Services Supply Risk Watch — Huron Consulting

Earlier this week, Huron Consulting dropped an earnings restatement bombshell proving that you don't need to be an Indian services provider to mislead investors and call into question the future viability of your firm. According to the Reuter's story covering the news "shares of Huron Consulting Group Inc (HURN.O) lost 70 percent of their value in early trading on Monday, after the company said it will restate more than three years of earnings and announced the departure of its entire management team amid an accounting scandal". Making this an even more juicy story from a Spend Management perspective is the fact that Huron has had an active practice in sourcing and cost reduction in the past (Loren Trimble, who used to co-lead the Arthur Andersen practice before that firm's implosion, was hired to originally lead this group for Huron).

What happened in this particular case? Reuter's notes that "Huron's audit committee discovered shareholders of four businesses that Huron acquired between 2005-2007 redistributed portions of their acquisition-related payments among themselves and to certain Huron employees". One sell-side analyst in the report suggests that "there are legitimate worries about Huron being a going concern, but [we] cannot reasonably quantify the risk". And without question, just as another analyst noted, "the damage to Huron's reputation will likely be significant".

The cases of Huron and Satyam collectively prove that companies need to think just as much about supply risk management when it comes to services providers as direct material suppliers. Granted, it's one thing to swap out one IT body-shop for another, but when it comes to more specialized professional services, transitioning spend to a new supplier is not exactly a walk in the services park. As a final aside, I'm actually happy this happened to an American firm versus another Indian provider simply to prove that the risk can be just as high onshore as off. Sloppy accounting and fraud can happen anywhere. The key is to not only be prepared for it within your supply base, but to also have the ability to move quickly if and when it surfaces -- halfway around the world or in your own backyard.

Jason Busch

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