AS COMMENTED UPON in Accountancy Age's 2014 Top 40 Networks lead article, we are very much in a phase where international networks are prioritising growth as a key (if not the key) strategy for winning the war to retain and recruit the very best member firms.
Inevitably, those best placed in terms of market position and resource to accelerate that process in key jurisdictions are set fair to reap the rewards from capitalising on those competitive advantages.
As earnings from traditional business lines decline as a percentage of overall fee income (not to mention the accompanying squeeze on profit margins in areas such as audit) member firms around the globe turn to the potential for increasing (significantly in some cases) inbound referred work from members of their international network.
Overseas referrals are key
In areas where growth may be stagnating in domestic markets, growth in international and referred work, a key (if not the prime) motivation for network membership can materially increase fee income without the inherent costs and risks associated with opening overseas offices.
Conscious of the upside, in terms of winning new clients and new members, of adopting and promoting a single 'global brand', many more networks than ever before are embracing the concept and licensing a common name or prefix to the independent member firms throughout the globe.
Those mid-tier networks prepared to step up to the plate are better placed than ever to seek to compete with their larger competitors.
The Big Four have of course long recognised the benefits of operating under a single global brand, investing heavily in brand promotion and protection - seeing 'brand' as a major business asset in its own right, as opposed to simply a risk one needs to be wary of. Whilst the risks associated with sharing a single brand remain, those risks are now well understood and (on the whole) are appropriately managed at network level.
While the risk of being the next ‘Arthur Andersen' cannot be entirely eradicated, there is plenty that can be done to minimise the prospects of becoming embroiled in the type of litigation that can (and has) ensnared both the international umbrella organisations themselves and individual member firms around the globe. In terms of brand value, both Deloitte and PwC are now ranked in the Top 100 according to Brand Directory's Global 500 2014, which covers all business sectors.
What's in a name?
The uptick in M&A activity that came in the wake of the financial crisis has inevitably led to a fair amount of musical chairs at network level. Disputes over name use (and abuse), especially in circumstances where a member firm has either been expelled from the network or has given notice of termination (perhaps to join a rival network) are often the subject of disputes.
When these arise, the networks' constitutional documentation (bye-laws, trademark licences, name use agreements and the like) are stressed tested. Many are found to be wanting, especially in circumstances where they are the product of historical circumstances (perhaps being unduly biased in favour of the rights of founder members) rather than produced in a balanced way to serve the needs of the network as a whole and capable of withstanding the loss of individual members, however large.
Networks with out of date constitutions would be well advised to get their house in order before (and perhaps in anticipation of) their efficacy being tested in circumstances where key member firms have either jumped ship or have been given notice to leave the network.
If the brand becomes damaged, whether as a result of the apparently isolated actions of a few rogue individuals or because of very public fallings out between member firms, the international bodies need it to be ready to respond quickly and decisively to minimise the risks.
As Andersen's demise aptly demonstrates, it takes far longer to build a brand than to knock it down.
As we move out of recession, firms face the double challenge of seeking to repair rates and profit margins (which inevitably took a battering during the downturn) as well as facing a war for talent.
Promoting and protecting the brand will also be critical to attracting new clients and new recruits in a world where both size and the promise of quality and consistency really do matter.
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Jane Howard is a partner and head of the professional liability group at Wragge Lawrence Graham & Co
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