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DTT losing business because of its consulting arm

Deloitte Touche Tohmatsu may be losing more clients, staff, and partners as a result of its decision not to divest Deloitte Consulting. This, in turn, could continue to diminish the potential value of the consulting firm if the parent company wants to spin it off at a later date.

Deloitte Touche Tohmatsu leadership was considering integrating the consulting group into its Management Solutions practice in the late spring. However, that step could produce clashes over leadership, since Deloitte Consulting has operated separately, with its own management team and compensation arrangements, since the mid- 1990s. Other changes in Deloitte Consulting: It's losing its CEO at the end of his term this year, and the French practice of Deloitte Consulting will separate itself from the company because of a new French law that will prohibit all consulting to public audit clients.

And while firm officials said the consulting arm will now be “principally focused on non-audit clients,” referrals between auditors and consultants will be de-emphasized. Those referrals were seen as so important that Deloitte Touche Tohmatsu had wanted to retain a minority stake in the planned spinoff in order to provide a financial incentive to audit partners to continue cross selling consulting work. Deloitte Consulting will be providing less work to the firm's public audit clients than it used to because of internal concerns-from the firm's new independence policy or from auditors who fear damaging client relations-or external issues such as regulations or uneasy clients.

Given these developments, many of Deloitte Consulting's public audit clients will probably look for new consultants. To obtain new consulting work for itself, Deloitte Consulting will have to compete more aggressively for work from about 75% of public companies that its parent company does not audit. But without the audit relationships to pave the way, Deloitte Consulting lacks a clear competitive advantage.

Client losses for the firm include audit work for AutoNation, which will continue to use Deloitte and Touche for consulting services that are not prohibited by Sarbanes-Oxley, and Clorox, which ended a 46-year relationship with Deloitte because the firm did not divest the consulting division.

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