Seven MegaTrends of Professional Services – #2 Governance
Download the complete White Paper: The Seven MegaTrends of Professional Services
Continued from #1 – Client Sophistication. Full table of contents below.
MegaTrend Two: Governance
The cowboy days are over. In the space of a couple of years at the beginning of the century, the business world shifted dramatically. Enron, WorldCom, Arthur Andersen, and similar debacles in other parts of the world, such as Parmalat in Italy and HIH in Australia, demonstrated to the investing public that companies weren’t to be trusted. Ever-ready with voter-friendly legislation, US Congress swiftly enacted the Sarbanes-Oxley bill, which put strict measures in place on public companies and their auditors to ensure strong governance.
The rise of governance as a key driver in business impacts professional services firms across the board. The first driver is in how clients deal with their professional services providers. Sarbanes-Oxley specifically legislates how audit firms can and cannot work with their clients. However in a world in which regulators, investors, and media commentators are keenly seeking potential transgressions, few companies are prepared to test the boundaries.
The heart of Sarbanes-Oxley is the concept of conflict of interest. You do not want an auditor to be swayed by personal considerations in how they assess the validity of a company’s accounts. If expressing doubt on a company’s accounts may lose a valuable consulting contract, will it come to light? While this is very specific to the auditing profession, companies have become paranoid about the potential for conflicts of interest among their professional services providers.
More broadly, there has been a significant erosion of trust in business. Certainly individuals and investors are less trusting of the corporate world. In addition, scandals in the major professions have made corporations more cautious about how they deal with all of their professional service providers.
For many years deregulation was one of the key drivers across the professions. Not least, the boundaries between professions were falling. The Gramm-Leach-Bliley Act of 1999 allowed financial services sectors to come together under the same roof. Talk of multi-disciplinary practices predominated, with the major audit firms all establishing legal services operations, consulting firms becoming venture capitalists, and flurries of acquisitions and mergers between professional firms. However since the first couple of years of this century the tide has most definitely turned, and today professional services firms have become careful to stick to their knitting. Everyone in business today is aware of the new constraints within which they have to work.
Table of contents
– MegaTrend 1: Client Sophistication
– MegaTrend 2: Governance
– MegaTrend 7: Commoditization
Responding to the MegaTrends
– Lead Your Clients into Knowledge-Based Relationships
– Build Strategic Transparency
– Create a Highly Networked Firm