News Analysis – Carving up partners’ profits.

Mazars’ merger with Dutch firm Paardekooper Hoofman last week will have done nothing if not concentrate the minds of the mid-tier firms on the kind of management structures available to them.

Question the London office of Mazars Neville Russell and the first thing it will proudly tell you about is the way it structures the business for the purpose of sharing fees.

They enthuse about what it terms its ‘integrated model’, which means building an international practice but pooling the fee income into one central pot before it is shared out to partners across the world. Outside the Big Five this is an extremely rare arrangement.

With consolidators on the prowl and mid-tier firms anxious to grow their business globally the subject of management structures has never been so pressing. For partners, at least, it’s crucial so they know where income is coming from. But it also defines the relationship they have with partners in other offices.

For the firm, trying to do business in closely defined markets, the structure will be essential to get right. Mazars clearly believes its model is the way forward. And so far it have been very successful. Last week’s merger takes the firm to 400 partners worldwide.

The firm’s philosophy is that no payment should change hands as part of the deal – no one buys into the group and certainly there is no sale of interest if someone were to leave. As John Mellows, senior partner in the UK, says, the whole philosophy is one of ‘stewardship’ of the firm.

And that’s the thought underlying the notion of all fee income going into one pool. Partners recognise they are working for one entity. More to the point for Mazars, clients see the same thing – there are no competing interests within the firm.

But the fee structure also reflects the target market Mazars aims for – international companies that do not see themselves as global.

In fact Mazars is gearing up to deal largely with European customers, despite recent moves in the USA, and it believes there are facts about dealing in Europe that help determine its own internal organisation.

Indeed the interdependence of European economies is what is driving the firm.

John Mellows says: ‘We are far more inter-dependent in European economies and that increasing interdependence means you can’t remain independent in your little national backwater.’

The single market and the single currency should be reflected in a single firm.

That said some mid-tier firms see it another way. Searching for growth they have alighted on other models that attempt to serve different markets and minimise some of the risks involved in providing services overseas.

Licence arrangements or associations, they say, fulfil their requirements.

This involves paying fees for a licence to trade under another firms name. Ask a managing partner of a firm running one of these arrangements and a list of advantages will soon be apparent.

In terms of management structure the member firms retain their distinct identity.

One senior partner describes this as holding onto the ‘individuality’ of the local firm. The reason for this is that in different countries there are crucial difference in the professions and local firms needs to have local knowledge.

But the other key reason for only having a ‘network’ model is risk aversion.

The one thing no UK-based firm wants is to find itself the subject of legal action as a result of work undertaken in another country. With audit work identified as one of the riskiest sectors firms are sensitive to the possibility of a foreign office causing UK-based partners to lose their shirts.

The result of a network structure, however, is that fees are pooled locally.

The partners in the local firm have little contact with the centre, but the centre remains protected against risk.

Moores Rowland International takes this model a step further. It exists only as an association. Members retain their independence but pay a subscription to MRI and a percentage of revenues for technical and marketing services.

The reason local firms are not subsumed under a group identity is MRI believes it is the strength of the local brand that gives them strength in hitting its target market of SMEs.

Commentators say, however, that the licence or association means partners in local offices never become committed to the whole organisation. Their risk aversion keeps them from developing closer bonds. Mazars’ Dutch move

Related reading

aidan-brennan kpmg