Reviewing the Case against KPMG

In the case of Roger Ham heard in New Jersey Superior Court, the only noteworthy news is that it was dismissed outright--at the close of Mr. Ham's presentation on Oct. 23--before the ink was dry on your rash article (''The Big Five's credibility gap is getting wider,'' Management, Oct. 30).

Here are some facts that fatally undercut Ham's unsupported claims:

-- Ham is not a CPA. He lacked the professional capabilities to make the conclusions he drew, and this is the reason his report was rewritten.

-- The report was revised, as it should have been, by KPMG's audit personnel in the firm's Philadelphia and Dept. of Professional Practice offices.

-- Ham was not a KPMG partner. He would have needed to be a CPA to be a partner in the firm.

Indeed, the court, after hearing these facts, dismissed Ham's complaints and found that there was no evidence to support his claim that KPMG ''whitewashed'' the 9-year-old report in question; and that there was nothing improper in the phone call between [Deloitte & Touche LLP general counsel] Howard Krongard and [KPMG general counsel] Leonard P. Novello. The bottom line is that the Superior Court concluded that Ham's case was without merit.

As for Ham's arbitration case with KPMG, we would be more than willing to waive confidentiality if Ham was also willing, so that the results could be made public immediately.

George J. Ledwith
National Director
Corporate Communications
KPMG LLP
Montvale, N.J.

Editor's note: The case involving Roger Ham was dismissed after BUSINESS WEEK went to press. Ham was identified by BUSINESS WEEK as a former partner with KPMG, based on filings made by his lawyer and defendant Deloitte & Touche. Though not a partner, he was a principal with a partnership stake in KPMG. The judge determined that there was nothing improper in Krongard's phone call to Novello. Similar rulings were made in two earlier cases. ''The court's ruling should finally put an end to the efforts of a disgruntled former principal of KPMG to extract money and blame someone else for his being voted out of the firm,'' says Krongard. The judge did not address the broader issues raised in our story about self-regulation in the industry.

Hizzoner Says: ''Life Is Good in Chicago''

Chicago has created four times as many jobs in the past 10 years as New York and Los Angeles combined (''Chicago Blues,'' Cover Story, Oct. 16). Chicago's unemployment rate is well below theirs, and so is the cost of living. Crime is down, the schools are improving, downtown is booming, neighborhoods are being renewed, and new houses and office buildings are being built all over the city. As BUSINESS WEEK wrote in ''Richard Daley's kind of town'' (Government, Mar. 1, 1999), ''life is good in Chicago.''

So it was a surprise to see you proclaim that Chicago is ''slipping...fading...struggling'' as a business and financial capital, in comparison with New York, Los Angeles, and other cities. How did the magazine reach that conclusion? First, by turning positives into negatives. Chicago has long prided itself on its diversified economy, which protects us from downturns in a single industrial sector. The fact is, Chicago has several economic engines: the transportation industry, convention and tourism, financial services, manufacturing, and now, an emerging high-tech industry.

Similarly, Chicago boasts a moderate cost of living for a big city. But BUSINESS WEEK says it's a sign of weakness that the average house in the Chicago area costs $182,100, vs. $345,000 in the Boston area. Try explaining that to someone who has been offered a job, at the same salary, in both cities.

Next, the magazine chose to compare economic growth in various cities only from 1997 to 2000. This rewards cities that grew in fits and starts and penalizes Chicago, which has had steady, long-term growth. Since 1990, financial, insurance, and real estate employment has risen in Chicago but dropped in New York and Los Angeles.

This is not meant to denigrate New York, Los Angeles, or any other city. Nor am I being complacent. We know we have to work hard to attract new industry, especially in the technology sector, and we've had notable successes. Global Steel Exchange, the largest such exchange in the world, recently relocated here from New York. Orbitz, the online airline consortium, chose Chicago over California. Centerpost, a leading wireless tech company, chose Chicago because of its quality of life and huge technology talent pool.

Nothing is more important to a city's economic future than the quality of its schools, and Chicago's education reform efforts are looked to as a model for the country. Chicago has a fundamental commitment to turn the public education system around after years of failing. We have much more to do, but we have an entire city behind our efforts to graduate students who are prepared with the reading, math, and other skills needed to join the workforce.

Life is good in Chicago, and it's only going to get better.

Richard M. Daley
Mayor
Chicago

You Can't Wait for the Final Numbers to Protect Drivers

In ''The tire flap: Behind the feeding frenzy'' (Government, Oct. 16), Stan Crock blames everyone but Ford Motor Co. and Firestone--the true culprits--for the deaths of 119 people and injuries to 500 in crashes caused by tire separations. He mistakenly quotes me as saying the case against the companies remains unproven. I have said repeatedly that the Firestone tire and the Ford Explorer make a lethal combination. While the full story remains elusive (the companies and the government have refused to release all of the data), there is ample evidence of design defects in the recalled tires and the rollover-prone Explorer.

Crock selects statistics to back his thesis that the controversy was overblown. But defect determinations cannot be based solely on numbers that compare failure rates with other models of tires or vehicles. The government never has complete numbers on what causes highway deaths and ethically cannot wait for a body count to order a recall, although in this case there has been a grim toll. Rather, as the courts have said, if there is a failure of a critical element in the vehicle that can kill or injure, and it can happen again, the agency should make a defect finding.

Finally, Crock sneers at auto safety advocates, saying we took advantage of the fiasco to push ''pet projects.'' The reforms we sought--including an update of the 30-year-old tire standard, a standard to prevent rollovers of SUVs and light trucks (which kill an astonishing 10,000 people per year), and criminal sanctions for corporate executives who cover up deadly defects--may be ''pet projects'' to Crock, but to me they sustain the sanctity of life.

Joan Claybrook
President
Public Citizen
Washington

''Priceline.com Is Making the Right Decisions''

''Finding the right formula'' (News: Analysis & Commentary, Oct. 23) cites ''fewer spare seats'' in a ''crowded'' airline market as a potential problem. The fact is that airlines fly more than 500,000 empty seats every day. This also refutes the suggestion that a competitive Internet service being launched by the airlines will adversely affect priceline.com's supply of airline seats. Given the substantial supply, our airline supplier partners are wise to pursue a multichannel distribution strategy, which is probably why airline tickets are the largest e-commerce category on the Web today.

We believe priceline.com is making the right decisions to position ourselves as one of the long-term winners in e-commerce. Further, we believe that travel is the right core category on which to build out a larger business. We've built the second-most-recognized e-commerce brand, with a customer base of some 7 million. We're fixing those areas where we haven't executed as well as we would have liked. We have confidence in our business model, and we're expanding into nontravel categories such as insurance and business-to-business.

Richard S. Braddock
Chairman
priceline.com
Norwalk, Conn.

Fixing Corporate America's Service Problem

One critical issue is the dramatic impact that negative word of mouth can inflict on a company's image and reputation (''Why service stinks,'' Cover Story, Oct. 23). When service is degraded or denied to 80% of the customers, how many potential high-profit consumers (the 20%) avoid your brand based on horror stories relayed by friends, colleagues, and family?

When traveling on business, I share any positive or negative experiences I have with my corporate travel department and colleagues. Even though a company may not value my direct business, my opinion may influence the spending patterns of people and organizations whose business they do value.

Reputation and goodwill are among the most valuable assets a corporate entity has. Tinkering with customer service may offer short-term savings with serious long-term consequences. The road back from a poor reputation, deserved or not, is a long one.

David A. Engerman
Dallas


Bad service is not a new phenomenon, nor is it caused primarily by technology. Affluent customers always received excellent service regardless of industry. Take banking. If you are a business owner or a key executive in a company and you invest a large amount of money in a bank, it is likely that you get to deal with the manager directly. Ordinary people with a small amount of money to invest usually do not receive this special privilege. Similarly, you will get seated only in the back row of a concert hall or a baseball stadium if you buy a low-price ticket. Customers are prioritized according to what they are worth to the business.

Technology may have helped these businesses to identify the low-key customers quickly, but is not the primary reason why they get poor service. In the New Economy, business is paced at Internet speed, and companies are under constant pressure from investors to make profits. If they don't comply, the outcome is to be slapped with diminished market value and loss of investment dollars. So it is not surprising these companies put profitability ahead of customer service as a priority. Consequently, companies are finding ways to increase profit margins by going after accounts that generate a higher return on investments. This translates to bad service for customers who are not ''high rollers.''

Mathew Abraham
Elkins Park, Pa.


Most of the hours (yes, hours) of my time I have wasted waiting for a human customer service representative to answer the phone are the result of products or services offered by a company that have not performed as advertised. Whether these calls involve faulty DSL connections, incorrect charges on my long-distance phone bill, or software that fails to work properly, in each case the ''service'' I am so expensively requesting is merely that the company provide what was promised in return for money I have already paid.

If customers like me are ''unprofitable,'' these companies should either stop selling defective products to low- or middle-end customers, or else advertise these products and services with the full disclosure that they frequently won't work and restoring them to functionality will involve long waits for a customer service representative who may or may not know how to fix the problem. If these companies do not offer either a better product or better ''customer service,'' perhaps only a lawsuit based on warranty of merchantability or false advertising will force them to provide customers with what they promised.

Robert J. Peterson
Arlington, Va.


The flaw in the logic of the new customer-service paradigm is that today's small customers may be tomorrow's high rollers. When they become big, they won't forget the disdain of those businesses that didn't care about them on their way up. Wal-Mart Stores Inc. is just one example of a company whose fortunes were made by offering good service and extra values to the ''little'' guy. My personal business experience has taught me that I'm much better off with a large number of small customers, whose needs are easy to meet, than tying my business to a small number of big customers whose big demands keep chipping away at profit and employee morale.

Carol G. Aubitz
Lancaster, Pa.


Your report on poor service and the de facto ''redlining'' of less profitable customers reminds me of the story of the bum who, dressed shabbily, went car shopping at all the dealers in town. Most treated him like a bum, and not surprisingly, the ''bum''--really a wealthy business owner--bought a luxury car from a salesman who had treated him with consideration. His reasoning was that anyone who would treat a person poorly just because of his supposedly low station in life would not know how to treat other customers, either.

Al Phillips
Salt Lake City


Now I understand what's behind the poor customer service witnessed in the U.S. over the past 10 years. All along, I thought it was lack of proper training for employees or low-end skill sets that turned routine business transactions into nightmare experiences. Unfortunately, like so much in this consumer-driven society, it's evident that the core value of customer courtesy has given way to high-profitability segmentation models.

I'm not sure this new value system does much to promote a healthy work ethic. What are we telling employees? Work hard, but only for those who can pay the big bucks? I can't remember a customer service call I have made recently that did not involve a never-ending menu of nonhuman interaction choices in voice-mail hell--or worse, a Web-based hell of frequently asked questions.

Companies should beware: Enough word-of-mouth about negative service experiences can still sink a business or a product line.

Yvette Tazeau
San Jose, Calif.

''Financial services: No ordinary downturn'' (News: Analysis & Commentary, Oct. 30, 2000)

''Financial services: No ordinary downturn'' (News: Analysis & Commentary, Oct. 30) misidentified a company. It should have read ''the much-anticipated IPO of Verizon Wireless, 55% owned by Verizon Communications and 45% owned by Vodafone, was recently postponed.''

''Do CEOs vote? Not always--and not often'' (Government, Nov. 6, 2000)

The entry for Merrill Lynch Chairman and CEO David H. Komansky in a table accompanying ''Do CEOs vote? Not always--and not often'' (Government, Nov. 6) was incorrect in saying that he has not voted in at least five years. Komansky voted in 1996.