Grant Thornton UK swallows Robson Rhodes whole

Grant Thornton in the UK merged earlier in the year with RSM Robson Rhodes, making it “a leading player in the mid-market and the provider of non-audit services to one in four of the FTSE 100,” according to GT’s chief Michael Cleary.

The board of the merged entity makes the transaction look more like an acquisition:

Michael Cleary heads up the board as chief executive, but, of the former Robson Rhodes partners, only David Maxwell has a berth on the panel, which has seven members in total.

So basically Grant Thornton is maintaining control over the new entity through its board. Is this good or bad? Shouldn’t there be more than one former RSM partner on the board, since there are 7 members? Seems strange to me is all. Makes me think the merger was just to acquire RSM’s clients rather than really synergize and reap the benefits of shaking things up for both groups management-wise.

Michael Cleary was so effusive in press releases after the merger that this was heralding in a new age for the merged firm, in terms of providing the Big Four with some real competition.

Jeremy Newman of BDO at the time commented that his firm was going in a different direction in taking the fight to the Big Four’s dominance, and that merging to compete was sending the wrong message about what it really takes to provide a Big Four level of service to clients. Basically, the message was that size matters. Jeremy has been adamant that it is investment in people that really matters at the mid-tier level.

Time will tell which strategy works better.


BDO chooses blogging partner to head up international network

Jeremy Newman of BDO Stoy Hayward in the UK is a trailblazer as a managing partner who blogs regularly, primarily about the audit market in the UK. He’s recently won the job to be BDO International’s new CEO starting in October 2008.

Jeremy has been emphatic about getting the message out about audit choice and pushing BDO further into the market for large public company work.

A post he made about trusting people not to waste time on Facebook while at work, and being against the trend to ban it in workplaces, was quoted by yours truly in a post I made a short while ago that caused partners in my office sit up and take notice.

I wonder when others high up in accounting firms will join Jeremy and make blogging part of their regular routine. Communication skills are going to be key to his success in the new role, but judging by his blog, BDO will be in good hands.


Estate tax as income tax

I just finished reading an article recommended by Richard about the estate tax, titled “Death and taxes“. It appears in New Statesman, a UK magazine “created in 1913 with the aim of permeating the educated and influential classes with socialist ideas.”

I’m glad I read the article in full before reading the magazine’s history, as it would’ve no doubt coloured my impression. The article refers to a John Rawls’ idea that would revolutionize estate taxes:

… hence inheritance tax could be made progressive, through orienting it towards receivers rather than donors. Large estates need not attract any taxation, as long as they were dispersed among a number of relatively disadvantaged recipients. At the same time, even small estates could be taxed heavily if they were all left to others who were themselves already wealthy.

I love this idea. Will it be implemented though? Most political discussion of the tax revolves around scrapping it or keeping it. It will take leadership to steer the discussion towards reorientation the likes of which Rawls suggests.

The article defends the estate tax on a number of points, but the free market one resonated with me most, which is no big surprise:

A free market in trade and employment gives us, let us suppose, a dynamic, innovative and thriving economy. It does this by incentivizing hard work, and letting economic rewards flow to those with the best ideas and the greatest capacity for hard graft.

But, if this is our vision of society, we surely must admit that the unearned windfall gains of inheritance tax distort this picture. Large inheritances distort the level playing field which would allow the dynamic and innovative to prosper.

Turning the estate tax into a income tax on the recipients would certainly shake things up, potentially improving the competitiveness of the economy while preserving the source of progressive government revenue. We should give it a shot, but the political will has to be there.


Banning Facebook sends the wrong message

Facebook office signJeremy Newman, the Managing Director of BDO Stoy Hayward in the UK, provides real leadership and an inspiration across the pond to me and no doubt others who read about his management style and philosophy. He writes about workplaces banning Facebook, which is very popular right now here in Toronto among employers.

I am not sure how effective this will be at increasing staff productivity – which is presumably the intended effect. To be consistent I guess they also need to ban personal telephone calls and emails during office hours. Personally I prefer to trust people.

That’s a breath of fresh air coming from someone in his position. I would expect the employees of Stoy Hayward appreciate being treated like responsible adults. From the comments, by “russell”:

Rather than banning things companies should look to understand what makes it such a powerful medium and explore opportunities to engage with employees through such social networking sites.

He’s on the mark with the sentiment, which some businesses have already taken to heart. Especially in the profession, where potential employees are already users, keen on new technology, especially when it helps them meet people and build relationships, and looking for something to differentiate between what are essentially different flavours of vanilla.

Banning any site sends existing employees the wrong message, and failing to leverage the social network will hinder the growth of the firm when it comes to attracting the top young minds entering the profession.


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.