Edward Lorenz was a mathematician and meteorologist who is credited with articulating the “butterfly effect”. In the context of Chaos Theory, he said that by flapping its wings, a butterfly in, say Borneo, can set in motion a chain of events that can cause a tornado in Texas. A similar, unseen flutter sent tremors through the consulting world in the closing years of 2001.
Enron, a US based energy company -- that also had a small footprint in Dabhol, India -- was indicted on accounting fraud along with its auditor, Arthur Anderson, who were also delivering other, non-audit, consulting services to the company. The resultant upheaval led to the Sarbanes Oxley Act that in effect debarred audit companies from offering non-audit services to the same client. This was a big blow to all consulting companies and especially so to the so-called Big 4 of which PwC was one. All these companies had a strong technology business based that, though rooted in original audit relationships, was far bigger and more profitable than the audit business. In essence, all large consulting firms were to separate their audit and non-audit businesses and in effect break up into two separate companies.
PwC in India had a very unique corporate structure in line with Indian laws and global practices. There were multiple audit companies, led by partners who were all chartered accountants. Then there was another consulting outfit, a private limited company, led by executive directors who were not not chartered accountants. However the pool of partners and executive directors were all collectively referred to as partners of the PwC as all of them had a financial stake in the enterprise. The profits ( and losses, which were never there) were shared among this entire pool in ratios that were calculated based on the seniority in the “partnership” and certain result based parameters. Clients were delivered services from the company that had the required competence and payments were pooled into a “common” kitty that was expertly and honestly managed by some of the finest brains in the accounting profession. Net-net It was one big happy family — a Camelot, where King Arthur and his knights ruled with justice and integrity..
The collapse of Enron in distant Houston, was the butterfly that flapped its wings and caused a tornado in the PwC India Camelot.
Even though PwC India had no equity participation from PwC US or any other entity impacted by the Sarbanes Oxley Act, it was still a member of the PwC global network, as were all other member firms in every country. Since PwC US was the dominant partner in this network, all other firms had to do what PwC US was doing; break up the auditing and consulting arms from each other. In India, this was like a breakup of a joint family and since the days of the Mahabharat, this has never been a very cordial or pleasant exercise. Just as the lure of the Holy Grail led to the breakup of the Round Table, so did the lure of picking up the spoils from this rupture led to the break up of all cordiality in the PwC family.
All across the world, elaborate plans had to be made for the separation of assets and people, and these were presented in, what else but, Powerpoint slides. In all these slides, the audit function and its assets was shown on the Left Hand Side (LHS) and the to-be-broken-away consulting function was shown on the Right Hand Side (RHS). This became the standard nomenclature while discussing the separation event.
In India, the RHS partners were led by Anjan Mukerji, Sharat Bansal, Amitabh Ray and consisted of D Ashok, Susheela Venkatmaraman, Ravi Trivedy, Shovon Mukherjee, Arvind Mahajan, Anjan Majumdar, Suman Mazumdar, Ramesh Srinivas and me. There was a thirteenth person whose name I will not mention here for reasons that will become clear later on.
The LHS partners were led by two industry stalwarts, but strangely enough included four consulting partners, including the consulting leader and three of his ultra loyal followers. These four should logically have been in the RHS, but they moved across to the LHS because the LHS had covert plans of restarting the highly profitable consulting businesses with this coterie.
Globally, there was a plan to create a genuine MNC listed in the US Stock Exchange that would acquire all the RHS assets, all across the world and all RHS partners were required to join this company. But they would not be partners any more but employees. However, they would be given a stake in the new firm in the form of stock options and restricted stock units, or equivalent instruments in compliance with local laws. The LHS partners would have to sell their equity entitlement in the new firm for cash raised through an IPO. This would mean that PwC India -- or rather its different constituents -- would continue as a pure audit firm as a partnership of the LHS partners as per Indian Law, while the consulting business from which the LHS partners would cashed out, would move -- with its assets, people, partners and clients -- into a global MNC headquartered in the US and operating under US company law.
For us on the RHS side, this seemed like a fair deal but the LHS partnership had other other ideas. Since the LHS partners were senior in rank and were dealing with the US partners, they floated the idea that (a) the RHS partners were not happy with this arrangement and that (b) the preferred alternative was to form a private limited company registered, not in the US, but in India. Once again the LHS India partners would be compensated in cash while the RHS India partners would only be given shares in the new India registered company.
For the LHS this arrangement would have been very lucrative. First the valuation of a consulting company in the Indian market would be far higher than a similar company in the global market, so the local cash out for the LHS would be far higher than a proportionate cash out from a global IPO. Secondly the covert consulting operation would eventually emerge and grow because it would be part of, and be subsidised by, the global PwC LHS network. Third, the local consulting company run by RHS India would not be able to compete with the LHS operations because it would neither have a brand or network nor would it entrenched audit relationships that the LHS would have retained. And if in the process the twelve RHS partners perished, then so be it. Who cares?
This offer from the LHS to the Global PwC leadership was done without the consent or concurrence of the RHS partner but once this information got leaked, the RHS swung into action. First, Amitabh Ray called a secret meeting of the twelve RHS partners, excluding the 13th, late in the night in the Oberoi Hotel in Calcutta. So secret was the meeting that air-tickets for the non Calcutta RHS partners were not purchased through regular PwC India travel booking channels but by Amitabh Ray’s personal secretary.
In the Oberoi, that night, the twelve partners met for the first time and decided on the course of action. First, it was decided that we would go along with the original global plan and become a part of the new US based MNC. Once this was agreed upon, Amitabh made a phone call to Dave Lewis? ( or Luis, the exact name escapes me ) the Global PwC partner who was handling India matters and conveyed the desire of the India RHS to join up with the global RHS. This person was astounded that the India LHS had communicated a completely different picture and this was causing considerable difficulty in the global operations.
However, he suggested that there had to be a formal meeting involving more members of the global partnership and this had to be done without the India LHS being aware of it.
Next week, a conference call was arranged where all non-Calcutta RHS partners joined from the privacy of their respective offices but the Calcutta RHS assembled in Amitabh’s office in the X1-7 building. But since a number of LHS partners were in the same or adjacent building, we had to make sure that they did not drop in and learn about the rebellion. For this purpose, Amitabh stationed two of his trusted lieutenants, Partha Chakraborty and one more, at the door to alert us if any LHS partner -- or even the 13th RHS partner -- was headed towards the room.
This meeting was attended by the General Counsel ( or Chief Legal Officer) of PwC US, and it was communicated to him in no uncertain terms India RHS was fully in agreement with what PwC US had planned and they would enthusiastically join the new US registered company that would be formed.
At this meeting, we informed PwC Global that in India, some consulting partners had decided to stay in the LHS and what was worse, they had also decided that some key managers would also be retained in LHS. This would have crippled the operational readiness of the RHS even more. On hearing this the global leadership immediately decided this was illegal and announced that all managers and staff in the consulting practice would be given the option of freely choosing to join either LHS or the RHS.
Once this news of the rebellion got around, the LHS was furious. Not only were their plans thwarted but their dreams of exiting at very high valuations with easy and abundant cash came to a grinding halt. Moreover, when given a choice, an overwhelming majority of consulting staff decided to join RHS thus showing how deeply unpopular the four LHS partners were.
This is when the bitter internecine warfare came to the surface. When personal interests are threatened, all collegiality vanishes and Camelot collapses. Fangs were bared and the gloves came off. RHS assets were illegally carted off and RHS partners were threatened with personal lawsuits that could result in time spent in jail. Personal insults were hurled by the LHS against RHS partners. These were things that I could perhaps forgive, but never forget. However, thanks to the steady and unwavering leadership of Anjan Mukherji, Amitabh Ray and Sharat Bansal, the RHS circled its wagons, stood shoulder to shoulder, firmly holding ground and waiting for the US cavalry to arrive and save them from the vengeance and wrath of the LHS.
Meanwhile in the US, the cavalry was getting into position! Sometime in the middle of the year 2002, a new company called Monday was registered in the US. This would acquire all RHS entities -- along with their assets, people and clients -- across the world. We were also told that Monday would go for an IPO in the US stock market “soon” and with this money the LHS partners would be paid off.
But just before the IPO, sometime in September, Greg Brennerman joined Monday as CEO and in one week, Brennerman did what many PwC US partners could not do -- he found a buyer, IBM, for this new company, Monday, that now carried the assets of all RHS entities. We had a global teleconference where Brennerman explained how the sale to IBM was better than an IPO and also what all contracts we would need to sign for the deal could go through. We all agreed to this sale and signed a lot of personal level contracts with IBM. Monday, the independent company, would now be a part of IBM as IBM Consulting.
But even as this end game was being played out globally, the last few weeks of September were a nightmare for the RHS in India. With the LHS partners engaging in massive asset stripping, the RHS company was on its last financial legs. One particularly heinous piece of skullduggery was asking one of the RHS clients, the notoriously corrupt Bangladesh Power Development Board, to invoke bank guarantees that the RHS company had given, which left us with a huge hole in our cash holdings. While we had clients and people, there was no cash to pay salaries in October.
Anjan Mukherjee, called one last and desperate meeting of RHS partners where he requested each of the 12 RHS partners to write a cheque each -- depending on their shareholding in the company -- so that the first salary payment of the new company would not fail. These were really hefty cheques and we were told to liquidate assets if necessary to ensure that these cheques would be honoured. Fortunately, these cheques were never presented, let alone being cashed!
Because …
On the last day of September 2002, and it was a Monday, the word officially came through that IBM, the knight in shining armour, had finally completed the process of acquiring the entire stakes in all RHS companies all across the world. Along with all assets they were also acquiring all liabilities and so the critical October 2002 salaries would be paid out of IBM’s bottomless global resources. Our cheques were safe.
Hurrah! We were through, we had survived! As Neil Armstrong had said on touching down on the moon, “Tranquility Base Here, The Eagle Has Landed.”
While I do not have enough information about the LHS, we believe that they came off quite badly in this game. The RHS got much more money than the LHS and what was worse was that the value of all the assets that they had illegally stripped off from the RHS was deducted from what IBM finally paid to them as their dues. For all their bluff and bluster that they had deployed against the relatively junior RHS partners, the LHS never had the wherewithal or the backbone to stand up to the phalanx of IBM lawyers and accountants who descended on PwC India to finally seal the deal.
But who was the 13th partner who was not invited to the Oberoi meeting? And why? I checked with Amitabh. He told me that he had a gut feeling that #13 never wanted to join the RHS and would like to go back to the LHS, which is what he eventually did. Not as a partner but as an ordinary manager. Why did he do so? Well, we shall let bygones be bygones. Everyone has their own reason.
I still have many happy memories of the partnership at PwC but all good things must come to an end and this was the end of our Camelot. But had it not been for that midnight meeting at the Oberoi, the end could have been truly tragic instead of the magic that saw all of us, the RHS partners, being welcomed as Band D executives in IBM.
