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'We always had on eye on them'

BS Corporate Bureau

The consolidation of Andersen's practice in India with Ernst & Young means nearly 40 Andersen country practices have entered the latter's fold.

Savio G Pinto and V Phani Kumar spoke to Paul J Ostling, global executive partner, Ernst & Young, on the issues involved in the consolidation of business on such a vast scale.

Ernst and Young has taken over Andersen's practice in almost forty countries now. Can you give us the rationale behind this?

From the outset it was very clear that Andersen had to go somewhere. It became a competitive issue among the other four global accounting majors as to who would achieve the gains of its people, their clients and their scale of operations.

From an E&Y perspective, it made no sense to stand back and let someone else achieve all that growth in people and clients since that would have made us smaller relatively.

But beyond that seemingly simple and logical rationale is the fact that we at E&Y have always respected Andersen for how they treat their people and clients. They are global thinkers and they are known for being incredibly market based . So we always had an eye on them.

So were you eyeing a merger with Andersen even before prior to the recent spate of events?

There has always been a concern among regulators especially the ones in Europe about whether to permit such a combination in the absence of any business value.

So that has always been a natural inhibitor in the profession against people trying to do such combinations. Its less of a concern today because Andersen is not going to be there, its got to go somewhere.

How different is the arrangement with Andersen in India from those that you have struck with them in other countries?

The arrangement is quite similar to that which we have done world over though the regulatory requirements in different countries determine the kind of entity that you can be in different service lines. For example in some countries it is not permissible for a limited liability company to be an audit company. So since structures are different in different parts of the world all the deals are somewhat different although broadly it is still the same.

Which was the first country where E&Y merged its operations with Andersen?

Russia and New Zealand were the first countries where this sort of arrangement was worked out. Then came Poland and the others.

What has been the initial feedback and the reaction to the merged operations in these countries?

Well this is like a marriage. The first few weeks are great. But then there will always be issues which have to be tackled as things progress.

It would be foolish to believe that everything is perfect. However the initial feeling and the general reaction is one of delight. That has been one of the reasons to go in for this, it creates great excitement within the organisation. Andersen had a choice in each of these forty countries and they chose to go with us.

What sort of a set up have you created to oversee the integration of Andersen employees with E&Y?

We have a team made up of people from both sides which is responsible for this process. We have a core team at the global level consisting of around 15 people which provides support to the regional teams in different countries which take care of issues at the local level. We have also created an intranet website which uses our internal knowledge bases to populate an integration site available to all our people.

What would be the global accretion to E&Y due to the arrangement with Andersen?

In India the accretion would be around 800 people but globally a rough estimate would be something in the region of around 20,000.

How does this consolidation with Andersen change the industry dynamics?

We believe that this will move us up to number two globally and would put us just behind PwC but ahead of KPMG.

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