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April 30, 2008

Forum of Firms not for all

Last month, a large number of global mid-tier accountancy networks were named as inaugural Forum of Firms members. One association that steered clear of the group is MSI Global Alliance. Chief executive James Mendelssohn explains the reasons why.

While the news that 17 international accounting networks and firms have negotiated the necessary hurdles to become full members of the Forum of Firms is, to quote forum chairman David Maxwell, “an important milestone”, the news has to be kept in perspective.

It is a step forward, without a doubt, albeit a belated one for an organisation that first appeared in 2002. Will it drive up quality? Probably, although there are many other pressures on the networks and firms to achieve the same results. Maxwell goes on to say that membership of the forum is not a “badge of quality” but rather it reflects the ethos of those involved as being about quality.

All good stuff. All true, as far as one can tell. Perhaps this is further evidence of the growing trend of those organisations that have decided to become networks under the International Federation of Accountants (IFAC) and EU definitions, or have become members of the forum, to assert or imply that they are somehow ‘better’ than organisations that have decided to go down the association route. That is not necessarily true.

Quality paramount Any firm, any association and any network worth its salt will be concerned about quality. Those involved in management know that to build a successful and sustainable organisation, the need to maintain appropriate quality standards is paramount. The IFAC and EU rules, though, were driven as much by the need for transparency as by the need to improve quality.

And one of the benefits of the profession generally being more transparent is that clients and other intermediaries should find it easier to find a more appropriate adviser, not necessarily a ‘better’ one. Although the accounting scandals of recent years have stolen the headlines when observers are looking at what has been wrong with the profession, it may be more relevant to look a little deeper.

As many have argued in the past, one very significant problem has been the absence of choice, caused by the lack of a viable middle tier. And one way of overcoming this problem is to educate clients and work referrers about the alternatives available outside the Big Four and, dare I say it, from those firms and associations that have decided not to go down the network route.

MSI Global Alliance took a very considered and unpressured decision to become an association, rather than a network. While that decision was in part predicated by the presence of a significant number of law firms within our grouping, more important was the very clear focus that we have on the type of firms that we have in the association, and the type of clients those firms are best suited to service.

2007 was an interesting year for MSI Global Alliance. More than 250 firms applied cold from our website to join the organisation – more than ever before, although only 28 were accepted – and the flow of enquiries noticeably increased after we had announced our decision to become an association rather than a network.

The association route For some firms considering joining an international organisation, the association route is clearly more attractive than joining a network. Perhaps more significant, though, is the fact that two firms that are currently part of organisations that have decided to go down the network route have made tentative approaches in recent weeks to see whether there is any chance of them joining our association.

The critical factor, though, is that clients understand the distinction between associations and networks, and that they buy professional services from firms best suited to meet their needs.

Not every international grouping is looking to service multinational clients that have service needs in many countries. Some are servicing a sector of the market in which the client has, predominantly, bilateral needs. And that client almost inevitably wants a high-quality, responsive service that matches his or her entrepreneurial needs, not one that is more concerned about complying with regulatory requirements that, while entirely relevant and appropriate for clients of a certain size, and of a certain risk profile, are not so pertinent to an essentially local, entrepreneurial business.

Similarly, that client is going to feel that its resources could be better spent on research and development, marketing or any other area that may provide a better and more tangible return than on the regulatory costs that its auditors have incurred as a result of being a ‘network’ firm, which inevitably and understandably have to get passed on to clients.

Cost of quality And those costs are very considerable. The enhanced quality control processes and the independence checking between member firms need to be addressed rigorously if they are to be effective and are going to stand up to scrutiny. To pay lip service only to the new rules would be counterproductive and would come back to haunt those who don’t address the issues seriously.

So being a member of the Forum of Firms, or being a network, is without doubt a good thing for certain organisations, and for certain firms. But it is not appropriate for all organisations and all firms. Transparency is paramount – and it is vital that clients and referrers of work not only really understand the distinction but also go on to choose an appropriate service provider to meet their needs. It may well be a network firm – or it may not. But membership of the Forum of Firms should not necessarily be seen as a panacea.

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