To be or not to
be?

As the network definition debate comes to a head, one
international accountancy group has taken steps to change its name
in order to clearly distinguish itself as an association. MSI
Global Alliance chief executive James Mendelssohn
explains why.

For many years, accounting firms in different cities and in
different jurisdictions have worked together within varying legal
structures. While they may often have had very diverse objectives,
will certainly have had wildly differing expectations of what the
organisation might provide and used a broad range of descriptions
to explain to the outside world exactly what their organisation was
all about, it all seemed to work fairly well. Until, of course, all
those well-publicised scandals that we all know too much
about.

In the new regulatory environment, one of the key drivers in both
the International Federation of Accountants (IFAC) Ethics Code and
the EU 8th Directive is the need for transparency. Organisations
cannot present themselves as a closely knit, internally regulated,
global organisation unless there is some substance to those claims.
If an outside observer could be forgiven for thinking that
different firms in different jurisdictions are all part of the same
organisation, and therefore working to the same standards, because
of the impression that those firms create, then that observer
should be able to rely on that assumption.

If organisations are less closely knit, and are not able to provide
the reassurance on a global basis that external stakeholders may be
looking for, that is not necessarily a problem per se, but
it is a different scenario, and one those external stakeholders
should be able to understand. And therein lies the distinction
between a ‘network’ and an ‘association’.

Organisations, and individual firms within those organisations, may
complain about the increased regulatory burden being placed upon
them, but they certainly shouldn’t be complaining about the
rationale behind the decision to create this distinction between
‘networks’ and ‘associations’. It is impossible to argue against
transparency, which has to be at the root of any regime of strong
corporate governance.

Many of the mid-tier organisations are facing some difficult
choices. Most of them have certain characteristics that would lead
them into the definition of being a network, and others that would
suggest that they might be an association. And, perhaps more
worryingly, the same organisations have certain member firms that
would prefer to be part of a network, believing that the benefit to
them of being part of a more closely knit and globally recognised
organisation would outweigh the practical, regulatory and liability
risks that come with network status – and others who believe that
with the majority of their international work being bilateral,
being part of an association rather than a network, gives them all
that they need.

Time to choose

Some tough choices will need to be made, both by
organisations and by individual member firms. One ‘former network’
has already disappeared. There will be other mergers and
amalgamations – but how such deals are best struck between
disparate, worldwide bodies, often with broad ownership and rules
of exclusivity, is an interesting debate. There will be changes.
There is already evidence of larger firms in organisations that
have decided to become an association looking to jump ship to a
network, and vice versa.

This level of change, though, is healthy. Firms will end up being
linked with more similar and therefore appropriate firms around the
world. Clients will be serviced by firms around the world that are
more similar to the firm that they know in their own country.

From the MSI perspective, we have decided to go down the
association route and have taken the opportunity to rebrand as MSI
Global Alliance. We were previously known MSI Legal and Accounting
Network Worldwide. With law firms and accounting firms in the same
organisation, in reality we had no choice. But even if we had, we
almost certainly would have followed the same path. Our belief is
that for the strong owner-managed business client, respected,
fiercely independent, local firms can often provide a more
appropriate service than a larger firm in a more closely regulated
environment. And such firms are more likely to be found in an
association than a network.

At the end of the day, it’s all about choice. There is no wrong or
right route for organisations to take. But by creating this
distinction between networks and associations, and hopefully
ensuring that clients can understand this distinction, the hope is
that partners, staff and indeed firms will end up in the right type
of organisation and, as a result, they will not only provide a more
appropriate service to clients, but they will enjoy life too. With
a fair wind, clients might get a better deal as well.

Ethics and regulation

In 2006 the International Ethics Standards Board for
Accountants, an independent standard-setting board within the
International Federation of Accountants, revised the Code of Ethics
for Professional Accountants by updating the definition of a
network firm in a bid to provide auditors with clear guidance on
matters of independence. The EU 8th Directive deals for the first
time at EU legislative level with the concept of the audit network
by including a definition of network.