MDPs out in the cold

PwC chairman moves to quell Landwell crisis as KLegal international network faces extinction

The global chief executive officer (CEO) of PricewaterhouseCoopers (PwC) Sam DiPiazza last week sent out an email to all worldwide partners supporting the position of the firm’s global legal network Landwell in the wake of the KLegal crisis.

The Lawyer understands that the email reinforced the official line that the firm’s legal network is still the referral firm of choice for work from non-audit clients, despite the Sarbanes-Oxley Act.
Sources close to Landwell say the move was intended as an explicit reassurance to its law firm in the face of widespread confusion and panic in PwC US about the legality of using overseas accountancy-tied law firms.

The move came as multidisciplinary partnerships (MDPs) across the world were in chaos as PwC’s big four rival KPMG announced that it intended to discontinue its legal network and was forced to do so by the post-Enron regulatory pressures posed by the Sarbanes-Oxley Act.

KLegal UK, dominated by legacy McGrigor Donald partners, has finally and officially got its divorce from KPMG. The bean counters at KPMG have been looking for a way to solve the regulatory problems posed by Sarbanes-Oxley for months. And a growing body of opinion at McGrigors felt that the accountants were just not worth it anymore.

Put the two factors together and you get what The Lawyer predicted three weeks ago – that the writing was already on the wall for the UK’s most viable MDP law firm, KLegal.

Given that the decision on the international network was taken by an increasingly uninterested KPMG and a five-man international board dominated by the interests of McGrigors, it is no surprise that the international network followed KLegal UK straight down the pan.

Sources close to McGrigors’ top brass say that more than a month ago highly influential partners in Scotland had already ruled out any kind of continued relationship with KPMG, despite the fact that this possibility was on the table at that stage.

“They couldn’t see the benefit of a two-pronged approach, where part of the firm continued to work with KPMG and the other part didn’t,” said the source. “They just didn’t think riding both horses would work.”

According to sources close to KLegal, the partners were presented with a fait accompli at the firm’s partnership conference on the last weekend of October.

The source said: “John Griffith-Jones [chief executive of KPMG in the UK] stepped up and announced that the SEC [US Securities and Exchange Commission] was uncomfortable about KLegal being associated with KPMG and the association had to end.”

KLegal managing partner Nick Holt claimed that there was a full and frank discussion at the meeting, but conceded that there was no vote on the future of KLegal or its relationship with KPMG. He claimed “a clear consensus emerged that we should move to a best friends relationship”.

Having previously sunk subsidies of more than £10m into the practice, KPMG funding was cut off almost dead last year.
Even the McGrigors partners’ own guarantees are due to run out next September.

It is perhaps no surprise that the McGrigors partners in Scotland, who saw almost no referrals from KPMG and felt SEC audit clients such as Halifax Bank of Scotland were under threat, had lost their taste for a tie-up with accountants. There is still unravelling to be done. Jean-Louis Paul, a member of the KLegal International board, told The Lawyer: “KLegal International is in the process of liquidation.” No replacement Europewide legal referral network has yet been established, although KLegal International’s management hopes to be able to create one.

Former KLegal partners were less phlegmatic about the collapse of the network. One said: “The living, those who are still there, will envy the dead, those who left.”

Another source familiar with the firm told The Lawyer: “It doesn’t surprise me that [Robert] Glennie [KLegal International chief executive] hasn’t been able to finalise the network. They don’t know where they’re going. They couldn’t coincide the timing of the break from KPMG, their relaunch in the UK and the launch of the global network. That should all have been done together – that would have been so much better. The impression that’s been given is that KPMG unilaterally decided, and that KLegal was left to fend for itself, but that’s not what has happened at all.

“Glennie has spent the last 18 months trying to find a US firm and develop the European network. He’s been trying to hold the network together.”
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