Talent is the centerpiece of succession planning

For most businesses, the key to long-term success isn’t just the product – it’s the people. Products and services come and go, technology advances and inevitably, new competitors appear.

But in any industry, a business will persist only as long as it is led by people who understand its culture and have the experience and talent it takes to lead from day one – especially if they’re called to a position of leadership in a moment of crisis.

Problem is, many companies defer succession planning or sidestep the conversation altogether. A recent study by Stanford University found that 39 percent of companies had no internal candidates in line to become CEO at a moment’s notice. The failure to identify a path ahead for new leaders can significantly jeopardize a company’s future.

It can also signal a lack of an overall talent strategy.

At Deloitte, we try to look at every team member as a potential leader. Early in their careers, we may, for certain individuals, try to build in temporary “stretch” assignments to give our people the opportunity to learn new strengths and test their abilities in new situations.

Depending on their roles, we may provide our people with experiences through new departments, industries, locations and networks, so they gain fresh perspectives on our business, and maybe help us see what we’re doing in new ways.

The value of sponsors
Companies of all sizes can do a number of other things to plan for succession. Within our organization, we sometimes match employees to sponsors, which we view as more than mentorship. Mentors are terrific ways to get and give advice. But sponsors do more than that.

They are tasked with putting their names, influence and experience to work for high-potential staff, if they are deserving of that kind of support. In a study published by Harvard Business School, employees with sponsors got more stretch assignments, promotions and pay raises than workers who didn’t have the benefit of such relationships.

And while some of our best potential leaders may not stay with us forever, we maintain our relationship with them if they leave. In fact, we’ve built an active alumni network so that former colleagues can enjoy ongoing professional development and a natural way to connect. This network is a resource for former Deloitte professionals who may want to explore the possibility of returning to the organization.

And remember that succession planning is not just about who works in the C-suite. It’s about your entire talent strategy. This happens to mean a lot to millennials, our youngest and largest generation in the workforce. By 2025, they’ll comprise three in four global workers.

What’s more, millennials on average stay on the job less than a third of the time as that of their baby boomer counterparts. So if they’re not given chances to shine, millennials are certain to jump to other opportunities.

Treating every employee like they could rise to the C-suite is a good way to meet everyone’s needs. You’ll deepen your bench, discover high potential leaders and give your youngest team members a strong reason to help your business grow. Because in every business, the best succession plan is one which is already in place.

Byron O. Spruell is Vice Chairman and Chicago Managing Principal at Deloitte.

Why you need to find ways to engage existing leaders in your training efforts

Companies face an urgent need to develop leaders at all levels — from bringing younger leaders on board faster to keeping senior leaders relevant and engaged longer. In a Deloitte survey of CEOs and HR leaders, 85 percent rated leadership development as “urgent” or “important.” But, only 14 percent said their companies do an excellent job developing leaders.

Bridging that gap requires organizations to commit to building the leadership pipeline at every level. They need to identify potential leaders earlier and provide them with impactful development opportunities, as well as offer senior executives ongoing training to keep their leadership skills fresh.

Easier said than done?

True, but speaking from experience, the way to develop the kind of leaders organizations need for tomorrow is to make leadership development personal. That means having senior leaders committed to mentor and work closely with the people who could be the organization’s future leaders.

Early in my career, I had the opportunity to serve on a council with senior leaders. One day a senior partner said, “Byron, you’re doing a great job, but you’re not taking full advantage of your access to senior leadership. You need to reach out to these people and have conversations so they can get to know you.”

He handed me a list of five people and told me to talk to them about what I had accomplished and what I wanted to achieve. Fast forward to today: I wouldn’t be where I am as a leader without the relationships and opportunities that came from that leader and others taking a personal interest in me and my career journey.

Providing personalized leadership development often requires a culture of opportunity established by the CEO and flowing down to other levels. That means a commitment to putting potential leaders in positions that stretch their skills, and continuous support from senior executives.

I see three keys to helping make personal leadership development part of an organization’s culture:

 

Provide diverse paths to leadership

Think about your business. You’re likely facing various challenges, calling for different perspectives, approaches and types of leadership: entrepreneurial leaders who can start a new venture; scale leaders to build the business up; efficiency leaders to reduce costs and improve operations; and fix-it leaders to turn businesses around.

 

Listen before coaching

Developing leaders requires understanding employees as individuals, learning their strengths and areas for development and knowing what is important to them and their career. Through close listening, you’ll be able to tailor your insights, coaching and development program to their needs.

 

Stretch potential leaders’ capabilities

Supporting a new market or product, working with a major client or customer and spearheading a new initiative can stretch potential leaders’ abilities. It can put them in a position to apply what they learn from mentors and create catalytic experiences for their future.

Leadership development is about making a personal and sustained commitment to matching skills with opportunities and providing an environment in which leaders learn from failures as well as successes.

Deloitte sued for $7.6 billion, accused of missing fraud

NEW YORK ― Deloitte Touche Tohmatsu Ltd., the world’s largest accounting and consulting firm, was accused on Monday of failing to detect fraud during its audits of one of the biggest private mortgage firms to collapse during the U.S. housing crash.

A trust overseeing the bankruptcy of Taylor, Bean & Whitaker Mortgage Corp, or TBW, and one of the company’s subsidiaries filed complaints in a Miami Circuit Court claiming a combined $7.6 billion in losses.

Deloitte “certified TBW as a solvent, viable company with accurate financial statements every year from 2001 to 2008,” one of the complaints said.

“Despite Deloitte’s credentials and expertise as one of the ‘Big 4’ accounting firms, those statements — and the rosy picture they depicted of TBW — were completely false,” it said.

Deloitte spokesman Jonathan Gandal said the “claims are utterly without merit.”

It was the latest lawsuit to hit one of the major accounting firms over their role in the credit crisis.

Pricewaterhouse Coopers, KPMG and Ernst & Young are also facing accusations about their auditing standards by investors who collectively seek to recoup billions of dollars lost in the financial meltdown.

Lee Farkas, the former chairman of Taylor, Bean and Whitaker, was sentenced to 30 years in prison in April for masterminding what U.S. officials described as one of the biggest bank frauds ever.

U.S. Justice Department officials said Farkas ran a $2.9 billion fraud scheme that led to TBW’s downfall and the collapse of one of the largest U.S. regional banks, Colonial Bank.

The complaint filed by Neil F. Luria, a plan trustee of Taylor, Bean & Whitaker Trust, claims losses of approximately $6 billion. A second complaint by Ocala Funding, a wholly owned TBW subsidiary which served as a lending facility, claims losses of $1.6 billion.

Farkas was accused of running a wide-ranging scheme to cover up large losses at Taylor, Bean, which was based in Ocala, Fla., by moving funds between accounts at Colonial Bank and also by selling mortgage loans that either did not exist, were worthless or had already been sold.

“Deloitte missed this fraud because it simply accepted management’s conflicting, incomplete and often last-minute explanations of highly-questionable transactions, even though those explanations made no sense and were flatly contradicted by the documents in Deloitte’s possession,” the complaint by Ocala Funding said.

“Ocala relied on Deloitte to detect material misstatements in the financial statements due to error or fraud,” the complaint said.

Gandal said the plaintiffs in the cases were “companies through which convicted felon Lee Farkas and his co-conspirators committed their crimes.”

“The bizarre notion that his engines of theft are entitled to complain of injury from their own crimes and to sue the outside auditors they lied to defies common sense, not to mention the law,” he said in a statement.

Several other Taylor, Bean and Colonial Bank employees who pleaded guilty for their roles in the fraud were also sentenced earlier this year.

In close race for No 1, accounting firms Deloitte, PwC grow apace

NEW YORK ― Forget struggling economies, aggressive regulators, penny-pinching business clients.

The world’s two largest accounting and consulting firms are bulking up with acquisitions and combing the globe for new hires.

Head-to-head in a race for the title of world’s largest private professional services firm, Deloitte and PwC are on a major expansion drive.

With audit revenues leveling off in developed markets, the firms have been making a push in growing countries such as China and India and plowing ahead with investments in consulting, where business is growing after a recessionary slump.

More is at stake than bragging rights. Just as important is cementing their status as professional service supermarkets, able to help clients in almost any market where commerce transpires.

“The more they position themselves as a truly trusted one-stop solution provider to clients, the more they can hope to be more immune to fee pressures from clients that might increase if the economy worsened,” said Ashley Newton, associate director at Kennedy Consulting Research and Advisory.

Last year, a 15 percent jump in the consulting area helped Deloitte overtake PwC as No. 1 in total revenues among the big four global accounting and consulting firms, which also include KPMG and Ernst & Young.

Deloitte claimed the lead by a margin of just $9 million, reporting $26.578 billion revenues to PwC’s $26.569 billion. Prior to 2010, PwC had been the largest for at least five years, according to data from Accounting News Report.

One factor behind the win was Deloitte’s decision to hold on to its consulting arm about a decade ago while other audit firms shed theirs amid concerns of conflict of interest.

The decision helped Deloitte keep its grip on the high-potential area of information technology, a business with good growth prospects even in a dodgy economy. Consulting got a further boost from Deloitte acquisitions such as the government business of BearingPoint in 2009.

Although regulators in the United States and elsewhere have tightened restrictions on the consulting services auditors can provide, consulting has not been prohibited outright, and both Deloitte and PwC have focused their consulting work largely on companies that are not audit clients.

Powerful brand names and close ties with C-suite executives, built partly through audit relationships, have helped make all of the big four formidable competitors in consulting, according to Gartner Research.

“What the audit work does is allow them to create competence in an industry,” building credibility that is a big plus in pulling in consulting work, said Gartner analyst Alex Soejarto.

The move into consulting has been going on for some time, partly because it is far more profitable than mandatory audit work, said Arvind Hickman, editor of International Accounting Bulletin.

“Audit is labor-intensive and has suffered a lot from fee pressure due to the global financial crisis.”

PwC, which sold its consulting arm to IBM in 2002, has been rebuilding its consulting muscle with acquisitions such as Paragon Consulting Group and the commercial services business of BearingPoint in 2009.

Over the past 12 months, it picked up 700 consultants with its purchase of management consulting firm PRTM and hundreds more through its acquisition of Diamond Management & Technology Consultants. Recently it announced it was building its edge in the so-called sustainability or responsible resource use area, by taking on “green” business consultant Andrew Winston as an adviser.

Still the worldwide leader in audit revenues, it also has targeted emerging markets such as India, China and the Middle East to rev up growth.

Deloitte has bought a slew of consulting firms, including energy consultants Altos Management Partners and AJM Petroleum Consultants; performance management advisory firm Jackson Browne; economic consultancy Access Economics and business analytics firm Oco. It also beefed up in the sustainability area, picking up Clear Carbon Consulting and DOMANI Sustainability Consulting.

Full-service clout has helped the firms compete against a range of firms, from management giants such as McKinsey to technology consultants such as IBM Corp. and Accenture.

Both Deloitte and PwC have been hiring nonstop.

PwC said its member firms across the globe hired about 45,000 new staff in the 2011 fiscal year ended in June. Deloitte will not announce its hires until it releases fiscal 2011 revenue figures, but said it was on track with a projection announced last year of 50,000 hires a year globally over the coming five years.

The big four are expected to report their fiscal 2011 revenues in coming weeks and any significant growth will likely once again be in the consulting area, said Jonathan Hamilton, managing editor of Accounting News Report.

“The audit business, while certainly the staple of all these firms, is a slow-growth business,” Hamilton added.

The firms’ growth raises challenges, however, such as assuring quality as their empires expand.

“They are really individual firms that are badged together, but they don’t have a tight centralized control,” said Shan Nair, chief executive of Nair & Co, which advises companies on international expansion and works with the big four firms.

Expansion in China, a key market, has already brought headaches in the audit area. The Chinese arms of both Deloitte and PwC have had to drop clients because of concerns about their accounting and Deloitte’s Shanghai office has been subpoenaed for records by U.S. regulators.

More worries loom from stepped-up regulatory scrutiny. As consulting revenues grow, complaints are surfacing again that firms will be tempted to go easy on audit clients for the sake of winning or keeping a consulting job — a charge the audit firms deny.

Last week, European Union lawmakers approved a report that calls for barring auditors from providing audit and non-audit services to the same client. The report is nonbinding but could shape a draft law in the works.

PwC and Deloitte both said there was no conflict of interest in the consulting services they provide. Much of their consulting is done for companies they do not audit and they follow regulators’ standards and companies’ own restrictions on the kind of consulting they do for audit clients.

PwC also said it follows a code of ethics set by the International Ethics Standards Board for Accountants to assure its independence.

Also to the firms’ advantage, much of their consulting work — such as helping companies cut costs and become more efficient — should be in demand even if the economy slows, analysts said.

“All-in-all, I’d say they’re generally taking a pretty prudent approach to expansion, even if it is aggressive,” said Newton at Kennedy Consulting Research.

Jim Moffatt elected chairman and chief executive officer of Deloitte Consulting

NEW YORK ― Deloitte Consulting LLP has elected Jim Moffatt as its new chairman and chief executive officer. Moffatt succeeds Punit Renjen, chairman-elect of the board, Deloitte LLP.

Moffatt is currently national managing director for the Deloitte Consulting clients and industries group as well as a member of the Deloitte Consulting Executive Committee; Deloitte Consulting Board of Directors; and Deloitte LLP Board of Directors.

“Jim is an excellent choice to build Deloitte Consulting’s market leadership,” said Joseph Echevarria, chief executive officer-elect, Deloitte LLP. “During his 23 years with Deloitte, Jim has served clients with distinction, and demonstrated his ability to drive the Deloitte Consulting strategy and seize market advantage.

“We are committed to setting the highest standards of professionalism and quality in audited financial statements; and we are committed to leading in the advisory services marketplace, working closely with clients to help them stay out ahead of change and seize new business opportunities. Jim is the right person to move that commitment forward for Deloitte Consulting.”

Deeply engaged in the marketplace, Moffatt serves as the advisory partner at two leading health care organizations and is regularly involved with numerous high-profile and highly complex engagements. He has direct experience with the broad range of Deloitte Consulting’s projects, including large IT transformations, small advisory projects, and global engagements.

“Our talent and our culture lie at the very core of who we are. I am honored and privileged to serve such a remarkable practice of dedicated professionals, who in turn serve clients with distinction every day,” Moffatt said.

“I am very excited about our opportunity to set new standards in Deloitte Consulting. We will continue investing in our people as current and future leaders in the marketplace.  And, we will continue finding break-through ways to create tangible and measurable impact for our clients,” Moffatt added.

Forging the link between serving clients and attaining market leadership, Moffatt established the “Client Excellence” program, a community for the leaders of Deloitte Consulting’s 100-plus largest accounts, while also strengthening collaboration among Deloitte’s industry, function and geographic practices.

“Jim is committed to developing our people and delivering value to our communities,” Echevarria said.  Moffatt is an active mentor and coach, and was also instrumental in transforming Deloitte’s pro bono community involvement program from supporting ad-hoc projects to creating a strategic program that has received national acclaim ― including White House recognition for making a significant difference in our communities through skills-based volunteering.