 8.7 billion, as the Euro and GB Pound had appreciated against the US dollar at least for the first ten months of 2008. Operating profit as a percentage of revenue actually increased from 7.4% in 2007 to 8.5% in 2008, and operating profit in EUR terms increased from 493 million to 586 million. Capgemini decreased somewhat its cash position, holding EUR 774 million of cash at end of 2008 versus EUR 889 million of cash at end of 2007. Consulting and Outsourcing bookings rose to EUR 9.3 billion in 2008, up 4% from 2007.

The board recommended dividends of EUR 1 per share, and with the share at about EUR 21 today (the lowest in 3 years), the dividend yield is a healthy 5%.

By geography, North America local revenues were up 3.4%, with operating margin at 5.8%, slightly down from 2007; Europe and the rest of the world posted like-for-like revenue growth of 11.6%, but there was a slight drop in operating margin (14.2% versus 15.0% in 2007).

By service line, Local professional services (Sogeti Group) had 9.1% revenue growth and 2008 operating margin of 12.9%. Outsourcing recorded sales growth of 4.6%, and operating margin continued to rise, reaching 5.4%. Consulting had revenue growth of 2.4% but strongest margin improvement (12.8% on 10.5% in 2007). Technology services had growth of 4.1% and its operating margin was up by more than a point to 10.2%.

Capgemini actually increased its headcount by 8,113 staff between December 31, 2007 and December 31, 2008, with almost half of new recruitment being carried out in offshore countries, mainly in India, but also in Poland, China, Morocco and South America. Offshore employees were 28% of total Group headcount, accounting for 25,275
people out of a total 91,621 on December 31, 2008

In terms of 2009 outlook, Capgemini remained cautious, saying, “In a climate of high uncertainty, the Group considers that it does not have enough visibility beyond the first half. For the first six months of the year (2009) like-for-like revenues could see a modest decline. This would only have a limited impact on the operating margin, which should remain above 6.5% (operating margin for the first half of 2008 being 7.6%).

These are solid, but not outstanding results as posted by Accenture or the double digit revenue growth reported by the Big4 firms. Nonetheless, revenue growth coupled with operating margin% improvement, growth in bookings and good cash positions were creditable achievements in the face of relentless bad news obviously hitting each and every of Capgemini’s clients. More so, consulting is the first thing that clients dispense with in hard times, so any growth is quite remarkable. It is sobering to see low visibility in 2009, which could prove to be even more challenging than 2008. It forecasts a modest revenue and operating margin% decline, and just if that were to happen, would be something that the company can rest content with in a very tough year.

Golf and Big Four Firms – Drama and Excitement Next Week!

When do the legendary game of golf and great Big Four firms meet on equal ground?

This intersection happens when two of the top players in the world are sponsored by two of the Big Four firms. Add to that background some competitive drama, and you have the makings of a golf thriller.

Tiger Woods recently reported that he will be returning to golf championship play by taking part at the Accenture Match Play 2009 next week, and that caps more than 250 days of Tiger-less and insipid golf watching. Tiger Woods is heavily sponsored by Accenture and features prominently on their website, hoardings and commercials. Accenture’s “High Performance” services are exemplified by Tiger’s relentless pursuit of perfection.

On the other hand, Phil Mickelson, the crowd pleasing leftie has had a choppy record over the last two years, winning brilliantly at some championships and barely making the leaderboard at others. But this week, he has been playing at fabulous levels at the Northern Trust Open, currently at 15 under par and leading on the board on the 10th hole of the last round. Phil Mickelson also proudly sports his black KPMG cap with the distinctive logo, having signed a three year contract with KPMG in February of 2008.

Tiger Woods and Phil Mickelson have very different approaches to the game and to the championships. Tiger’s militaristic attack on the golf course compares with Phil’s strategic play on the course.

All eyes will now be on the Tiger-Phil play off, if that ever happens, on the Accenture Match Play next week, and that is sure to be a nail biting, crowd pulling event.

Be sure to be watching next Saturday and Sunday when two of golf’s best players sponsored by two Big Four firms (right on their caps!) provide excitements and moments that will be remembered for a long time.

BearingPoint Files for Chapter 11 Bankruptcy Today

Today, BearingPoint, Inc. announced “it has achieved a financial restructuring agreement with its senior secured lenders that will significantly reduce its debt and improve its capital structure.”

In other words, the firm is bankrupt.

And it has file for voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code in the Southern District of New York only for the US operations though

BearingPoint says this filing was made with a “pre-arranged” restructuring plan with senior secured lenders, and will likely move this as fast as possible. Clearly, the firm examined all its available options and chose to pursue this alternative, indicating that all and any efforts to find a buyer were not fruitful.

In essence, the firm and its senior secured lenders agree to the proposed pre-arranged plan of reorganization with these key constituents:

(1) replace the $500 million senior secured credit facility with a new secured, senior credit facility: $272 million term loan plus accrued interest. $130 million synthetic letter of credit facility and issuance of new preferred stock
(2) unsecured debt will be exchanged for different classes of common stock
(3) all existing equity in the Company will be cancelled for no consideration.

How does this impact BearingPoint?

First, most of the debt is gone. And so does the burden of paying principal and interest, and buying back debentures some of which were coming due in just weeks. And the obligation to purchase all debt when the company’s stock is delisted from the NYSE is gone too.

Day-to-day operations are expected to continue as “normal”, as much as normal is under these circumstances, and clients evaluate their projects and contracts with a bankrupt vendor.

There is going to be an immediate impact on BearingPoint’s employees. Not that this was unexpected, since everyone could see the stock price dip each day to new lows. But the firm’s employees may now take a deeper look at their situation and evaluate their options.

We have been saying all along that some kind of end-game needs to happen at this time, either a buyout or a sale, with bankruptcy being the silent but necessary point of last resort.

Andersen folded when the Department of Justice made a criminal case against the firm (eventually overturned) but it was a viable financial entity at that point.

The fall of BearingPoint was driven by mismanagement both of the financials and of the firm. A company with over $3 billion in sales should not have a market capitalization of less than $2 million, it doesn’t make sense.

We mourn the loss of a Big Four firm, and trust that BearingPoint can find a viable avenue to return to strong operating performance.

PwC CEO Confidence Survey Shows All-Time Low Confidence

PricewaterhouseCoopers’s recently published 12th annual CEO survey tells us nearly what every other survey indicates. Echoing the pessimism which Deloitte found in January 2009 in global CFOs, this shows that CEO confidence is at an all-time low. Globally, only 21% of CEOs seem to be very confident on any revenue growth at all in the next 12 months. This is spectacularly down from a reading of 50% in last year's Global Annual Survey.

This pessimism is not isolated to one area, it seeps across all geographies, business sectors and levels of economic development. 7 of 10 CEOs indicate their companies will be affected by the credit crisis, and of this bunch, 80% will face higher financing costs, and 70% will postpone capex. The banking, utilities, construction, entertainment and automotive sectors are to be affected the most.

On the positive side, only 15% of North America and 15% Western Europe CEOs are even somewhat confident of the future. The picture is slightly better in emerging economies: 21% in Central and Eastern Europe, 31% in Asia Pacific, and 21% in Latin America remain optimistic. Most see only a rough slow road ahead.

What do CEOs want most at this time?

They want leadership and consistency from government, clear action, consistent policies and convergence of global tax and regulatory frameworks. But they are afraid of regulatory overreach, which could impede growth. CEO are more optimistic of cross-border JVs rather than M&A to drive sustainable growth. Energy costs and staff talent remain long-term challenges, with 80% CEOs reducing energy costs through efficiencies and alternative sources of energy; and 70% bemoaning shortage of qualified candidates.
Finally, better information is needed immediately to manage increasing and complex global risks.

CEOs are by nature optimists and continuous sellers of a bright future, so this level of pessimism does reflect a very tough global environment. There is some level of sobriety that has crept in due to the sudden, unanticipated and broad impact of the global credit crisis and ensuing recession in every part of the globe.

Big4 firm surveys of key business leaders, CEOs and CFOs are important since they cover a large section of global industry, and such surveys may prove to be key sentiment indicators on how long our tough environment will last, or things will change for the better in key decision makers.