The cat’s out the bag: Big 4 are Big 4x
March 20, 2008
Richard Murphy has long argued that the Big 4 are not a single entity in the way they market themselves but a loose association of affiliate firms. This, as any practitioner will tell you, is not the same thing at all. This is a question Francine McKenna has raised arguing that:
But how “actual ” is this global network? Do the firms really work together seamlessly, depending on each other without question to do work locally and bring it all together under one global partner for a large multinational? Not exactly.
Now it seems, she has proof positive from Kerma Partners who specialise in advising global professional firms:
Dear Francine,
…I am a London-based partner of Kerma Partners; we are a strategy consulting firm to international professional services firms .
My partner Phil Kaszar and I have written about accounting “networks,” and I agree with several of your thoughts.
First, globally, the larger accounting firms have created a perception of market integration that simply does not exist.
Second, the (dis-)integration is a matter of degree: the smaller the network/affiliation – and the smaller the client – the more this non-existence of integration becomes apparent.
Third, accountants have been guilty of excessive risk aversion and thus have too often let risk management tail wag the dog of driving global objectives – this in turn plaintiffs counsel have managed to exploit as you well know and now the options for a “global” firm have become somewhat more limited.
Francine has long argued that the world’s largest companies need coordinated global coverage. I agree. However, what Kerma seem to be implying is that this is an illusion. It follows that for the many companies not needing that same level of cover, the Big 4 represent little more than an opportunity to associate with a brand. This comes over time and again when you look at how many of the FTSE 350 are audited by non-Big Four firms and the degree of campaigning the Big 4 are prepared to undertake in order to protect their hegemony.
Although some may see this as a tenuous link (for which get ready to be blasted over Big Four failures) I do not believe the Big 4 are unassailable. The old boys network in the City may like them but given the costs companies have had to bear in increased compliance fees the last few years, then it seems so-called Tier 2 players like BDO and Grant Thornton might want to use this revelation as a way to develop competitive arguments and strategies.
I hope Jeremy Newman is taking note. The profession needs a shake up to not only improve standards but to show the world that it remains relevant to business.
As a closer, this is often a topic of conversation with clients which are audited by the Big 4. I cannot tell you the number of times that senior executives have slumped when I’ve mentioned compliance cost and what they (don’t) gain out of the exercise.
Comments
3 Responses to “The cat’s out the bag: Big 4 are Big 4x”
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I agree - you can’t have it both ways. On the one hand there is an ambition to create the perception of a single brand. On the other hand they have to distinguish different elements of the global networks to limit exposure across the network. So we have “international associations of independent accounting firms”.
They all seem to accept that:
one firm = one target = one PI insurance pot.
The single brand concept is also adopted by firms with multiple offices. I do wonder however whether it is realistic to expect the client to believe that the service, style and approach of everyone in every office of the one firm will be comparable.
There is a limit as to how much you can ‘tame’ intelligent independent knowledge workers. They won’t all offer a consistent service, style or approach, no matter how much the brand name and promotional material seeks to persuade us to the contrary. Knowledge workers (including accountants and tax advisers) and their advisory services are not the same as products you can buy in a shop or a supermarket.
In the 21st century will there be a move away from working for large branded corporations that tell you how and when to work, to a more independent life securing work through one’s involvement in branded network communities? I hope so. It was one of the inspirations for the creation of the UK’s first independent network for tax professionals: The Tax Advice Network.
[Reply]
HI Dennis,
I don’t think that Kerma Partners would disagree with my contention that the largest, global , multinational companies require coordinated global coverage from their professional service firms. The law firms do it. Best example I have is Baker and McKenzie. They do a great job at this. The software firms, like SAP and Microsoft, do it. The search firms don’t really. But except for the highest positions, and even for these, search is a local business. But the Big 4 seem to choke on this concept, due to fears of liability. Being audit firms first, their delivery of advisory services on a global basis, the ones they compete with the other professional firms to sell to clients, suffers as a result.
[Reply]
I have taken note - and I agree. This should not be news - the legal structure of the “Big 4″ is broadly similar to that of BDO International and GTI (and other international networks) - but it is difficult to get people to believe us, so thanks for drawing it to people’s attention.
Happy Easter.
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