Eyeing up the competition
18 July 1995
According to Neasa MacErlean, lawyers are demanding a quid pro quo for referring work to accountancy firms
Solicitors are not generally all that enamoured of their accountants. The preliminary results of a survey of solicitors' views, conducted by accountants Baker Tilly, are almost embarrassingly telling.
Solicitors were asked to say what their accountants did best. The highest rated aspect of service in 1995 is the "proximity to your office" of the accountant's firm. The second highest rated aspect is the "handling of telephone messages".
By contrast, "value for money" comes 11th, "enthusiasm and commitment" 12th, and the "ability to be proactive" 13th (in a ranking of 15 different categories).
Lawyers have reason to be disillusioned with the accountancy profession. Accountants have generally not satisfied their legal customers in the fields of management consultancy and audit.
At the start of the 1990s it became clear that accountancy firms regarded law firm consultancy as a cash cow. Firm after firm told lawyers that they had just set up a specialist unit.
At one stage over a third of the top 20 accountancy firms claimed to have a specialist team (they certainly had the brochures). This was an inordinate amount of attention for a relatively small sector of the UK economy.
Since then some of these specialist teams have been disbanded. KPMG had one of the largest groups, the Solicitors Consulting Unit. It seems that the SCU disappeared into the ether two or three years ago to be replaced by another, broader consulting group - which has also now disappeared. It is not surprising that solicitors lost faith in accountants.
"Management consultancy became very fashionable," says one consultant. "At the end of the 1980s, a medium-sized firm would have paid £150,000 for a project which they would pay only £50,000 or £60,000 for now. Lawyers can see through people who don't have the same level of intellect. When you fail to cross that first hurdle they don't have respect for you."
Solicitors may also have wondered why they were taking advice from a profession which had itself made so many tactical and strategic errors.
Today more enlightened solicitors will sometimes talk about the benefits they achieved from good advice on information technology, customer satisfaction or marketing and public relations projects. But they rarely praise their auditors. At best they regard the audit as a necessary evil.
One of the biggest failings of the accountancy profession has been its collective inability to build up the audit as a value for money product.
In other aspects of their services to solicitors, however, accountants can have a positive reputation. Accountants do, after all, have the ability to provide a lot of work to law firms, and vice versa.
"People are being much more blunt about this now," says partner Martin Thomas of London law firm Edward Lewis. "They are saying: 'If you give us work, we'll give you work.' We, for example, give a lot of work to Baker Tilly and Touche Ross on the forensic side. In return, they give us some commercial work. We are now being more selective in who we deal with."
Forensic accounting, which is often known as litigation support, is perhaps one of the more positive manifestations of the relationship between solicitors and accountants.
"It's about the most competitive area in accountancy," says audit partner Richard Boulton of Arthur Andersen. "We haven't put up our rates in three years."
Fees are still under downward pressure. The big forensic accounting jobs of the early 1990s, such as BCCI, Polly Peck and Maxwell, are now nearing their end and show no sign of being replaced by other large projects at this stage in the economic cycle.
Competition between accountants for this business has increased quite sharply. The 'big six' accountancy firms have dedicated departments that are becoming increasingly specialist. Arthur Andersen has special groups in forensic accounting for fraud, document management, competition and construction, to name but a few.
Coopers & Lybrand - which has a team of about 80 full-time staff in this area - earned £10 million in 1994/95 from its combined litigation support and tax investigations departments.
KPMG forensic accounting partner John Ellison believes forensic accounting will continue to grow. He says: "Litigation cases are getting more and more complicated nowadays."
The company took its first case as an expert witness back in 1930. The case lasted two weeks and the prospectus it revolved around was four pages long. The biggest cases now can last more than a year, and involve thousands, or even millions, of documents.
One of the challenges for the big names in forensic accounting is to make sure they are differentiated from some of the more generalist firms which dabble in the subject.
Ellison says: "We do see some quite astonishing reports. There are a lot of people who don't understand the importance of impartiality. There are a number of cowboys."
Fellow forensic accounting partner at Coopers & Lybrand Andrew Mainz says: "We find that some other people come and go in this field because they aren't very good at the work."
Solicitors and accountants will not always be satisfied by their relationships with each other. But the economic and regulatory backdrops are changing so quickly for each profession at the moment that they must both keep a firm eye on one another to see what opportunities and threats they present to each other.
Neasa MacErlean is a business journalist on The Observer.