PwC risks its number one position: Consultants in search of a slice of the capital markets action?

The big firms are growing by about 20% a year, growth rates that would be the envy of most other businesses, but they all know that they cannot continue as they are.

Ernst & Young is on the brink of selling off its consulting arm to Cap Gemini, Arthur Andersen and Andersen Consulting are in the middle of a very public and very messy divorce but for the biggest firm of all to take such drastic action – well now it’s time for everybody to stand up and take notice.

Some will see this as a sign that the wheels are coming off the juggernaught that is PwC and the merger is not the success the firm has sought to portray.

But the firm’s groundbreaking move is less about that than about the changing face of business. Capital markets now drive businesses and professional firms are driven by those same businesses. PwC wants a slice of that action.

Of course there are other factors.

1999 saw the conflict of interest debate brought to a head when the House of Lords ruled that Chinese Walls within KPMG were inadequate in the firm’s celebrated dispute with Brunei’s Prince Jefri.

The last couple of months have been dominated by the SEC’s inquiry into audit independence – and the spectacular consequences of that. Meanwhile everyone wants to take part in the e-business gold rush and firms want to mine for consulting riches.

For PwC to risk surrendering its position as the world’s largest professional services firm is a clear sign of what is at stake.

Last year Deloittes became the first big firm to make more money from consulting than from audit and accounting in the UK. Globally, PwC’s consulting arm is growing at 27% compared to a 9% growth rate in audit and accounting services. It cannot risk strangling this particular cash cow by the constraints of the US Securities and Exchange Commission rules on audit independence.

In 2000 global boundaries are nothing while the influence of institutes is waning. All that matters now are the markets and market regulators.

In this case at least, PwC might be the first to admit why it is taking a leap into the unknown but don’t expect it to be the last.

Audit independence rules force world’s largest firm to split

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