Over the past 12 months Michael Cleary, the chief executive of the biggest
accounting firm outside of Big Four, has thrust himself into the heart of the
most enduring, controversial debate in the profession – the stranglehold of the
largest firms over the FTSE 350 audit market.
When the Oxera report was released last month, Cleary was among the first to
rush out a statement supporting its findings on the need for competition in the
When Grant Thornton decided that it needed to bolster its contest with
PricewaterhouseCoopers, Deloitte, KPMG and Ernst & Young last summer, Cleary
was the one behind the launch of a provocative advertising campaign that laid
down an audacious challenge to the Big Four.
The chief executive also proposed the revolutionary idea that private equity
funding was needed to drive smaller firms forward, after concerns emerged that a
lack of funding was holding back the mid-tier.
The thinking man
His recent forays in defence of his firm builds up the picture of a
tough-talking man, unafraid of controversy, who is prepared to confront the
giant firms unflinchingly.
In reality, though, Cleary is far from the bold firebrand. He’s a shrewd
thinker, softly spoken who chooses his words carefully. But his considered
comments are as radical and innovative as the most outspoken members of his
profession – and equally difficult to interpret and understand.
Cleary’s main focus of the past month has been the Oxera report, the DTI
commissioned study that found the audit market was too concentrated and there
needed to be more competition. Not a surprising fact, but more a case of formal
recognition of the issue.
Understandably for a firm that needs to increase its growth rate, it’s a
topic close to Cleary’s heart. He believes that the study is the first blow in
the battle to break down the misconceptions the mid-tier is keen to remind us
are holding them back.
‘People may have presumed the outcomes of the Oxera report, but it has
provided empirical evidence. The report has compiled a lot of fact and Oxera has
spoken to a lot of people. What it is saying has greater worth than what people
thought was the case,’ Cleary says.
‘The report has identified that the market is overly dominated, but it has
also identified the hidden barriers to entry. At the end of the day, it is the
buyers that have to determine whether they want a change of auditor and we
accept that, but what we want is a level playing field. We need to knock down
this innuendo and if the buyers still wish to use the Big Four, fine, but at
least it will be on a level playing field.’
Cleary points to the Alternative Investment Market (AIM) as an example of the
prejudice smaller firms have to deal with at the larger end of the market.
If Grant Thornton can compete so effectively on the London stock market’s
smaller exchange, there is no reason why it should be less successful at the
larger end. Apart from the very biggest companies in the UK, Grant Thornton can
service many groups in the FTSE 350, the firm argues.
‘The belief that the quality of a big firm is better is there. It is a belief
that is not based on fact, because investors don’t have the facts before them,’
Cleary says. ‘If you go outside the larger sector and you go into AIM and see
the dynamics of that market they are very different. Why is that? Why can Grant
Thornton be the market leader in AIM audits but somehow be squeezed out by the
Big Four in the FTSE 350? It doesn’t make sense.’
Fighting talk? It’s easy to assume that Cleary is eager to build Grant
Thornton into a rival that can match the strength of the Big Four. Wrong. Cleary
is quick to play down any talk of bridging the gap with the Big Four. Grant
Thornton has ‘no desire’ to become ‘the weakest member of a Big Five’, he
explains, as this would be ‘a ridiculous situation to try to aspire to’.
Instead, the firm desires to be ‘a world-class player in financial services’,
an aim that includes the audit market the Big Four dominates so forcefully.
‘The whole concept of league tables is dated. As a buyer, you are looking for
the best person. For us, the boutiques that are developing in consultancy and
tax are not more threatening than these famous firms in the league tables. The
market is changing.’
Playing catch up
So, then, Grant Thornton is not concerned with the gulf between the mid-tier
and accounting giants? Well, not quite. Certain Big Four senior partners have
suggested that it will take at least ten years for a mid-tier firm to become a
Cleary believes it will happen much faster. ‘If you go across the Atlantic,
there is a huge shift from the Big Four to the smaller firms and that has
happened in far less than ten years,’ he says. ‘The ability to grow quickly is
there, are we up for it in the UK? Certainly we are.’
Instead, he emphasises the importance of building and strengthening Grant
Thornton’s international network. It’s an area that commentators have named as
one of the major hurdles facing all mid-tier firms if they wish to take on the
gang of four.
Cleary speaks candidly about the ‘huge sum of money’ the firm is investing in
its international network.
‘The aim is to enhance Grant Thornton’s credibility and capability in all the
leading economies in the world. Implementing quality standards across the board
is a very expensive, but, subject always to the legal position, the desire is to
achieve a consistent level of service and commonality in methodologies,’ he
Many of his comments and the firm’s actions – such as his evident ambition,
but the firm’s unwillingness to be a member of a Big Five – appear to oppose
each other. What is crystal clear is that we will be hearing plenty from Grant
Thornton boss over the next year.
The Refco crisis
It was October 2005 when the news broke. Refco, the world’s largest futures
broker, had just gone bust in the US because of an alleged fraud by chief
executive Phillip Bennett. Refco’s auditors Grant Thornton prepared for all hell
to break loose.
Just months earlier, Refco had completed a $583m (£312.9m) float on the New
York Stock Exchange. It wasn’t long before the lawsuits arrived at Grant
A member of Grant Thornton international’s board of governors,UK chief
executive Michael Clearyfound himself faced with some uncomfortable questions.
‘The way you have to handle these things is to be open and honest,’ Cleary
says. ‘It was a complex alleged management fraud. Where you havean intentional
management fraudyou are not going to track it down in a month of Sundays.’
Luckily for Cleary, the UK repercussions were minimal. ‘We have a very
knowledgeable client base. There was a realisation of what happened,’ he says.
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