PracticeAccounting Firms‘Andersen error is my biggest regret’ – Mike Rake

'Andersen error is my biggest regret' - Mike Rake

KPMG's outgoing senior partner talks exclusively about his highs, lows and the challenges that face his successor

Mike Rake, KPMG’s UK senior partner, could be forgiven for being in a
positive mood. The firm is riding high on growth in excess of 20% in its
revenues and his time in charge is finishing with a bang.

With a successor due to be named this week, now is the time to ponder eight
years at the top. ‘If you look back, what I would like to remember is having
doubled the size of the firm on a like-for-like basis. We have doubled the
profits per partner,’ he says.

He takes pleasure in having faced adversity and change and still to have
grown the business. ‘We have probably had more changes in the past three or four
years than we had in the last 100. We’ve moved from eight to four big firms.
There’s been huge changes in market conditions and regulations and we’ve managed
to steer through pretty effectively.’

There is just one disappointment that he mentions. ‘My biggest single
disappointment is that I would have liked to have seen us taking on Andersen in
the UK. The legal advice we got proved to be wrong.’

It’s a striking admission that he drops in casually. ‘It’s a historical
issue, and it’s probably not best to go too much into the detail. But if it
hadn’t been for the legal advice that we got, we would definitely have taken on
Andersen in the UK.’

KPMG was advised that there were liability issues in relation to Enron, in
common with other firms. So stark was the advice, Rake suggests, KPMG shied away
from taking on Andersen’s UK partners, who went to Deloitte. As he notes,
‘Deloitte hasn’t had those problems’.

If KPMG had taken on Andersen it would surely have become the largest firm in
the UK, rather than the third behind PwC and Deloitte.

Ironically, the firm is now on the verge of overhauling Deloitte. With only
£70m difference between the two firms on 2005 figures and KPMG’s growth rate
exceeding that of Deloitte, it seems somewhat conservative for Rake to say, as
he does, that he expects to overhaul them ‘in the next couple of years’.

Rake, like many, has problems with the current structure of the profession.
‘It’s clearly a mistake that we have gone to four firms. We should have stayed
at six. Allowing the PwC merger was a mistake, and we had an unfortunate
accident in losing Andersen. We need to see the next tier firms meeting the
challenge of their global capabilities.’

How would he challenge the Big Four if he were at a mid-tier firm? ‘What I
would do is first of all join in and understand the fundamental reform of
liability. I would also make my ambitions clear over a period of time and start
to attract people and firms sharing those ambitions.

An organic model, then, not a big bang merger approach. ‘I don’t think you
can force it. Mergers would create human integration problems.’

A slow process is certainly how he wants it to happen. ‘It will take 10
years. It has taken us 100 years to get to where we are. If it happened through
litigation or regulation that would be bad for business and the capital
markets,’ he says, perhaps in reference to government murmurs of closer
regulation and interference.

He is adamant the Big Four need to be protected. ‘If there wasn’t a Big Four
there wouldn’t be an accounting profession.’ The alternative, state auditing,
‘would be terrible’.

Regulation is also something he thinks ought to concern the profession’s new
generation. Independent regulation, he says, is important. ‘You can’t just have
the institute. It tried to be a trade association and a regulator. Bluntly I
think it failed at both.’

International regulation is another. ‘We can’t have everyone reviewing
everybody.’

So what does he want to do next? He still has a few years as international
chairman, but then? ‘Family life might be one option. I would like to get some
balance [back]. Something with an international background would be interesting,
not multiple different directorships.’

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