MANY FIRMS have made headlines for going through the mill in the past ten years. Some have dealt with practice-threatening litigation, organisational restructure and personnel changes, following very good times.
But few have done it under the radar quite like Top 30 firm Chantrey Vellacott DFK.
Thankfully, managing partner Mike Tovey is open and reflective as he takes Accountancy Age through his 11-year tenure.
“Over the years we’ve been a quiet, rather introspective, firm,” he states in a clear, but definite, London lilt.
The firm faced a hiatus from its low-key offering, when a dispute with a client spilled out onto the business pages in 2006.
Client Convergence Group sued the firm for what it alleged was bad advice that led to the telco provider losing a $100m (£58.4m) contract. The claim against Chantrey Vellacott spiralled up to £150m. A court case, scheduled for five months, was ended after four weeks when the judge threw the case out.
It was a “crazy thing” that dragged on, in total, for six years, says Tovey. The firm had allowed the client to build up unpaid fees and, when chased, Convergence counter-claimed for “an astronomical number”.
“Thank goodness our PI cover and insurers were very robust in our defence,” he adds.
With a proverbial sword hanging over the practice, a people-based business can fold very quickly. But it was confident it would win out, explains Tovey, and the firm was ready to stand up to the claim. But financially it was a limited victory, with the firm’s insurers picking up the tab after Convergence entered administration.
View from the outside
While moving towards an LLP structure had also been on Tovey’s mind – a move that limits individual members’ liability – that was a mere step towards much bigger changes. An interview with a potential new member of the firm raised his eyebrows. They were surprised at his description of what a good firm he worked in.
“We had some pretty interesting clients, doing high-quality work, but it wasn’t in the big public world – it was private client, low-profile. As a long-established firm we accrued those type of clients…we never really felt the need to mix it up out in the market.”
This, alongside the culture of the firm, was going to lead it on a bad path. “We traded on our past glories for rather too long. The firm was described to me as a ‘sleeping giant’ – an insult and a compliment at the same time but it resonated with me”.
With client attrition and replacement previously a platform of strength, it was now a weakness. The practice couldn’t rely on word of mouth and referrals to make up the lost ground.
“We’ve always done high quality work but were placing too much reliance on what we already had, we weren’t going into the market to find new opportunities.”
Results during the early noughties weren’t up to scratch, and “a few dramatic things” needed to be done.
Mandate for change
While his election process in 2003 was “nerve-wracking”, he came out the other side with much confidence, as he had huge support for his change agenda.
“There was that spirit, ‘let’s really show ourselves what we can achieve’.”
The practice went back to basics. Its financing was put on a much more stable footing, and profit was put to the fore. New profit-sharing arrangements were agreed, while the management of the firm was made more transparent.
Subsequently, some people fitted with the new regime, and some didn’t. “You can’t let anyone hold the business back and if they can’t or won’t adapt to the new plans, they really have to move on and some did.”
But Tovey is confident that not only did people leave in in the “right way”, but that these decisions were the correct ones, “that we’d made the right decisions for the future of the firm”. “As far as we could we dealt with difficult personnel issues as generously and with as much humanity as we could. The most value in any business dealing is being fair.”
And did the firm shrink as a result? Yes, says Tovey, but profits climbed between 2003 and 2008, with new business driving the bottom line.
Crucially, Chantrey Vellacott looked to redefine its key markets.
Where its longstanding institutional clients and not-for-profits had been a key tranche of its work, they were in a routine of audit tendering, and the firm wasn’t winning clients of an equivalent quality. Instead it was having more success in the owner-managed business space.
This served the practice well during that period, until the financial crisis. “Then the world changed,” says Tovey.
At first the firm ticked along fine, but Tovey holds his hands up to admitting that it didn’t foresee the funding and finance crisis the owner-managed-business (OMB) market would suffer. The one-off consulting and corporate finance fees disappeared. “That cost us pretty dear in 2009 and 2010. It became a matter of hunkering down and supporting each other.”
Partner profits fell, but it managed to hold onto its top performers. “You really get to understand, under pressure, the real quality of the people you’ve got.”
Cost-cutting, and taking on any work put in front of them, saw them muddle on. But a strategic plan was borne during a partner conference in late 2011. Tovey set out that, unless the firm was growing, it would fail to attract key people, lose the ones it had and then lose its independence.
“You either grow, or get out of the game – that’s all there is. You can reduce costs and kid yourself, but then you cut into muscle.”
Another meeting was organised, this time with key personnel who understood and would implement a business development plan.
The ‘special meeting’ was a watershed for Chantrey Vellacott, outlining the introduction of a sales culture into the business although, crucially, only for those that could sell. “Some firms try and force everybody to be the same – unless you play to people’s strengths you’ll never get the best out of them,” Tovey explains.
The practice also set out to be more scientific about sales. More than 50% of fee income came from OMBs and their owners, while another huge chunk came from member organisations, alongside the small-listed company market.
The firm then set out to broaden the services provided to each client, to “break down the silos”.
“We challenge partners to have more than one partner engaged with a client…three with bigger clients.”
The firm then combined its service line and sector knowledge with its geographical spread, to really understand its offering and fill gaps where required.
Achieving best growth through acquisition is to bolt on, Tovey points out, rather than enter into a completely new location. “If you’ve got a location you can bolster that makes much more sense [financially] than a new location, as you’d enter a market you don’t necessarily understand.”
So Chantrey Vellacott now focuses on fewer areas – the things it’s good at, where it makes money, and has critical mass. Following a more corporate model, work is allocated where it’s best equipped to be undertaken, so payroll will be served through its Thames Valley office, for example. “We’re one profit-sharing firm,” he points out.
The way in which the firm projects itself to the world has also moved on in the last ten years – for a start, it has a much smarter and professional website than most of its peers, and has incorporated its new branding in the process.
“We need to offer our best face, the positives.”
And so the firm, which can trace its roots back to 1788, is set up better for the future.
“Going through those bad times has really helped us focus on what we’re good at and where we need to focus our resources…it’s been cleansing in a way,” says Tovey. “I look at our business and people and say, it’s probably as good as it’s ever been.”
Chantrey Vellacott DFK: In numbers
UK fee income: £39.3m (y/e 31/12/13)
Top 50 ranking: 22 (See Accountancy Age Top 50+50)
UK offices: 9
UK partners: 42
Bluffers Guide: Tracing its roots back to 1788, it’s believed to be one of the five oldest firms according to the ICAEW. It became Chantrey Vellacott in 1988, with the merger of Hill Vellacott and Chantrey Wood. IT joined DFK International in 1998, taking on the three-letter suffix.
Mike Tovey CV:
2005 – Present
Director, DFK International
2003 – Present
Chantrey Vellacott DFK managing partner
1998 – Present
Partner, Chantrey Vellacott DFK
1984 – 1988
Partner, Chantrey Wood King
Head of editorial Kevin Reed discusses the result of the EU referendum, and explores it means for accountants
What questions should the profession be asking now the UK has decided to leave the EU?
The accountancy world has reacted to the news that the UK has voted to leave the EU
The latest edition of our 'Seven Days in Accountancy' quiz is here