Remaining Competitive In The Midst Of Crisis: Challenges And Opportunities

Monday, December 1, 2008 - 01:00

Editor: Mr. Klein, would you tell our readers something about your professional experience?

Klein: I am a CPA, and I have been in practice for 22 years. My concentration has been in litigation support and business evaluation services - I am certified in financial forensics and as a fraud examiner and valuation analyst - with a focus on financial due diligence in legal matters. Prior to joining Amper in December of 2005, I was a partner in a CPA firm engaged in general accounting and with a specialty in litigation support work.

Editor: Would you give us an overview of Amper's firm-wide accounting and consulting practice?

Klein: Amper is a large regional CPA firm in a market that includes the Metropolitan New York area. We are a full service firm, and our firm-wide practice extends across a wide range of accounting and auditing work and includes such subspecialties as international taxation, small business services, family-owned businesses, and pension audits. We also have a considerable public companies practice.

Editor: How does Amper differentiate itself from its competitors?

Klein: Amper is very conscious of its place in the competitive arena. We have a "top down" philosophy, which means that we focus on what the leadership of our clients desires, and we follow through - we deliver - on what we say to that leadership. We believe that remaining competitive requires, above everything else, a focus on client service. That, in turn, means that we hire and retain the best talent, and we encourage them to use their skills to exceed our clients' expectations. It is a very simple formula, but one which has demonstrated its effectiveness over many years.

Editor: And your own practice. How has it evolved over the course of your career?

Klein: The changes I have seen over the past 20 years are substantial. When I began, in the 1980s, the S&L crisis had begun to bring about heavier regulation and more attention to accounting details than had been the case in the past. The underlying concern was for the protection of companies and individuals, including both employees and investors. Today, that underlying concern is very much the same. It is as if all we had learned in the 1980s about the kinds of control that should be in place was swept away by the years of prosperity - others refer to this episode in a less kindly way - and we find ourselves addressing problems that are not dissimilar to what we faced 20 years ago. In other words, the evolution I have experienced has been more circular than linear. I believe, we are going to see, as a consequence of the events of recent months, an increase in governmental intervention and oversight and more, rather than less, in the way of pronouncements by the accounting regulatory agencies.

Editor: I gather that the current financial crisis has had a considerable impact on Amper and its various practice groups.

Klein: The big one is the dramatic increase in commercial litigation as companies discover they do not have the credit necessary to pay bills that are now coming due. We are at just the beginning of this process, and we are going to see an increase in both breach of contract litigation and bankruptcies. The ripple effect of the latter - where the creditor is unable to meet its obligations because the debtor is going into bankruptcy - is going to be very dramatic. This is a situation that creates enormous pressure in the system as creditors become increasingly apprehensive about collecting their receivables. Owners and investors weigh in, and there is suddenly a great deal of blame to hand out as the litigation mechanism begins to gather momentum.

As the numbers are unveiled - and as the discrepancies between what was anticipated and what now appears to be reality emerge - we see the beginning of a meltdown of the entire system that governs the ways in which we do business. For a firm such as Amper that means a dramatic increase in all types of commercial litigation, from breach of contract actions between two companies to gigantic class actions that have an impact on entire industry sectors. On the one hand, it is good to be part of a service industry that is suddenly in tremendous demand; on the other, there is no small degree of apprehension about the implications of all of this. Editor: Well, and what are the implications? Is the current crisis in our financial markets a temporary event or are we undergoing a fundamental revision of the ways in which our economy functions?

Klein: I'm sorry to say I do not possess the kind of wisdom that will lay that question to rest. I don't think anyone does. I do believe that we will move through the present downturn in the economy and that, in time, the economy will gather momentum and return to growth in a sustained manner.

The subprime mortgage market appears to be the major culprit and the recipient of the most attention at the moment, and that may be playing itself out in the Freddie Mac and Fannie Mae conservatorship on the part of the Federal Housing Finance Agency, something that has been described as the most sweeping governmental intervention in financial markets in decades. However, the housing market affects the construction industry, which, in turn, has an enormous impact on those who supply the construction industry and those who transport the supplies. The implications across the economy are staggering.

The fundamental question has to do with oversight. There are plenty of commentators who will argue that there was not enough oversight in place, and there are others who say that the oversight that was in place was adequate but insufficiently exercised. Hindsight is wonderful, of course, and we will learn something on this score as the oversight question is hauled through the litigation process. I, for one, believe that it is relevant to look at something like the involvement of the FBI in this area post-9/11. Following the terrorist attacks on September 11th the resources available to the FBI to address white collar crime and other issues relating to phony mortgages simply evaporated as the country braced for the war on terrorism. Predictably, there are people in Congress who now say that a variety of regulatory agencies - the FDIC, the SEC, the Justice Department, and so on - could have done a better oversight job given the signals. The reality is that the agencies did not exercise much of an oversight function and, with the continued increase in the price of housing, there was little pressure to do so.

Editor: And the government's response? Too much, too little?

Klein: Very often the government acts quickly in order to address some immediate outcry. This does not always fix the problem. At the moment I think we are in that phase where the politicians and regulators are providing the public with every evidence of their firm intention to meet the crisis head-on and to put a structure in place that resolves it permanently.

In point of fact, these things take time. I expect there will be a ramp-up in terms of regulation, followed by a period during which the regulators see how the new structure works, then some revision or other of the regulatory structure, another period of assessing the impact, and so on. A parallel evolution takes place on the other side of the fence. Corporate America - and both publicly held and private companies - undergoes a similar process, and the shared experiences of government and the private sector go into the final structure within which our markets operate. I am not sure whether the question is one of too much or too little governmental intervention, or rather one of the care and deliberation that goes into the process of determining what is appropriate in addressing these issues. Above all, people must be accountable for their actions and for what ensues as a result of those actions.

Editor: What are the implications of the current crisis for Amper? Do you see new practice areas developing as a result of what is underway?

Klein: In light of the fact that Amper is very much of a client-driven firm, the implications for Amper going forward depend on how its clients respond to the crisis. For some, the current situation provides a wealth of opportunities to move forward. Competitors may stumble as a result of an inability to access credit. Markets heretofore closed to some of our clients may loosen up. Other clients are going to feel the pinch if they find themselves unable to find lenders, but that may prove to be something of a blessing if it forces them into long-term thinking and something of a financial planning posture. Amper takes considerable pride in the proactive approach it takes with its clients - often on subjects that are not particularly comfortable, such as the current financial markets crisis - and financial planning is one of the principal strengths of its portfolio of services.

Editor: Is there anything you would like to add?

Klein: We have spoken about the current financial markets crisis from a U.S. perspective, but in point of fact this is a global issue today. Given the fact that many enterprises are carrying on operations across the world, we are going to see an increase in litigation that derives from some foreign source. American companies doing business in the EU, in China, in India or Latin America are going to be engaged in litigation across a multitude of jurisdictions, and foreign companies doing business in this country - and perhaps in 50 different American jurisdictions, given the ingenuity of the plaintiffs' bar - are going to be equally exposed to the risk of litigation. It is essential that that they be as prepared to meet international litigation claims to the same extent they are prepared to address domestic claims.

Please email the interviewee at hklein@amper.com with questions about this interview.