This Week's Herman Trend Alert

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  The Herman Trend Alert

April 24, 2002

Enron Fallout

The Enron debacle has stimulated scrutiny of accounting firms and their practices. The heat is on Andersen, of course, but clients are challenging the other major firms as well. Corporate leaders want assurance that their accounting firms are honest, have trained their people well, and emphasize ethics. Senior executives at clients and accounting firms are asking a lot of serious questions, checking policies and procedures very carefully.

As Andersen clients look for other firms to conduct their audits, competition among large accounting firms will intensify. Companies using smaller firms will also consider changing, if their due diligence produces any discomfort at all. The confidence factor will be a very high concern, including both performance and ethical issues. Competition will drive down fees, until the market settles down.

There is a natural connection in people's minds between accounting and consulting. This relationship is understandable, since many accounting firms also offer consulting services of one kind or another.

Corporate executives and boards of directors need advisors they can trust. They will look more carefully at their consultants, attorneys, engineers, insurance agents, and other advisors. In each of these professions, those providers with certifications, special credentials, or other advantages that strengthen their reputations and credibility will stand tall. There will be a lot of questions from nervous clients and prospects.

The professional organizations that monitor and support the activities and recognition of these service providers, particularly those conferring accreditations, will be looking more carefully at the applications and the character of the individuals and organizations seeking their blessings. We forecast that they will put more muscle behind their screening procedures, recognizing that the reputation of the conferring body is also on the line. Expect ethics committees in these organizations to be more discriminating.

We are already hearing about professional societies taking extra steps. As an example, the Institute of Management Consultants is stepping up its public relations program to help corporate leaders understand what's behind the Certified Management Consultant designation. The effort, understandably, is led by the United States group, but sister organizations in 30 countries are also affected by this global concern.

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