Services Safari

KPMG Out $80 Million

                             Xerox and KPMG Settle

KPMG LLP, a co-defendant with Xerox and certain executives,  agreed to pay $80 million (USD) to litigants of a class action suit. This is an old case that dates back to 2000 but is just now being settled. To read more on this, see:

http://www.webcpa.com/article.cfm?articleid=27255 for a quick recap on the story

http://securities.stanford.edu/news-archive/2005/20050815_Dismissal100819_Writer.html for a quick summation of a 2005 order involving this case. It's worthwhile as it describes the original complaint in some detail

http://www.gilardi.com/pdf/xerx1preord.pdf for the court document

http://www.businesswire.com/portal/site/home/email/headlines/?ndmViewId=news_view&newsLang=en&div=-436697347&newsId=20080425005003  for press release about the settlement

http://www.gilardi.com/xeroxsettlement/ for the settlement firm page

Good News for Smart Students - Caution to Employers

                          The Offshore Workforce - Latest News

Wachovia Capital Markets, LLC, produces a greatly weekly report on the service sector titled: "Wachovia's Weekly IT/BPO Service Monitor". Last Friday's report had this nugget on page 4:

"US Senators Durbin (D) and Grassley (R) sent letters on April 1st to the top 25 recipients of approved H-1B visa petitions in 2007 requesting detailed information on their use of visas (up to five years). The letters were sent to determine if the visas are being used for their intended purpose - to fill a worker shortage for a temporary time period. The 25 firms accounted for almost 20,000 of the 65,000 annual H-1B visas available. The timing of the letters coincides with the deadline for filing H-1B visa applications for the federal government’s FY09 (Sept.).

The letter was sent to the following companies: Infosys Technologies Ltd., Wipro Limited, Satyam Computer Services Ltd., Cognizant Tech Solutions, Microsoft Corporation, Tata Consultancy Services Ltd., Patni Computer Systems Inc., US Technology Resources LLC, I-Flex Solutions Inc., Intel Corporation, Accenture LLP, Cisco Systems Inc., Ernst & Young LLP, Larsen & Toubro Infotech Ltd., Deloitte & Touche LLP, Google Inc., Mphasis Corporation, University of Illinois at Chicago, American Unit Inc., Jsmn International Inc., Objectwin Technology Inc., Deloitte Consulting, Prince Georges County Public Schools, JPMorgan Chase and Co., and Motorola Inc."

When politicians send out information gathering letters, you can bet there's a tacit and a sub rosa context behind these. The tacit purpose behind these letters may be to identify how the H-1B program is working in practice. The unmentioned purpose may be to collect information that points to either a need for change, a call for reform or a means to whip public frenzy into a firestorm to the political advantage of someone other than the letter recipient. I would caution those receiving these letters to word their responses carefully and tread cautiously. Also, these firms should realize that if even one careless firm admits to a politically explosive practice, even a naive or innocent one, they could effectively tar the reputations of other firms also responding to this letter. Again, I'd be very careful with this one.

On a different note, the Department of Homeland Security has changed the rules for the number of months (now 17) a person with a student visa (F-1) and scarce skills can remain in the US while seeking employment. Please see this DHS announcement for full details: http://www.dhs.gov/xnews/releases/pr_1207334008610.shtm

Why Auditing Should Be Continuous...

                        Lehman Gets Burned for $400 Million

Here's more evidence that:

• crooks can best most controls companies put in place to catch fraud
• Wall Street's woes aren't over
• Auditing needs to be more automated and continuous

In an article in the New York Post (see: http://www.nypost.com/seven/03302008/business/400m_con_job_104125.htm), the Wall Street firm Lehman Bros. got taken in to the tune of $400 million. Did auditors catch it? No. Did SarbOx controls do their job? No. Hmmmmmm

EDS - Overtime Dispute

                                Money Will Settle This

Last month, six former/current EDS employees filed a class-action lawsuit seeking overtime pay (see: http://www.examiner.com/a-1224633~EDS_technical_service_workers_sue_for_overtime_pay.html ). This type of suit occurs frequently and hinges on whether or not specific workers were correctly or incorrectly identified as 'exempt' under Fair Labor Standards Act (FSLA) regulations.

Not surprisingly, specialized websites have sprung up to identify other potential claimants/plaintiffs (see: http://www.edsovertime.com/ ). CRN, Computer Reseller News, has also covered this story.

FSLA suits are usually solved with money. Some goes to the litigants and some goes to lawyers. If found in violation of FSLA regulations, the offending employer makes adjustments to their payroll system going forward, recalculates owed back pay and makes restitution.

Is this a BIG story? Probably not. It's interesting and very solvable. It's only scandalous if long-term patterns of deceit/fraud are uncovered. If it's a legitimate difference of opinion in interpreting regulations, fraud is much harder to prove. Without fraud, the fines will likely be scant. 

Name Your H-1B Legislation

       When Congress Gets Creative - The Selling of H-1B Legislation

Two new bills are being introduced in Congress to raise the cap on the number of H-1B visas. One would double the number initially and eventually triple the number of visas granted annually. The other takes the limit up to 195,000 in 2009.

Take the H-1B Legislation Naming Game!!!

Can you guess which legislation names are legit and which aren't?

1. The Innovation Employment Act
2. SUSTAIN - Strengthening U.S. Technology and Innovation Now
3. Replacement Work Force
4. Full Employment Act for Outsourcing and Global Competitiveness
5. The North American Job Security and Economic Stimulus Act
6. American Workers are Lazy, Uneducated and Ignorant of Technical Disciplines

The correct answers are the first two although numbers 4 & 5 could also work. The congress persons leading these efforts should be applauded for the creative names they've chosen. You'll notice that the bills are named around innovation as any name that would imply loss of jobs to offshore workers would be death to their political careers.

If you'd like to learn more about these bills (e.g., exactly who is sponsoring them and where they are from), please read: http://www.eweek.com/c/a/Careers/Bills-Would-Double-and-Triple-H1B-Cap/ .

   

Calling all Lawyers... The Bear Stearns Collapse

                        Another Enron on the Way?

Today's announcement that Bear Stearns will be acquired by JP Morgan/Chase is stunning on many levels. The most stunning aspect, though, may be the token price paid for the company: $2/share or $236 million.

That price is shocking simply because the company's stock closed at $30/share less than 72 hours earlier. That means shareholders have seen the market value of the company fall from a tad over $4 billion Friday to fifteen times less by Sunday.

Shareholder litigants are going to be talking about this one tonight and tomorrow. Let's recap the fall of Bear Stearns stock price and market value the last year:

• Stock price last year: $159/share - market cap: $18.76 billion
• Stock price last week: $69.75/share - market cap: $8.23 billion
• Stock price Friday: $30/share - market cap: $4.04 billion
• Acquisition price Sunday: $2/share - market cap: $236 million

When companies fail this spectacularly, management usually is culpable for a big piece of the precipitous stock drop. Enron immediately comes to mind.

The Bear Stearns situation is tied to the sub-prime situation and, like Enron and its special purpose entities, the role of Bear and its executives in this market problem will need to be examined further.

Lawyers, forensic accountants, forensic IT people and more will doubtlessly benefit from this failure but the losers will be Bear Stearns management and employees, the US Government, taxpayers and others. Corporate America could also be a big loser if this fiasco triggers another wave of governance legislation like the way Sarbanes-Oxley was spawned out of the Enron collapse at the beginning of this decade.

Are criminal indictments in the future?

(for more info, see: http://edition.cnn.com/2008/BUSINESS/03/16/stearns.morgan/?iref=mpstoryview )

Should Service Workers Form Competitive Barriers?

                        Three Stories That Will Make You Think

Forbes is a magazine I read regularly although its flattering stories about CEOs and their corporate jets are too sacchrine for my tastes sometimes. This week, it's got three stories you should definitely read. (see www.forbes.com , 2/25/2008)

#1 - Child Labor - by Megha Bahree - This article is exceptional. It steps readers through the supply chains of major firms and how their products were created, harvested, etc. by children or other underpaid persons in India and elsewhere. Large seed/agri-business firms are particularly scrutinized in the piece. This is worth a read as it will make you realize how little of what you are paying for a product is actually making it to the person(s) creating the product. You'll rethink your opinion of how contract manufacturing should really work.

#2 - The New Unions - by Susan Hoppough - This piece examines how groups of workers are pressuring state governments to create licensing and other barriers to competition in service firms. The economic cost to consumers is considerable and the usefulness of these groups is in question. If you are a service executive, you've got to read this.

#3 - The Next Zapper - by Victoria Barret - This is the shortest piece of the three but focused on an interesting aspect involving the Microsoft - Yahoo acquisition attempt that's currently in play. It asks the question "Microsoft's bid for Yahoo is founded on the notion that people see Web ads. But what if they no longer do?". I've wondered that myself as I studiously avoid Google listings on the right side of the results page and I don't use the paid placements at the very top either. If you're speculating on this merger, read this piece.

cross posted to www.softwaresafari.typepad.com

What You Need to Know in 2007

Fast Facts and Stats

 

Every week, I get approximately 20 to 30 magazines and a book or two.  As I quickly read through them, I tear out relevant articles that may or may not serve as fodder for blogs. 

Here are some of the quick headlines and data points that you may find interesting:

• "Accenture: Customers’ Favorite for FAO" – “Finance and Accounting (F&A) has been the most attractive function of the BPO sector in 2007.  And, Accenture was the leader in this area in September 2007.  Microsoft and BT Group both selected Accenture to provide F&A services." Source: www.globalservicesmedia.com - November 2007
• “Outsourcing will be a major issue (in the coming presidential elections in the USA)" - This is a short interview with Arvind Panagariya author of India: The Emerging Giant. The author separates the issues re: unskilled illegal immigrants versus skilled high-tech workers.  Additionally, the article discusses issues such as near-shoring, the opinions of the Democratic party of the United States, and others in this piece. Source: www.globalservicesmedia.com - November 2007
• “Don't Be a Chump” – Bart Perkins writes in Computerworld magazine how CIOs can avoid becoming CHUMPs (CIO Hired for Undoable Management and Planning). Interesting little piece that too many CIOs probably identify with. Source: www.computerworld.com – November 19, 2007
• “The Making of a UPS Driver" - This is an astounding (and must read) article that dives into the difficulties companies have today with the Generation Y workers.  Take this excerpt: “Much derided as a group of upstart technophiles of little work ethic and even less loyalty, Gen Yers aren't exactly a perfect fit for Big Brown.  In fact, it's hard to imagine a worse match.... But if there's one group that isn’t down to being engineered, its Generation Y, people who can't even be bothered to use punctuation, let alone memorize anything.” Source: www.fortune.com – November 12, 2007
• “Not So Flat After All” - This is a book excerpt from Redefining Global Strategy by Pankaj Ghemawat. The excerpt is interesting in that it pokes holes in the concept of a single, generic, homogeneous global marketplace.  While there have been great strides in permitting free trade, global commerce, etc. there are also significant localization, governmental and other factors which are keeping our business world from being totally ubiquitous.  If you like quoting from Thomas Friedman's The World is Flat, you may want to study this text as well. Source: www.cioinsight.com)
• “Legal Services in India to Grow to $640 Million by 2010" -- This article indicates that the legal processing outsourcing industry will grow some $564 million over the next three years.  This represents significant growth in this outsourcing each. Source: www.globalservicesmedia.com - August 2007 -   For more challenges to the legal profession, see www.tractis.com , a web platform for creating legally binding contracts on the web.
• “Captive Carve Outs” - this article looks at the history of a number of captive BPO or shared service arrangements companies have owned and then subsequently sold all or part of.  There is big money involved in these deals. Source: www.globalservicesmedia.com - October 2007
• “Overbroad Confidentiality Agreements Can Spell Doom” - This article ought to get every consultants attention.  It discusses how commonplace language in confidentiality agreements with employees may come back to hurt one's firm.  Consultants, by the nature of their work, are often asked to sign these agreements with both their employers and with their clients. Source: Washington Technology – 5/28/2007
• “The Transformation” – “Comprehensive outsourcing requires the remaining HR staff to gain a new set of skills.  Those who can't make the transition often find themselves out of a job." - if this is an interesting cover story it discusses not only changes in the HR marketplace but provides an solid sidebar stories and data on BPO in HR BPO directions. Source: Human Resource Executive – March 16, 2007
• “Is Strategic Alignment Still a Priority?" - Brian Watson takes on a controversial topic in this piece. It’s followed by another interesting article titled “Catalyst for Corporate Change” (“CIOs don't typically lead corporate transformation, but they are well positioned to help guide organizational change, reengineering champion Michael Hammer says."). Both articles are good and Hammer’s is particularly interesting.  Source: www.cioinsight.com

The End of Independent Advice & Counsel

   "We Sell Solutions - We Don't Provide Independent Advice and Counsel"

In the mid-1990s, a senior partner uttered those words to me. It sent a shiver down my spine and actually was a precipitating factor in my decision to leave the Big 4/5/8 world of consulting a couple of years later.

When a consultancy offers solutions, it has made its bed with a handful of technology or other vendors that will provide some portion of the service/product combination that will be sold to clients. When a consultant is truly independent and objective, they are solution independent and will help clients select the best solution for the client (not for the integrator).

Once the transition to solutions has been initiated, consultants find themselves:

• selling what they want to push and not what the client really needs or wants
• sometimes pushing inappropriate or out-dated solutions onto clients
• worrying about how they'll keep their solution partners happy and not how to keep the client happy
• trying to achieve specific marketing targets that enable continued favor, discounts, co-marketing monies, etc. from the solution partner
• representing their solution partner's interests and not their client's interests
• very concerned as to how they'll keep all of their trained product specialists chargeable even if their skills are not needed as much in the marketplace due to the partner's product losing some market appeal

I've seen some really bad 'decisions' foisted on clients but what really takes the cake are the justifications 'consultants' use to fool themselves into thinking that they're doing the right thing for the client. For example:

• "Because we have 3,000 trained XYZ implementers, we can better insure a successful implementation for the client!" What a load this justification is. First of all, if a client hired you to help them select software, you shouldn't steer them to any solution except the one that solves their business problems the best. The client has hired the 'consultant' to help select software not to select and install software. The difference here is significant and shame on any 'consultant' who promises selection objectivity and still intends to steer the implementation work to themselves.
• "Our interests and the client interests are both optimized". This is another one for the hubris hall of shame. Here is an integrator/'consultant' who really thinks that his/her continued chargeability is good for the client. I don't think so. If the client could use a different solution and still be successful, then the alignment of client and consultant interests is moot. It's also irrelevant.
• "With our relationship with the vendor, we can use our buying power to help the client achieve better savings." Those words sound good but most Fortune 500/Global 3000 firms can actually negotiate a better deal without the help of the integrator. Why? Those firms can use the threat of a competitive purchase to drive deeper discounts - integrators can't do this.
• "We have a strategic relationship with the vendor and can use this to get faster bug resolution and influence product direction for the client". No - Vendors only care about the customers to come and not the one's they already have. Also, why would a vendor care about an integrator when it's the user that pays maintenance? Integrators just don't matter that much in this situation.

Clients should do the following if they want to avoid problems with integrators:

• Do not ever let these people call themselves consultants. If they're consultants, then only give them the selection - not the implementation. That's the acid test. If it's the big fee they want, they'll go for the implementation. Consultants should, by definition, not care or be personally or economically vested in the solution choice. If they're not objective, they're not consultants.
• Never award the implementation to the firm assisting in the selection. The selection should be completed by consultants. The implementation by integrators. If the two groups cross, you've got an expensive conflict of interest on your hands that could result in a poor decision.
• Make the integrators fully disclose their relationship with any solution component vendors. Did you see the story in the April 30, 2007 Information Week (The Ticker)? "Federal prosecutors last week charged Accenture, Hewlett-Packard, and Sun Microsystems with operating illegal kickback schemes over the last ten years that have inflated charges in government contracts." Regardless of how these lawsuits play out, be advised that firms often created special joint marketing funds based on the amount and profitability of deal flow driven by an integrator to a technology vendor. Full disclosure, with significant economic penalties for misrepresentation, must be part of any deal with an implementor.
• Don't expect a local project manager/partner to know about the true nature of the implementor's economic relationship with the vendor. Demand that you speak directly with the individual/executive who has overall, global responsibility for the relationship. Only that person and someone in the implementor's legal group may have the full picture.

Audit Problems Continue

HIH Audit Fallout: What Can Professional Service Providers Learn?

Restriction & Compensation Suit Against 180 Former Partners

I was traveling the last couple of weeks throughout Australia and saw a piece by Elisabeth Sexton in the May 16, 2007 Sydney Morning Herald ("Andersen Partner to Restrict Audit Activity").

The bulk of story concerned former Arthur Andersen audit partner Jonathan Pye and an investigation conducted by the Australian Securities and Investments Commission (ASIC). While ASIC found that Mr. Pye's "signing of the FAI (a wholly owned subsidiary of HIH) accounts was 'neither dishonest, nor a result of bad faith, nor reckless'", it did want his next five engagements supervised (on his own nickle).

At the bottom of the story was a paragraph that read:

"In a separate matter involving the HIH audit, liquidator Tony McGrath is understood to be close to settling a large compensation suit against 180 former partners of Arthur Andersen".

Apparently, that settlement proposal is before the New South Wales Supreme Court.

Audit problems have been thorny and expensive issues for CPA firms. My heart goes out to those auditors who are fooled by executives who have very carefully hidden fraud in their own firms and have caused shareholders to sue the deeper pocket audit firms for damages. Audits can only test a sample of transactions and whether they hit upon a fraudulent event is a matter of probability, luck and good guesses as to where fraud may occur.

Auditors are also sued when they:

• take positions re: accounting entries that are inconsistent with current guidelines
• make accounting errors
• intentionally overlook specious accounting methods/practices/standards
• participate in a management fraud.

I have little sympathy for those who knowingly err, are sloppy or are just crooked. They should be sued and run out of the profession.

Whenever the most egregious behaviors occur, it usually pre-dates a sublimation of business and professional standards to those of personal needs/wants. When audit partner compensation is based on the sale of other services, retention of the audit business, or the assumption of greater risks for shareholders, then the audit partner is clearly putting personal interests before those of the client's shareholders. That is just wrong.

My next post will concern the independence issue in more detail. But, stories like the one in Australia are periodically necessary to remind all professional service providers that client needs must come before personal needs. Professional service delivery requires one to remain current on business matters and to deliver an exceptionally high quality solution/service. Anything else is just not professional. If you feel you have a job and not a profession, you shouldn't be in professional services. The stakes are too high for you and your client's shareholders to not take this seriously.