When Robert Maxwell, the media tycoon, disappeared into the sea in 1991, he left behind him a £400m hole in the pension funds of his staff and a headache for his auditor, Coopers & Lybrand Deloitte.
Ten years on, and millions of pounds poorer in fines and compensation payouts, the firm, now part of PricewaterhouseCoopers, is still having to deal with the publicity surrounding the case as the Department of Trade and Industry prepares to issue its report into Maxwell’s dealings.
Publication of the report could not come at a worse time for the firm given that it is reeling from the double shock of having to realise its 1998 merger has failed to match expectations and the collapse of the #13bn sale of its consulting unit at the final hurdle.
Several partners with decades of loyalty have left, unable to find their place in the new structure and morale is down among some others. One partner says: ‘I enjoyed working for Coopers & Lybrand and its commitment to what it wanted to do, but the culture of Price Waterhouse prevails and a lot of people are not happy but are hanging on in there. It used to be like a family.’
This view of the internal management is not unusual. The basic problem for PricewaterhouseCoopers is that both legacy firms feel as if they have been taken over by the other.
At the same time, partner profits are said to have remained flat since the merger in another indication that the expected returns have not materialised.
Kieran Poynter, PwC’s UK senior partner, responds that any sense of injustice over the merger should have been cleared up by the careful selection of the management board when the move was completed – which balanced the numbers between ex-C&L and ex-PW staff. He puts any internal frustration down to the time it has taken to get things done. ‘You always find things take longer than you would like but I do not think it is more than that.’
Poynter refuses to be drawn on the issue of partner pay, but the firm claims that partner profits were up last year.
In the lower ranks, some staff allege to have been told their pay has remained flat because of the number of partners taken out of day-to-day circulation to manage the merger.
But it would rather seem that the firm was carrying too many partners post-merger, and it is hoped the recent 10% cut will do something to address that.
When the firm merged, both sides agreed to avoid any redundancies for two years, which would have seemed like a good idea in order to avoid bad publicity and because rapid economic growth meant all hands were needed to deal with the workload.
A worldwide economic slowdown, and internal frustration by younger employees hoping to be made partner led to a rethink, and Poynter’s manifesto which led to his election included the need to look at staffing levels.
‘The partner cuts were a positive thing and it has been well-received both inside and outside the firm. There is a sense it was about time we did that,’ he says.
This is wholeheartedly supported by those on the inside who point to big banking mergers where thousands of staff are shown the door within weeks of the deal being signed.
Sources claim the cuts were always on the cards, but the firm was hoping to use money raised through the sale of the consulting business to Hewlett Packard to fund the exodus. An insider says: ‘The HP deal was going to deliver a lot of funds to pay for a rationalisation and that was disappointed, but the need for change has not gone, and quite the reverse. This was long overdue because we have a lot of excess capacity.’
Certainly the capacity at partner level has been keenly felt for some time, but it is clear that cuts remain among partners, while the firm is still recruiting at the levels beneath. What employees now want to see is a clear direction, both for the consulting business and around the rest of the firm.
Poynter says no deal is currently on the table regarding the future of the highly-profitable consulting arm, nor has a firm decision been made between a sale or a float.
KPMG Consulting’s successful float in the US, albeit at a lower valuation than previously expected, remains a talking point but consultants around the industry have heard nothing that suggests a decision within PwC has been made. It is more than likely that the firm will follow KPMG and Accenture’s expected summer debut on the stock market.
As for the rest of the firm, the managing partner talks of developing more businesses that can be sold off for a profit in the future.
The firm, along with its competition, offers an incubator fund, which when combined with PwC’s skills, could help small companies to grow which could be spun off as stand alone businesses in time.
Whatever happens, Poynter says a transformation is inevitable. ‘We have businesses which we are not as well known for, such as our actuarial arm. We also have an associated legal practice and the wind of change seems to be allowing multi-disciplinary practices which could change that business. The businesses we are in will alter over time.’
THE GHOST OF MAXWELL
By the time Robert Maxwell died, he was head of an empire covering almost 30 countries and employing tens of thousands of staff, yet the DTI report which will be issued within weeks will paint him as a bully who used fear to cover up his dealings.
Coopers & Lybrand, Maxwell’s auditor, will once again come under fire for its role in the empire, even thought the firm has already been heavily censured by the Accountants’ Joint Disciplinary Scheme.
On 2 February 1999 C&L was fined #1.2m, censured and ordered to pay #2.1 million towards the costs. The firm admitted 35 complaints relating principally to its audits of three entities, London & Bishopsgate International Investment Management, First Tokyo Index Trust and Bishopsgate Investment Management.
The JDS described ‘serious shortcomings’ and ‘incompetent performance’ in its review, and several individuals were personally censured, including John Cowling, who was fined #11,050 and ordered to pay #75,000 towards costs. Coopers and Lybrand also paid #67.6m to Maxwell’s creditors including banks and other financial institutions.
The DTI report will also emphasise that few people, including external observers such as analysts and journalists, were willing to blow the whistle even though they knew something was wrong. Footnotes to the report emphasise that anxiety about being sacked led to reluctance to stick their heads above the parapet.
- Lucinda Kemeny is a business correspondent for the Sunday Times and a former Accountancy Age reporter.