The biggest aspidistra in the world
The Big Four have announced their figures and PwC have just managed to reclaim the crown of biggest aspidistra in the world from Deloitte, but only by the narrowest of margins—$29.2bn plays $28.8bn. And what’s 400 million dollars between friends?
I have to admit that I was surprised when I learned that Deloitte had—by a mere $9m—snatched the top spot last year. I’d grown so used to PwC being by some way the largest that it had become, in a sense, their brand identity. No longer having to compile league tables, I’d also stopped worrying about the relative bigness of organisations that beneath a veneer of global branding slightly less cohesive than the late Holy Roman Empire, but clearly the race is on again.
It’s also very clear that this growth and the ensuing battle is increasingly coming from consultancy, which means that there is at least scope for the other Two-of-Four to play catch up. It seems that nothing could have hit a sweeter spot for the Big Four consultancy firm than an ice cream sundae comprised of a big dollop of financial crisis accompanied by huge scoops of restructurings and hundreds and thousands of new regulations sprinkled over the top.
To switch metaphors, it’s a bit like fielding a square leg, idly chatting to the umpire only to find the other team’s batsmen keep swatting the ball straight at you. It’s only when they are on the way back to the pavilion that the batsman glances over his shoulder and says “Hang you a minute—aren’t you the other umpire?”
Because with their audit hats on, the Big Four are rather deeply embroiled in the financial crisis, having so comprehensively carved that world up between them that there really is no place to hide. Although despite this, life seems to carry on as usual: bankers keep banking, regulators keep regulating, credit-raters keep rating and auditors keep auditing. As Primal Scream might have concluded “Ain’t no use in prayin’, that’s the way it’s stayin’, baby.” Or is it? The EU is once again making sabre-rattling noises about separating audit from non-audit services, which normally means it’s spring again. Perhaps they’re confused by the unseasonably warm weather.
On the other hand, the EU has to do something and given that there’s no compelling evidence that audit consultancy relationships had anything at all to do with the financial crisis, it would be seen to be the obvious move for such a ham-fisted entity to make. (In fact, many of the banks would have gotten through the financial crisis in much better shape if only their auditors’ consultancy arms had been allowed to give them a thorough going over in the post Y2K era.)
Would it really matter? I’m sure I’ve made this point before, but in all my years of writing about the industry, I have never, ever found a consultancy firm with the least interest in setting up or acquiring an audit arm. And that lack of interest, is, I suspect, echoed in parts of the Big Four. Because let’s face it, audit is going nowhere fast, unless the Martian market opens up and the Martians are open to adopting IFRSs. There are, it is true, some interesting and exciting things that our financial wizards could do for the companies they audit, such as help with their environmental and social reporting. Or even (scary thought), come up with something that would give the muggles who’ve invested in them a vague idea of a) what they are worth and b) how likely they are to go tits-up any day soon. But it’s still a marketplace in which the Big Four can only play a zero sum game of pass the FTSE parcel.
And it’s clear their thoughts are elsewhere, as healthy growth returns to consultancy. Other stories that caught my eye were Deloitte’s beefing up of its ERP capability, and KPMG’s acquisition of IT advisory firm Xantus. I wrote about Xantus a year ago, when it numbered about 70 folk and their ambition was to be “the number one adviser to the IT leadership community in the UK”. Part of me would have liked to see them do that on their own, but they’ve clearly hit one of those inflection points on the consultancy growth curve at which it’s much easier to achieve market reach through tucking into a bigger entity. Since the rationale for Xantus’ formation was to move into the vacuum created by the original sale of the Big Four’s consultancy arms, it makes a lot of sense to join up with the new “client-side” focused Big Four (and potentially delete the “in the UK” caveat from that ambition).
At the same time, we’re also seeing the Indian firms such as Tata and Wipro making high-profile acquisitions and hirings in these areas, and it seems that once more the consultancy industry is being drawn to the high-level IT advisory space like moths to a street lamp.
I do wonder how long the “client-side” distinction can survive in such a world. Is there really such a big gap between doing things “with” clients and doing things “for” them? (I would love, incidentally, to come across a consultancy that admitted “We do it TO our clients, because, frankly, they haven’t got a clue”. Given that every consultancy only seems to engages with the most sagacious and noble clients, there’s clearly a huge market opportunity for anyone prepared to work with useless people.)
Even if that distinction can be maintained, audit is still an issue for the Big Four, not because of conflicts of interest but because it just seems to a be a bit of an odd 19th century artefact hanging around the neck of otherwise high-tech organisations. Why would you want to be dealing with the outputs of someone’s cranky old accounting systems when you could throw away your audit hat, rip out all the old plumbing and install a nice new ERP system?
Back in at the start of the century, I remember that E&Y; was looking at rebranding audit as a commoditised, non-graduate profession. Given the number of young people nowadays who’d prefer a proper job to a mickey-mouse degree and a lifetime of debt, that now seems like a very modern proposition.
The early 21st century consultancy divestments were driven as much by the historic focus of power in a Big Four firm as by commercial logic. The three who sold their consultancy arms were lucky in a sense: they were able to get rid of excess IT implementation capacity and develop that client-side story. But at the same time they lost some irreplaceable resources and gave the competition an easy route into hitherto undreamed of areas of consultancy, and all to preserve audit. In the words of the old Jewish joke “When they circumcised him, they threw away the wrong bit”.
If the regulators come knocking again, consultants should gang up with everyone else—tax, M&A;, forensic accounting—and this time make sure it’s the auditors who get sold down the river.
All views expressed in this article are those of Mick James and do not necessarily reflect the views of Top-Consultant.com and Consultant-News.com.
Contact Mick with your views or suggestions at: [email protected].
