Big Four are riding out the storm

These are difficult times for the Big Four firms. Anything that looks like
growth for the year 2008/2009 will feel like a good result.

This week PwC reported headline revenues had risen just 0.5%, or £10m, on
last year to £2.25bn. In Big Four terms the rise is small but in the current
climate observers have suggested that “flat performance” is a decent set of
numbers. Last month PwC’s nearest rivals in terms of turnover, Deloitte,
revealed annual revenues had slipped by 2%.

The question is how much did the restructuring project at Lehman’s contribute
to PwC’s positive growth in the midst of a recession?

We know Lehman accounted for £100m of revenues. But Ian Powell, PwC’s
chairman and senior partner, played down the Lehman effect. He said that PwC’s
restructuring unit was in fact the only business recovery outfit that could have
taken on the project. “But if staff weren’t on that, they would have been on
something else,” he said.

Yet outside observers believe that without Lehman, PwC could have been in
quite a different position.

Powell talks about the firm “holding its nerve” and “staying close to
clients”. In short, the firm has not involved itself in large-scale job cuts and
focused instead on maintaining client relationships through holding up
headcount. It has continued with its graduate recruitment programme.

Partners have had to make a sacrifice. Profits per partners are down 3% to
£777,000, though Powell asserts that the underlying cut will be larger when
other costs are taken into account.

Watchers of the Big Four believe, even with only two current year results in,
that the firms are weathering well. But their good fortune is structural.

Kevin Wheeler, a consultant to professional service firms at Wheeler
Associates, said: “They will do OK. There’s a lot of work to be done when times
are hard. In a recession, if you are operating at the top end, you are still
advising government and blue chip organisations and they still need advice.”

Wheeler believes it’s the tier of firms below those servicing such clients
that really suffer when the economy begins to shrink.

The Big Four have lost out because of the collapse in transaction work,
though some of that has been countered through business restructuring.

Wheeler believes there’s another problem looming. “The smoking gun is the
public sector. Under a new government there’s going to be a squeeze on public
sector spending. Big Four revenues could be hit again.”

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