On Global Firms – More Where That Came From
There were some very thoughtful comments to my post on Friday regarding the firms and their “global networks.”
A couple of questions for my commenters:
@Final Four Guy – I actually agree with your comments on this complex topic. But am curious where you think my comments are off base. As far as the law firms go, I think they are as exposed as the audit firms to the issues of the day such as securities fraud and aiding and abetting. Take a look at the fate of Jenkins and Gilchrist versus KPMG on the tax shelter case or Mayer Brown and Refco. The difference with the law firms is that they don’t whine about their mistakes and potential liabilities. They take their punishment like a man or vigorously defend themselves including going to trial, unlike the chicken liver audit firms.
@Anonymous – In reference to the comment from the person who works with a seamless global engagement, can you tell us which firm this is? I’ll give compliments if at all possible when something works. However my experience at both KPMG and PwC was much less than that. And the comments I heard at the PCAOB meeting were more focused on liability than on cooperation.
Finally, I got a nice note from Prem Sikka over the weekend pointing me to some research he had done previously on the issue. Thanks Prem. It is always nice to see my experiences and instincts backed up by academic research and empirical evidence.
“I looked at these issues some time ago. See Chapter 6 of the linked to document. I picked some cases which considered the statutory regulators (in this case the Bank of England), local professional bodies or the international agencies… In each case, the firms used the global network’ argument as a strategy to frustrate inquiries.”
I wrote the comment about the seamless global engagement. I’m with PwC.
Glad to give a PwC engagement a compliment for a change. May I ask what level you are? Do you feel it works well technically and mechanically or primarily technically? When I say mechanically, the question refers to relationships between the offices with regard to pricing, use of work, assignments , relationship with client, meeting deadlines, getting paid or paying, etc. Do you have a US team that goes to the foreign locations, use all local staff in non-US locations, or have a hybrid team?
I won’t take the bait on the chicken liver or take it like a man comment, although I will say those are cheap shots.
My comment on the differences between law firms and audit firms are based on intuition versus actual evidence. My sense is that the largest law firms are not paying the sort of claims to shareholders and trustees that the Big 4 have. You might argue this is because lawyers are just smarter than auditors.
But I would argue the reasons are because the business models are wholly different. Auditors essentially “sell” an “insurance policy” (i.e., the audit opinion). And if something goes wrong later, the company can point to the audit opinion as evidence of reliance on a third party. Lawyers act as advocates generally, and unless they render an “opinion” (which they rarely do) their exposure is contained and many times just limited to fees. I do recongize that some of the more shady law firms have provided sham tax opinions; some have been caught and paid the price, but most have escaped any liability.
Anyhow, that was my point. It would be interesting to look at actual metrics – for example, do law firms acquire insurance policies for liability. We know that the Big 4 is basically self-insured these days, and therefore it is no secret that a study by the Chamber of Commerce (I believe) concluded the Big 4 model of self-insurance is not sustainable in the long-run. Also, are they any metrics on actual payments made to the plaintiffs bar and to regulators by the top 5 or so law firms compared to the Big 4during the last five years or so.
By the way, I’m not suggesting that the law firms should be subject to litigation etc, or that somehow they are escaping accountability; I’m just attempting to point out that the basic business model of each profession seems to be wholly different, and that such differences will also drive the manner in which global integration can even be considered.
Final Four Guy