Field has a vision to enhance the firm's position as the crown jewel of the industry through a transformation to maximize its value to its clients and to drive earnings for the firm. In this exclusive interview, Field talks about the most important business issues facing his clients and what the firm is doing to help them, including his own personal thoughts on the independence rules issue.
Q. What are the most important business issues facing clients these days?
A. Today's fast-paced, technology-driven business environment is filled with challenges which our clients need to adapt to and seize upon as opportunities to be leaders and to provide innovative and comprehensive solutions in an increasingly competitive e-business environment. To maintain their competitive advantage, our clients must constantly look for ways to improve existing products, to create innovative products, and to expand their marketing and distribution channels. It is imperative that our clients have immediate access to the technology, information, and skilled personnel necessary to quickly and efficiently draw upon all of their resources. In addition, it is increasingly important that our clients set clear business objectives and strategically develop the infrastructure, communication network, support mechanisms, and processes needed to meet their objectives. Our clients are also faced with the challenge of proactively addressing employee demands and retention issues while simultaneously getting the maximum productivity out of their organization. Finally, our clients are finding that it is increasingly important to their business environment to foster stronger customer relations in an electronic and digital-driven economy. They are having to react instantaneously to customer demands and competitive conditions.
Q. What is your firm doing to help them?
A. We take a very personal approach to our professional relationship with our clients. We often times help to set and define their goals by cutting through the clutter and buzzwords of the day to keep the client's visions crisp and compelling. One of our greatest strengths is our ability to integrate and help improve business processes, software applications, and technology to deliver business solutions that help lead our clients' organizations into the future. Through WaveBend Solutions, we assist our clients with the creation and implementation of effective and cutting-edge information technology. We develop accounting and management techniques to help our clients track their performance and financial positions.
We also work to help our clients to meet and minimize their working capital requirements and to assist them in improving day -to-day operational performance and we help them to come up with creative methods to motivate and retain their employees, including restructuring salary and benefits packages with an emphasis on stock options, where appropriate. Furthermore, we draw upon our industry expertise management to analyze the competitive standing of our clients in their respective industries and to help them build their strengths and address their weaknesses. Finally, we utilize our connections in the financial community to help our clients gain access to funding sources and strategic partners.
Q. You mention several growth areas for the firm, technology, tax, and cooperate finance. How fast are they growing?
A. The firm's revenue curve has accelerated in a dramatic fashion, hitting double digits in each of the last three years. This growth, expected to exceed 25% for the year ending June 30, 2000, has been fueled by our innovative distribution channels and specifically in three of our business sectors: technology, tax consulting, and specialized services.
The technology practice, including its e-business component, had a revenue increase of 51% in the most recent calendar year. Staffing in the unit went from 125 to 230 and continues to be on an impressive growth and profitability track. The first phase of our strategy in this practice area--start up and internal financing--is now complete. Phase two has just begun with the establishment of a separate entity, called WaveBend Solutions to help us take this practice to the next level.
Our tax consulting, the premier component of BDO Seidman, is a powerhouse practice. During the last three years, we have added 15 highly specialized tax professionals as well as implementing a focusing strategy calls for the full time dedication of our top tax talent in areas we see as the key value generators. This group of tax professionals, currently consisting of 42 CPAs and lawyers, focuses on high value tax consulting in mergers and acquisitions, international, multi-state, compensation, and increasing/maintaining shareholder value. This practice area's growth and profitability continues to lead the firm's metamorphosis into a financial services business.
BDO's specialized services practice includes corporate finance, insolvency, financial recovery, litigation support, health care, and real estate. Over the last three years, this area of our practice has grown approximately 30% annually and has been a solid source of profits. We have aggressive plans to accelerate the growth performance of these units through the addition of people, acquisitions of practices and alliances/joint ventures.
Q. Do you use different business models for your different business units? For example, to compete with investment bankers, do you run the business like an investment banker or do you run it like a CPA firm?
A. We are developing and deploying a very different business model for the entire firm. We see our future and ourselves as being, in addition to a tax and consulting firm, a distribution company. Although we will continue to aggressively build our internal BDO tax and consulting practice, we have set our sights on being the dominant distributor of financial products and services (both BDO and non-BDO) in the middle market. This is a different model and way of thinking, but I am convinced it is the way of the future. We are already functioning as a distribution channel for other firms' products and services and have established numerous alternative distribution channels for our own products and services. This is the way we believe our industry should, and will, be consolidated.
As to using separate business models for different practices, we do use different approaches. Our technology practice is a good example of this. It is now a separate entity with its own corporate structure, business strategy, compensation plans, facilities, etc. It is run very different from other units. Tax consulting and corporate finance also have distinct aspects, mostly in the areas of compensation. In these and our other high value/high profit areas, we pay the performers who make it happen a lot. It is the only way to retain and encourage them to take you to even higher levels. By employing incentive-based compensation models, commonly used in the financial services industry, BDO Seidman has the greatest percentage of high-income partners of any public accounting firm.
Q. How would you personally like to see the independence rules changed, if at all?
A. During the last 12 months there has been an increasingly aggressive series of communications coming from the SEC regarding real or perceived violations of the auditor independence rules. We take no quarrel with the real violations that have occurred and were as shocked by such violations as anyone when the announcements were made. However, we question whether the extension of those problems to the rest of the auditing profession is appropriate in the circumstances.
As was acknowledged by the chairman of the SEC in a recent speech, there was a breakdown in internal controls that apparently caused problems at one of the large firms. BDO's own internal testing and procedures have identified no such problems and we understand that other firms have encountered similar results. Therefore, we question the need for the sweeping changes that are being proposed by those within the Washington DC Beltway.
We do not, however, question the need for changes in the independence rules themselves, The existing ones are too complex and too convoluted to continue to work in today's society. When auditors have to spend more time analyzing their mutual fund investments to determine whether there may have been an independence violation caused by investment decisions that are completely out of the auditors' control than auditing their clients, then there is something wrong with the rules.
We strongly support the efforts of the Independence Standards Board to challenge the existing rules in today's environment and to make the changes that may be necessary for today and for the future. We also support the ISB's approach to researching the issues to determine what should or should not be an independence issue before attempting to blindly draft new rules.
