Deloitte US First Female CEO: We Wish We Really Knew You
Belated congratulations to the new Deloitte LLP CEO Cathy Engelbert!
Deloitte LLP is the US member firm of the international Deloitte Touche Tohmatsu confederation of member firms and includes Deloitte & Touche, the audit firm, Deloitte Consulting LLP and many other legal entities such as Deloitte Financial Advisory Services LLP and Deloitte Tax LLP.
I waited to write so Engelbert could enjoy all the nice articles that basically said the same nice things about how nice it is that one of the Big Four global public accounting firms finally selected a nice woman, with tangible work-life balance, as its leader.
Engelbert is also relatively young, 50, compared to other CEOs of multi-billion dollar enterprises with similar-size influence. After her four-year service as Deloitte US CEO and a highly likely, if the stars are still aligned, four-year stint as first ever female Deloitte global CEO, she can retire to many good earning years of Fortune 500 board service still ahead.
But all the glowing profiles left me wanting to know more. Michael Rapoport and Julie Steinberg of the Wall Street Journal tell us the most, outside of the press release from Deloitte, about her career. We even learn which audit client, in her expert area of pharmaceuticals and life sciences , she worked with most recently.
Ms. Engelbert, a career Deloitte employee, has been at Deloitte since 1986 and heads Deloitte & Touche LLP, the firm’s auditing subsidiary…Ms. Engelbert has worked in a variety of Deloitte’s businesses and has been the lead audit partner for several of Deloitte’s leading pharmaceutical and life-science clients, most recently Bristol-Myers Squibb Co.
A new Wikipedia entry was put up after the Rapoport/Steinberg piece was published and cites it without saying much more about her. Engelbert’s spent 29 years at Deloitte, direct from college, and that is all the firm thinks investors and the capital markets need to know.
She’s still a bit of a cipher to me.
Wouldn’t it be nice if investors and other interested parties could look up Engelbert in a public and easily accessible registry and find out about all the audit clients where she has been a lead partner or a Quality Control partner? Has she ever been named in a lawsuit or been sanctioned? Let’s hope not. Deloitte has been known to put folks back to work in audit when they’ve been sanctioned and barred by regulators for bad work. The firm paid a big fine for doing just that with Navistar partner Christopher Anderson and sanctioned Delphi partner Nick Difazio led the IFRS advisory practice.
It’s great that Deloitte, the Big Four firm that’s been under the most scrutiny for poor audit quality recently, chose an audit partner rather than a consulting or tax partner as its new US lead. But given the list of horrible audit clients they’ve had in the last ten years, especially in the areas Engelbert says she’s an expert in, it would be nice to know which audits she’s led.
It would be interesting, for example, to know if Engelbert was working in or leading the Bristol-Meyers Squibb audit in 2000 and 2001 when the company paid $150 million in penalties to the SEC for accounting fraud.
…perpetrated a fraudulent earnings management scheme by, among other things, selling excessive amounts of pharmaceutical products to its wholesalers ahead of demand, improperly recognizing revenue from $1.5 billion of such sales to its two largest wholesalers and using “cookie jar” reserves to meet its internal sales and earnings targets and analysts’ earnings estimates\
Bristol-Meyers Squibb was artificially inflating its results using the time-honored technique from the accounting manipulator’s trick bag: channel-stuffing. That’s where a manufacturer “sells” to its distributors right before a quarter- or year-end to window-dress the financial results. Channel-stuffing contributed to a buildup in excess wholesaler inventory levels that posed a material risk to the company’s future sales and earnings when that inventory, lo and behold, was eventually returned to Bristol-Meyers in the following quarter.
(A reader has brought to my attention that PwC audited Bristol-Meyers Squibb until 2006. So Engelbert was not involved but the point about the lack of transparency about partners career histories is still valid. Is the PwC partner who presided over this fraud still actively auditing? Did Engelbert work on any of the Deloitte financial services audit clients that failed or were forcibly acquired like Bear Stearns, Merrill Lynch, Taylor Bean and Whitaker or Washington Mutual given her LinkedIn stated expertise in derivatives and financial instruments?)
Deloitte audits a few more pharmaceutical big names listed in the US. In addition to Bristol-Meyers Squibb, the firm audits:
Abbott Laboratories and spinoff Abbvie
Amarin Corp PLC/UK
Endo Health Solutions
Mylan
Shire plc
Abbott recently paid a $1.5 billion penalty for criminal and civil allegations of off-label promotion and faces charges for paying kickbacks to Omnicare and investigation for illegal payments to other government officials overseas. Abbott is transitioning the audit to EY after many years with Deloitte. Shire, audited by Deloitte, uses PwC for tax avoidance schemes. Recent document leaks reveal aggressive tax avoidance via Luxembourg that UK MPs are up in arms over.
Wouldn’t it be nice to know if Engelbert presided directly over either of these two audits over and above her current role as head of Deloitte and Touche LLP, the audit firm?
Unfortunately, the proposal from the Public Company Accounting Oversight Board (PCAOB), the industry’s post-Sarbanes-Oxley regulator, to at the very least name the lead audit partner on US opinions appears dead in the water. At best, the partner identification may be relegated to an obscure regulatory filing. It’s not easy when the agency that approves your budget thinks you have the wrong priorities.
The PCAOB says affixing a name to audits, which have long carried only the firm’s identity, would improve accountability and let investors discern good auditors from bad ones. The SEC has questioned whether disclosure would create barriers for companies raising capital.
Most Engelbert profilers are just glad she’s a woman. I’m not sure that matters that much. Professional services is a client-facing business like law where women and minorities are not represented at the firms’ leadership levels in the same proportion as they are when graduating and beginning their careers. There is discrimination — see the current KPMG class action lawsuit — but a lot of that is local-office specific and can be rooted out with stern management, in my opinion.
The real barrier is that clients have a lot of say, maybe too much in audits, over who is assigned to their engagement. As long as there are more men at the C-level who prefer to work with men, or only white men for example, you’ll see those biases perpetuated. As Rapoport and Steinberg tell us, the women are still not there in large numbers at the Big Four public accounting firm client C-level:
In 2014, women made up 1.4% of CEOs at finance and insurance companies in the S&P 500, according to data provided by Catalyst, a nonprofit organization aimed at expanding opportunities for women in business. They accounted for 4.6% of CEOs at S&P 500 companies broadly.
Women who can put in the time, do the time, do great work and great client service can rise to the top, as I did as the first female Managing Director in Latin America for BearingPoint, the KPMG Consulting spinoff. That was in 2000. But anyone, man or woman who wants to work part-time — or less intensely, can’t travel, can’t relocate — typically has a harder and/or longer time to the top or finds another kind of job in the firms or outside.
What I liked about working at KPMG Consulting and BearingPoint, in particular, is that, at their best, professional services is a meritocracy. That is the ideal and that is the ideal Engelbert, I hope, exemplifies.
More important than being a woman is the fact that Engelbert is an audit leader rather than a consulting or tax leader. EY’s chose its new US CEO from its tax lobbying practice. Deloitte’s African-American Midwest leader is from the consulting practice — he replaced three women — and its “chief inclusion officer” was an up-and-coming woman who came over from Arthur Andersen. Did either of these diverse leaders help Deloitte stay out of trouble with either the New York State Department of Financial Services or all the states that are suing the firm for faulty financial systems implementations?
Given Deloitte’s chronic audit quality issues and global dominance on the consulting side, choosing an auditor to lead the US firm is a move in the right direction. Deloitte has reasserted itself as an audit-first firm.
I only wish we knew more about where its US CEO Engelbert actually audited.
