Categories
Risk Management

Political risk for market dominance

A recent article on the New York Times about the political costs that Google is facing due to its market dominance, and their strategy to reduce those costs, caught my interest:

Google has begun this public-relations offensive because it is in the midst of a treacherous rite of passage for powerful technology companies — regulators are intensely scrutinizing its every move, as they once did with AT&T, I.B.M., Intel and Microsoft. Some analysts say that government opposition, here or in Europe, could pose the biggest threat to Google’s continued success.

Google’s SEC filings make repeated mentions of the high level of competition the company faces in their business. Microsoft and Yahoo are specifically named as the two biggest competitors, and Google notes that Microsoft has more cash and employees, and both companies have longer relationships with advertisers.

I find it interesting that Google is taking the strategy of talking about the “formidable competition” they face as a risk to their business instead of (or in addition to) the risk posed by increased government regulation as a result of their perceived market dominance.

In the section where they talk about government regulation and the risk it poses to their business, they discuss issues like privacy laws, copyright infringement and even net neutrality. But I couldn’t find mention of the risk presented by regulation due to the perception of unfair competition.

Does your business face political risks like Google and other tech companies?

Categories
Auditing

Audit choice and competition in UK and G8

Jeremy Newman of BDO Stoy Hayward, highlights a key finding of the British Oxera Report on Audit Choice and Competition:

According to the report by Oxera on Competition and Choice published in April 2006 more than 70% of FTSE 100 companies had not held a competitive tender for the last 15 years. The incidence of companies switching auditors is even less frequent. According to the Oxera Report it is around 4% on average for listed companies and less than 3% for FTSE 350 companies.

It’s not just a problem in the UK, however. Grant Thornton researched the global audit market:

The levels of audit market concentration across the world’s eight largest economies are dangerously high, with the Big 4 firms responsible for up to 99% of large public company audits, according to research by leading accounting and business advisory firm Grant Thornton LLP in the UK. […] Analysis of auditor concentration among the G8 economies revealed a high of 99% in Italy, followed by the UK (98%), the US (97%), Canada (96%) and Russia (90%).

That, after Grant Thornton’s US boss issues a call for a study to be performed on the US audit market. Not sure what a study of the US market would reveal since the above quote references a 97% concentration of Big 4 firms on public company audits already. Clearly there is a problem.

Investors and businesses are not being well served by the current situation. I hate to advocate increased intervention by governments of any kind, but it’s clear that public company audit committees also hate to advocate for shareholders’ best interests in terms of rotating audit firms and/or partners.

Maybe the solution is increased coverage of public companies that switched their audit to a non Big 4 firm. I would love to hear from any company in Canada that made the switch and is happier and better served for it.