Editorial – Can severance pay for consultancy?

The early weeks of a New Year are traditionally a time for reflection on the future. It is often the case that new relationships are just getting off the ground, while long-standing ones may have broken under the festive strain. So it is in the consulting industry: the prospective unions between four of the Big Six are proceeding merrily, while the long standing bickering between Mr & Mrs Andersen has flared into rows and impending separation.

At the moment, the logic appears to be with the divorcees: creating ever bigger consulting-cum-tax-cum-audit entities seems to offer little mileage.

A consulting entity that can pick and choose which services to supply is surely in a stronger position than one that is constantly compromised by audit responsibilities.

We are probably at the start of a process which will see “Big Six” consultancy as a whole gradually cut loose from its audit roots, whatever those firms may say today about “synergy”. After all, we have yet to see a pure consultancy firm set up an audit operation. What happens after that – and the process may take a decade – is another matter. As ever, Andersen Consulting will blaze the trail, but may not find that the escape from even such a broken home as Andersen Worldwide is all plain sailing. The game that Andersens are now playing – and which the merging firms surely want to join – is a world away from the days when respected accountants at the heart of the City Establishment began to discreetly offer their services as business advisors.

It is one thing to reconfigure your business so it can only deal with the world’s largest companies, but another to fight successfully in such an arena. This world is expensive, both in the resources required to service it and the upfront investments that are needed to even enter the game. It is also very attractive to players such as IBM and the AT Kearney/EDS axis who may well use their long pockets to expose a fatal weakness of traditional consultancy partnerships – lack of cash. This may be the greatest challenge that the partnership model has to face. Capitalisation, whether by flotation or buy-in, would be a cultural blow for any firm. Given the inherent mobility of consultancy assets, it may not even be possible to attract investment which either adequately reflects the value of the firms or provides enough working capital.

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