Nice article by Cramer. He is dead right, that they need to reform the system. This isn't an Arthur Andersen problem, it's an industry problem. There is no room for criticism of accounting (and of stocks in general), and the integrity of the system suffers because of that.
nymag.com
Account Me Out
The Arthur Andersen accounting scandal offers the government a
once-in-a-lifetime opportunity to fix a system rife with corruption and
double-dealing -- but will it use it?
BY JAMES J. CRAMER
You can't fire your auditors in this country without
killing your stock. Unless your auditor is Arthur
Andersen, Enron's now-disgraced bookkeeper. Arthur
Andersen is the fastest disappearing act in American
corporate history.
Companies can't fire Andersen fast enough. Except us here at
TheStreet.com. Last month, Arthur Andersen fired us before we
could fire it. Andersen pleads with virtually every other client to stay,
but it jettisoned TheStreet.com because I refused to stop criticizing
the company on television. The obvious ironies of the situation made
for a few amusing headlines, but the real and totally untold story
about Andersen and TheStreet.com is one that captures everything
that was wrong and abusive about that company's method of doing
business. The real story has to do with how, no matter what your
accounting firm does, no matter how stupid or mickey mouse it is,
you are stuck with it no matter what. Put simply: The Big Five
accounting firms (or Big Four, if you think, as I do, that history has
already spoken) have little public firms like ours by the balls.
Once in, they can, if they want to, have the run of the place, and you
can't do much to stop them. If you choose to switch firms, every
financial journalist worth his salt will take aim at you. Every
professional short-seller will declare you guilty and pound the
bejesus out of your stock. Accounting firms and public companies
mate for life, because the consequences of firing are just too
horrendous for the client -- no matter what kind of knuckleheaded
advice the consulting arm of the firm gives you. Until Enron,
accounting firms had a license to print money once they were hired
for auditing. They could push their consulting arms down your throat,
and the hapless client could do nothing about it. In fact, much of the
time these firms virtually give away the audit so they can get in the
door to earn the big consulting fees. The fact that even after Enron,
the Securities and Exchange Commission's chief, Harvey Pitt, is still
not willing to force accountants to separate auditing from consulting
shows you he's either oblivious to the way accounting firms really
work, or he's simply owned by the accountants' lobby.
There's just too much opportunity for abuse and no reason for an
auditor to find anything wrong, even if it is right in front of him,
because such red-flagging will impede the natural consulting flow that
makes the relationship profitable to begin with. Don't I know it; I ran
smack into the Andersen consulting machine at TheStreet.com, and I
didn't even know what hit me. Until a few weeks ago, if you went to
one of Arthur Andersen's Websites, www.aametrony.com, you
would have seen a glowing case study about TheStreet.com posted
by the accountants who took over our shop right before we came
public. In it, Andersen talked about how the former chief executive
officer of TheStreet.com was smitten with Andersen immediately
after the firm made its pitch. "Two hours later we were selected to
replace their Big Five adviser," the site boasted. "That almost never
happens. It was that quick of a decision."
Hmmm. Funny thing is, it never happened at TheStreet.com either.
We weren't using a Big Five adviser, we were using an accountant
from Anchin, Block & Anchin. And he was auditing, not "advising."
The Website went on to say that Andersen suggested a slew of
changes as part of its "advising." Amazingly, every one of these was
a disaster for our firm. Andersen pushed us to "go global," including
the "structuring of TheStreet.com.uk," a business we had to write off
after losing tens of millions of dollars. Andersen then "conducted a
study that determined the feasibility of a virtual learning product for
the financial community." I personally helped kill this boondoggle
because it made no sense and had nothing to do with the mission of
our company.
Finally, though, in what will go down as the single dumbest thing
anyone could ever have advised us to do, Andersen convinced the
chief executive officer to destroy my relationship with CNBC, where
I had become a regular co-host of Squawk Box, in order to move to
Fox News, where Andersen was doing a ton of business. "It was the
perfect opportunity for both clients," the Website states. "When they
met, they clicked instantaneously. Now TheStreet.com has a weekly
show on Fox." Oops! Within a year, our show would be gone, as
the relationship with Fox proved completely untenable.
All of these totally knuckleheaded moves, which Andersen still takes
glorious credit for, led directly to our sacking TheStreet.com's chief
executive officer, Kevin English. But did we fire the real culprit,
Arthur Andersen? Nope, not on your life. Even though both
founders, who control more than 25 percent of the stock in the
company, were furious about these consulting blunders, we could do
nothing. Who would believe us if we fired Andersen for actually
doing crummy consulting work? The investment community would
simply conclude that we were screwing around with our books and
Andersen was trying to keep us honest, so we fired them!
The moment Andersen became vulnerable, though -- the moment an
Andersen audit became more of a stigma than a blessing -- we
decided to put the account up for review. It was then that Andersen
demanded that the new chief executive officer, Tom Clarke, silence
me for my negative comments about Andersen on CNBC's America
Now. When Clarke reminded Andersen that we were a
news-and-opinion organization and he wasn't going to rein me in,
Andersen dumped us, saying it couldn't work with us any longer.
I can't blame them for wanting to fire us before we fired them,
although their Soviet-style handling of the affair is pretty baffling. But
the simple truth is that if any other adviser besides our auditor had
suggested these stupendously wrong ideas, he or she would have
been fired years ago. Andersen got away with it because it knew it
could do whatever it wanted without ever risking being fired -- that's
how valuable the ironclad auditor connection is.
The real irony, by the way, isn't that Andersen fired us. It's that
unless the government responds to the current crisis by specifically
banning auditors from consulting, we will have lost the best chance
we will ever have to reform a ridiculous system where auditing is a
foot in the door for incestuous big-fee partnerships rather than a
critical check and balance producing honest books for public
companies. |
