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Putting out fires in Florida

By SCOTT BARANCIK, Times Staff Writer
© St. Petersburg Times
published March 20, 2002

A year ago, it must have seemed like such a cushy and coveted post: managing partner of Arthur Andersen's Florida and Caribbean operations.

But now, few envy Mike Blount's position.

The 45-year-old veteran accountant is racing to reassure clients and employees that the once-mighty firm will survive its battle with federal regulators and courts. It's an increasingly difficult task given its role as the ex-auditors of now-bankrupt Enron Corp. Several Florida companies have fired Andersen. Others say they're seeking bids from competing firms.

In an interview with the St. Petersburg Times, Blount talked about Andersen's federal indictment, the Florida state pension fund's Enron losses and employee morale. Here are excerpts from the interview:

* * *

Q: Events seem to change by the minute. How hard has it been to keep your clients and employees calm?

Blount: It's been challenging. We started with Enron going bankrupt, and then the document destruction was announced, and then we come along and we start talking about a global settlement on Enron. Then we hired (former Federal Reserve Board chairman) Paul Volcker to come in and reform the audit practices, and immediately people began talking about splitting up accounting and consulting.

The last thing we expected was this indictment from the Department of Justice. Hah! That one just hit us between the eyes completely, unexpectedly. I guess we underestimated just how angry they must be with us.

By the time you feel like you've prevailed with your clients and you can see in their eyes that they've regained confidence, something else comes out.

* * *

Q: Crisis management is not standard accountant fare. How much training have you had?

Blount: Baptism by fire is probably a good phrase. I haven't had any formal training in crisis management or public relations.

* * *

Q: It's not something where a cheerful pep talk is enough.

Blount: We're trying to be realistic with our employees. Going back to that first round of talks, much of that was rallying talk. But I don't want to lose credibility. We're stronger together than we are separately, that's really my rallying message now. The other message that I make clear to them is that I feel their pain.

* * *

Q: What exactly was Andersen's role in the Enron scandal?

Blount: We may have played some part in it, we don't know yet. I don't mean a conspiracy kind of part. We already know we made some judgment errors, but judgment errors hardly constitute a reason for an indictment of our people on a felony charge. Folks are very upset about some other things that happened, like the fact that Andersen was not allowed to testify before a grand jury.

* * *

Q: I assume you get talking points from Andersen's headquarters?

Blount: Oh, yeah, we get talking points every day, a lot of guidance on what to say. But I'm not wound up (like a talking doll). That's just not me.

* * *

Q: Are you facing any defections of partners or other employees in Florida?

Blount: So far, no, outside of your normal attrition. But I can't tell you how long it'll be that way.

* * *

Q: Are competitors trying to pick the bones?

Blount: Our people are getting calls from headhunters all the time. We've got a lot of good people, and I think whether it's in a continuing Andersen firm or another firm, they'll all land on their feet.

* * *

Q: A small, private company in South Florida fired Andersen last week. Any other losses in Florida?

Blount: Yes. We've lost a couple more and we've had three or four tell us that they're going to go out for bid. It's difficult for a public company's board, with their fiduciary responsibility. They have to look at the indictment and say, "Is it in our best interest to use Andersen?"

* * *

Q: Are any of them public companies?

Blount: Yes, one that I know of. Artesyn (Technologies Inc. of Boca Raton) is taking bids.

* * *

Q: What about government agencies?

Blount: I heard that Martin County's considering pulling out next year, and that doesn't surprise me either.

Q: Say a publicly traded client is under pressure from its shareholders to change auditors. What do you say?

Blount: (Long pause.) Up to now, that hasn't been a very hard message to deliver. You know, "You've always relied on your local team, they're not going to be distracted." But that may not be enough of a message any more. The only thing we've really added to that message today is, "We're working on our U.S. strategy. Just hang with us for two or three weeks, and we'll do our best to work our way through this."

* * *

Q: Federal prosecutors are apparently upset because they believe Andersen didn't make any significant changes after its experience with Waste Management. Did the company learn any lessons?

Blount: Our audit methodology is something that's been tested through the peer review process. Tests are done by competitors; Deloitte & Touche does ours. It just so happens that this year that was done, and we've got a clean report with no modifications. We're always looking for ways to improve.

* * *

Q: What lessons did you draw from the Sunbeam case?

Blount: Perhaps in that situation it would have been appropriate for us to be focused on what was going on in the CEO's office.

* * *

Q: So Andersen needed to be more selective about its clients?

Blount: Yes. I would also tell you that it's an incredibly exhaustive process which has evolved over the last five years.

* * *

Q: There are occasions when the Florida branch has turned down potential clients?

Blount: Yes. And there've been occasions where we went back and reassessed an existing relationship.

* * *

Q: There are people in your profession who've raised questions about the conflict between consulting and auditing, about the pressure to come up with off-the-books partnerships and all. Has the pure discipline of accounting been compromised?

Blount: Not only does the audit business need to be looked at and reforms need to be brought to that business, but the accounting rules themselves and the rulemaking process need a lot of work. The rules need to get out faster. And it's too much of a negotiated process. By the end of the day, it's watered down. Like the rule on special-purpose entities.

* * *

Q: What's Andersen's document destruction policy?

Blount: You maintain all of the final documentation that supports the audit opinion, and get rid of any extraneous material, such as draft memos. The second rule is that if you're subpoenaed, we're supposed to cease all document destruction at that point in time. The third one is if you think you're going to be subpoenaed or sued, then you stop. And that's the gray area.

* * *

Q: The State Board of Accountancy is undertaking an investigation of Andersen. How seriously do you take that as a threat to your state license?

Blount: There is not much activity in that particular investigation at the moment, but we take it extremely seriously. No state has ever pulled the license of a firm to practice.

* * *

Q: The Florida employee pension fund got pretty badly burned on Enron stock. Do you feel that might bring this closer to home to politicians and citizens?

Blount: It could. (But) a great deal of the stock was bought and sold when it was very clear that the company's market capital was declining. And the money manager, Alliance Capital, has a board seat (at Enron).

* * *

Q: How would you feel about dividing up consulting, or divesting the consulting part of the business?

Blount: The places where we have large consulting assignments typically don't also have us do their audit and tax work, so it really hasn't been that much of an issue. It's not for lack of trying.

* * *

Q: What do you think would be more appropriate treatment of this issue by federal regulators?

Blount: If there was an indictment to be handed out, it ought to be handed out to the individuals who were wrong. Almost nobody in the firm had anything to do with this. Was it really a rogue office, or was it more of a firm thing or upper management thing? So far, the Department of Justice hasn't been able to produce anything that supports the chain of command theory.

* * *

Q: How long can the Florida office go without having to resort to layoffs?

Blount: Well, we've always staffed based on our strategic needs and, you know, if we need to reduce workers, we'll do that.

* * *

Q: But no layoffs yet.

Blount: No layoffs yet.

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