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Jon C. Madonna

As competition sharpens in the accounting industry, Jon C. Madonna, chairman and chief executive of KPMG Peat Marwick, is wagering …

As competition sharpens in the accounting industry, Jon C. Madonna, chairman and chief executive of KPMG Peat Marwick, is wagering that a corporate makeover will help to keep his Big Six firm abreast of its competitors.

Perhaps most dramatic, since taking the helm a little more than a year ago, Madonna has severed 225 partners, nearly 12 percent of Peat’s total. Seeking to light a fire under the New York-based audit, tax advisory and consulting concern, Madonna also has plugged in pay-for-performance incentives and a proactive, industry-specific marketing approach.

For survivors of the triage, the message from the 48-year-old CEO is clear: Bone up on your assigned industry, whether it be health care or semiconductors.

“If you walk out the door saying you’re an auditor, you don’t get hired anymore,” Madonna observes. “The marketplace is saying, ‘I need an auditor, but I want a firm that understands my industry in the process of doing that function.’ “

The approach isn’t especially new: Other financial services companies-including banks and insurance companies-long have fashioned elite teams to penetrate target markets. Even so, Madonna is counting on the approach to boost Peat’s profits. The firm’s average profit per partner is $245,000 a year, third in the Big Six pack, estimates Bowman’s Accounting Report, an industry newsletter. Price Waterhouse tops the pay list at $310,000, followed by Arthur Andersen & Co., Peat, Ernst & Young, and Coopers & Lybrand. Bringing up the rear, at $177,000, is Deloitte & Touche, Bowman’s says.

Meanwhile, with fortunes sagging at home, it’s no surprise Madonna is locking in on markets overseas. In fact, he says, foreign markets will continue to drive Peat’s near-term growth. Buoyed by strong demand from U.S. clients on the move in Eastern Europe, the company’s European revenues climbed 23 percent last year to $3.1 billion. That’s a shade more than half of the firm’s worldwide total of $6 billion.

By contrast, North American revenues slipped 2.5 percent to $2.3 billion.

How far will Peat’s restructuring take the company? That depends partly on how quickly-and how significantly-the economy rebounds from recession. Still, most industry observers so far give Madonna’s efforts passing grades. Nearly all applaud the downsizing, noting that Peat has long had the reputation of being top-heavy with partners.

Madonna is a lifer at Peat: He rose to managing partner of the firm’s San Francisco practice before his promotion to chairman. Now settled in Manhattan, the CEO pines for the Bay City‘s baseball Giants and football 49ers. But not to worry. If it’s the thrill of the chase he seeks, there’s plenty of that in the cutthroat accounting sector.

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