Kashi Nath Memani, Chairman, E&Y India: Nothing to declare but his enthusiasm

On February 17, Kashi Nath Memani, Chairman, Ernst & Young (E&Y) India, was flying with the firm's global head, Jim Turley, from London to New York. En route, Turley revealed E&Y's global decision to snare Andersen's professional services business worldwide, and popped in this advice: ''Kashi, this is a good time to initiate a discussion with Andersen in India.''

There was no need to elaborate. Memani returned to Mumbai in April, with nothing to declare but his enthusiasm. ''Whenever you're ready to talk,'' he told Andersen's local chief Bobby Parikh, ''think of E&Y as an option.'' Then he waited.

Parikh, aware that continued independence was wearing thin as an option, had much to think about. On March 14, the US Justice Department had announced its indictment of Andersen for obstruction of justice in the high-glare case of Enron's collapse. For weeks, people everywhere had been talking of the infamous shredder, that invidious contraption invented to defy accountability, that had turned one of the world's finest accountancy reputations to shreds overnight. And in a service sworn to ethics, there was no way of insulating Andersen from a global-scale rip-up.

Of course, Parikh had choice. With his attractive roster of big balance sheet clients, almost every global accounting firm with domestic operations was itching to swoop in. Globally, E&Y had acquired Andersen's operations in 40 countries, Deloitte Touche Tohmatsu bagged the same in 12, KPMG in five, and PricewaterhouseCoopers (PWC) in three.

So, why E&Y? ''We felt most comfortable with E&Y's attitude,'' replies Parikh, ''and it was a recognition that this combination will be effective as quickly as possible, to absorb the best of both sides.''

Memani, keen not to sound like the dominant voice, is more specific in outlining the merger's positives: ''Our professional businesses revolve around people, and we at E&Y saw Andersen as an opportunity to acquire a pool of talent... Andersen has diversified skills in audit, tax, corporate advisory, utilities, power, oil and gas sector, and a range of services similar to ours, though we vary in niche terms.''

"This combination will be effective as quickly as possible, to absorb the best of both sides" Bobby Parikh, CEO, Ernst & Young

To some outsiders, that sounds like waffle to disguise what is essentially an aggregative acquisition. E&Y now has an additional 27 partners and 800 other professionals, together with additional clients, making the combine India's largest accounting firm (estimated combined revenues for 2001-02: Rs 250 crore), edging out PWC.

Insiders insist that this is a 'combination', not a takeover. Consider the decision-making symmetry. In the all-new E&Y, Memani is the Chairman, and Parikh is CEO, placing him next only to Memani in the hierarchy, and pretty much still in a commandeering position. ''Bobby Parikh may not have been made CEO in the other two deals,'' chafes the chief of a rejected suitor firm, on condition of anonymity.

Anyhow, what matters now is the integration process, which promises not to be free of hiccups. Being watched closely is the peculiar Memani-Parikh equation, which is still in the process of taking shape-with both playing chief, day-to-day.

Raw-Nerve Zone

For Parikh, there are two integral issues to be dealt with right now: human resource equity and service consistency. On the first, he says: ''To achieve uniform salaries (at every level), we will handle it in a manner which will not disadvantage any individual from either of the two organisations.'' It's a challenge because Andersen was known for salaries nearly twice the industry average. Either these will be cut, which could bruise egos, or E&Y's 1,200-odd personnel will get major hikes, which could hurt profitability.

''Secondly,'' says Parikh, ''we have to ensure a consistency in the standard of service delivery to our clients.'' Integration here could take four-to-five months, by his reckoning. Memani, slightly more cautious, gives the entire process six-to-seven months, ''if not a year''. This amalgamation could prove especially tricky, taking E&Y into the raw-nerve zone of competence re-evaluation and functional overlaps. Just the kind of thing that results in cultural conflict. One group mustn't rub the other the wrong way, or presume to supersede the other's knowledge or skills.

Consider what Gautam S. Dalal, Chairman & Chief Executive, KPMG, has to say. While he sees the new combine as a 'competitive challenge', he cautions against thoughtless optimism. ''Most mergers fail due to cultural conflicts,'' he continues, ''A client of mine merged in the '60s with two other companies and even in the '80s, they were not in sync.''

On the other hand, it could work out well, too, since this is not a business of robotic functioning or commoditised minds. In ways both subtle and obvious, the enhanced diversity (and grey-matter intersection) can result in output greater than the sum of parts.

What does past experience suggest?

Says Amal Ganguli, Chairman, PwC, who faced similar issues in 1998, when PriceWaterhouse merged with Coopers & Lybrand to yield PwC: ''When the two entities merged, the pay differed among different groups and it took us about a year to bring in parity even among our interns.'' The services, he says, were identical-except Cooper's Business Process Outsourcing practice. In all, the merger was a success, contends Ganguli, proud of the firm's enlarged status.

Sizing It Up

Size matters, and the quest for it is powering the consolidation trend. ''Prior to Enron,'' says N.V. Iyer, Co-chairman, Deloitte, Haskins & Sells (as the company is known in India), ''the world spoke of the Big Five, and before that, the Big Nine. Today, we are the Final Four.'' Deloitte, along with PwC, E&Y, and KPMG, that is. Naturally, the trend has alerted global regulators, the reason that KPMG gave up its attempt to merge with E&Y in 1998. Recalls Dalal, ''The KPMG-E&Y merger couldn't take place in 1998 due to regulatory hurdles. Both firms decided not to test the EU and US regulatory authorities, as there was a feeling that there would be certain client conflict issues for integration.''

"While the new combine is a competitive challenge, there shouldn't be any room for thoughtless optimism. Most mergers fail due to cultural conflicts" Gautam Dalal, Chairman & CEO, KPMG

"When PriceWaterhouse merged with Coopers & Lybrand, the pay differed among different groups of professionals and it took us about a year to bring a parity" Amal Ganguli, Chairman , PwC

Consolidation continues regardless, driven by market forces. The larger the firm, the more able it is to offer a wide range of services-which is precisely what clients want. And, as Ganguli estimates, achieving critical mass means employing 50-60 or even 100 people in each service category. Moreover, brand reputations matter-with the financial establishment. In the US, says Iyer, ''Nearly 85-90 per cent of audit work was rendered by the Big Five.''

For Memani, size would enable E&Y to win fresh bids from a better vantage point: ''You can handle the largest jobs and bring together people who've worked on different portfolios and different clients and in different services.'' Increasingly, clients aiming to differentiate their businesses are looking for the widest possible cross-section of intellectual inputs. To ignore this trend would be to endorse cynicism of the sort that takes account of the 'price' of everything and 'value' of nothing.

Yet, observers worry that E&Y, which had been growing at a pacy 40 per cent per annum over the past few years, could get weighed down by Andersen, which was growing at around 20 per cent. While E&Y has been topline-driven, Andersen was concentrating on the bottomline. What will the unified entity manage?

Then there is the worry of Andersen's clients switching auditors globally, post-Enron, with their Indian subsidiaries following suit. ''Luckily for us,'' says Memani, brushing off the threat, ''so far whatever changes that have taken place (at the global level), 44 per cent have gone in favour of E&Y.'' What's more, E&Y has also made legal moves to protect itself from any of Andersen's US liabilities. In time, the old brand could well be forgotten (Andersen Consulting dumped the name a while ago, to become Accenture. As for Anderen's consulting division, KPMG seems keen to snap it up.).

That said, Parikh can probably heave a sigh of relief after weeks of agonising uncertainty. Memani can breathe a little easier too, though for different reasons. Mutual commitment to unity, often, is half the job done in any merger, so long as everything else is kept subordinate (and thus flexible).

It takes time. Today, a phone call to the Andersen headquarters in Mumbai greets the caller with strains of western classical music, while Ernst & Young's Delhi office plays Indian fusion, on hold. The two have become one, but the tunes evidently haven't. But then, at least one of them plays fusion.