23 OCTOBER 2002
Freshly returned from in Grant Thornton's International Conference held in Shanghai, David Lindsay speaks to Grant Thornton Malta Managing Partner Martin E Bonello-Cole on the restructuring of the accountancy industry in the wake of the accountancy scandals that shook the investment world and on being the best in its chosen market of owner-managed businesses
Grant Thornton Malta has been an international Grant Thornton member firm since 1991 and, on a global level, is the leader in owner-managed businesses an area that Grant Thornton Malta also capitalises on to no small extent.
Grant Thornton Managing Partner Martin Bonello-Cole explains, "Over the last nine years Grant Thornton has emerged quite strongly as the leading organisation in meeting the demand from its very specific target market - the family-owned, owner-managed business.
"When we speak of family businesses, small businesses usually spring to mind, but very large family businesses still abound. Parmalat, for example - also a Grant Thornton client - is a family business. Its owner-managed and operates in some 22 countries around the world. As such, there is a vast range of businesses falling under this owner-managed umbrella.
"These types of businesses, for the most part, differ from the multinationals in the way they are operated, structured and financed and because of that, the large global audits are not targeted by Grant Thornton - as we are not particularly geared for that type of market.
"I always remember the chief executive of the worldwide organisation saying We want to be the best but in our chosen market. You cannot serve different markets because you have to be the best in a chosen market. This has been, and will continue to be, our strategic focus."
The accounting, audit and consulting industry is perhaps regarded as one the most stable of professions but following this years Enron, Arthur Anderson and Worldcom incidents the industry is being redefined, in no small way due to new regulations being applied to the sector on an international level.
Mr Bonello-Cole explains, "We have seen the global economy declining, there have been significant stock market depreciations and this year will be memorable for the big collapses of Enron, Worldcom and other large firms. In our particular field we also saw the demise of Arthur Anderson. If you look at newspapers and journals these days, you find that the accounting profession has never been so much in the limelight.
"This changing environment poses both threats and opportunities to the accountancy profession and not least of all to ourselves specifically.
"There has been a meltdown in the profession from the perception of the public and there has been a consequent reaction from the regulatory authorities to that perception. In July this year we had seen, in the US, a new law being introduced that has very far reaching implications as regards corporate governance, financial disclosures and auditors independence. As such, there is now going to be a large segregation between audit and non-audit services.
"We believe that Europe will eventually follow suit, not wanting to be in a position lagging behind the US in this respect. However, the European reaction will perhaps not reach the extent that the US has gone to, which has been very far reaching. Well have to wait and see what emerges in this respect.
"In response to these changes, Grant Thornton has been restructuring itself in view of these changes. On a global level we are restructuring to better manage the threats that we are facing and to position ourselves, as a firm, to grab the opportunities that will arise.
"As an idea of what I mean by opportunities, now that the market has shrunk, with the bowing out of Arthur Anderson, to the big four as opposed to the big five and because of these regulations that have come about, the big four will no longer be able to provide non-audit services to their clients. As such, we are positioning ourselves to capitalise on those types of opportunities.
"As far as restructuring is concerned, Grant Thornton has gone so far as to change its constitution. We have a new chief executive worldwide, two of the larger firms within the organisation the US and the UK now have new national managing partners and our general risk management policies and procedures are constantly under scrutiny and revision.
"As regards professional indemnity arrangements, while previously each individual firm was reviewed every five years, we have now brought that forward and to once every three years. There is also centralised legal support when conflicts arise between firm and client.
"However, the theme of this years international conference was about celebrating what we have achieved over the last year. There has been considerable investment and strengthening of our networks, we have seized opportunities when they arose entering, for example, into certain areas of developing countries where before we had no representation.
"Grant Thornton also bought a number of firms and merged with number of firms."
"We have also invested significantly in corporate branding, so that today wherever you go in the world the common Grant Thornton brand identity is present. There has also been considerable investment in quality standards."
Gauging an expected demand for specialist services, Grant Thornton has been conducting training activities, mainly in international tax and in Prima - a structured methodology developed by Grant Thornton to address family businesses and corporate finance. In the mid-market, Grant Thornton ranks number one in the US, number three in the Asian Pacific region and number four in the UK.
Grant Thornton has also invested heavily in its audit business, for which it has created the avant-garde Horizon methodology. There are also several new initiatives in the making, such as a new website for family businesses and the global extension of Grant Thorntons renowned business survey of owner-managed firms, which previously used to be conducted only in Europe.
But such initiatives come at a price. As Mr Bonello-Cole explains, "To support these investments we have seen transitions taking place. Whereas before most of the firms and activities of the worldwide organisation would be subsidised mostly by the larger firms the US, UK and Canadian we are now seeing the international organisation becoming self-sufficient meaning largely increased contributions from member firms toward this central organisation administrative function. Our contributions toward the international organisation over the past three years have more than doubled, but its going to a good cause.
"Over the past year we have seen a continuing drive for improved quality assurance. Previously a great emphasis was placed on the strategic direction of the firm. However, today we are seeing predominance being given to technical performance, be it audit or non-audit.
"Because of the opportunities coming from changes in the big four firms, we have also created an initial framework to develop and expand the international services that we are offering such as corporate recovery and restructuring services. With the global economy as it is, it comes as no surprise that a lot of investment is going into an international service addressing those market needs.
"Looking ahead to 2003, we are to continue strengthening our global network and we expect to expand it over the different regions in the world.
"We will continue quality assurance initiatives in audit and further the development of risk management procedures and policies for our non-audit services. There has also been significant investment in our Centra software product, which provides virtual interactive opportunities for both training in member firms and for regional meetings."
Grant Thornton this year expects further investment in marketing and communications to exploit its market position. It will also be further professionalising its international services in the sense that rather than individual firms taking the lead in creating new services, an international central unit will now play an active role in providing international services and in promoting Grant Thornton as an alternative to the big four.
"We have positioned ourselves as leading advisors to owner-managed businesses worldwide but staying ahead of the game involves reassessing our market position in view of the changing environment and reassessing the threats of these changes.
"The opportunities that we see for the coming years and the services that we are to internationalise include transaction support for corporate finance services, an area in which owner-managed businesses are growing; forensic work, where there is fraud or litigation and we are appointed as experts; international tax will continue to be a growing market; as corporate recovery and restructuring will be.
"We will be aiming to further strengthen our position in the market, while resisting the temptation to fill the vacant big five seat left by Arthur Anderson, and to further our position as a supplier of choice in our niche markets."