When we got a tip Friday mid-morning that Lynne Doughtie had told KPMG U.S. staff in a video message that she wouldn’t seek another term as chairman and CEO, I wasn’t all that surprised. I figured she’d be one and done.
Doughtie seems like a nice, hardworking, intelligent woman. I don’t think KPMG would have promoted some dolt to lead the firm for the next five years when she was given the master keys to the House of Klynveld in July 2015. After all, KPMG’s advisory business had become the U.S. firm’s fastest-growing practice—not tax, not audit—under her leadership, generating $2.65 billion of the firm’s $6.87 billion in total U.S. revenue in FY 2014.
Doughtie made national headlines in 2015 when she was elected as the first woman to lead KPMG’s U.S. firm, thus becoming the second woman CEO of a Big 4 firm in the States. Just by looking at her resume and her accomplishments, you knew she had the chops for the job, just like Cathy Engelbert had the chops to lead Deloitte.
During her tenure, the firm brought out the giant scissors on several occasions to open Ignition Centers across the U.S.; broke ground on its new $450 million, 800,000-square-foot Kamp KPMG (officially called the Lakehouse) which will open in the Orlando area next year; saw U.S. revenues increase year-over year—from $8.63 billion in FY 2016 to $9.46 billion in FY 2018; and has often been recognized for going all in on diversity and inclusion.
But there’s nothing like a good scandal to completely obliterate the reputation of a firm in the Big 4, and KPMG was involved in a doozy, the likes of which the accounting profession had never seen before.
Doughtie often preached how important ethics and integrity were not only to KPMG but to her as a leader. So, having to fire six of the firm’s top executives, five of whom were indicted, because they hatched and executed a plan to steal confidential audit inspection information from insiders at the PCAOB was not a good look.
There have been other cheating allegations within the audit practice at KPMG, the firm has been hemorrhaging public company audit clients the past few years, morale is low (from what we’re hearing), the firm is still the butt of jokes (“Big 3 and KPMG”), and, to top it all off, Phil still hasn’t won the U.S. Open.
And let’s not forget that KPMG might be replaced after more than 100 years as external auditor for General Electric, which was just accused of perpetuating a $38 billion accounting fraud.
When news broke last year that Engelbert wouldn’t be renominated for a second, four-year term as Deloitte CEO, I think that shocked a lot of Green Dots (even though there hasn’t been a two-term Deloitte U.S. CEO in forever). But I don’t think there were many Klynveldians who were shocked to hear what Doughtie said in that video message on Friday morning.
So, what drove her to make that decision? Got a few obvious possibilities:
1. She is being forced out.
It’s extremely plausible that all the negative publicity KPMG U.S. has received in the national (and international) press the past couple of years did Doughtie in. She might have already been told “don’t even bother trying for a second term” as chairman and CEO. And because she’s in the fifth and final year of her term, now’s a good time to let all KPMGers know that she’s going to step aside in June 2020 so the search for a new CEO can officially begin.
The $50 million settlement KPMG reached with the SEC in June because of the PCAOB information stealing scandal, as well as for the profound cheating on internal training exams that apparently was also going on within the firm’s audit practice, may have been the final straw for The Powers That Be. And as a result of the PCAOB scandal, KPMG appointed two independent directors last year to its U.S. board—retired Air Force General Janet Wolfenbarger and Linda Addison, immediate past U.S. managing partner of global law firm Norton Rose Fulbright.
Of the five former KPMG executives who were indicted in that scandal, three pleaded guilty (Brian Sweet, Cynthia Holder, and Thomas Whittle) to wire fraud and conspiracy charges, one (David Middendorf) was convicted in March of conspiracy to commit wire fraud and wire fraud, and one (David Britt) is scheduled to go on trial this fall. Holder is the only one who has been sentenced thus far; she will be serving eight months in a federal prison beginning in October.
While the plan to cheat the regulatory inspection process was put into motion three months or so before Doughtie moved into the corner office in July 2015, Holder obtained confidential audit inspection selections for KPMG from PCAOB inspections leader Jeffrey Wada in March 2016 and in January 2017—well into Doughtie’s term as CEO. And after getting that secret data from the PCAOB, KPMG partners were found to have revised audit workpapers to reduce the likelihood of deficiencies being found by the regulator’s inspectors.
Wada was also convicted of conspiracy to commit wire fraud and wire fraud in March.
If that wasn’t bad enough, we found out from the SEC in June that KPMG auditors—at all levels of seniority—were sharing and/or receiving answers to internally administered exams on training courses so they and their colleagues could pass these tests. This exam cheating was also going on during Doughtie’s tenure as CEO.
As a result, morale is really low, according to a source who recently left KPMG:
“The last two years have produced a lot of controversy in the media and public eye. It’s very possible she’s going out to try new things, but there is a culture crisis internally at the moment and I think there is a desire for her to get away from it, or the firm to take action and ask her not to continue leading.
“Morale is quite low, with a feeling from many that it has turned into a toxic work environment over the last 18 months.”
And if you missed Adrienne’s article a couple months ago, nearly 30% of current KPMG employees said the PCAOB and internal test cheating scandals confirmed their perceptions of the firm, while about 29% of Klynveldians said the scandals have changed their perceptions of the firm, according to a survey by the professional community app Fishbowl.
And I mentioned earlier that KPMG was bleeding SEC audit clients. I reviewed the auditor changes roundup posts on Audit Analytics for FY 2016, FY 2017, and FY 2018, and found that in those three years, KPMG lost 109 public company audit clients while gaining 43, for a total of -66. That is tied with PwC (-105/+39) for the worst overall gain/loss score among the Big 4 during those three years.
So, it’s definitely possible she’s being forced to call it a career at KPMG.
2. She did not want to serve an abbreviated second term.
When her five-year term expires in June 2020, Doughtie will be 57 years old. Mandatory retirement age at KPMG is 60. Even non-mathletes like me and Adrienne can figure out that she wouldn’t be able to serve another full five-year term.
I guess it’s possible she could serve an abbreviated second term, but I would imagine both Doughtie and KPMG’s board would think that is a dumb idea.
3. She is leaving because she wants to.
Being the leader of one of the largest professional service firms in the U.S. has to eventually take its toll. When she leaves KPMG in June 2020, Doughtie will have spent 35 years working at the firm—that’s 61% of her life.
We haven’t seen or heard the message she sent on Friday morning, but according to those who have, Doughtie sounded “upbeat” and it seemed she is leaving KPMG on her own terms. Maybe knowing that she is ending her career at a firm that has been compared to a dumpster fire is a huge weight that has been lifted off of her shoulders.
— Ian Fraser (@Ian_Fraser) June 20, 2019
So, what’s next for LD? She told the Richmond Times-Dispatch a couple of years ago that when she does retire, she will “stay active, whether teaching or serving on corporate and nonprofit boards.”
According to Doughtie’s bio, she already serves on several nonprofit boards, including the Partnership for New York City (along with PwC Chairman Tim Ryan and Deloitte CEO Joe Ucuzoglu), the LUNGevity Foundation (her mother and grandmother died from lung cancer), Catalyst (along with Engelbert) and NAF. She also is a board member of Chief Executives for Corporate Purpose, a trustee of the U.S. Council for International Business, and a member of The Business Roundtable and The Business Higher Education Forum.
Joining a corporate board seems like the “in” thing to do if you’re a former Big 4 CEO. Ex-EY global chairman and CEO Mark Weinberger just did. Doughtie’s predecessor at KPMG U.S., John Veihmeyer, serves on the board of Ford Motor Co., and Johnny V.’s predecessor, Tim Flynn, is on the board of JPMorgan Chase, Alcoa, Walmart, and United Healthcare.
Or she could go teach at her alma mater, Virginia Tech, where she is a board member of the Pamplin Advisory Council, as well as a member of its Accounting and Information Systems Advisory Board.
One thing we do know is that Scott Ozanus, chairman of KPMG’s Americas region and deputy chairman and chief operating officer of KPMG U.S., won’t be the firm’s next chairman and CEO. We’ve been told he is retiring in 2020.
So, who are the leading candidates to take over as KPMG U.S. chairman and CEO? We don’t know. We hope KPMGers might have an idea and can tell us. Let’s throw out some names just for fun. How about Carl Carande, who succeeded Doughtie as head of the firm’s advisory practice? Maybe Jackie Daylor, KPMG’s national managing partner of audit quality and professional practice? Or maybe Harry Argires, national managing partner of audit operations?
KPMGers, if you’re hearing some chatter about potential CEO candidates, shoot us an email. And feel free to speculate in the comment section.