I was very fortunate to attend Brigham Young University. I graduated with a master’s degree in accounting, and I’m not sure I was really aware at the time of what a great education I had received. When I entered BYU I wanted to play football, but once I began taking accounting and business classes at the Marriott School, I realized I had much better prospects in accounting.
Deloitte, where I have spent my entire career, also recognizes the quality of this institution. BYU is one of only thirty-five universities across the country that we designate as a strategic school, devoting additional resources for programs and recruiting efforts. We have more than four hundred BYU alumni working for Deloitte, including forty-six partners, principals, and directors. Last year we hired nearly fifty students for full-time positions and about forty students for internships.
When I started at BYU I never could have envisioned the opportunities this university would create for me. I’d like to share two things I’ve learned throughout my career that I hope will benefit you: the importance of integrity in leadership and the need to challenge yourself.
Building Trust
Currently I am responsible for the audit of a Fortune 50 company. Each year my team around the world spends thousands of hours performing the audit. I then sign my name on two pieces of paper—one saying the financial statements are fairly presented and another saying the internal controls are effective. Why are these papers important after spending thousands and thousands of hours doing the real output?
Before investing money, people want to know if they can rely on the information that is provided by my client. They look to Deloitte to provide a seal of approval. In short, they trust that when I sign my name on those two pieces of paper, I have independently and objectively examined the underlying support for that information. Without that trust, those papers would be worthless.
This year the companies that Deloitte will audit have a market cap of about four trillion dollars. There’s almost another trillion dollars of mergers and acquisitions that will be valued in part based on the results of our audits. The investing public deserves to make vital investing decisions based on information they can trust, information they can rely on, and information they know has been subjected to examination by someone with the utmost integrity.
Standard Procedure
Just as trust is important to my role as an auditor, ethics are the absolute foundation on which careers and firms are built.
When I was in Dallas I served a client who was interested in expanding operations into the energy futures trading business. At the time it was a relatively new area. There weren’t any accounting standards directly on point. Typically, when that’s the case we look to other standards for analogy and make sure that the economics of the transaction are appropriately reflected in the accounting.
We challenged our client on their proposed accounting, and the response was, “But that’s the way they do it at Enron.”
Enron is still credited with committing the largest accounting fraud in history. It was one of the world’s greatest corporate tragedies and, I think, a very significant human tragedy as well. Many of those who invested in Enron lost their life savings as a result of the things that happened there. The toll on corporate America was also great, and the company’s collapse was one of the many corporate failures that aided the passage of the Sarbanes-Oxley Act and the establishment of the Public Company Accounting Oversight Board. That organization regulates what we do and has a great impact on my day-to-day work.
Andrew Fastow, the former CFO at Enron, was the mastermind who designed the off-balance sheet entities that helped Enron hide its true financial condition from investors. He insisted he got approval—from lawyers, accountants, senior management, and the board—for every one of his deals.
How can you get approval from all of those advisors and still be committing fraud? The transactions he spearheaded intentionally created a false appearance of what Enron was and made the company look healthy when it really wasn’t.
“I knew it was wrong,” Fastow said. “I knew what I was doing was misleading, but I didn’t think it was illegal.”
Who knows what values Andrew Fastow may have had when he started entering into those transactions. Whatever they were, they obviously weren’t enough.
There’s nothing—no issue, opportunity, client, boss, or fee—that should compromise your integrity or divert your moral compass. The consequences of compromise are dire and swift. Warren Buffett was right when he said, “It takes twenty years to build a reputation and five minutes to ruin it.”
In Character
Before we provide services to a new client or renew our audit relationships with existing clients, we go through a robust acceptance process in which we assess whether we want to be associated with that company, its management, and its board of directors. We perform background checks on every member of the board and senior management.
Some time ago one of our clients spent months searching for an individual to fill a position on the board and serve as its audit committee chair. Finally someone was identified who seemed to meet all the criteria.
To put this situation in perspective, the fees we received from this client and its controlling shareholder were somewhere north of $50 million.
As we conducted our background check, we found that this individual’s past actions cast some questions on his integrity. We had to go back to the client and tell them that unless they removed this individual from the audit committee, we would not issue our opinion.
Although it was a difficult discussion to have, it was not a hard decision to make. We refused to be associated with an individual whose character could cast aspersions on our integrity. If you’re ever in a place where things are running too close to the line or the people you’re working with are of questionable character, that’s a place you don’t want to be.
Comfort Zone
With integrity comes responsibility—to ourselves, our clients, our colleagues, our families, and the Lord. In order to meet the responsibility to do your best, I believe it’s important to challenge yourself.
When I was a staff accountant in Salt Lake City, where I started my career, I became aware of the firm’s management development program. I set a goal to receive that assignment when I became a manager. This would entail a transfer to New York City. I had only visited there once in my life.
Shortly before that assignment was to begin, my wife, Ann, was involved in an automobile accident, and our triplets were born prematurely. Two of the children passed away. Our son Clark survived the ordeal but faced significant medical problems. Our oldest son was only eight months older than Clark at the time. We were a young family dealing with a tremendous challenge.
We really didn’t feel it was right for us to take on the assignment in New York City, where we had no family or friends and didn’t know any doctors who would be acquainted with Clark’s medical condition.
Fortunately, while we were in the hospital, a nurse came up to us and said, “You know, there are good doctors in New York. That shouldn’t have any impact on your decision as to whether or not to take this assignment.”
So we took on the challenge. We stepped out of our comfort zone. We moved to New York. The opportunity paid tremendous dividends. We developed lasting friendships. We met Church members who became like family, and there were, in fact, good doctors in New York. The exposure and the experiences I had while I was on that assignment led directly to the many professional successes I’ve experienced since then.
Ready for Action
Sometimes we need to be prepared to take on challenges that we don’t have a lot of time to think about.
While living in Philadelphia, my wife and I had the opportunity to participate in an activity in which the youth commemorated the Mormon pioneer trek. Ann and I each drove a car transporting the youth to Gettysburg, Pennsylvania, where the event was held.
After three days without any cell phone coverage, I was listening to my voicemail on the Saturday drive home. I had many urgent messages from the CEO, saying, “I need to talk to you.”
He was meeting with one of our clients on Monday morning and wanted to present my résumé as someone who could take over as the partner serving this client. It would result in an immediate transfer from Philadelphia to Chicago.
My wife and I both pulled off the freeway to get gas. I walked over to Ann. She rolled down her window, and I asked if she’d be willing to transfer to Chicago. She said, “Sure!”
Ann has supported me in many ways throughout my career. She’s exhibit one in demonstrating that no success is achieved by yourself.
As I look back, many people have been instrumental in my success. As you go out into the business world, find mentors who know the ropes and can help you navigate difficult decisions. Associate with people of integrity.
I’d like to close with a quote by Alan Simpson, a former senator from Wyoming. He said: “Telling the truth is the essence of leadership. If you have integrity, nothing else matters. And if you don’t have integrity, nothing else matters.”
_
Address given by Richard Herlin
Illustrated by Mark Smith
About the Speaker
Richard Herlin is the Marriott School’s 2013 Honored Alum. A partner at Deloitte, Herlin began his career with the firm in Salt Lake City and has since worked in New York City; Atlanta; Wilton, Connecticut; Dallas; Philadelphia; and Chicago. He earned his MAcc from BYU in 1980. Herlin is a member of the Marriott School’s National Advisory Council (NAC), and his wife, Ann, is a former chair of the NAC women’s organization. The Herlins have four children and reside in Midland, Michigan.
