Consulting firms to go European?

Date: 07-05-2008
Source: Financial Times

Ernst & Young could struggle to make good on its plans to merge all its European partnerships in one go, according to the co-head of KPMG Europe, the only accountancy and advisory group to have integrated firms.

Country-level legal and regulatory restrictions had until recently largely limited the Big Four and their smaller rivals to networks of national partnerships, but changes in European rules now allow cross-border ownership in the region.

Last year, KPMG merged its UK, German and Swiss practices, but just last month was itself trumped by E&Y's ground-breaking announcement that it planned to unite all 45 of its European firms in one big move and bring in a further 42 partnerships in Africa, the Middle East and India under the same 87-firm single management structure.

John Griffith-Jones, who co-heads KPMG Europe, admitted in an interview with the Financial Times that KPMG's own three-way efforts had proved harder than it had expected because each firm had its own culture and practices.

"But the advantages of having only three is you can have a discussion about which way to do things and you can work your way through it," he said.

"If you had had 15 or 25 - or 45 or 87 - you would have the danger that you would never get anything agreed, and you would either go for the compromise of saying everyone continue to do exactly what they were, or else you would just be swamped by somebody being unhappy about every single thing you do."

All the networks try to mirror their clients' increasingly global operations by presenting a united front and a common firm-wide approach, but the reality is often more patchy, with independently minded partnerships largely running their own operations.

Last year, PwC suffered a blow when its Japanese firm collapsed in an accounting scandal. This year, BDO International, a rival to the Big Four, said in a US court that the "strict control" discussed in its reports was "puffery at its best" as it tried to avoid getting drawn into a case involving BDO Seidman, its US partnership.

Mr Griffith-Jones said KPMG's merger had improved co-operation. "People ask why we couldn't do this (co-operate to this level) without the merger. Whether or not we had to do a merger to do that, I don't know, but it is a very big plus," he said.

More of KPMG's partnerships are expected to vote to join the European group in the coming months, according to Mr Griffith-Jones, but he declined to name the firms. Last year, the Dutch firm dealt the merged group a blow by voting against.

"I have a lot more confidence now talking to those thinking of joining because I am selling a reality," he said. "It's fun selling a dream because you can wave your arms in the air and do slides and stuff; when you're selling a reality they don't listen to me, they go and ask my colleagues what it is really like."

Professional services firms tend to mirror the trends affecting their clients, and E&Y and KPMG have recently suggested that larger region-sized firms will be better positioned to win business from the shift in wealth towards emerging markets.

Mr Griffith-Jones said: "They look at Europe as a single asset class, not an each country kind of thing. You don't have to be a one-stop shop but it needs to be much more joined up. In my view we can be more effective if we get it together so that we have a window on to Europe."

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