Diversification Powers PricewaterhouseCoopers

The story of how PricewaterhouseCoopers, one of the world’s largest accounting firms, set up shop in Arkansas, where it now counts Dillard’s Inc. and Tyson Foods Inc. among its auditing clients, actually begins with the supernova that was Enron.

In the fallout from that giant’s final days, its auditor and document-shredding accomplice, Arthur Andersen of Chicago, began looking like a dead firm walking. And Alltel, an Arthur Andersen client, saw the writing on the courthouse wall and began soliciting bids for its next audit firm.

That was 2002, and Pierre-Alain Sur was a telecom specialist at the pwc office in Dallas, just one of the firm’s 163,000 people in 151 countries. He had moved to Dallas after starting with the firm in France, where he grew up with a healthy fascination with America.

“My father always says I was born in France by mistake,” Sur said.

He knew of Dallas because of the eponymous television show in the ‘80s, and when he moved to the PwC office there on an 18-month rotation, he brought along the American flag he’d hung on his bedroom wall as a boy.

Eighteen months turned into 36, then to 48, and eventually Sur had to admit he was a full-timer in Texas. When Alltel tapped PwC as the successor to Arthur Andersen, Sur, a telecom specialist, was part of the original team of about eight who opened the Little Rock office.

“Our model is to be where our clients are,” Sur said. “So because of that, when we get appointed by clients of that size, we like to have a primary team connected and local.”

PwC backed up that notion last summer, when it decided to open a Northwest Arkansas office due to its new relationship with Tyson. That move was sparked by Tyson’s decision to replace Ernst & Young as its auditor.

A firm such as PricewaterhouseCoopers runs three main lines of business: audits, tax work and advisory work (consulting, mostly). Its multinational network allows it to import talent as needed for advisory jobs, but it still relies on moving people for the long term, especially for auditing. Associates drill down into different areas within a company – operations, legal, compliance – and steep themselves in the industry.

“We sell one asset: Our people. Our people’s knowledge. That’s our asset,” said Tom Leonard, a partner in the Little Rock office. “To audit a company, you have to know the business. And you’re not going to know the business just by speaking with only one group in the organization, i.e., the accountants.”

And for that reason, people move. Leonard, for one, was feeling fine in Philadelphia when the firm summoned him and his telecom expertise to pair with Sur in Little Rock in 2002.

“Coming from the Northeast and having spent most of my life and career in the Northeast corridor, being asked to move to Little Rock – I want to make sure I choose my words carefully: It was a relocation I had never considered,” Leonard said.

But the area snared him. He met the woman who would eventually become his wife, moved away from Little Rock, and after a couple of years returned. Now he would see a reassignment to another city as “disappointing.”

Sur just feels fortunate to be in a place he considers naturally beautiful and which requires no explanation to his countrymen.

“I’m lucky,” he said. “I’m always moving into cities that have a certain brand. Little Rock, interestingly enough, carries a certain brand in Europe for one reason: the 42nd president.”

 

A Dream Assignment

Working for Alltel was, to hear Sur and Leonard describe it, a dream assignment. The company was growing, their contacts were actively undertaking transactions, and all the while, the accountants’ office was expanding, more than doubling to 20 people at its zenith.

Then, in early 2007, Alltel began openly assessing its strategic plans, and the Little Rock PricewaterhouseCoopers team decided to begin looking at its other options. By the time venture capitalists scooped up the wireless provider for $27.5 billion later that year, PwC’s Little Rock crew was seeking to diversify.

By the time Verizon Wireless bought Alltel, the firm had sufficiently hunkered. Staff was trimmed, but only by moving employees to the Dallas and New Orleans offices. Sur declined to elaborate on the private companies his office is now serving, but the public companies are a matter of public record, and they’re none too shabby.

Regulatory limits on Verizon’s market share required that company to break off parts of its operations. One resulting telecom company, Atlantic Tele-Network, based in Salem, Mass., has the Little Rock PricewaterhouseCoopers office completing audits on some 2009 transactions. That’s in addition to also serving Windstream Communications, the Little Rock broadband company that resulted when Alltel spun off its landline business, and Dillard’s Inc., the Little Rock department store chain, which signed PwC in the spring of 2009 and for whom an account manager with retail expertise was relocated from the PwC office in Birmingham, Ala.

“Now that that Alltel chapter is closing, it’s interesting to see how diverse the practice has become from where it started,” Sur said.

He credits that diversification to making an impression over years with people throughout Alltel.

The advantages of a business community such as that in Little Rock are commensurate with its limitations: It may be small, but that also means everyone knows everyone else.

“The reality is, when an organization gets bought, the people in it go somewhere,” Sur said. “Our business, like a lot of businesses, is about relationships. It’s about human beings interacting with each other. So those people go somewhere, and those relationships continue in one form or another. And that’s what sort of keeps generating the process. It’s easier if you have that big anchor to start. It’s a lot easier, because it provides you with the platform. But once you start the engine, it’s actually very sustainable. And we do intend to be here for a long time.”

Accounting relationships can be durable. The Sarbanes-Oxley Act of 2002, which sought to address the root of accounting scandals at Enron, Tyco International, etc., dictates that the signing partner at an auditor cannot remain the same on a public company’s account for longer than five years – the better to safeguard the auditor’s independence, or appearance thereof. But the auditing firm may remain in the employ of a company indefinitely, so long as it swaps out its personnel.

It was “creative” accounting (a euphemism for borderline or full-blown fraud, in some cases) that helped precipitate some of those spectacular meltdowns. The nature of the business, though, when done well, is far less dynamic.

That raises the question, too, of just how an accounting firm can best pursue new business in a given market.

 

‘Establishing Yourself’

Martin Fiscus, the managing partner of the newly opened PricewaterhouseCoopers office just off Interstate 540 in Springdale, believes in the long – and somewhat staid – approach.

“Our profession is really not a flashy profession,” Fiscus said. “You make progress by working effectively with your clients and doing a good job for them and establishing yourself as a reliable and responsive firm. That’s really what we’re going to try to do in Northwest Arkansas, is do a great job for Tyson and go from there.”

The 10-person Springdale office was assembled from PricewaterhouseCoopers offices in Kansas City, Mo., St. Louis and Tulsa, where Fiscus has worked for 22 of his 27 years with the firm, and where he now represents the lone straggler to make the full move, having stuck out the end of the school year for the sake of his son, a graduating high school senior.

The firm’s presence in Northwest Arkansas isn’t unprecedented; it had worked previously for Hudson Foods of Rogers – predating PricewaterhouseCoopers’ work with Alltel, even – and has had a long association with Southwestern Energy Co., which was headquartered in Fayetteville before moving to Houston.

But last summer, when Tyson tapped PwC as its new auditor the stage was set to open a local office, with an aim to take care of Tyson first and, as the Little Rock office eventually did, branch out from that signature account.

In that regard, the Northwest Arkansas PwC operation will have a leg up: It already begins with a client roster of a half-dozen or so local companies.

“Practicing in Northwest Arkansas is not new to us,” Fiscus said. “What’s new is opening an office here, and obviously the new relationship with Tyson is the impetus for doing that.”

Leonard said, “Our ultimate goal through building those relationships is, if companies are considering changing accountants, or looking to a professional services firm to help them with a need, that we’re first on their speed dial.”