The Bernstein Perspective: Opinions and Answers

Bob Merritt gives not only his views but guidance on navigating accounting rules.

By Charles Bernstein, Editor-at-Large -- Chain Leader, 12/1/2005

He’s said it before and he’ll say it again. The outspoken Bob Merritt told a record crowd of 1,400 at the annual Restaurant, Finance and Development Conference in Las Vegas last month that he was fed up with constant changes in financial rules and with the organizations that govern financial reporting. I respect him for standing up for his strong views and agree that the Securities and Exchange Commission must devise a consistent and fair reporting system.

The audience seemed to warm up to Merritt as well, and I got the feeling that they liked what he said.

Changing the Rules
Changes in financial accounting incited a frenzy among some 150 restaurants and retailers who had to suddenly adjust their reporting methods late last year and this year. The new rules prompted Merritt to leave Outback Steakhouse Inc. in May after 16 years as CFO.

Considered one of the best restaurant CFOs of the last 20 years, Merritt came to Outback with a wealth of experience. He had worked as a Price Waterhouse auditor in the late 1970s and subsequently was CFO of Vie de France from 1981 to 1985, CFO of the now defunct JB’s in the late 1980s and finally CFO of Outback in 1990. “All that time I was perfectly happy until the rules made it so difficult for CFOs,” he asserted.

Merritt retired from Outback, declaring that he had faced “the good, the bad and the ugly,” but he noted that it had been good until the past year when he admittedly “made a noisy exit.”

What drove him crazy was the lack of process in the rules as well as the constant frenzy and changes, Merritt observed. “They generated new rules and restated everything over and over. It was a virtual madhouse, and none of it really helped financial reporting.”

Merritt remains proud of what he accomplished in his 16 years at Outback and praises President Bill Allen and other company leaders. In fact, after his resignation he continued to work with Outback as a consultant.

And he said he is optimistic about recently appointed SEC Chairman Chris Cox, who seems to have the potential to change things for the better.

Working the System
Now that he is free to say what he wants, Merritt offered some key ideas to the conference attendees: “Be a businessperson first and then a financial person if you really want the best results.” And from his many years in business, he emphasized that “if you are a private company, stay that way rather than having to comply with all the different rules.”

Yet most of all, he warned operators not to try to fool Wall Street. If you had a bad quarter, be honest about what happened. “If we do nothing else,” Merritt said, “honest integrity will take us a long way.”

Now that 53-year-old Merritt has left Outback, he can take it easy if he wants. But he recently accepted a director position on the board of Deerfield Ill.-based Cosi for a three-year term. He said he has respect for Cosi and its two top executives, President and CEO Kevin Armstrong and Chairman William Forrest.

So Merritt will continue to have to work the system as rules continue to change. And he will likely continue to tell us what he thinks about it.