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Comment: Regulatory Imbroglio

As a non-native English speaker, I usually hope to be forgiven for my sometimes inappropriate use of certain words. I do remember with tenderness Dave Allen’s “Vagaries of the English Language”, a specific BBC show in which Dave tried to neutralise the scandal, shock and horror his public use of the S-word had caused during a previous TV show. Today, S-words and F-words are alas commonplace on TV. In a recent comment piece, I used a word starting with B to mean rubbish. I was lucky that, due to the fact that English is my fourth language and not my first, I was subject to forgiving mildness by most native speakers.

The word “imbroglio” is fascinating and certainly nicer than the B-word; it stands for a confused mess, an intricate or complicated situation, an acutely painful or embarrassing misunderstanding, but also a violently confused or bitterly complicated altercation.

So what is a “regulatory imbroglio”? It is exactly the aggregate of all those points stated above related to some regulatory matters. I use this in relation to the way networks of professional firms are interpreted in the regulatory environment. Whilst in the accounting profession, there is a distinction between networks and associations and a whole universe of different interpretations related thereto, the legal profession lives with the simplicity of having just networks. Law firm networks even turn into single firms for marketing purposes – a situation that makes every informed accountant shiver whilst thinking of the eighties. When “American Lawyer” decided years ago to publish Swiss Vereins, technically associations of independent law firms, as single global law firms in their rankings, traditionalists opposed. They objected that networks should not be considered as firms, an argument that can also be found in the accounting profession as it bears a lot of truth.

The much cited Parmalat collapse triggered, amongst other matters of the past, the Network Definition of the EU Statutory Audit Directives; and IFAC definitions followed. But what happened in the legal profession? Law firm networks are not subject to regulation. Law firms are regulated, and one of their main challenges is conflict of interest, conceptually the equivalent of auditor independence. Accounting firms are subject to laws, statutes, SEC regulations, etc. Law firms are regulated by ethical principles, model rules, and concepts governing the client-attorney relationship. Naturally there are deficiencies when the networks (and associations) of accounting firms are compared with networks of law firms.

It is commonly accepted that the work of audit firms represents a benefit for the public. But I wonder what would happen to clients of a large law firm or law firm Verein collapsing? The damage would be considerable and the world has seen outstanding collapses of law firms in the last decades: Finley Kumble (the second largest law firm in the US) in 1987; Dewey Leboeuf, Bingham McKutchen, Heller Ehrman; and many others. It is refreshing to know that the collapses of large entities make no distinctions between law firms and accounting firms.

Imbroglio, whose etymology derives from Old Italian “imbrogliare”, to tangle, confuse; but also brogliare; to mix, stir (probably from Old French brooiller, brouiller), is in my eyes a wonderful word to describe the current regulatory status of some law firm networks selling themselves as global law firms. They use the Swiss Verein structure to reduce liability and to make their network of independent law firms look like a single branded firm. This is often enough misleading and in the accounting profession an old and bygone trick that is no longer applicable without assuming regulatory consequences. In some of the rankings in particular countries, the four largest accounting networks are also the four largest law firms, abiding to national and international standards.

In music, imbroglio is also “a passage in which the rhythms of different voice-parts are conflicting or contradictory”. This sentence is probably the most appropriate description of the charade.

By Michael Reiss von Filski, global CEO, GGI / Geneva Group International

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