After months of intense public scrutiny, and then an unprecedented criminal indictment by the U.S. government, Arthur Andersen, one of the world’s most respected accounting firms, went down hard. And, regardless of the fact that only a handful of Andersen’s professionals were involved in the infamous Enron scandal, the whole firm suffered, including the practice right here in the Carolinas. But through it all, the management team of Andersen’s Carolinas practice held fast to their goals, anticipated the worst and set up a “Plan B” — a plan they thought would never be necessary, and the one that ultimately saved their practice.Their goal was to find a way to keep the Andersen Carolinas practice – including offices in Charlotte, Greensboro, Raleigh, and Columbia, S.C. – together to maintain the high levels of integrity that had made them successful thus far. As of June 1, 2002, Chicago-based Grant Thornton, the seventh largest accounting firm, made an offer too good to refuse and acquired the practice almost in its entirety.
“Our hearts were with Arthur Andersen and we never believed that this would happen,” recalls Mike McGuire, CPA, former partner with Arthur Andersen’s Carolinas Practice, and current managing partner for Grant Thornton’s Carolinas Cluster, regarding the outcome of the Andersen trial and the subsequent consequences to the national firm. “It’s really unbelievable. I know a lot of the [Andersen] people who were involved [with Enron] and I know they have a lot higher integrity than what was portrayed. I think the firm was treated unfairly; it got to be such a political story. Everyone else involved took the Fifth [Amendment] except Arthur Andersen who tried to cooperate and do the right thing. And Andersen got hit hardest because nobody else was talking. I think a lot of things were taken out of context. I don’t think anyone ever thought it would play out this way.”
Regardless of McGuire’s opinion of what was happening, he knew they faced a potentially disastrous result. “As a partner group our a goal was to keep our people and our clients together, no matter what. We needed to plan for the worst case. We got a lot of inquiries from the other Big Five firms, but Grant Thornton offered us the most appropriate life boat.”
Grant Thornton made its foray into the Carolinas market earlier this year with the acquisition of Gleiberman Spears Shepherd & Menaker, P.A. of Charlotte. Tom Shepherd and his fellow partners at the Grant Thornton office quickly recognized the strength the Andersen group could instantly provide to their “start up” practice. “We knew that the professionals at Arthur Andersen were people of integrity, and they had a similar client focus and commitment to quality. It became apparent to us that they’d be looking for a new home. We wanted as many good people as we could get. Although we weren’t really looking for it, we were suddenly presented with a unique opportunity and we wanted to take advantage of it,” says Shepherd.
Grant Thornton LLP www.grantthornton.com has more than $1.7 billion in revenue worldwide, and caters to middle-market clients (defined loosely as companies with up to $1 billion in revenues). Unlike typical Arthur Andersen offices that focus primarily on Fortune 1000 companies, the Carolinas Practice had a broader base of clients, consisting mainly of middle-market companies. Andersen’s Carolinas practice was a perfect fit for Grant Thornton, which was looking for acquisition opportunities to support their growth strategy.
“With our acquisition of Gleiberman Spears Shepherd & Menaker in January, we entered the Carolinas market, and we immediately began looking to expand on our base here,” says Ed Nusbaum, CEO of Grant Thornton. “We saw this as the perfect opportunity to acquire some talented professionals to fit our practice and further the reach of our firm.”
He adds, “We were drawn to this growing region for its high concentration of middle-market, entrepreneurial organizations, technology-oriented companies, and mid-cap public entities. Grant Thornton's strategy includes a focus on professional excellence. Our offices have served middle-market clients extremely well over the years and we look forward to continuing to serve those existing clients in the future."
“I believe it is a strategic fit since there are a tremendous number of things we do similarly,” agrees Shepherd. “Both practices have a similar culture, we’re both client service and growth-oriented, and we’ve both worked on developing strong teams. There have been very few integration problems; we’re working through things as we go, finding the best solutions as issues arise.” Both firms service clients in similar industries including manufacturing, technology, financial services, non-profit, construction, real estate, and health care.
With the acquisition, approximately 231 Arthur Andersen employees in the Carolinas — including 24 Andersen partners— have joined Grant Thornton. In the Charlotte office, the firm will be represented by 16 partners and 154 total employees.
The Perfect Storm
Starting last fall when Arthur Andersen first became implicated with Enron Corporation for the destruction of documents related to the audit of the company, the entire firm found itself drowning in a sea of bad publicity and public skepticism. Andersen employees around the country became vulnerable, and many partners and professionals began jumping ship while others lost jobs as individual practices began to dissolve. But something unique happened in the Carolinas — partners hung together and employees stood by in support.
In Charlotte, Sandie Wyllie, executive assistant to Mike McGuire, took action. “The employees in our Carolinas offices knew we were totally innocent of what was going on, but we were vulnerable to the situation and we were wondering what to do. We relied on the partners for guidance,” she explained. “Since the partners were holding ‘town hall’ meetings regularly with us to encourage us and to keep us informed, we knew they were fighting to save our jobs.”
In response, Wyllie circulated a petition within the offices that employees signed in support of the partners. “We wanted them to know that we were going to stick with them, to continue to serve our clients, and we weren’t going to leave them high and dry. We’re all about our clients here, and the partners needed to know that we weren’t going to abandon them, that they could depend on us.” According to Wyllie, nearly 95 percent of employees in all four offices signed the petition that was read out loud to the partners at a “town hall” session in April.
“There really wasn’t a dry eye in the house when the employees read that petition,” recalls McGuire. “They believed in the partner group and it was because we’ve always had a very close team. We were honest with our employees even when we didn’t think it [the firm] was going to survive. We had such an incredible focus as a group that we practically willed this solution to happen. During the whole ordeal, we had what I refer to as a ‘honey comb effect,’ in which different partners and managers kept specific groups of people encouraged and focused — linked together with a common goal. In 20 years with the firm, I’ve never seen people so focused and together, the efforts were monumental.”
Job offers to new recruits were honored, even those who were offered positions up to two years ago. At many Andersen offices, says McGuire, recruits’ job offers were rescinded at the last minute, leaving many ambitious, qualified candidates looking elsewhere for positions. Also, all of Andersen’s community commitments in the Carolina markets have been honored by Grant Thornton.
To Greg Ross, an audit manager with the firm, it was not surprising that the Andersen partners thought far enough ahead to formulate an effective survival plan. “I was never in doubt that things would work out,” says Ross, who had worked with Andersen for four years. “The partners were constantly demonstrating great enthusiasm and had a ‘stick together’ attitude. We would talk about how we needed to educate the Carolinas and how our reputation shouldn’t be tarnished by what was happening, and that really created a loyalty as a team.”
Ross adds, “We may have another name on the door now, but the people that served our clients so effectively in the Carolinas are still here. I’ve never been more proud of the people with whom I work than right now. The firm [Arthur Andersen] was great, but it’s the people that make the firm.”
“Everyone was looking for some good news,” says McGuire. “I mean, we were in the perfect storm and then we were on dry land again and that made everyone’s spirits soar. Our challenge now is to keep moving this highly-spirited team forward; keep the energy level high.”
The Carolinas Grant Thornton Practice
Most Arthur Andersen clients are responding favorably to the Grant Thornton transition, moving with Andersen partners to the new firm, insists McGuire. Because, he says, clients are loyal to the people who have served them well. According to McGuire, the group has lost less than 10 percent of their client base, and they are already engaging new clients as Grant Thornton. “We are in a people business and our clients have remained loyal to the people they’ve worked with over time,” he explains. “Along with our employees, we continually kept our clients educated and informed. There’s been a lot of honest and open communication.”
Grant Thornton is clearly not concerned about the Andersen name being a negative, as the Carolinas deal is only one in a flurry of activity. “The Carolinas acquisition was the first in a series of acquisitions of Andersen offices around the country,” explains Nusbaum. “When we became aware of the outstanding people in these offices and the great clients they served, Grant Thornton was very anxious to acquire offices or personnel that focused primarily on the middle-market.”
In addition to the Carolinas, Grant Thornton has completed transactions to acquire the entire offices in Orlando, Albuquerque, Tulsa, Tampa, and Vienna, Va., plus the middle-market practices in Cleveland, New York, Milwaukee, Chicago, Houston, San Francisco, Boston, and Cincinnati. “We have also hired partners and personnel in a variety of other cities. To date, we have acquired approximately 60 partners and 450 employees throughout the country, but the biggest single group is in the Carolinas,” Nusbaum adds.
“Personally, I don’t feel that taking on the former Arthur Andersen people tarnishes our reputation because I know the quality of people we’re taking on board, and anyone who knows these people would feel that way,” asserts Shepherd. “Everyone is excited about the prospect of moving forward and creating their own practice as Grant Thornton. “What happens from now on we’ll have created ourselves. We are basically a start up, but a whopping start up,” says McGuire. “I think our 10-year anniversary will be extremely exciting.” Although a similar entrepreneurial environment, former Andersen partners find Grant Thornton’s management hierarchy to be much flatter than Andersen’s, giving individual practices the flexibility to serve the specific needs of their marketplaces.
“Arthur Andersen was managed more centrally,” explains McGuire. “It had multiple management levels. But here, I am one of a handful of managing partners who report directly to our CEO, Ed Nusbaum. And he makes himself very accessible to all of us, which I think will be a great benefit.”
Currently, the Carolina’s Cluster is the fourth largest Grant Thornton practice in the United States. “They have great expectations of our business,” says McGuire.
“Grant Thornton's Carolinas practice is already one of the largest accounting firms in the Carolinas, and clearly the largest focused on the middle-market. The practice has always been profitable, and we expect that will continue. The potential marketplace of middle-market entities in the Carolinas is huge, and we anticipate that Grant Thornton will gain many new clients, allowing us to grow and prosper into the foreseeable future,” says Nusbaum.
According to McGuire, the “good news, bad news” scenario they face couldn’t be better as they work to build the Grant Thornton brand across the Carolinas. “The bad news is that people here really aren’t familiar with Grant Thornton, and the good news is that people here really aren’t familiar with Grant Thornton,” he says. “We have the chance to build our brand and let people know that we’re the premier global accounting firm focused on serving middle-market companies.” Key services, says McGuire, will focus on assurance, tax and business advisory services including mergers and acquisitions, due diligence, personal financial planning, and litigation support. McGuire predicts an aggressive expansion including a significant growth in the number of people and new clients over the next year.
“Our biggest challenge is getting name recognition throughout the Carolinas communities. We’re going to be networking and talking with a lot of people in the coming months,” says Shepherd. “We know what is important to middle-market companies. Grant Thornton sits down with company owners and executives at an annual Business Owners Council meeting to learn about critically important issues and how we can better assist our clients.”