The MSI Global Alliance Perspective

Tax season in the US - and then what?

Last weekend, MSI held its annual meeeting for its North and Latin American members in Miami, Florida.  With a record number of attendees, the overall atmosphere was positive, despite the recession.  On balance, though, it seemed as though the lawyers were hurting more than the accountants.

It was interesting, therefore, to come on to Las Vegas to attend the 'Winning is Everything Conference', now in its 8th year.  A show of hands in the first session indicated a reasonable level of optimism amongst the delegates.  For many, 2008 had been a record year and although expectations for 2009 were down, most were predicting restricted growth rather than anything more negative.

One speaker, though, painted a much darker picture.  Gary Shamis, a member of The Advisory Board that mount the conference and a man with strong credentials in the profession, asked a few questions that had a number of delegates shifting in their seats with obvious discomfort. 

What would staff of these CPA firms be doing after the end of the tax season?  And although it was commendable to book plenty of chargeable hours between now and 15 April, would these hours actually turn into cash in the bank, or would they get written off with clients being unable to pay or even going out of business?  His prediction was that May would be the month when the US CPA firms would be letting many of their staff go.

Having to face such an unpredictable future, it has never been more important for firms to focus on the positives - and to work closely with clients to ensure that they continue to provide the highest levels of client service. 

Perhaps this is why enquiries for membership of MSI continue to come in, irrespective of - or, arguably, because of - the recession.

James Mendelssohn (jmendelssohn@msiglobal.org)

Who'd be a student?

It's not often that those of us the wrong side of 30 feel sorry for students, but even the most hardened grumpy old men should be feeling at least a twinge of compassion for those students coming to the end of three or four years of study and having to face an employment market which is, at best, bleak. 

Figures published in the UK this week talk of there being 20% fewer graduate opportunities available now than there were 12 months ago, and some sectors are simply not recruiting at all.  In the City of London, for example, there is a marked absence of fresh-faced young men and women attending interviews at certain 'institutions' - partly, of course, because some of those 'institutions' simply don't exist any more.

But every cloud has a silver lining -and many of those who would in previous years have been considering what might have been perceived as more 'glamorous' jobs in the City (and elsewhere) are now looking to more traditional first jobs such as law and accountancy. 

The openings are still there in these professions.  Some firms may have cut back their numbers, but the nature of the work, particularly in the accountancy profession, is such that firms need fresh, young talent coming through all the time (to avoid a bulge at the 'recently qualified' level), and therefore when the going gets tough, the more vulnerable are the staff members coming out of their training contracts who may have not performed particularly well to date.  And, of course, in recessionary times, the perceived value of a professional qualification rises disproportionately.

But any final year undergraduate frantically trying to balance getting a reasonable degree with finding a job at the same time is faced with a potentially bewildering choice of options, if he or she does decide to seek a professional qualification.  Perhaps I could limit my advice to just two areas.

First, a dose of realism is essential.  I heard a story recently of an only moderately strong undergraduate actually saying at interview: "I was going to be an investment banker, but with the market as it is, I thought that I would put that idea on hold for a couple of years and pick up an accountancy qualification".  He was not offered a second interview.  Accountancy qualifications are tough; they require hard work and commitment. 

Similarly, don't expect to be able to focus exclusively on work that is thought to be specialist or particulalry high profile from day one.  In a recent article in 'The Times', the very valid comment was made:  "Practitioners clearly need to be good lawyers before they can be good niche lawyers".

Secondly, if you do decide that either law or accountancy is the right route for you, that's great, but do think very carefully about the type of firm that you want to join.  The very large firms have instantly recognisable names, and that may be helpful on the cv in the longer term.  But future employers will also be looking at the breadth of experience that you have managed to gain, and they may be more impressed by the candidate who has had wider experience, working on a larger number of smaller clients, at a more senior level, in a medium-sized firm rather than someone in one of the mega firms who has spent months working on some small part of a major corporation.

Working culture is important too.  In the current climate, a discussion about your desired 'work/life balance' may not be entirely appropriate (don't forget that when the grumpy old man interviewing you was your age, nobody had heard of 'work life balance') but for many candidates, this is an important factor and you should at the very least try and get a good feel for the working environment.

Of course there are many other factors.  But the point is a simple one.  The professions are definitely worth considering and, if you do, keep your eyes open.  The mid tier of both the law and accountancy professions offer a very real alternative to the largest firms, not only to clients, but to students too.

James Mendelssohn (jmendelssohn@msiglobal.org)

Conference speakers - new hunger or complacent experience?

Most international groupings such as MSI encourage their members to communicate electronically - but also recognise the significant value that should be attached to personal contact.  As a result, we all run a series of conferences and meetings around the world to enable members to get to know one another better, to share common experiences and to learn from a variety of speakers.

For those of us running such groupings, identifying the right speakers for meetings, particularly in more remote locations, can be difficult.  In very simple terms, you either take a risk with a local and perhaps unproven speaker, or you pay a great deal of money to bring in a known 'name'.

At MSI, we have been down both routes ... and an interesting trend is beginning to emerge.  Paying large fees to well-known speakers does NOT always guarantee you the quality of presentation that you might expect.  Too often, those who trek round the conference circuit simply regurgitate a talk that they have given many times before, not always even remembering to bring their presentation up to date or to make it relevant to the audience in question.

On the other hand, there are a number of new speakers and consultants who are hungry and passionate both about their subject, and also about enhancing their reputation.  They tend to be well prepared, committed, animated and fun.  They may not be a great crowd puller on your conference flyer - but they certainly deliver the goods.  And if, as an organisation, you build a reputation for attracting good, albeit unknown speakers, delegates will come back year after year.

At our recent conference in Beijing, we had an unfortunate experience with a speaker who clearly fell into the first category.  The feedback from delegates was not good.  All attempts at follow up with him have been ignored.  Short-sighted, I would suggest. 

How do groupings of professional firms identify good speakers?  Well, we often ask one another about our experiences in different parts of the world.  Some speakers do very well from this, particularly those that listen to the briefing before the event and then take on board the feedback afterwards.  Those that don't have the courtesy to even acknowledge a post-conference e-mail will struggle to prosper.

If you are planning a conference in South East Asia, just let me know ...

James Mendelssohn
(jmendelssohn@msiglobal.org)

New graduates - bleak prospects or a buyer's market?

With the winter evenings drawing in, final year undergraduates should now be beginning to think of life after college.  But with many of the last batch of graduates still unemployed - or at least working in temporary, unskilled jobs, just to make ends meet - today's students could be forgiven for dreaming of another post-graduation Gap year to allow them to delay coming into the jobs market for a year or so, by which stage things will surely be better ...

Does this make sense, or is such a view simply evidence of an ostrich-type approach to life?  It would, of course, be possible to rationalise either position, and many will inevitably do so.

However, it is becoming increasingly clear that professional firms will continue to seek to recruit strong candidates, even if they cut back on the overall numbers.  This message should sound alarm bells for those bright candidates.  Only the best will be recruited, but many of the routine tasks will not go away.

Candidates looking at different types of firms would do well to remember that smaller and mid-sized firms tend to be more nimble-footed and adaptable, and are able to identify and respond to the needs of individual staff members, thereby creating great opportunities for the right candidates, even in difficult economic times.

Never before has it been more important for candidates to make the right choices.

James Mendelssohn (jmendelssohn@msiglobal.org)

The changing face of the professions

Coverage of the US Presidential Election provided welcome respite from more gloomy news on the economic front.  Behind all the headlines, though, the credit crunch is still there and its impact will be felt by many who would not be considered to be in the frontline today. 

Looking at the two professions within MSI, the accountancy world will, undoubtedly, have questions to answer.  It is all very well for the large firms to assert, as they do quite correctly, that the role of the audit is not to provide a forecast of risk.  But others argue that an audit opinion should also be capable of being used as a forecasting tool.  The lay observer will most likely have sympathy with the latter view - but only time will tell whether the standard setters and regulators take this point on board.  They are, however, unlikely to ignore it.

The lawyers may be less in the firing line, although the impact of the credit crunch on their businesses will be significant too.  Large city firms that have depended on high levels of M & A work will see certain revenue streams dry up - and redundancies are already being announced.

But there are opportunities, too, in today's market.  With clients being forced (at last, do I hear myself thinking) to focus on levels of service and value available from their professional advisers, there appears to be a growing trend for entrepreneurial businesses to review their arrangements and move to a more cost-effective and responsive team of advisers.

At the recent MSI conference in Beijing, I was expecting a few long faces and gloomy forecasts for the year ahead.  But, although there was an undeniable recognition that times are tough, there was also a strong feeling that for mid-sized firms, and their clients, the current market can open up all sorts of opportunities, particularly for the nimble-footed.

Every cloud has a silver lining - even if today's cloud is rather large, and the silver lining is rather small.

James Mendelssohn (jmendelssohn@msiglobal.org)

The real reason behind Big 4 reintegration ... perhaps

Recently, a number of articles and comments have emerged about the Big 4 accounting firms beginning the process of reintegration - reversing the post Enron and Parmalat trend of disassociation, which was primarily driven by the desire not to be ‘The next Andersen’.

Those promoting the concept have argued that closer integration allows for more effective control and risk management, and that those benefits far outweigh the downsides associated with the increased risk of vicarious liability.

Sceptics, though, seem to be taking a rather different line. With litigation against firms one of the inevitable consequences of the current financial crisis, the future of some firms will once again be in the spotlight. And whilst regulators will do all in their power to avoid the demise of another Big 4 firm on a global or even regional basis, they may have been prepared to see a firm suffer – or even disappear – in a particular country ‘pour encourager les autres’ ... unless, of course, that proved to be impossible because all the firms within a global network were so inextricably linked.

This was certainly the view of one former FTSE 100 Finance Director that I spoke to yesterday. Healthy scepticism – or unfair and baseless? As with so much in the current climate, who knows? Only time will tell.

James Mendelssohn (jmendelssohn@msiglobal.org)

The audit profession - post the credit crunch

With the credit crunch lurching from one crisis to another, few can predict where it will end.  The only thing that the pundits seem to be able to agree on is the unpredictability of the whole situation.

One point, though, that does seem reasonably certain is the fact that, when the dust does finally settle, there will be a number of powerful groups, particularly within the US, demanding answers to some difficult questions.  Why did the regulators allow the situation to develop into the crisis that it has quite clearly become?  Why did auditors sign off reports on business models that were at best speculative and at worst unsustainable?

Too many people have lost too much money for there to be anything other than a string of high profile court cases in an attempt to resolve some of these issues.  And, more often than not, it will be the auditors who are in the firing line.

At the beginning of the summer, long before we were aware of Fannie Mae, Freddie Mac, Lehman Brothers, AIG and all the others that are yet to surface, the six largest firms had 27 cases outstanding against them in which the amount being claimed exceeded $1 billion.  In seven of these cases, the amount exceeded $10 billion.  These are uninsurable sums.

Ever since the Andersen case, though, many have said that the regulators will never allow one of the remaining 'Big 4' firms to disappear.  The reduction in choice and competition would be unacceptable.  But we are now moving well away from the arena in which the regulators have any control.

So what does the future hold for the auditing profession?  WIll the 'Big 4' survive?   Will the function be nationalised?  Anthony Hilton, of the London Evening Standard, who has a reputation for thinking outside the box, has even questioned whether audit itself will survive.  That's a difficult one, but it may not be beyond the realms of possibility.

James Mendelssohn (jmendelssohn@msiglobal.org)

Global integration - heightened or reduced risk for professional firms?

With the Big 4 Accounting firms seemingly moving towards greater integration with a view, inter alia, of ensuring closer control and therefore managing risk more effectively, an interesting debate is developing.  In very simple terms, greater control reduces risk by ensuring more consistent standards through an enhanced quality control process BUT evidence of greater control will increase the risk of firms being held vicariously liable for the failings of others within their network.

So, a classic case of swings and roundabouts, helpfully explained in the 16th September edition of the International Accounting Bulletin (IAB).  But is the correlation between integration, risk management and vicarious liability as clear cut as is perhaps being suggested?  I suspect not.

Nothing is black or white in this area, but talking to the MSI members around the world, there is a strong belief that the business model that leaves strong local firms in control of their own destiny, and requires them to take responsibility for their own actions - or inactions - not only fits better with the culture within which these firms want to operate, but may also be a significant driver in terms of driving standards up - and, consequently, driving risk down.

Time will tell.

James Mendelssohn (jmendelssohn@msiglobal.org)

Managing the credit crunch - is outsourcing the answer?

An interesting article in Legal Week recently talked about one large UK law firm outsourcing an increasing amount of 'low end' work to help keep costs down for clients who are becoming ever more cost conscious.

Some would argue that this is a 'win win' situation.  Staff in the UK avoid the perceived drudgery of at least some of the due diligence work; and costs are reduced.  So far, so good. But - and it is a big but - will the lawyers, far removed from the situation, actually understand the real rationale behind the need for the due diligence and, particularly if they don't, will it be carried out to the necessary standard?  And if they don't, who will be liable?  How long will it take for the current disenchantment with overseas call centres to be translated to the professional services world?

An alternative for clients may be to look at the growing number of high quality, mid-sized firms that are well equipped to handle much of this type of work, with charge out rates far lower than those of the very largest firms.  Such firms are often members of international groupings such as MSI Global Alliance, and whilst few members would use the Alliance for outsourcing purposes per se, membership does give firms the opportunity to tap into resources outside their own geographic or technical competence as and when this might prove necessary.

And there is evidence that even larger clients are beginning to think outside the box when it comes to buying professional services.  So perhaps the cloud of the credit crunch has a silver lining after all - at least for the mid tier firms.

James Mendelssohn (jmendelssohn@msiglobal.org)

Recession - good news for lawyers?

There's nothing like an approaching recession to raise the level of enquiries received by litigation lawyers.  Unfortunately, if things are not going well, too many people believe that it must be someone else's fault, and therefore appropriate legal action should be taken to ensure that the balance is redressed.

A recent survey in the UK seemed to emphasise this point - although it has to be said that the survey was more focused on private client work than on more heavyweight commercial litigation.  Perhaps more relevant in the findings was the fact that too many litigants end up using the wrong lawyer to fight their cause.  And as a result, because they are paying their lawyer by the hour, they find themselves paying for the lawyer to 'educate' him or herself in an area of the law in which they are not fully experienced.

Two lessons emerge.  Potential litigants need to spend some time and effort doing their research before appointing a lawyer to ensure that they appoint someone who is thoroughly experienced in the area concerned; and, secondly, it may well be worth paying more per hour for an experienced lawyer, rather than less per hour for a less experienced lawyer, who is likely to spend many more hours on the case.  Why on earth should you pay to educate an inexperienced lawyer?

For a long time now, MSI has been arguing that for the best long-term development of the professions, prospective clients should be making informed decisions before they appoint their advisers.  Now, it seems, the recession is simply adding its own weight to our call.  Every cloud has a silver lining!

And as the MSI e-business platform moves to the next stage of its development over the coming months, MSI members will have an increasingly powerful tool available to them to help their clients identify the right lawyer or accountant within the MSI Alliance almost anywhere in the world ...

James Mendelssohn (jmendelssohn@msiglobal.org)