There is every evidence thus far that the response to what seems tantamount to economic terrorism will address the symptoms rather than the root causes, and while it may give temporary relief to the government concerns and to the investors, it may cure few ills. The results may be more damaging than the conditions they mean to correct.

The new regulatory environment has been a long time coming. The failure of self regulation, and the lack of real leadership in the professional bodies serving the accounting profession, have contributed substantially to Congress' finally winning the decades-old regulatory battle between the professions and Congress. The result is a new structure that will affect every accounting firm, including those that don't serve public companies.

The root causes of the problem are so complex, and so many of the proposed solutions so shallow and simplistic, that the law of unintended consequences is bound to prevail. The conditions and practices in the accounting and legal professions have emerged through decades of response to business needs and conditions of the time, and no simple stroke of the pen can safely erase those practices without ultimately causing damage.

It's not sloth and greed alone that created this accounting morass, and to try to correct the situation that brought the professions – both law and accounting – to this pass without understanding the recent history of professional practice will, more likely than not, burden the good accountant and lawyer as well as the bad. There's no doubt that, in the current environment and with the anxiety about the integrity of financial statements, accounting firm revenues will increase in the short term. But ultimately, in the long term, the nature of the profession as we know it today will change. Business entities of all kinds react in their own way to changing environments, and it would be foolish to attempt to accurately predict what the long range effect of Sarbanes-Oxley will be. But things will indeed change.

Three economic phenomena, in addition to sloth and greed, brought us to this debacle – obsolescence in the methods to accurately account for the business and economic structures of the modern corporation; the need to find new ways for professional firms to compete; and internal communications structures that are not adequate to the needs of growing accounting and law firms.

The first derives from the fact that the business world changed profoundly in recent decades, and the accounting profession did not. In a Business Week interview the AICPA's Barry Melancon said, "We need to move accounting from …an industrial age model to an information age model." In today's dynamic technological society, it's virtually impossible for a company or an investor to have a true and current picture of the company's financial condition using traditional static accounting techniques. Obviously, the profession's accounting methods must be made more relevant to modern business needs. It's extraordinarily difficult, as well, for the modern company to function in today's world without an array of expertise from many sources, which is the reality behind consulting. Most businesses need and benefit from the breadth of the accountant's expertise.

The second phenomenon began in 1977 with Bates v State Bar of Arizona, in which the U.S. Supreme Court struck down the professionals' Canons of Ethics prohibiting advertising, and by extension, any kind of frank marketing. Bates ultimately changed the nature of all of the professions, and made fertile the ground that created the very problems for accounting and law firms raised up by the Andersen disaster.

Bates, in creating the ability to do frank marketing, brought that new word -- competition -- into the professionals' lexicon. In the first attempts to compete, battalions of advertising, public relations and marketing people were hired, only to discover that marketing a professional firm was very different from marketing a product. After all, how do you distinguish one accounting firm from another when you can't say "We do better audits"?

Thus, the competition had to be fought on a different level, causing great confusion among marketing professionals. The MBA marketers had no solutions, because they had no precedents. The traditional marketers could only bring classic marketing vehicles into play – the press release, the brochure, the seminar, etc. – without any great sense of marketing strategy or perspective, nor understanding of the intricacies and nuances of the professions. Ironically, it was the accountants and the lawyers – the very same who had swooned at the idea of frank marketing – who came up with the answer.

That answer was to recognize that the audit services alone offered little foundation for competing. Therefore, they began to compete by concentrating on new kinds of advisory -- consulting -- services. Help your client install a new computing system. Help your client build a new cash flow system. Do executive search work for your clients. Help your client structure new subsidiaries or acquisitions. And so forth.

 Consulting enabled accounting firms to do what traditional auditing could not do -- differentiate themselves from one another by focusing marketing efforts on the consulting services. It worked so well that the consulting work began to overwhelm the auditing work, until the larger firms -- those that do the most auditing -– persuaded themselves that they were really business consultants who also did audits. When was the last time anybody has seen a firm tout it's CPA credentials?

At the same time the growth of accounting firms began to cause serious internal management problems. If the growing companies they served had to learn new management skills to cope with new size and business configurations, so too did the burgeoning accounting and law firms. Management skills, unfortunately, are not taught in accounting or law schools. There's no management tradition and there's no management training, as there is in corporations. The collegial nature of the traditional partnership began to prove itself inadequate to managing the new demands placed on growing professional firms.

As the body of knowledge within a firm became vast, internal communications broke down, as seen so clearly in the firms serving Enron, and, obviously, Andersen. Too much was going on internally that wasn't known by others in the firm who should have known. Failed internal communications has now become the significant cause of major catastrophes of Enronic proportions.
 
This internal communication and management crisis in today's large international professional firms is also a major reason why merely imposing new regulatory structures alone will solve few of these new problems. Without significant changes in internal communications structures it's impossible to enforce any new rules that seek to protect against obsolete accounting methods.

What, then, is likely to work?

First, to radically separate the audit function from the consulting function without differentiating the services can cause serious problems in serving both clients and the public. Despite the rush to divest consulting arms, the professions will not easily allow themselves to be driven back to the dark ages of pre-Bates. Nor will clients, desperately in need of the very kinds of services they are getting now, allow it to happen. Many consulting services are relevant to improving the audit. Better systems to improve the flow of financial information, new technology to speed the audit – all are relevant to the needs of the audit, and can be performed without subverting the integrity, the objectivity, and the independence of the audit. This new consulting relationship can be monitored effectively by an independent outside body, but only with clearly defined rules that can cut away the consulting practices that flagrantly taint the attest function.

Second, systems of internal communications, based not on process or technology alone, but on content and the new paradigms of content management, must be mandated in all professional firms. Today's business entities generate too much information to allow for unmanaged communications within the professional firms that serve them.

Third, the partnership structure of professional firms, which has too long obscured the inner workings of those firms, must be reconsidered. Transparency is needed. This can be accomplished by reworking the governance structures for better management, and to allow the outside world and regulators to see more clearly how each firm is serving the clients and protecting their shareholders.

Fourth, the professions, and those who regulate them, should remember that the professions are not so exalted that they function in isolation from the markets they serve. The time has come for all professionals to recognize that they exist only in their ability to meet the needs of their clients and the public -- and not themselves. Eliminate the practices that so readily breed the kind of hubris that leads to the Enron scandals, such as hourly based fee structures and opaque client relations. Institute structures for internal oversight of each audit. Develop oversight structures for quality control.

The great Canadian humorist, Stephen Leacock, wrote a story in which a man burst through the door, jumped on his horse, and road madly off in all directions at once. This, unfortunately, seems to be the response of legislators, regulators, and pundits to the Enron/Andersen situation. And with the potential for the same unintended results.

BRUCE W. MARCUS is a Connecticut-based consultant in marketing and strategic planning for professional firms, and the editor of THE MARCUS LETTER ON PROFESSIONAL SERVICES MARKETING, now on www.marcusletter.com. His email address is marcus@marcusletter.com.

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