March 2000


On January 31, KPMG LLP announced the incorporation of KPMG Consulting, to be 80.1% owned by KPMG LLP and its partners and 19.9% owned by Cisco Systems Inc., the computer-networking company.

The incorporation comprises KPMG consulting operations in the United States and Mexico. KPMG's consulting operations in Asia, Latin America, and Canada are expected to join later this year.

Stephen G. Butler, chair and CEO of KPMG LLP, will serve as chair of KPMG Consulting. Rand Blazer and Rod McGeary, who have led the U.S. consulting practice since it became a distinct operating unit of KPMG in 1997, will share responsibilities as co-CEO and president of the new company. KPMG Consulting's board of directors includes Blazer, Butler, McGeary, and two representatives from Cisco Systems.

In August 1999, Cisco Systems announced plans for a $1 billion investment in KPMG. As part of that agreement, KPMG agreed to add 4,000 Internet consulting professionals over the next 18 months to help support Cisco's enterprise and service provider customers. KPMG also agreed to provide Cisco with an exclusive consulting organization to help develop and deliver Internet-based data, voice, and video services for Cisco clients.

In the January issue of The CPA Journal, Butler talked about KPMG's three-step plan to incorporate its consulting business, sell a minority stake to Cisco Systems, and sell a majority ownership interest through a public offering. He also addressed ongoing resistance and concerns from the SEC staff, which were unresolved at the time of the January 31 announcement. "Part of the value of the IPO transaction is that it will provide some separation between the consulting and core assurance services business," Butler said, in the January CPA Journal. "The SEC's concerns, I think, are connected to the appearance of independence, whereas we believe that we have independence in fact."

PricewaterhouseCoopers Seeks Freedom for Consulting

On February 17, PricewaterhouseCoopers announced its plans to disaggregate into two or more separate operating units. Their audit, tax, and business advisory practices would remain as PricewaterhouseCoopers LLP. Its management consulting, business process outsourcing, human resource consulting, and certain corporate finance activities practices would be placed in one or more separate business entities. James J. Schiro, PricewaterhouseCoopers CEO, said that the separate business entities will be "free of regulatory constraint.

"They will be able to seek the financial partners, strategic alliances and joint ventures, and access to capital markets on which their future success will depend--all of which are now largely prohibited by auditor independence requirements." *

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