Monday, February 8, 2010

UCLA Hires Tainted Firm to Restructure

While campuses cut classes, raise fees, furlough employees, and lay off instructors, they have been hiring outside firms to help them restructure. A few months ago, Berkeley announced that it would pay Bain and Company $3 million to suggest ways to reduce the Cal budget, and now UCLA has hired the Huron Consulting Group to assist in the campus’ restructuring. Not only should we question the cost of bringing in outside firms to perform tasks that could be handled internally, but we need to ask about the role of shared governance when an outside group is hired to make important decisions that will affect all aspects of the university.

One has to wonder if the administrators who hired Huron looked into this firm’s recent past. As Chicago Business reported last summer, this consulting group has been in disarray since it admitted to its own false reporting of internal profits. It turns out that this company, which is supposed to investigate the finances of other companies, has been misrepresenting its own finances on a regular basis: “Huron said it would restate results for the three years ended in 2008 and for the first quarter of 2009, resulting in a halving of its profits, to $63 million from $120 million, for the 39-month period.” We are not talking here about a small one-time accounting error; rather, this accounting firm has consistently misrepresented its own earnings, and the story gets much worse.

The reason why Huron had to admit to its habit of inflating earnings is that someone found out that thre was a secret agreement between Huron and the shareholders of the companies it was restructuring: “The company said its hand was forced by its recent discovery that holders of shares in acquired firms had an agreement among themselves to reallocate a portion of their earn-out payments to other Huron employees. The company said it had been unaware of the arrangement.” After Huron revealed in the summer of 2009 that it had participated in this kick-back scheme, its stock went down 70%, and it replaced its entire management team.

The Huron Group was created from the remnants of the Arthur Anderson firm after the Enron scandal, and Reuters has reported that many experts believe that the corrupt culture of the old firm has found its way into the new company. Just as Anderson concentrated on maximizing their own fees at the expense of the companies it was investigating, Huron appears to be profiting by forcing companies to pay them off while they are restructuring their business practices.

According to another business news outlet, the SEC is currently investigating Huron for the way it bill its clients,and while one of the main functions of this firm is to make sure that institutions follow accounting laws and regulations, they are now facing numerous investigations and lawsuits.

Some UC faculty might be interested to know that the head of the company, who has been forced to step down, has been accused of forcing employees to contribute to Mitt Romney’s run for president, and the management has had its own inflated compensation requests rejected by the company’s shareholders.

Didn’t UCLA looked into any of these issues when they decided to hire Huron to restructure the campus? It only took me a few minutes of using Google to find several articles documenting this company’s questionable practices and horrible reputation. We have to ask why didn’t any of the highly compensated administrators sitting on the new restructuring committee examine this company before they committed to paying a large sum of money to do the job they should be doing themselves in the first place.


  1. UCOP needs to explain how the campus firms are working in tandem with Bain - if they indeed are...working in tandem

    otherwise it is just more Tower of Babel...

  2. My understanding is that it is a pretty standard practice in academia to bring in consultants to make recommendations for "reorganization", i.e. to decide who should be fired in a downsizing. It insulates management from the negative reactions of being the "bad guys". So my guess would be their job is to decide what positions have to be cut.

  3. Go BOB on the Huffington Post!

  4. This comment has been removed by a blog administrator.

  5. Current Threats to University of California Don’t Come From the Outside - $3 Million Extravagant Spending by UC President Yudof for University of California Berkeley Chancellor Birgeneau to Hire Consultants - When Work Can Be Done Internally & Impartially
    During the days of the Great Recession, every dollar in higher education counts. Contact Chairwoman Budget Sub-committee on Education Finance Assemblywoman Carter 916.319.2062 - tell her to stop the $3,000,000 spending by Birgeneau on consultants.
    Do the work internally at no additional costs with UCB Academic Senate Leadership (C. Kutz/F. Doyle), the world – class professional UCB faculty/ staff, & the UCB Chancellor’s bloated staff (G. Breslauer, N. Brostrom, F. Yeary, P. Hoffman, C. Holmes etc) & President Yudof.
    President Yudof’s UCB Chancellor should do the high paid work he is paid for instead of hiring expensive East Coast consults to do the work of his job. ‘World class’ smart executives like Chancellor Birgeneau need to do the hard work analysis, and make the tough-minded difficult, decisions to identify inefficiencies.
    Where do the $3,000,000 consultants get their recommendations?
    From interviewing the UCB senior management that hired them and approves their monthly consultant fees and expense reports. Remember the nationally known auditing firm who said the right things and submitted recommendations that senior management wanted to hear and fooled the public, state, federal agencies?
    $3 million impartial consultants never bite the hands (Chancellor Birgeneau/ Chancellor Yeary) that feed them!
    Mr. Birgeneau's accountabilities include "inspiring innovation, leading change." Instead of deploying his leadership and setting a good example by doing the work of his Chancellor’s job, Birgeneau outsourced his work to the $3,000,000 consultants. Doesn't he engage UC and UC Berkeley people at all levels to examine inefficiencies and recommend $150 million of trims? Hasn't he talked to Cornell and the University of North Carolina - which also hired the consultants -- about best practices and recommendations that eliminate inefficiencies?
    No wonder the faculty, staff, students, Senate & Assembly are angry and suspicious.
    In today’s Great Recession three million dollars is a irresponsible price to pay when a knowledgeable ‘world-class’ UCB Chancellor and his bloated staff do not do the work of their jobs.
    Pick up the phone and call: save $3 million for students!

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  6. UCB Chancellor Birgeneau Loss of Trust, Credibility
    The UCB budget gap has grown to $150 million, and still the Chancellor is spending money that isn't there on expensive outside consultants. His reasons range from the need for impartiality to requiring the "innovative thinking, expertise, and new knowledge" the consultants would bring.

    Does this mean that the faculty and management of a world-class research and teaching institution lack the knowledge, impartiality, innovation, and professionalism to come up with solutions? Have they been fudging their research for years? The consultants will glean their recommendations from interviewing faculty and the UCB management that hired them; yet solutions could be found internally if the Chancellor were doing the job HE was hired to do. Consultant fees would be far better spent on meeting the needs of students.

    There can be only one conclusion as to why creative solutions have not been forthcoming from the professionals within UCB: Chancellor Birgeneau has lost credibility and the trust of the faculty as well as of the Academic Senate leadership that represents them. Even if the faculty agrees with the consultants' recommendations - disagreeing might put their jobs in jeopardy - the underlying problem of lost credibility and trust will remain.

  7. Under cover of darkness UC Berkeley Chancellor Birgeneau uses Operation Excellence (OE) to fire loyal Cal employees, faculty,staff...LOYALTY IS DEAD UC BERKELEY CHANCELLOR BIRGENEAU, PROVOST BRESLEUR – SO GET USED TO IT
    Public universities are into a phase of creative disassembly where reinvention and adjustments are constant. Even solid world class institutions like the University of California Berkeley under the leadership of Chancellor Birgeneau & Provost Breslauer are firing employees, staff, faculty and part-time lecturers through “Operational Excellence (OE) initiative”. Yet many employees, professionals and faculty cling to old assumptions about one of the most critical relationship of all: the implied, unwritten contract between employer and employee.
    Until recently, loyalty was the cornerstone of that relationship. Employers promised work security and a steady progress up the hierarchy in return for employees fitting in, accepting lower wages, performing in prescribed ways and sticking around. Longevity was a sign of employer-employee relations; turnover was a sign of dysfunction. None of these assumptions apply today. Organizations can no longer guarantee employment and lifetime careers, even if they want to. UC Berkeley senior management paralyzed themselves with an attachment to “success brings success’ rather than “success brings failure’ and are now forced to break the implied contract with Cal employees – a contract nurtured by management that the future can be controlled.
    Jettisoned Cal employees are finding that the hard won knowledge, skills and capabilities earned while being loyal are no longer valuable in the employment market place.
    What kind of a contract can employers and employees make with each other? The central idea is both simple and powerful: the job or position is a shared situation. Employers and employees face market and financial conditions together, and the longevity of the partnership depends on how well the for-profit or not-for-profit continues to meet the needs of customers and constituencies. Neither employer nor employee has a future obligation to the other. Organizations train people. Employees develop the kind of security they really need – skills, knowledge and capabilities that enhance future employability.
    The partnership can be dissolved without either party considering the other a traitor.
    Employee, faculty loyalty to Chancellor Birgeneau & Provost Bresleur is dead.

  8. UC Berkeley's lessons learned from using consultants to identify inefficiencies. UC Berkeley’s recent elimination of popular sports programs highlighted endemic problems in the university’s management. Chancellor Robert Birgeneau’s eight-year fiscal track record is dismal indeed. He would like to blame the politicians in Sacramento, since they stopped giving him every dollar he has asked for, and the state legislators do share some responsibility for the financial crisis. But not in the sense he means.
    A competent chancellor would have been on top of identifying inefficiencies in the system and then crafting a plan to fix them. Competent oversight by the Board of Regents and the legislature would have required him to provide data on problems and on what steps he was taking to solve them. Instead, every year Birgeneau would request a budget increase, the regents would agree to it, and the legislature would provide. The hard questions were avoided by all concerned, and the problems just piled up to $150 million….until there was no money left.
    It’s not that Birgeneau was unaware that there were, in fact, waste and inefficiencies in the system. Faculty and staff have raised issues with senior management, but when they failed to see relevant action taken, they stopped. Finally, Birgeneau engaged some expensive ($3 million) consultants, Bain & Company, to tell him what he should have been able to find out from the bright, engaged people in his own organization.

    From time to time, a whistleblower would bring some glaring problem to light, but the chancellor’s response was to dig in and defend rather than listen and act. Since UC has been exempted from most whistleblower lawsuits, there are ultimately no negative consequences for maintaining inefficiencies.

    In short, there is plenty of blame to go around. But you never want a serious crisis to go to waste. An opportunity now exists for the UC president, Board of Regents, and California legislators to jolt UC Berkeley back to life, applying some simple check-and-balance management principles. Increasing the budget is not enough; transforming senior management is necessary. The faculty, students, staff, academic senate, Cal. alumni, and taxpayers await the transformation.

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