[Ed. Note: The following is reprinted with permission from Re:Balance, a blog published by Attorney Jim Peterson. Jim’s views on the Big Four accounting firms seem to be very much in line with ours. Enjoy!]
Tired Old Boys’ Clubs — A Lesson on How the Eras End
by Jim Peterson, Esq.Can a long-vibrant institution be kept alive – however steeped in tradition and a long history of value to society – when it falls into terminal decay? Should it be?
My recent travel for the graduations of two young friends, to a city dominated by its colleges and universities, meant a scramble for lodging – eventually solved by scrounging a comfortable but well-worn guest room in an old alumni club.
Regular readers familiar with my concern (see here, here and here) for the survivability of the Big Four’s franchise to deliver audit services to the world’s large companies – an invention of the Victorian era and basically unevolved since – will recognize some lessons in the death spiral of this 19th century landmark, now fallen to seedy and tattered gentility:
What happens to a resource — once grand, respected and important — but now clearly of faded glory and on its last legs?
Designed and purpose-built as a private club by architects of world renown, this institution stood proud witness to the Gilded Age, populated by men of stature and significance:
- Tons of marble, forests of hardwoods and acres of oriental carpet were assembled into brahmin luxury – sadly now dulled, dusty and threadbare testimony to by-gone times.
- Among the eccentric anachronisms in the entrance foyer are carved wooden indian busts, towering grandfather clocks, and the battered bronze gate on the ancient elevator that could have been installed by Otis himself.
- Aside from a bare-bones website, “information technology” consists of reservations hand-written on a stack of file cards.
- The limited “scope of services” reflects unchanged priorities – an unused billiards table in the bar and a tuneless grand piano in the parlor, instead of the demands of today’s young professionals for an exercise room, a swimming pool, and a media center complete with juice bar.
During my stay I had a choice of empty rooms in which to establish a virtual working office. The club has so little cachet that it does not even attract members to post-lunch naps in the deep leather chairs of its reading room.
On a daily basis, dining and meeting venues are ghostly, echoing with the footsteps of a diminished skeleton staff. Friendly as they are, the kitchen is closed on weekends, there is no newspaper delivery, and party leftovers go uncleared until the arrival of the Monday crew.
The club survives not on the custom of its elderly and steadily diminishing membership, but on outsourced catering for wedding receptions and other rituals, for strangers whose ethnic names and lands of distant origin would have meant instant blackballs had their grandfathers been so foolish as to apply for membership.
The club’s contentious struggle over the admission of women came to a formal end decades ago – grudgingly, as shown by their then-required use of the side entrance rather than the front door. Even today, the true degree of gender balance is revealed in its governance: the only board committee listing more than one woman member is Decor.
On the financial side, the members have burdened themselves with a multi-million dollar mortgage on their historic clubhouse – a deadly strangulation of debt that cannot trace to the prosperity of its founding generation. This looming threat to solvency most likely arose from the unavoidable costs of essential if long-deferred maintenance, building code compliance, and the rapidly escalating property taxes in its pricey neighborhood.
As for the future, when the denial finally ends and the doors close on the club’s unsustainable model? Institutional memory will dissipate. The handful of users will disperse to modern alternatives with only a brief spasm of nostalgia. The archives and artifacts will be auctioned off for trivia.
Sale of the building will generate a one-time windfall to be fought over with the passion of the depleted. It will be paid in by an investor looking to a newly-designed future – a twenty-something new-media billionaire or the sovereign fund of an oil sheik – who will overcome furious if futile neighborhood opposition and install an amenity-laden boutique hotel.
The parallels of this poor failing club to the exhausted state of the Big Four audit franchise are many and clear: limited service offerings unchanged since the 19th century, an obsolete organizational and operating model ill-suited to current competitive demands, and inflexible financial fragility exposed to fatal external shocks.
With the students in my graduate-level course in Risk Management, I would assign this exercise in extended metaphor as overnight homework. In the academic spirit of the graduation ceremonies that underlay my traveler’s experience, I invite readers here to do that for yourselves.
– See more at: http://www.jamesrpeterson.com/home/2013/05/tired-old-boys-clubs-lesson-on-how-the-eras-end.html#sthash.iRM65hp9.dpuf
The above post was printed with permission of the author, James Peterson. According to Jim’s bio he a lawyer, legal instructor and well published writer. We appreciate his willingness to allow us to reprint his story. A link to his website appears at the beginning of the story. His contact information appears on his site, as well as other useful and interesting articles.
The lawyers at Mahany & Ertl represent businesses and individuals with claims against auditors and accountants (accounting malpractice lawyers). We also pursue false claims act cases for individual whistleblowers on behalf of the government. If you have original source information about a bad audit that caused the government to lose money, we would love to talk to you. Frequent examples include failed banks and mortgage companies that resulted in losses to Fannie Mae, Freddie Mac, the FDIC or HUD. For information on what we do, contact attorney Brian Mahany at or by telephone at (414) 704-6731.