Survival of the fittest

Friday, 01 August 2008 00:00

Can an organisation that`s older than 100 years really be in danger of collapsing? One hesitates to think this way, but BearingPoint is in exactly such a position.
Originally known as KPMG Consulting, with its origins as Peat Marwick in 1897, BearingPoint is a global management and technology consulting company known for its extensive industry experience and high customer satisfaction rating. BearingPoint collaborates with clients in government and industry across 60 countries to solve their most pressing challenges from strategy through to execution. It boasts more than 16 000 employees that provide consulting, applications services, technology solutions and managed services to government organisations, global 2 000 companies and medium-sized businesses around the world. Its service offerings are designed to help customers generate revenue, increase cost-effectiveness, manage regulatory compliance, integrate information and move to next-generation technology.

Its more than 2 100 client list is a who`s who of business and government, and includes all 15 US federal cabinet-level departments, the top ten global technology hardware manufacturers, the top ten global banks, the top ten global drug and biotech companies, and many more government agencies and global corporations.

At the time of writing, BearingPoint`s market capitalisation had fallen to $181 million, with a share price trading at just 85 US cents, a fall of nearly 50 percent over the last few weeks and well down from the Q206 levels of above $9. This is an incredible situation when one considers that in 2007 its revenues were nearly $3.5 billion.

The trouble seems to have started in November 2004 when BearingPoint announced it had made an accounting error where $92.9 million was mistakenly treated as acc-ounts receivable rather than unbilled revenue. While this was only a balance sheet item that had no effect on the company`s cash position or its income statement, it showed a weakness in the company`s financial controls, which was unacceptable for a consultancy giant.

Further humiliation for the company came in March 2005 when BearingPoint missed its deadline with the Securities & Exchange Commission (SEC) to file its annual financial report. Furthermore, its internal financial controls regarding Sarbanes-Oxley compliance had not been effective, down in part to its botched implementation of a new financial IT system. In the subsequent management shake-out, ex-Oracle executive Harry You was recruited with the objective of straightening out the company`s financial reporting.

Two-and-a-half years later, when You left, the financial statements were up to date, but were not compliant with the Sarbanes-Oxley regulations. In addition, the SEC filing for Q108 claimed that material weaknesses in internal control over financial reporting had not been remedied - a tale of woe that should have been corrected over this period of time. Also, this reporting period manifested substantial losses for the organisation that have still not been stemmed, and its market value dropped by more than $1 billion.

The latest company CFO, who joined BearingPoint in May, has resigned after less than a month for reasons that have not been made public; and so the saga continues.

In the current financially uncertain marketplace, BearingPoint has a massive challenge ahead if it`s to extricate itself from a very shaky situation, which is already hampering its ability to win new deals. This is especially true since much of its work comprises high-level consulting. In the current restricted climate, it`s even more difficult since it`s these types of services that are being targeted for elimination by corporates.

The next few weeks will be critical as the company struggles to survive. It`s an unusual situation, but we`re currently living in difficult times, which makes anything possible.

Tags: Columns  The Speculator