For a firm born with a scarlet letter — “A” for Arthur Andersen — on its lapel, Huron Consulting should have been the very last to get into an ethically compromised accounting fix.
Huron was formed in 2002 when 25 Andersen partners left as the once-proud accountancy collapsed in the aftermath of its scandalously inept audits of Enron, WorldCom, Global Crossing and others.
Making the best of a disastrous turn of events, new Chief Executive Gary Holdren and his fellows turned to what they knew best: forensic accounting, executive compensation, strategic consulting and the like.
The idea was to build a mini-Andersen and to stay on top of such developments as Sarbanes-Oxley disclosure requirements and the rising use of e-mail records in litigation.
The Andersen expatriates should have been expert in both areas. After all, Sarbanes-Oxley arose in large part out of the ashes of the Enron/Andersen debacle, and wrongheaded e-mail messages figured prominently in an obstruction-of-justice conviction that doomed Andersen.
The Supreme Court eventually threw out the conviction, but by then Andersen was out of business. Its partners had fled to places such as KPMG, Deloitte LLP — and Huron.
The ironies keep rolling in now that Huron’s board of directors is restating more than three years of financial results and ousting Holdren and other executives.
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The adequacy of accounting is at the heart of Huron’s troubles. Yet Huron has fashioned itself as an expert on accounting standards, notably chiding finance giant Fannie Mae for “grossly inadequate” accounting systems.
Huron’s financial restatements will be central to the unfolding fracas. Yet Huron helped promote itself by delivering periodic estimates of losses experienced by shareholders due to earnings restatements. A 2006 study for the Government Accountability Office put the cost in the billions of dollars.
Now, Huron faces its own restatement costs, the most prominent likely damage inflicted on this once-promising firm.
One analyst, Daniel Leben of Robert Baird & Co., in a Monday research report cited “legitimate worries” about Huron’s ability to survive as a going concern. That dire language, though perhaps premature, is the same alarmist syntax analysts used after Andersen first faced its Enron troubles.
Huron did itself few favors, too, with its reactions to this growing scandal. The firm put out a statement last week that was so opaque that on Monday it needed to follow up with a statement in the form of questions and not-very-helpful answers.
One “answer” in particular raised more questions than the firm was prepared to address. “The employee payments were not ‘kickbacks’ to Huron management,” the company stated.
Kickbacks? Until then it had appeared the main concern revolved around executives at firms being bought by Huron who had benefited personally in ways that might not pass accounting muster.
No one had suggested Huron’s brass may have benefited somehow too. But now that Huron has mentioned it, we certainly will.
Until last week, Huron had earned attention as one of the fastest-growing U.S. companies. It seemed poised to cash in on some of the modern corporate maladies: runaway litigation, aggressive regulation, accounting ineptitude and so on.
Huron was, in fact, an attractive story of a local company that made the best of circumstances that were personally and professionally devastating to thousands of honest, intelligent and competent people.
Unfortunately, the feel-good aspect of the Huron saga is fading fast. This company has something else growing around it these days: A stench of scandal that the company has failed to fumigate.
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Damage control: Huron’s stock takes 69% hit; company says employee payments not ‘kickbacks.’ Page 18