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A Strategic Misalliance

What happens when the ideal partnership turns into a potential ethical nightmare?
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Morals

It was the sort of home-run deal that many CEOs spend their entire careers hoping for (and working toward). In 1998, Tim Welu, CEO of Paisley Consulting (#254), struck up a relationship with a certain Big Five accounting firm to license and resell his company's flagship product, AutoAudit, a software package that allows businesses to document internal-audit results. The deal gave Paisley, a 43-person shop in Cokato, Minn., distribution in 80 countries. What's more, Welu and his company garnered the endorsement of a seemingly unassailable brand.

If you've read a newspaper in the past 10 months, you can tell where this is headed -- the firm was, of course, Arthur Andersen. And when the Enron meltdown occurred, taking down Andersen in its wake, Welu increasingly found the accounting giant's endorsement less and less welcome. "The Andersen name became a joke," he says. "Then whenever we went into a prospective client's office to demonstrate the product, the first question was always, 'How does this Andersen stuff affect you?' We spent the first 10 to 15 minutes of every presentation explaining about our relationship with them." Although Welu describes the partnership as generally positive, he nonetheless dissolved it in January.

As Welu's experience amply demonstrates, even the most promising strategic alliance can have unforeseen risks. "No one would ever have guessed there was any danger in being associated with Andersen," he says. Welu had signed on for a five-year exclusive deal, but fortunately the contract included an "out" clause whereby either side could terminate with 120 days notice. Welu notes an interesting irony: it was Andersen that had insisted on having the clause in place, since it was facing the prospect of working with a smaller and presumably shakier organization.


54 % of the Inc 500 CEOs surveyed thought that unethical business practices were as common among small private companies as among large organizations.


In retrospect, Welu looks upon the Andersen relationship as a double-edged sword. Sure, Paisley's software sales received a massive boost, but the downside was that the Paisley brand was getting lost in the process. "Some people thought of it as 'the Andersen product," says Welu. "That's a danger when you partner with someone with as much brand presence as Andersen. But how else do you get that kind of exposure and distribution? Overall they were pretty fair with us, and we got equal billing. They had 100,000 employees talking about us, and we had 40. With that much of a discrepancy, there's not much you can do."

But Welu says he has no regrets, especially now that Andersen refugees have gotten jobs at Ernst & Young and Deloitte & Touche, which, he hopes, will help him establish relationships with some of the "Final Four" firms. Not only that, but the seeming tsunami of corporate malfeasance has actually been good for business. "Auditing as a profession has never received so much publicity," he says. Now that the Securities and Exchange Commission is requiring that chief execs sign off on all documentation, the internal-audit department is a CEO's best friend. "We're seeing all kinds of new spending on auditing, and that means customers are buying our software," Welu says. "We're having tremendous growth this year."


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Morals
A Strategic Misalliance


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Last updated: Oct 15, 2002




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