The Sunday New York Times Business Day section regularly features, “Corner Office,” a column by deputy national editor Adam Bryant, author of the book, “The Corner Office: Indispensable and Unexpected Lessons from CEOs on How to Lead and Succeed.” Bryant’s book has seventy interviews with “top executives on leading and managing.”
This past week, Bryant talked with Barry Salzberg, current chief executive of Deloitte LLP who will be promoted to global chief executive of Deloitte Touche Tohmatsu on June 1. Salzberg talks about hiring the right people in his interview, “The Right Job? It’s Like The Right Spouse”:
Q. How do you hire?
A. The one thing that’s most important to me when I interview is to be sure there is a very good marriage. This isn’t about Deloitte just believing that the person we are interviewing is perfect for some role. It’s also that person believing that Deloitte is perfect for the environment that they want to be in. And throughout my interviews with people, I’m searching to determine whether that marriage is there. It shouldn’t be one-sided, because if it is, it’s not going to be a successful marriage. So I’m looking for values. I’m looking for priorities. I’m looking for personality. I’m looking for fit.
You’d never know from reading this puff piece that his firm, Deloitte, was a bigger loser during the crisis than even Lehman Brothers’ auditor, Ernst & Young. At least E&Y only has a single, massive financial-crisis failure on its watch.
Among Deloitte’s crisis-era-audit-client-failures, for instance, was none other than Bear Stearns, whose investors sued Deloitte, claiming its audit was so deficient it had effectively performed “no audit at all.” Merrill Lynch and Washington Mutual, were also Deloitte audit clients, and were duly taken over by Bank of America and JPMorgan Chase, respectively, when everyone finally acknowledged they were insolvent. Current Deloitte client Fannie Mae is now run by a conservator, and the U.K. government was forced to nationalize another client, the Royal Bank of Scotland.
Heckuva job, Deloitte.
None of the major financial services institutions that failed or were bailed out, forcibly acquired, or effectively nationalized received so much as a “going concern” warning, except Bear Stearns—and that one was issued retroactively after the deal with JPMorgan Chase was already done.
Thanks for nothing.
Hey, NYT: that’s a lot of bodies in that “Corner Office.” How about a little context?
To take another example, Deloitte played an important role in another story in the Times on Sunday. An excerpt from a new book by Gretchen Morgenson and Joshua Rosner describes how the S.E.C ignored a short seller’s repeated red flags and warnings about Novastar, a mortgage originator that crashed and burned in late 2007.
Morgenson and Rosner’s piece doesn’t mention (as a Floyd Norris column did at the time) that Deloitte in September 2007 actually withdrew its 2006 audit opinion for Novastar, a drastic step taken after the crash, obviously too late (I wrote about Novastar, too). Losing Deloitte’s certification was the catalyst for Novastar’s delisting. Deloitte remains the company’s auditor. It’s now listed on the pink sheets.
In addition, Deloitte audited mortgage originators American Home and Beazer. The auditor was sued for negligence by American Home and Beazer shareholders. They settled American Home for $4.75 million and Beazer for $1 million.
With watchdogs like that well, why have them? Please, oh Salzberg, tell us your philosophy of hiring again.
The audit industry continues to have a “good crisis” because auditors are generally overlooked by the media. Unless someone files a new lawsuit or one is settled they’re invariably left out of the story. Lucky them. By contrast, however, there’s been plenty of coverage of the industry’s failures in the U.K.,thanks in larger part to more active regulators, including a recent statement by the Office of Fair Trade (OFT) that the market for audit services is “distorted and restricted.” But we’ve seen no equivalent clamor by regulators, legislators, or the press in the U.S. for auditor accountability. Too bad.
Maybe the Times should have asked Salzberg more pertinent questions: like how he’ll lead the firm through extreme downward pressure on audit fees, loss of his firm’s market share in the financial services audit area, the boom-bust staffing cycle the firms juggle given a business model highly dependent on a steady stream of low-cost college recruits, and the huge amount of time and money spent on litigation instead of enforcement of audit quality.
Better still, Salzberg might have been asked where Deloitte will find CPAs who can demonstrate professional skepticism, rather than worry, as so many auditors do, about fitting in, how the firm will train them to resist company pressure to compromise standards, and how to support the ones who blow the whistle on fraud and accounting manipulation.
Now, that would be a Q&A.