The MSI Global Alliance Perspective

Green shoots … or something more substantial?

We’re currently at the IBA Conference in Madrid, an annual gathering of eminent lawyers from around the world.  It’s proving to be a very worthwhile conference for us, with a great deal of interest from prospective member firms in countries where we are looking to strengthen our coverage.

Interestingly, rumour has it that the IBA got their planning seriously wrong for this particular conference.  Concerned by the state of the global markets, they budgeted on only 3,000 delegates attending – and have ended up with roughly 5,000.  So they may have got it wrong, but it’s got to be good news for the IBA finances!

The real question is why did they get it so wrong.  It seems that they are experiencing the same counter-cyclical tendencies that we are noticing here at MSI Global Alliance (www.msiglobal.org)   When the going gets tough, a few weaker, more conservative firms batten down the hatches and cut expenditure ruthlessly. 

But stronger, entrepreneurial firms take a more measured view and, whilst still looking carefully at all aspects of cost, they also recognise the growing importance that should be attached to the broader aspects of firm management, not least the importance of developing strong relationships with other professionals around the world.

Where these dependable, strong relationships can be developed by the enhancement of good personal contacts whilst at the same time maintaining the independence of the local firms, everyone is a winner.  Which is probably why the IBA and MSI are not only weathering the current storm, but really looking forward to an exciting future.

James Mendelssohn (jmendelssohn@msiglobal.org)
Chief Executive, MSI Global Alliance

Act in haste ... repent at leisure ...

Summer is over.  The schools are back.  Standing room only on the trains again.  And just when you could realistically expect the newspapers to resume 'normal service' with proper news, a story emerges about a disgruntled PwC student who fires off a vitriolic e-mail on his last day in the office, having been 'let go' for having failed his exams.  Within minutes, the e-mail has been forwarded outside PwC, and soon it is 'an internet sensation'.  Oh dear.

I have just spent a few minutes reading the comments on the London 'Evening Standard' website.  They seem equally divided between those who think that the offending student has been foolish and will live to regret his outburst; and those who have elevated him to hero status for having spoken his mind and not having fallen into the trap of becoming a corporate clone.

Such views miss the point.  I believe that the student has been naive, not just for sending the e-mail in the first place, but perhaps more importantly for not having taken responsibility for his own career at an earlier stage.

Accountancy is not for everyone; but that does not mean that it is not a vital and rewarding profession.  Large firm culture suits some people; but others prefer a mid-sized or smaller firm environment.  And students considering a career in the profession need to take responsibility for making the right choices and if, at some stage, they realise that they have made the wrong choice, they need to have the courage to take appropriate action and realign their careers, either in a different type of firm, or in a different field completely.

Clients are beginning to realise this too.  Recent recessionary pressures have accelerated this process with more and more businesses beginning to realise that big is not always best, and that high levels of technical expertise and international coverage can be found within firms that are part of the professional associations, of which MSI Global Alliance (www.msiglobal.org) is one. 

None of this is very new.  Students have always had to make choices - and sometimes that means recognising that a change of direction is necessary.  I did - when I resigned from Deloittes after 6 weeks as a graduate trainee in 1979.  But, as with so many problems, the way that a problem is handled reveals so much more than the cause of the problem itself. 

And, of course, in 1979, there was no e-mail.

James Mendelssohn
CEO, MSI Global Alliance

jmendelssohn@msiglobal.org

A time of irreversible change

The announcement today by Rio Tinto that it is outsourcing its legal work to India is bound to send shudders down the spines of some of the large global law firms.  This is serious stuff.  This is not just back room chores.  Rio Tinto are talking hard core legal work - they are looking at knocking $20 million off their annual legal bill of $100 million.

This is a further example of the good that is coming out of the current recession.  The severity of the issues facing many businesses is such that people are looking for fundamentally different solutions - they are not simply tinkering in an effort to maintain the staus quo.  In effect, the evolution of the legal profession - and many other business processes too - is being accelerated.

Richard Susskind, writing in The Times today, said that "firms hope that outsourcing is a temporary phenomenon that will lose appeal as the economy recovers.  But the recession will highlight for all time that traditional law firms are inefficient, that new ways of sourcing legal work are possible, and that legal costs can be cut dramatically.  When these truths are widely recognised, not least in boardrooms, there will be no backtracking".

It's hard to disagree with Susskind's view - but the point needs amplifying.  Outsourcing is almost certainly not a temporary phenomenon for large global businesses, but smaller and mid-sized businesses are going to be challenging the way in which their legal services are provided too.  Such businesses may not be spending the $100 million that Rio Tinto are, but they are still wanting a more responsive and cost-effective solution than they have perhaps had in the past.

Which is perhaps why the business model of the global association of professional service firms is proving so resilient in these difficult times.  At MSI Global Alliance (www.msiglobal.org), our mid-sized member firms are certainly noticing the different buying patterns of clients, and whilst the very largest businesses may be intrigued by the Rio Tinto approach, many smaller ones see the association model as the right way to go.

James Mendelssohn (jmendelssohn@msiglobal.org)
www.msiglobal.org

The train is moving ... whether you like it or not.

For some time now, I have been arguing in this blog that life is changing for us all as a result of the current recession, but that change can be positive for well-positioned (and particularly mid-sized) professional services firms who are ready to capitalise on the opportunities that are currently available.

And so it was rather heartening to read an article on www.law.com entitled 'GCs want firms to change with the times' that was in turn taken from 'The Legal Intelligencer', which supported this view in no uncertain terms.  Let me refer you to just a couple of pieces from this article.

Daniel J. DiLucchio Jr. of Altman Weil said every change in law departments is stemming from cost control, and many of the changes are fundamental and long-lasting. "Law departments are really starting to look at regional and midsize firms for a lot of their work," he said. "When that starts to happen, that's fundamental. They're not going to, as soon as things change, switch back. That's not something you do on a whim."

And from the in-house perspective, Texas-based FMC Technologies general counsel Jeffrey Carr said: "I think we're on the cusp of change - and if firms don't change, they're not going to like what results in the end because there are forces in play that are driving change and you can miss the train, you can get on the train or you can get hit by the train, but the train is moving."

Having met Jeff when he spoke at one of the MSI Global Alliance (www.msiglobal.org) conferences recently, it is hard to argue that he has his finger anywhere other than firmly on the pulse of the profession.  And with MSI comprising exclusively mid-sized firms, the future is looking bright.

James Mendelssohn (jmendelssohn@msiglobal.org)
www.msiglobal.org

The Big Firm without the Ivory Tower

The great thing about recessions is that they create change – and the deeper the recession, the more fundamental that change is likely to be.

 

And nowhere is that truer than in the legal market.  Jane Hanner Allen, who founded a virtual law firm 10 years ago, was quoted recently on www.law.comas saying : “The financial pressure is creating a boiling point for change.”

 

Allen is, of course, right but the change can manifest itself in a number of different ways.  Creative – or perhaps disillusioned or down-sized lawyers – have for some time been developing and indeed promoting the concept of the virtual law firm whereby individuals work independently, normally from home, under some sort of umbrella organisation, offering clients a level of service with a hugely lower cost base.  The ‘Big Firm without the Ivory Tower’.

 

Such a model works well for certain types of law being provided to certain types of clients – and there can be no denying the cost savings available to clients.  But law firms, and lawyers working together in offices, do have certain (often intangible) benefits.  The infrastructure; the mutual support; the second opinion; the general back up.  If these can be accessed without excessive overheads, and without the distraction of office politics, they certainly have a value.  The problem is that the larger the firm becomes, the more likely is the descent into the black hole of negative forces.

 

There is, though, a middle ground that offers, I would argue, one of the few situations in which a compromise works well for the benefit of all concerned - lawyers and clients alike.  Such a compromise can be found in the small to mid-sized firm that brings together a manageable group of like-minded and committed professionals who can work closely with their clients, and yet have access to the support that a firm can provide.

 

And if that firm is part of a broader national or international grouping, such as MSI Global Alliance (www.msiglobal.org) , then you can get the best of both worlds, with greater access to both geographic and service range spread, whilst retaining the value of the smaller firm approach.  Which is probably one of the reasons why, even in today’s difficult market conditions, applications for membership continue to come in on such a regular basis. 

 

James Mendelssohn (jmendelssohn@msiglobal.org)

www.msiglobal.org

 

Challenging the traditional law firm model ...

An interesting article appeared recently on www.law.com which reported on a debate held between a number of US-based in-house counsel and a group of lawyers from some smaller, boutique firms.

One of the delegates highlighted the problem very succintly: "I don't think anyone is saying law firms can't provide efficiency, but their business model is structured so that inefficiency is encouraged," said Susan Hackett, the general counsel of the Washington, D.C.-based corporate counsel association. Reflecting the remarks from the group, she said the big law firm model focuses on hours billed rather than efficiency and results.

Now more than ever with clients becoming increasingly critical buyers of professional services, firms can't hide behind the veil of history.  The fact that firms have always operated in a certain way is no justification for them to continue to do so in the future.

And just because some of the world economies are (allegedly) beginning to move forward again, albeit rather gingerly, firms should not believe that the pressure from clients seen in recent months when things have been really tough will simply evaporate as the markets improve.  The scars created are deep, and many believe that the professional services world has been changed for ever.

The larger the firm, the more difficult it can be to introduce change.  Mid-sized firms, such as those within MSI Global Alliance, are better placed than most to adapt to the brave new world and provide those entrepreneurial clients with the type of service that they need, at an appropriate cost.  The challenge now is to capitalise on those opportunities.

James Mendelssohn (jmendelssohn@msiglobal.org)
www.msiglobal.org

Beware the green shoots ...

Whichever newspaper you read, there are stories of green shoots ... and continuing gloom.  No doubt some intern in a PR agency is monitoring these reports and we will soon see some self-promoting research indicating a swing in sentiment one way or another.

But enough cynicism.  The news of late has been so bad that there can be little doubt that there will be some recovery at some stage.  To steal a quote from Rupert Murdoch, the Chief Executive of News Corporation:  "I am not an economist, and we all know that economists were created to make weather forecasters look good, but it is increasingly clear that the worst is over".

That's all good news, but growth out of recession is not always plain sailing.  Indeed, growth for many small businesses can be a path fraught with danger.  The correlation between growth, profit and the need for more cash is not always clear.

As the world economy improves, small to medium-sized businesses, typical clients of MSI Global Alliance members around the world, need to make sure that they avoid getting carried away with post-recession optimism and seek out the advice of their professional advisers.

In recent months, there has been clear evidence of the downturn encouraging businesses to become more critical buyers of professional services, often driven by cost factors.  However, as and when things really do pick up, those same mid-sized businesses should become more critical still, but now to ensure that they are receiving the level of personal attention that they are going to need to avoid the pitfalls that lie ahead.

James Mendelssohn (jmendelssohn@msiglobal.org)
www.msiglobal.org

The role of the advisor ... as fraud increases

News from UK law firm Wedlake Bell that over the last 12 months there has been a 72 per cent  increase in the number of directors of insolvent companies being banned for fraud and theft should be a surprise to no one.   The vast majority of these directors don't start out with criminal intent - they are just desperate to keep things going during difficult times - and end up sailing too close to the wind.

Professional advisors have a real role to play in such situations, working closely with their clients and being alert to the early warning signs.  But it is all too easy for some such advisors to be facing the same pressures within their own firms and, as a result, not noticing - or not wanting to notice - the situation into which their clients are falling.

There is no doubt that recessions cause an increased level of litigation against professional services firms - and recent statistics suggest that the current downturn will be no different.  However, to keep it at a reasonable level, firms will need to ensure that they have the processes in place to ensure that partners are alert to fraud, and able to respond appropriately with the support of their colleagues, even if such diligence ultimately results in the loss of a client.

James mendelssohn (jmendelssohn@msiglobal.org)
www.msiglobal.org

The Forum of (some) Firms

News that Baker Tilly International (BTI) has announced its intention to withdraw from the Forum of Firms at the end of the year has caused much discussion amongst others in the accounting profession - and perhaps further afield too.  The fact that the news has only recently emerged when BTI would have had to have given notice on 31 December is, perhaps, an indication of the efforts to which the Forum must have gone to try and persuade BTI to stay.

The Forum, membership of which was originally promoted as being essential to those global organisations that wanted to carry out multimational audits because of the kitemark that it would provide to its members, has had a troubled history.  Goalposts moved as the profession was battered by scandals in its early years, and more recently there has been internal dissent over rising costs - and the way they are allocated.

Geoff Barnes of BTI is quoted as citing 'costs' and 'value for money' as reasons behind their decision.  David Maxwell of the Forum talks of the large number of firms considering membership.  One wouldn't expect either of them to say anything else.

The mid tier clearly can provide an alternative to The Big 4 accounting firms in many situations.  Certainly within MSI Global Alliance (www.msiglobal.org), we are seeing more and more evidence that clients are recognising this too. 

And with certain international organisations flourishing despite not being members of the Forum, it will be interesting to see how things evolve for the Forum as a result of the BTI decision.  As firms and networks begin to feel the pinch, there is a feeling amongst some within the profession that, with BTI having taken the lead, others may feel emboldened to follow suit.  We shall see.

James Mendelssohn (jmendelssohn@msiglobal.org)
www.msiglobal.org

The tide turns ...

According to a recent article in the ABA Journal, it was not that long ago that the in-house legal department at DuPont was implementing an efficiency strategy concerning outside counsel that called for the corporation to use a smaller number of large global law firms.

But now, DuPont, seen by many as a trend setter when it comes to legal cost-cutting, appears to be doing an about-turn and is now looking to retain a larger number of smaller law firms, according to Bloomberg.

Despite partners at such firms charging less than their big firm competitors, DuPont is also pushing for fixed fees and discounted rates.

“At a time when general counsel are looking for alternative billing arrangements, the playing field has been leveled, so smaller firms can make pitches to big clients that would have fallen on deaf ears before,” says DuPont's general counsel, Thomas Sager, in an interview with the news agency.

This is a view that strikes a chord with many of the MSI member firms (www.msiglobal.org) who are seeing many new opportunities emerge.  "Of course some of our clients are hurting", said one MSI member firm managing partner, "and that is affecting our firm too.  There is no doubt about that.  But there are some great opportunities out there, and we are very optimistic that we will come out of this recession with a broader and stronger client base than we had just a short time ago".

James Mendelssohn (jmendelssohn@msiglobal.org)
www.msiglobal.org