Internal Memo Points To Improprieties
For the first time in Burson-Marsteller's 44-year history, the PR powerhouse has let go of one of its regional chief financial officers for inflating by several million dollars operating profit for BM's Asia-Pacific office, according to an internal memo obtained last week by PR NEWS.
Bob Turner, who had guided that region's financial dealings since 1991, was dismissed Dec. 1 because of the internal disparity over financial results in 1996 and 1997.
Don Cogman, BM's vice chairman and chief operating officer, worldwide, last week told PR NEWS that Turner's dismissal is just one of a series of changes the bookkeeping padding has resulted in: in addition to Turner's hasty departure, Ferry de Bakker, who was CEO of BM's European region, was named CEO of the Asia-Pacific location. He replaces Peter Kingsbury, who had held that spot since 1994 and has subsequently resigned.
The Asia-Pacific structure is one of four profit-and-loss centers (the others are Europe, the U.S. and Latin America) BM uses in its day-to-day operations since going to a client practice business model in 1996 and 1997 in the U.S. and worldwide, respectively. Previously, each of BM's 75 offices operated as P&Ls. Now, they are broken down according to practice - i.e., healthcare or public affairs - with cross-border functions.
Tom Bell, who came onboard as CEO in 1995, was instrumental in implementing the change which was designed to reduce internal barriers and minimize competition among the sprawling theater of BM sites. The company has offices in 35 countries.
Bell, who was traveling for matters unrelated to the controversy, couldn't be reached for comment, but PR NEWS was forwarded by an undisclosed source last week an internal memo Bell drafted.
The memo went to all of BM's 22,000 employees and in it, Bell calls the Turner debacle a "surprise" and a temporary set-back but says it hasn't hampered the company's commitment to the future.
BM: Clients Not Affected
Sources say the BM-AP financial misstatement doesn't involve and doesn't affect clients. But it did apparently make the Asia-Pacific region of BM, which accounts for about 10-12 percent of BM's $250 million yearly revenue, appear to be more profitable than it was.
Execs won't disclose the particulars of the company's financial health but said that several changes are being made within the company to tighten up financial controls. Those changes will include naming a new CFO for that region and a new controller. (Dieter Lachmann is acting CFO of the Asia-Pacific P&L.)
The other significant shift (already inititated before the CFO issue came up) includes the installation of a financial system database that will help BM better manage what appears to have become a financial maze complicated by overseas entities that are thousands of miles from the U.S. execs who run BM out of New York, and because of the difficulty all companies face in managing splintered global operations.
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Moves at BM Over CFO Shake-Up In Asia-Pacific Region: Source: PR NEWS |
Case in point: the Asia-Pacific region is headquartered in Singapore but its finance staffs work out of BM's office in Hong Kong. Attempts to reach Turner through BM's office in Singapore were unsuccessful since employees wouldn't release a forwarding number nor call him to leave a message indicating our interest in speaking with him.
Although Cogman wouldn't detail the state of the Asia-Pacific region's books, he did say the misrepresentation is substantial and will probably result in Young & Rubicam and BM applying more scrutiny to future internal audits. The discrepancy was discovered through a routine internal audit being conducted by Y&R, the company which acquired BM in 1975.
"These are audits generally done on a yearly basis," Cogman said. "We came across something that made us dig deeper" while examining the books kept in Hong Kong. Cogman said the investigation, which didn't unearth any other questionable financial statements, lasted about six weeks.
In the internal memo sent by Bell to BM employees, he wrote: "...After an extensive review, we have uncovered how these events occurred and have taken several steps [checks-and-balances the company won't detail] to ensure that they cannot be repeated. While this reflects on our performance short-term, it in no way affects our strong overall financial position." (212/614-4000)