29/04/2003 - 22:00

Merger lifts EY growth

29/04/2003 - 22:00

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One year on from the demise of Andersen, Mark Beyer spoke to former partners and staff to find how they survived and where they are now.

Merger lifts EY growth

One year on from the demise of Andersen, Mark Beyer spoke to former partners and staff to find how they survived and where they are now.

THIS time last year the partners and staff of global accounting firm Andersen were starting to go their separate ways.

In Perth, tax partner Keith Johns had already resigned and was starting to plan his own boutique tax consultancy, while business consulting partners Iain Gerrard and Mike McNulty had moved with their 36 staff to a new home at Deloitte Touche Tohmatsu.

But the main focus was on Ernst & Young, which spent most of April and May running the ruler over Andersen’s Australian operation.

Ernst & Young had looked past the discredited Andersen brand and saw plenty of talented people and a lucrative client list.

“Without question it was the quality of the Andersen people and being able to bring them into the fold with the Ernst people to create an even stronger partnership,” Ernst & Young’s Perth managing partner, Michael Minosora, said.

Many other accounting firms around Perth recognised the same opportunities and kept an eye out for disaffected staff.

To their surprise, they were not able to realise these opportunities.

Nearly 120 Andersen people, including seven of the original 10 partners, joined Ernst & Young on May 27.

Mr Minosora believes the integration of the two firms has been a clear success.

The move certainly entrenched EY, with just more than 400 people, as the biggest of the ‘Big Four’ accounting firms in Western Australia.

The next biggest are PricewaterhouseCoopers with 300 staff and KPMG with 263 staff, according to WA Business News Book of Lists 2003.

It also brought an end to an aggressively proud accounting practice.

The mood among Andersen staff during this period was very fragile.

“It was a shocking time,” said former corporate finance partner Justin Willis, who is now self-employed.

Andersen’s people had discovered just how quickly a major global business – with annual turnover of $18 billion and a prestigious brand – could become worthless.

The collapse was particularly hard for the many Andersen people who felt their firm was a cut above the pack.

“It was a very proud firm,” said Mr Johns.

“I genuinely believe we got the best people. We had a 90 per cent hit rate at UWA.

“The people we got were achievers, they had energy, they were A-type personalities.

Mr Johns believes Andersen was the most prestigious of the big accounting firms, especially in the US.

That counted for little when Andersen became embroiled in the Enron collapse and the subsequent ‘document shredding’ scandal in the US. Andersen’s involvement in the HIH collapse simply added to its woes.

Despite Andersen’s terminal decline, the self-belief of many former staffers remains intact.

“You took pride that you worked for the best and it was really hard to let go of that,” said one former staffer who has already moved on from EY.

“You wouldn’t think that two of the big five firms could be so different but they really were,” said another who has also left EY.

A tax manager who lasted six months at EY before leaving explained his decision this way.

"It just wasn’t the same place. The culture was different. At Ernst you were just a number. You could almost cruise by. At Andersen you had to excel."

Former audit partner Derek Parkin, who has worked for three of the major accounting firms, puts these issues neatly in perspective.

“In my experience, all of the large firms believe they are the best,” said Mr Parkin, who now lectures at Notre Dame University.

“There is a very genuine self belief that drives them. Andersen was certainly the most aggressive in that self belief.”

Mr Minosora said perceptions of high staff turnover at the enlarged EY were wrong.

He said staff turnover has been about 10 per cent for each of the past three years, and has been split equally between former Andersen people and EY people since the integration.

Frank Cooper, who was formerly Andersen’s Perth managing partner, echoes Mr Minosora’s positive view.

“You’d be hard pressed to find anything to complain about in the way Ernst & Young managed the merger,” Mr Cooper said.

“They had a real commitment to making it succeed.”

This included an acceptance of change as the two organisations came together.

“Ernst & Young have shown a willingness to embrace the best elements of Andersen’s way of doing things,” Mr Cooper said.

Staff communication and performance management were areas where EY had learned from Andersen, according to Mr Minosora.

“We’ve learnt a significant amount in the way of communicating expectations. Andersen had much clearer performance criteria and we’ve learnt from that. That’s a pretty big step for our people to take,” he said.

As well as stable staff turnover, Mr Minosora said the key measure of the merger’s success was the strong growth of the combined business.

“We are very happy with where we are,” he said. “We have had real growth over the revenue of the two individual firms. Most competitors have stayed still or gone backwards.”

For the nine months to March 2003, net revenue was 45 per cent higher than in the same period last year.

Mr Minosora attributed 25 per cent of this to work directly brought over by Andersen people, and 20 per cent to the benefits of the merger.

“Quite clearly the combination of skills of the two firms has meant that where there were gaps they have been filled through complementary services,” he said. “We have been able to get more work out of our existing client base because we can offer more specialised services.”

Mr Cooper believes the merged group’s comprehensive coverage of all service areas provides a competitive edge.

Looking ahead, Mr Minosora said the merged organisation was developing its own culture.

“Undoubtedly we will take elements of both Andersen and Ernst. I see that as a very healthy development,” he said.

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