In the wake of fiscal fiascos at WorldCom, Enron, Global Crossing, and Adelphia, just to name a few, the advent of the Sarbanes-Oxley Act of 2002 (SOX) should have been greeted with a standing ovation. It wasn't. Instead, foreign firms were delisting their ADRs from U.S. exchanges, several small local shops went private, and people were knocking on the doors of specialists, panicked about getting their finances in order. Resources Global Professionals (NASDAQ:RECN) proves that one firm's disaster is another's opportunity. Its clients include Southwest (NYSE:LUV), Tyco (NYSE:TYC), and ConocoPhillips (NYSE:COP), just to name a few. We recently spoke with CEO Donald Murray.
TMF: Don, for the benefit of those who don't know Resources Global Professionals, can you give us an idea of what the company is?
Donald Murray: Resources Global Professionals is an international professional services firm that provides high-quality and experienced professionals to clients on a per-project basis. The firm was originally funded by Deloitte in the United States and by Ernst & Young in Europe. It was created to act as an extension of our clients, empowering them with the control to execute their strategies on a more cost-effective basis.
We rely on our "Big Four" heritage to provide experienced professionals and proprietary technology for company initiatives in accounting, finance, human capital, information management, internal audit, supply chain management, and legal services.
Our clients range from small entrepreneurial entities to large Fortune 500 corporations. Our professionals average 18 years of experience, and many are alumni of the Big Four accounting firms, Fortune 500 companies, and traditional consulting firms.
TMF: What advantages does your typical customer derive from hiring your associates to handle its SOX compliance work, as opposed to just having its HR department hire a bunch of accountants full time to get papers in order?
DM: We offer clients the flexibility and agility to fulfill their specialist resource requirements and access experienced professionals when they need, without the full-time commitment. Given the demand for professional services and the capacity and independence constraints of the Big Four firms, we feel our model for engaging experienced professionals is advantageous. We can provide the skill and talent of our SOX experts for as long as the client needs. In addition, our ramp-up period is significantly shorter when compared with hiring a full-time employee. We've been helping clients with their SOX work from the moment the act went into effect in 2002, and we can apply those years of experience and expertise immediately.
TMF: As I understand it, the SOX legislation has been quite a boon to your business. But SOX was passed in 2002. Do most companies now have their internal controls up to snuff, or is there still work to be done -- and money to be made by Resources Global -- in this area?
DM: Based on our clients' experience, the larger companies have made the most significant improvement to their internal controls and documentation. However, SOX is not a one-time event; it's a dynamic process. Even if internal controls are designed effectively, companies still need to test them on an ongoing basis. In addition, organizational events such as systems changes, staff turnover, and mergers and acquisitions need to be reviewed and monitored.
Because of the evolving nature of compliance and controls, Resources is seeing many opportunities to continue to expand services to our clients in their ongoing SOX efforts. Given our compelling value proposition, we continue to win new clients in their second year of SOX work (remediation, ongoing testing, etc.). We have developed an impressive track record of converting existing relationships and leveraging them into projects in accounting, finance, supply chain management, legal work, human resources support, and more. While the amount companies are spending on SOX has declined, the total pie is actually growing. IT spending is hot right now, and SOX is driving systems implementations and new processes.
TMF: As a former Deloitte & Touche partner, I imagine you followed the collapse of Arthur Andersen with some interest. Speaking just personally, and not for Resources Global, what's your take on what happened there?
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Fool contributor Rich Smith does not own shares of any company mentioned here. Resources Global is a Stock Advisor pick; Tyco is an Inside Value recommendation. The Motley Fool isinvestors writing for investors.
