History Podcasts

Has the accounting services industry ever been disrupted in the U.S.?

Has the accounting services industry ever been disrupted in the U.S.?

What is the most-radical example of a disrupting service / model in the accounting business services industry?

What I mean by disrupted is that someone has at some point taken such a radically different approach, to deliver the same service that the old way of doing things was abandoned.

One comparable example (though not a business service):

The invention of the electric light bulb. This was a technology, which completely disrupted the lighting market. However, I assume that if Thomas Edison would have walked around from house to house to and attempted selling a light-bulb together with some sort of membership in the local grid, then his marketing efforts would have failed because they would not have believed that it was possible. His advantage was that he could show people that it worked and thereby immediately gaining trust.

Was there any time in U.S. history in which accounting/finance/banking took a sharp turn? Did this occur, for instance, during or as a result of the Great Depression? Was the collapse of the "Big Eight" accounting firms into the "Big Four" following the demise of Arthur Andersen such a watershed event?


The 1929 stock market crash (and the excesses, bordering on illegality that led to it) led to the creation of the Securities and Exchange Commission in 1934, following the onset of the Great Depression in the early 1930s.

http://en.wikipedia.org/wiki/U.S._Securities_and_Exchange_Commission

There were Congressional acts, those of 1933 and 1934 that changed the way that companies accounted for, and more importantly reported their financial results. The Act of 1933 dealt mainly with beefed up reporting requirements. The Act of 1934 established the Securities and Exchange Commission (SEC) to enforce the 1933 Act. It also gave the SEC to regulate the offering and sale of securities such as stocks and bonds. As such, the oversight of the SEC greatly reduced (although it did not totally eliminate) a number of "shady" practices perpetrated by companies and stock brokers on unsuspecting investors. As such, 1933-34 represents a watershed for corporate accounting to investors.

The reduction of the "Big 8" accounting firms to the "Big 4," culminating in the collapse of Arthur Andersen (earlier the fifth) in 2002, due to the Enron scandal, may have been the harbinger of the new 1930s. It created a shortage of "large" accounting behemouths, but contributed to the rise of a group of smaller, hopefully more effective accounting firms.

One book (written by yours truly) that discusses the original 1929 stock market crash, the 1930s Depression, and the possibility of a new crash (like the one that took place in 2008), and a possible return to the modern 1930s is http://www.amazon.com/Modern-Approach-Graham-Investing-Finance/dp/0471584150/


The mass internal accounting structures which developed with modern firms in the 1930s and 1940s disrupted small manufacture, and radically changed the pool of accounting profession and labour opportunities. So "the firm" as in the modern firm in Fordism, including its corresponding departmental structure in government, caused a rupture in the supply of accountancy services-but this happened under an increasing market for accounting services and was tied with increasing personal accounting complexity.

Similarly with the development of outsourced accounting specialist firms since the change in Fordism in the 1970s. ( http://www.ey.com/GL/en/About-us/Our-people-and-culture/Our-history/About-EY---Key-Facts-and-Figures---History---Timeline )

Accountancy as a professional service is tied into firm and state-as-capitalist structures.

Accounting history is a specialist sub-area, normally supervised under academic accounting. It is both quite productive, and quite exciting as a discipline, it deals with the formal subsumption of value: how production gets turned into profits.


Residential customers and small businesses can find out if mail is being delivered, or if their Post Offices are open. Business mailers get more detailed information about USPS mail processing facilities, and the operating status of delivery units, as well as any impacts on mail delivery overseas.

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International


The 10 Worst Corporate Accounting Scandals of All Time

If there is one theme to rival terrorism for defining the last decade-and-a-half, it would have to be corporate greed and malfeasance. Many of the biggest corporate accounting scandals in history happened during that time. Here's a chronological look back at some of the worst examples.

Waste Management Scandal (1998)

  • Company: Houston-based publicly traded waste management company
  • What happened: Reported $1.7 billion in fake earnings.
  • Main players: Founder/CEO/Chairman Dean L. Buntrock and other top executives Arthur Andersen Company (auditors)
  • How they did it: The company allegedly falsely increased the depreciation time length for their property, plant and equipment on the balance sheets.
  • How they got caught: A new CEO and management team went through the books.
  • Penalties: Settled a shareholder class-action suit for $457 million. SEC fined Arthur Andersen $7 million.
  • Fun fact: After the scandal, new CEO A. Maurice Meyers set up an anonymous company hotline where employees could report dishonest or improper behavior.

Enron Scandal (2001)

  • Company: Houston-based commodities, energy and service corporation
  • What happened: Shareholders lost $74 billion, thousands of employees and investors lost their retirement accounts, and many employees lost their jobs.
  • Main players: CEO Jeff Skilling and former CEO Ken Lay.
  • How they did it: Kept huge debts off balance sheets.
  • How they got caught: Turned in by internal whistleblower Sherron Watkins high stock prices fueled external suspicions.
  • Penalties: Lay died before serving time Skilling got 24 years in prison. The company filed for bankruptcy. Arthur Andersen was found guilty of fudging Enron's accounts.
  • Fun fact: Fortune Magazine named Enron "America's Most Innovative Company" 6 years in a row prior to the scandal.

WorldCom Scandal (2002)

  • Company: Telecommunications company now MCI, Inc.
  • What happened: Inflated assets by as much as $11 billion, leading to 30,000 lost jobs and $180 billion in losses for investors.
  • Main player: CEO Bernie Ebbers
  • How he did it: Underreported line costs by capitalizing rather than expensing and inflated revenues with fake accounting entries.
  • How he got caught: WorldCom's internal auditing department uncovered $3.8 billion of fraud.
  • Penalties: CFO was fired, controller resigned, and the company filed for bankruptcy. Ebbers sentenced to 25 years for fraud, conspiracy and filing false documents with regulators.
  • Fun fact: Within weeks of the scandal, Congress passed the Sarbanes-Oxley Act, introducing the most sweeping set of new business regulations since the 1930s.

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Tyco Scandal (2002)

  • Company: New Jersey-based blue-chip Swiss security systems.
  • What happened: CEO and CFO stole $150 million and inflated company income by $500 million.
  • Main players: CEO Dennis Kozlowski and former CFO Mark Swartz.
  • How they did it: Siphoned money through unapproved loans and fraudulent stock sales. Money was smuggled out of company disguised as executive bonuses or benefits.
  • How they got caught: SEC and Manhattan D.A. investigations uncovered questionable accounting practices, including large loans made to Kozlowski that were then forgiven.
  • Penalties: Kozlowski and Swartz were sentenced to 8-25 years in prison. A class-action lawsuit forced Tyco to pay $2.92 billion to investors.
  • Fun fact: At the height of the scandal Kozlowski threw a $2 million birthday party for his wife on a Mediterranean island, complete with a Jimmy Buffet performance.

HealthSouth Scandal (2003)

  • Company: Largest publicly traded health care company in the U.S.
  • What happened: Earnings numbers were allegedly inflated $1.4 billion to meet stockholder expectations.
  • Main player: CEO Richard Scrushy.
  • How he did it: Allegedly told underlings to make up numbers and transactions from 1996-2003.
  • How he got caught: Sold $75 million in stock a day before the company posted a huge loss, triggering SEC suspicions.
  • Penalties: Scrushy was acquitted of all 36 counts of accounting fraud, but convicted of bribing the governor of Alabama, leading to a 7-year prison sentence.
  • Fun fact: Scrushy now works as a motivational speaker and maintains his innocence.

Freddie Mac (2003)

  • Company: Federally backed mortgage-financing giant.
  • What happened: $5 billion in earnings were misstated.
  • Main players: President/COO David Glenn, Chairman/CEO Leland Brendsel, ex-CFO Vaughn Clarke, former senior VPs Robert Dean and Nazir Dossani.
  • How they did it: Intentionally misstated and understated earnings on the books.
  • How they got caught: An SEC investigation.
  • Penalties: $125 million in fines and the firing of Glenn, Clarke and Brendsel.
  • Fun fact: 1 year later, the other federally backed mortgage financing company, Fannie Mae, was caught in an equally stunning accounting scandal.

American International Group (AIG) Scandal (2005)

  • Company: Multinational insurance corporation.
  • What happened: Massive accounting fraud to the tune of $3.9 billion was alleged, along with bid-rigging and stock price manipulation.
  • Main player: CEO Hank Greenberg.
  • How he did it: Allegedly booked loans as revenue, steered clients to insurers with whom AIG had payoff agreements, and told traders to inflate AIG stock price.
  • How he got caught: SEC regulator investigations, possibly tipped off by a whistleblower.
  • Penalties: Settled with the SEC for $10 million in 2003 and $1.64 billion in 2006, with a Louisiana pension fund for $115 million, and with 3 Ohio pension funds for $725 million. Greenberg was fired, but has faced no criminal charges.
  • Fun fact: After posting the largest quarterly corporate loss in history in 2008 ($61.7 billion) and getting bailed out with taxpayer dollars, AIG execs rewarded themselves with over $165 million in bonuses.

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Lehman Brothers Scandal (2008)

  • Company: Global financial services firm.
  • What happened: Hid over $50 billion in loans disguised as sales.
  • Main players: Lehman executives and the company's auditors, Ernst & Young.
  • How they did it: Allegedly sold toxic assets to Cayman Island banks with the understanding that they would be bought back eventually. Created the impression Lehman had $50 billion more cash and $50 billion less in toxic assets than it really did.
  • How they got caught: Went bankrupt.
  • Penalties: Forced into the largest bankruptcy in U.S. history. SEC didn't prosecute due to lack of evidence.
  • Fun fact: In 2007 Lehman Brothers was ranked the #1 "Most Admired Securities Firm" by Fortune Magazine.

Bernie Madoff Scandal (2008)

  • Company: Bernard L. Madoff Investment Securities LLC was a Wall Street investment firm founded by Madoff.
  • What happened: Tricked investors out of $64.8 billion through the largest Ponzi scheme in history.
  • Main players: Bernie Madoff, his accountant, David Friehling, and Frank DiPascalli.
  • How they did it: Investors were paid returns out of their own money or that of other investors rather than from profits.
  • How they got caught: Madoff told his sons about his scheme and they reported him to the SEC. He was arrested the next day.
  • Penalties: 150 years in prison for Madoff + $170 billion restitution. Prison time for Friehling and DiPascalli.
  • Fun fact: Madoff's fraud was revealed just months after the 2008 U.S. financial collapse.

Satyam Scandal (2009)

  • Company: Indian IT services and back-office accounting firm.
  • What happened: Falsely boosted revenue by $1.5 billion.
  • Main player: Founder/Chairman Ramalinga Raju.
  • How he did it: Falsified revenues, margins and cash balances to the tune of 50 billion rupees.
  • How he got caught: Admitted the fraud in a letter to the company's board of directors.
  • Penalties: Raju and his brother charged with breach of trust, conspiracy, cheating and falsification of records. Released after the Central Bureau of Investigation failed to file charges on time.
  • Fun fact: In 2011 Ramalinga Raju's wife published a book of his existentialist, free-verse poetry.

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The mid-decade: The future of work arrives

As we entered the middle of the decade, the world was not the same place that it had been just a few years prior. Technology, which continued to transform the day-to-day lives of people around the world, had also come to work. While the foundations of digital—mobile, cloud, social media—were established early in the decade, by the middle of the decade this shifted to a world in which technology was viewed as a driver and enabler of every aspect of work. Even in emerging markets such as China, where the fast-growing online economy had created 282 million internet users under age 25 alone, 9 the digital organization was often becoming a C-suite topic. Humans and technology had become coworkers in ways that would have been difficult to predict even a few years prior.

Yet, despite the explosion of new technology, productivity was the lowest it had been since 1970. 10 Furthermore, negative side effects from the explosion of technology started to appear. As we wrote in our 2014 discussion of The overwhelmed employee, “Information overload and the always-connected 24/7 work environment were overwhelming workers, undermining productivity, and contributing to low employee engagement.” 11 In the race to take advantage of the promise of new technology, many organizations had failed to consider what other changes would be necessary in order to unlock the real potential of bringing new technologies into the world of work.

The magnitude of this challenge started to come into focus in our 2016 report, The new organization: Different by design, which explored the possibility that companies would need to transform themselves to handle an emerging “new social contract” between employers and workers. 12 By 2017, as the tensions between humans and technology continued to accelerate, it became clear that an even more radical transformation would be required to enable humans and technology to work productively together. In that year’s report, Rewriting the rules for the digital age, we questioned whether some traditional structures and orthodoxies were holding some organizations back from the expected technology-driven productivity gains. 13 We suggested that organizations needed to “rewrite the rules” to navigate the exponential change that arrived with the full onset of the digital age.

Those new rules would require more than merely inserting technologies into existing structures and processes. Instead, organizations needed to think about how to redesign jobs and redesign work in ways that represented a fusion of, rather than a trade-off between, humans and technology. With the recognition that technology, human, and business issues are not separate but intertwined came the realization that these issues would have to be approached in new ways. They would need to reconfigure themselves to work in networks of teams that included both people and machines, drawing on adaptable organizational structures to drive greater agility. They would also need to work differently as leaders—bringing an integrated enterprise mindset at every turn. We found ourselves then at the epicenter of the future of work, beginning the journey to fundamentally reinvent work, workforces, and workplaces.


FAF, Financial Accounting Foundation.

Financial reporting&mdashbalance sheets&mdashincome statements&mdashfinancial notes and disclosures&mdashis the language we use to communicate information about the financial condition of a company, public or private, a not-for-profit organization, or a state or local government.

The accounting standards developed and established by the FAF&rsquos standard-setting boards&mdashthe Financial Accounting Standards Board and the Governmental Accounting Standards Board&mdashare the rules that determine how that language is written. Those rules are known collectively as U.S. Generally Accepted Accounting Principles&mdashor U.S. GAAP.

Companies, not-for-profits, governments, and other organizations use accounting standards as the foundation upon which to provide users of financial statements with the information they need to make decisions about how well an organization or government is managing its resources.

Investors and lenders can use this information to decide where to supply resources or lend money. Donors, including foundations and grantors, can use this information to decide where to donate. Citizens can use this information to decide where public officials are spending tax dollars.

That information must be clear, concise, comparable, relevant and representationally faithful.

For companies to secure financing they need to hire workers, build plants, and invest in research and development, they must report financial information in a way that investors find useful. High quality financial accounting and reporting standards promote better information in the marketplace. Better information fosters greater transparency. Transparent, relevant information helps investors and lenders make better decisions about where to put their money with confidence. Investors, recognizing the value of high quality financial information, support an objective and inclusive standard-setting process. This &ldquovirtuous cycle&rdquo ultimately helps make our capital markets more efficient and robust.

Accounting has a long history. Double entry bookkeeping&mdashdebits on the left, credits on the right&mdashbegan hundreds of years ago. It was first codified in the 15th Century by a Franciscan monk named Luca Bartolomes Pacioli. His work was built on that of another Italian scholar, Benedetto Cotrugli.

Portrait of Luca Bartolomes Pacioli, 1495

The extent to which improvements in financial reporting have affected our country&rsquos economic growth has been the subject of much scholarly research&mdashand there is evidence that improved financial reporting helped spur investment at critical moments in our economic history.

During the Industrial Revolution, as America&rsquos transportation links were being forged, railroad companies pioneered the use of financial reporting to attract public and private financing for projects. Companies reporting financial information to investors produced an influx of investment that led to a revolution in the way that goods were brought to market&mdashand to unprecedented economic growth.

For many years, public companies themselves took the lead in accounting innovation. The expansion of the U.S. automobile industry in the 1920s can partially be attributed to accounting modernization. General Motors, by presenting its financial information in the form of ratios such as return on investment and return on equity, was able to provide the market with more detailed and useful metrics. As a result, the company could adapt more quickly to market changes and make better decisions regarding investments. This type of analysis ushered in a new system of data reporting that benefited GM, its investors and the highly competitive automobile industry.

The pivotal economic event of the 20th century, the Great Depression, focused the U.S. on the need for comprehensive accounting reform. Many market participants felt that poor accounting and reporting procedures helped cause the downturn. In 1930, the American Institute of Accountants (known as the AICPA since 1957) and the New York Stock Exchange began an attempt to revise financial reporting requirements. Shortly thereafter, passage of the Securities Act of 1934 chartered the Securities and Exchange Commission, and gave the SEC the power to oversee accounting and auditing methods.

For nearly 40 years, the SEC looked to bodies established by the accounting profession to develop and establish accounting standards.


SEC Commission, 1936 (Courtesy, SEC Historical Society)

By the 1970s, market participants&rsquo thinking about accounting standard setting evolved, as they came to believe in the importance of an independent standard-setting structure, separate and distinct from the accounting profession&mdashso that the development of standards would be insulated from the self-interests of practicing accountants and their clients. Following a detailed study, the accounting profession in 1972 recommended creation of a new body, the Financial Accounting Foundation, to serve as the nation&rsquos accounting standard-setting authority.

Through the FAF, the FASB in 1973 became the designated standard-setter in the private sector for setting standards that govern the preparation of corporate financial reports along with not-for-profit organizations.

In 1984, the Government Accounting Standards Board (GASB) was formed under the FAF umbrella to issue standards and other communications that result in decision-useful information for users of government financial reports. Today owners of municipal bonds, members of citizen groups, legislators, and oversight bodies rely on this financial information to shape public policy and make wise investments.


Replace everything in your pocket

The iPhone became intertwined in our lives because it replaced so many other devices.

Instead of a personal communicator with your calendar and notes, I use my iPhone. I don't have an alarm clock anymore. It replaced in-car GPS devices. MP3 players. Flashlights!

"Fifteen years ago, we used the wireless phone to make a call. Today, we use it for everything else. It's the remote control for our lives," wireless analyst Jeff Kagan said.

Perhaps the best example of the iPhone's transformational power is what it did to the camera. Some 109 million pocket cameras were sold in 2010, according to data from the Camera & Imaging Products Association. But in 2018, the last year for which full data is available, only 9 million cameras with built-in lenses were sold.

"Some products been absorbed, some have been completely removed from the marketplace, and that's part of a free and open marketplace," said Thomas Cooke, a professor at Georgetown University's McDonough School of Business.

The iPhone has also created arguably as many new industries as it destroyed.

Ride-hailing companies Lyft and Uber are collectively worth more than $60 billion, and they exist only thanks to the always-on GPS location and high-speed wireless connections that became common with the iPhone.

"You can go through every feature of the phone and think of billion-dollar companies that have been created around them. It impacts almost every facet of our lives," Munster said.

"The camera and Instagram. Location does anything from maps, like Waze, to advertising on Google Maps, to food delivery like Grubhub. NFC has enabled mobile banking, which is going to change the banking industry. Content consumption is video consumption now. YouTube wouldn't be YouTube now without the iPhone," he said.

The iPhone and its Apple-controlled App Store also became a massive business and gave app developers an easy way to sell to a global audience. In January, Apple said developers on its App Store platform had made $120 billion since it launched in 2008, with over $30 billion in 2018 alone.


A timeline of our history

For more than 100 years, clients have relied on Deloitte LLP and its predecessor organizations for solutions to their ever-changing needs. We are a national and global leader today because we have sustained our clients’ trust and exceeded their expectations throughout our history.

Explore content

Great leaders, such as William Welch Deloitte, George A. Touche, Charles Haskins and Elijah Watt Sells helped define and expand the foundations of our profession and the value of our service. As we embark upon our second century of achievement, the story of our forebears and the outstanding clients they served continues to motivate and inspire us. These great clients, great leaders and great moments shaped the culture of client service that distinguishes the organization today.

Beginnings: The roots of the profession

Haskins, Sells and the Dockery Commission

In 1893, with the United States in an economic decline, government inefficiency became a target of public concern. Representative A. M. Dockery (R-MO) appointed two accountants to investigate: Charles Haskins and Elijah Watt Sells. During the next two years, Sells and Haskins transformed how the US government did business. Department by department, they found ways to simplify work and increase efficiency. Altogether, their recommendations saved the government $600,000 a year while improving work quality. On March 4, 1895, the two opened offices in New York City offering accounting services to the public. In time, Haskins & Sells opened successful offices in Chicago and London and helped lead a young profession to maturity.

Deloitte, Touche and the development of modern accounting

In England, the Industrial Revolution spawned a new type of enterprise that raised capital by selling equity to the public. The Great Western Railway (GWR) was one of the most famous of these early "joint stock companies." When its stock price slumped in 1849, GWR turned to an independent public accountant, William Welch Deloitte, to audit the company. The experience was so valuable that GWR directors recommended compulsory independent oversight. This recommendation was gradually implemented in England, but 84 years passed before the United States adopted the practice. The boom in joint stock companies created demand for people skilled at understanding and solving complex business problems. George A. Touche, a Scotsman, established a London-based accounting company in 1898 to help meet that demand. Two years later, he followed the flow of British capital to the United States, establishing the first US office of Touche, Niven & Company.

1900 – 1930

The new era of the income tax

John Ballantine Niven established the offices of Touche Niven alongside Haskins & Sells in the Johnston Building at 30 Broad Street in 1900 in New York. At the time, fewer than 500 CPAs practiced in the United States. But a new area of accounting was soon to generate enormous demand for accounting professionals—the era of the income tax.

In 1913, Niven opened the organization's first branch offices in Minneapolis and Chicago. That same year, the 16th Amendment to the Constitution allowed income tax to be levied on Americans for the first time. Compared with modern levels, the 1913 rate of 1 percent on taxable incomes over $3,000, rising to 7 percent on taxable incomes over $500,000, may seem low. But, as the Journal of Accountancy noted that year, it was "indubitable that the income tax law is to have a more far-reaching effect upon public accountants than upon any other profession or business in the country.

"Hundreds of men who have never seen the necessity for a correct system of accounting," the Journal continued, "now find themselves compelled to prepare statements of income and expenditure and the work in nine cases out of ten will fall upon the shoulders of the public accountants of the several states." The Journal was so convinced of the demands of the new legislation that it added a tax column—and asked Niven to be the editor. Under his direction, the column advised accountants of the requirements of income tax, preparing the profession for the impact of World War I, when federal spending rose from $742 million in 1916 to $18.9 billion in 1919. By then, income tax provided 58 percent of federal revenues, and the experts who handled income taxes found their skills in great demand.

1930 – 1950

After the crash: Audits and regulations

“Free, fair and full reports of industrial organizations,” the January 12, 1901, issue of Commerce, Accounts & Finance said, “ should be founded upon thorough, independent audits of accounts by disinterested certified public accountants, whose signed certificates, to be published with the report, are a more nearly perfect guarantee of reliability than any other yet to be discovered.”

The article, believed to have been written by Charles Haskins, was one of many calls for independent auditing in the early decades of the century. But these calls were largely ignored by Washington and Wall Street regulators. The stock market crash of 1929 and the ensuing Depression brought the issue into the public spotlight, especially when it became obvious that proper accounting practices might have prevented some bankruptcies and consequent unemployment.

On April 1, 1933, Colonel Arthur Carter, President of the New York State Society of CPAs, testified before the US Senate Committee on Banking and Currency. As the only accountant to testify, Carter helped convince Congress that independent audits should be mandatory for public corporations. The 1933 Securities Act subsequently required public corporations to file independently certified registration statements and periodic reports. A year later, the Securities and Exchange Commission was created to administer the new legislation.

The regulating bodies immediately needed accountants. Women accountants, who (except for the remarkable Jennie Palen) had been unable to make headway at the leading firms, suddenly found themselves in demand.

1950 – 1970

After World War II, America stood on the brink of historic economic expansion. In this environment, in 1947, Detroit accountant George Bailey, then president of the AICPA, launched his own organization. The new entity enjoyed such a positive start that in less than a year, the partners merged with Touche Niven and A.R. Smart to form Touche, Niven, Bailey & Smart. Headed by Bailey, the organization grew rapidly, in part by creating a dedicated Management Consulting (MC) function. It also forged closer links with organizations established by the cofounder of Touche Niven, George Touche: the Canadian organization Ross, Touche and the British organization George A. Touche. In 1960, the organization was renamed Touche, Ross, Bailey & Smart, becoming Touche Ross in 1969. John William Queenan joined Haskins & Sells in 1936. As managing partner from 1956 until his retirement in 1970, he led the organization through major developments in the profession. Haskins & Sells experienced its own major development by merging with 26 domestic organizations and establishing offices in Canada, Central and South America, Europe, and Japan.


Leading the information revolution

In the 1950s, information technologies became increasingly important in business. Few professions were affected more than accounting. Data processing machines freed accountants to focus on developing and monitoring systems to improve the way clients managed. Characteristically, Touche Ross led the profession into this uncharted territory. In 1952, it became the first large accounting organization to automate its bookkeeping. Later, Gordon Stubbs wrote Data Processing by Electronics and Introduction to Data Processing, the first two professional brochures of their kind. In 1964, the organization's work with statistical sampling led to the Auditape System, which brought computer technology to audits. The organization's MC group, which provided computer systems advice, felt the greatest impact from the technology revolution. The organization did pioneering work for several leading corporations and for many government agencies. At Touche Ross, the discipline matured during the 1960s and 1970s under the direction of leaders like Robert Trueblood and Michael Chetkovich.

1970 – 1990

The 1980s: A new style of management

In the 1980s, Deloitte & Touche led the profession through a decade of unprecedented merger and acquisition activity in American business. At the close of the decade, Emerson’s Professional Services Review commented, “When it comes to acquisition services, no one rivals the Deloitte & Touche infrastructure, commitment, expertise or reputation.

The organization's proficiency in mergers and acquisitions emerged in the 1970s when a new style of management became prominent in corporate America. The new managers were financially sophisticated and aware of the synergies and economies of scale offered by mergers and acquisitions. They relied on their accountants for more than audit and tax skills, and looked for insightful advice, technological expertise, global operations and support for their merger and acquisition activity.

Without sacrificing technical audit proficiency or ethical standards, managing partners Russell Palmer and Charles Steele led the way into this new world of business. Accountants began to emphasize their abilities as business consultants—offering the full range of accounting services and actively seeking additional ways to help their clients.

A new generation of leaders rose to the top of Touche Ross and Deloitte Haskins Sells during these years. In 1982, the two-man team of David Moxley and W. Grant Gregory succeeded Russell Palmer as leaders of Touche Ross. In 1985, Edward A. Kangas, who had made his name in management consulting, was appointed managing partner of Touche Ross. In 1984, J. Michael Cook became managing partner of Deloitte Haskins Sells.

As the rate of mergers and acquisitions accelerated, corporate America became increasingly globalized. Corporations increasingly sought advisers skilled in all areas of accounting and proficient at solving problems throughout the world. Many turned to Deloitte & Touche for just such assistance. To cap off this decade of merger and acquisition activity, Touche Ross and Deloitte Haskins Sells merged in 1989.

The newly formed Deloitte & Touche was led by J. Michael Cook and Edward A. Kangas, who shared the belief that successful accountants of the future would combine strong professional abilities with a deep understanding of their clients’ industries, situations and needs.

1990 – 2000

Competing for the future

The information revolution and globalization offered the organization larger and more diverse challenges. With the dismantling of the Berlin Wall, the emergence of trading regions such as the European Economic Community, the growing economic power of the Pacific Rim and the growth in cross-border trade through agreements such as NAFTA, the organization's clients demanded increasingly integrated cross-border solutions.

Deloitte & Touche set out to provide the coordinated, global services and solutions our clients required. To do so, the organization needed more than technological sophistication and a knowledge of international business. It needed, as managing partner James E. Copeland, Jr., pointed out in 1994, the intellectual equivalent of systems integration—the ability to combine competencies from all functional disciplines across national borders to create solutions for clients.

To achieve our goals, we had to hire high-caliber recruits in every country, then train them to excel. We had to maintain the highest ethical standards in the world. We had to be, in the words of the firm’s powerful mission statement, “the professional services firm that consistently exceeds the expectations of our clients and our people.”

In 1995, a century after its founding, the partners of Deloitte & Touche voted to create Deloitte Consulting to better serve our multinational clients. While the specifics of the world of business have changed in the past 100 years, the overall commitments and goals of the organization remain the same as the day Haskins and Sells shook hands on their partnership, and Touche sent Niven to open an office in New York. As Haskins noted more than 100 years ago, our “study and interest is the soundness of the world of affairs.” Our goal continues to be to “simplify work so that it can be done more rapidly and more effectively.”

2000 - present

Between 2003 and 2005, Deloitte LLP reorganized its businesses to better align itself with the manner in which business is conducted. It currently has the following four subsidiaries that provide client services: Deloitte & Touche LLP, Deloitte Consulting LLP, Deloitte Financial Advisory Services LLP and Deloitte Tax LLP.

As The Deloitte US Firms move forward, they continue to establish themselves as the employers of choice in their professions. The Deloitte US Firms have a unique internal environment that allows the organization to deliver high quality services to today's leading companies—and tomorrow's.

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Oil Industry

The 19th century was a period of great change and rapid industrialization. The iron and steel industry spawned new construction materials, the railroads connected the country and the discovery of oil provided a new source of fuel. The discovery of the Spindletop geyser in 1901 drove huge growth in the oil industry. Within a year, more than 1,500 oil companies had been chartered, and oil became the dominant fuel of the 20th century and an integral part of the American economy.

Many of the early explorers of America encountered petroleum deposits in some form. They noted oil slicks off the coast of California in the sixteenth century. Louis Evans located deposits along the eastern seaboard on a 1775 map of the English Middle Colonies.

Did you know? In 1933, Standard Oil secured the first contract to drill for oil in Saudia Arabia.

Settlers used oil as an illuminant for medicine, and as grease for wagons and tools. Rock oil distilled from shale became available as kerosene even before the Industrial Revolution began. While traveling in Austria, John Austin, a New York merchant, observed an effective, cheap oil lamp and made a model that upgraded kerosene lamps. Soon the U.S. rock oil industry boomed as whale oil increased in price owing to the growing scarcity of that mammal. Samuel Downer, Jr., an early entrepreneur, patented “Kerosene” as a trade name in 1859 and licensed its usage. As oil production and refining increased, prices collapsed, which became characteristic of the industry.

The first oil corporation, which was created to develop oil found floating on water near Titusville, Pennsylvania, was the Pennsylvania Rock Oil Company of Connecticut (later the Seneca Oil Company). George H. Bissell, a New York lawyer, and James Townsend, a New Haven businessman, became interested when Dr. Benjamin Silliman of Yale University analyzed a bottle of the oil and said it would make an excellent light. Bissell and several friends purchased land near Titusville and engaged Edwin L. Drake to locate the oil there. Drake employed William Smith, an expert salt driller, to supervise drilling operations and on August 27, 1859, they struck oil at a depth of sixty-nine feet. So far as is known, this was the first time that oil was tapped at its source, using a drill.

Titusville and other towns in the area boomed. One of those who heard about the discovery was John D. Rockefeller. Because of his entrepreneurial instincts and his genius for organizing companies, Rockefeller became a leading figure in the U.S. oil industry. In 1859, he and a partner operated a commission firm in Cleveland. They soon sold it and built a small oil refinery. Rockefeller bought out his partner and in 1866 opened an export office in New York City. The next year he, his brother William, S. V. Harkness, and Henry M. Flagler created what was to become the Standard Oil Company. Flagler is considered by many to have been nearly as important a figure in the oil business as John D. himself.

Additional discoveries near the Drake well had led to the creation of numerous firms and the Rockefeller company quickly began to buy out or combine with its competitors. As John D. phrased it, their purpose was “to unite our skill and capital.” By 1870 Standard had become the dominant oil refining firm in Pennsylvania.

Pipelines early became a major consideration in Standard’s drive to gain business and profits. Samuel Van Syckel had built a four-mile pipeline from Pithole, Pennsylvania, to the nearest railroad. When Rockefeller observed this, he began to acquire pipelines for Standard. Soon the company owned a majority of the lines, which provided cheap, efficient transportation for oil. Cleveland became a center of the refining industry principally because of its transportation systems.

When product prices declined, the ensuing panic led to the beginning of a Standard Oil alliance in 1871. Within eleven years the company became partially integrated horizontally and vertically and ranked as one of the world’s great corporations. The alliance employed an industrial chemist, Hermann Frasch II, to remove sulfur from oil found at Lima, Ohio. Sulfur made distilling kerosene very difficult, and even then it possessed a vile odor𠅊nother problem Frasch solved. Thereafter, Standard employed scientists both to improve its product and for pure research. Soon kerosene replaced other illuminants it was more reliable, efficient, and economical than other fuels.

Eastern cities linked to the oil fields by rail and boat boomed also. The export trade from Philadelphia, New York, and Baltimore became so important that Standard and other companies located refineries in those cities. As early as 1866 the value of petroleum products exported to Europe provided a trade balance sufficient to pay the interest on U.S. bonds held abroad.

When the Civil War interrupted the regular flow of kerosene and other petroleum products to western states, pressure increased to find a better method of utilizing oil found in such states as California. But Standard exhibited little interest in the oil industry on the West Coast before 1900. In that year it purchased the Pacific Coast Oil Company and in 1906 incorporated all its western operations into Pacific Oil, now Chevron.

Edward L. Doheny located Los Angeles’s first well in 1892, and five years later there were twenty-five hundred wells and two hundred oil companies in the area. When Standard entered California in 1900, seven integrated oil companies already flourished there. The Union Oil Company was the most important of these.

Operating difficulties plus the threat of taxation on its out-of-state properties led to the creation of the Standard Oil Trust in 1882. In 1899 the trust created Standard Oil Company (New Jersey), which became the parent company. The trust controlled member corporations principally through stock ownership, an arrangement not unlike that of the modern-day holding company.

The tremendous growth of Standard did not occur without competition. Pennsylvania producers engineered the creation of an important competitor, the Pure Oil Company, Ltd., in 1895. This concern endured for more than a half century.

In 1901 one of the largest and most significant oil strikes in history occurred near Beaumont, Texas, on a mound called Spindletop. Drillers brought in the greatest gusher ever seen within the United States. This strike ended any possible monopoly by Standard Oil. One year after the Spindletop discovery more than fifteen hundred oil companies had been chartered. Of these, fewer than a dozen survived, principally the Gulf Oil Corporation, the Magnolia Petroleum Company, and the Texas Company. The Sun Oil Company, an Ohio-Indiana concern, also moved to the Beaumont area as did other firms. Other oil strikes followed in Oklahoma, Louisiana, Arkansas, Colorado, and Kansas. Oil production in the United States by 1909 more than equaled that of the rest of the world combined.

Many smaller companies developed outside the Northeast and the Midwest where Rockefeller and his associates operated. Oil found at Corsicana, Texas, in the 1890s attracted a remarkable Pennsylvanian, Joseph S. (𠇋uckskin Joe”) Cullinan, who organized several small companies. He later moved to Spindletop where he became instrumental in the organization of the Texas Company, soon a major competitor of Standard. Henri Deterding, creator of the Royal Dutch-Shell Group in Holland and Great Britain, moved into California in 1912 with his American Gasoline Company (Shell Company of California after 1914).

As Standard Oil grew in wealth and power, it encountered great hostility not only from its competitors but from a vast segment of the public. Standard fought competition by securing preferential railroad rates and rebates on its shipments. It also influenced legislatures and Congress through tactics that, though common in that era, were unethical. Nor was the company’s handling of labor any better.

In 1911 the Supreme Court declared that the Standard Trust had operated to monopolize and restrain trade, and it ordered the trust dissolved into thirty-four companies. That the trust’s share of the industry had declined from 33 to 13 percent the Court held to be of little consequence. The splitting-off of the Standard affiliates proved difficult. Some marketed, some produced, some refined, and these concerns quickly moved toward vertical integration of their businesses. But the 1911 decision ensured that though the industry might have giants, they at least competed with one another.

Increasing sales of gasoline first for automobiles and then for airplanes in the early 1900s came as oil discoveries across the United States mounted. The oil industry had a vast new market for what had been for many years a useless by-product of the distilling process. As soon as the internal combustion engines created demand, refiners sought better methods to produce and improve gasolines.

Before its entry into World War I, the United States contributed oil to the Allies, and in 1917 the oil companies cooperated with the Fuel Administration. At war’s end executives who had served with that agency created the American Petroleum Institute (1919), which in time became a major force in the economy and the business.

Although the U.S. oil industry had marketed abroad extensively before the war, it owned few foreign properties. Judging from government surveys, many producers believed that a major oil shortage would soon occur. Both Secretary of Commerce Herbert Hoover and Secretary of State Charles Evans Hughes began to pressure American companies to seek oil abroad. These firms invested in the Middle East, Southeast Asia, and South America and searched for oil everywhere while they continued to export quantities of oil from the United States.

The individual who focused attention back on the United States was Columbus Marion (�”) Joiner. Joiner became convinced that some flatlands in an East Texas basinlike structure contained oil. He obtained a lease near Tyler, Texas, and on October 5, 1930, after having drilled two dry holes, struck perhaps the largest oil pool ever found in America. It lay beneath 140,000 acres and contained 5 billion barrels. H. L. Hunt, an oil entrepreneur, bought Joiner’s leases and later sold them to oil companies at a profit of $100 million, thereby adding to his already substantial fortune.

In a sense the Joiner strike came at an inopportune time it was the onset of the Great Depression. The price of oil plummeted to ten cents a barrel in 1931, creating chaos in the industry. But some New Deal measures restored a modicum of prosperity, and then World War II stimulated the oil business enormously.

The various oil strikes focused attention on a legal situation unique to the United States. Land ownership carried with it rights to all subsoil minerals, termed the common law “right of capture.” Oil companies, like other mineral companies, negotiated with each landowner for drilling rights. This right of capture continued for years despite the efforts of such industry giants as conservation-minded Henry L. Doherty of Cities Service Oil Company, who sought to institute oil field unitization. The right of capture ensured early exhaustion of oil fields and tragic waste of a valuable energy source. Wallace E. Pratt, a geologist and longtime Jersey Standard leader, has estimated that by releasing the natural gas that often underlies petroleum pools and by using poor production techniques, oil producers have wasted at least 75 percent of the oil and natural gas found to date in the United States.

World War II made the oil industry a key American resource. Oil company research and executive leadership played major roles in the conflict. Research increased the number of products made from petroleum and natural gas, including the explosive tnt and artificial rubber. The Jersey-Dupont jointly owned product, tetraethyl lead, upgraded gasoline to improve airplane speed. Oil tankers supplied gasoline for the Allies at great risk from submarine attacks. The government rationed gasoline and controlled prices during the war. In the last analysis the war ended the delusion that American supplies of crude were unlimited, so that the industry and the securing of oil became a top priority for both foreign and domestic policy.

When the war ended, the United States faced the problem of stabilizing the peace. Over the next forty-five years numerous major crises occurred, in many of which oil played a key role. Europe underwent a coal shortage, the first energy crisis, immediately after the war. The Marshall Plan, created to solve that and other problems, was hampered by the first Iranian crisis of 1950-1954. From the 1956 Suez crisis to the Iraqi invasion of Kuwait in 1990, oil proved to be the most important consideration in America’s Middle Eastern policy. The United States sought to balance support for the new state of Israel against the pressures of the oil producers, mostly Arab, united in 1960 as the Organization of Petroleum Exporting Countries (opec). This proved increasingly difficult as the United States became steadily more dependent on imported oil. In the United States the standard of living based on cheap oil continuously rose and the public, accustomed to this way of life, resisted all conservation measures. The United States continues to consume about two-thirds of the world’s oil production. Oil should be considered the keystone of the standard of living in the United States and to a large degree its rank as a world power.

Part of the energy problem after 1940 resulted from the depletion of domestic oil reserves during World War II𠅊round 6 billion barrels. In the Vietnam struggle experts contend the United States supplied about 5 billion barrels of oil, although great quantities of that came from Middle Eastern properties owned by American companies. Certainly the total for both wars represents a quantity larger than either that of the great East Texas oil field or possibly that discovered on Alaska’s North Slope in 1967. After the 1960s, as domestic production declined and demand soared, the oil industry had to import vast quantities from the Middle East and Venezuela. The nation’s key energy source increasingly hinged on balancing diplomatic relations with Arab oil-producing nations while continuing its aid to Israel.


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Key Takeaways

Let’s see if we can reduce this information to a handful of key takeaways for entrepreneurs who want to know more about innovation—especially in its most disruptive forms.

    Innovation doesn’t have to be disruptive.
    Recall that disruptive innovation is only one type of innovation—and you don’t have to be a “true” disruptor to make a difference in your industry. Google is a perfect example Alphabet (Google’s parent company) is now one of the biggest and most important tech companies in the world, and it all started because Google’s founders could offer something a little better than what was currently on the market.

With a better understanding of disruption, you’ll not only find it easier to wade through the buzzword-laden articles hyping up the latest startups to emerge from Silicon Valley, you’ll also be poised to find faster, more sustainable forms of innovation in your own business.

You may not be in the market to create the next LED, or change the world with an invention on par with the transistor radio.

About the Author

Peter Daisyme is the co-founder of Palo Alto, California-based Hostt, specializing in helping businesses with hosting their website for free, for life. Previously he was the co-founder of Pixloo, a company that helped people sell their homes online, that was acquired in 2012.


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