Obituary: Booz & Company

RIP Booz & Company

PwC completed its acquisition of Booz & Co today.

Regulators approved the deal, as we expected.

They appear to have conveniently overlooked or ignored the large conflict of interest issues posed by a merger of this size between an accounting firm and a consultancy. We outlined these risks in an earlier article.

Booz & Co (a well known and respected brand in the consulting world) has also changed its name to “Strategy&”.

We understand that the name was changed for legal reasons, but if PwC is trying to create a new and powerful brand then “Strategy&” is a horrible choice. The name is not distinctive, remarkable or in any way interesting. It is merely descriptive & self limiting.

PwC reported that “This new name, which will be used alongside the PwC name and brand, reflects the strength in strategy consulting that Booz & Company brings to the PwC Network and the benefits this deal will bring to all clients and stakeholders.”

From the way that PwC describes the transition (and judging by the choice of name itself) it is clear which firm wears the pants in the PwC/Booz marriage.

PwC’s announcement also lacks any semblance of celebration. It feels to us more like reading an obituary. “Booz & Co is dead, and the employees who formerly worked there now serve the PwC juggernaut [insert evil laughter here]”.

As we highlighted in our earlier article, cultural integration is a difficult and delicate process.

We predicted that PwC would be tempted to do too much too soon, and these predictions appear to be coming true.

Thoughts on PwC’s Booz Purchase

The deal will almost certainly result in post-merger headaches 

PwC Booz Merger

As we learnt at the end of October last year, PwC and Booz & Co are planning to merge.

PwC Chairman Dennis Nally and Booz CEO Cesare Mainardi were very upbeat about the proposed deal. Nally stating that the merger will strengthen the scope and quality of PwC’s service offering. Mainardi, even more effusive, stated that the merger will “help reinvent management consulting for the next century.”

We believe Mainardi is wildly optimistic, and the deal poses big risks for PwC that Nally is either underplaying or overlooking.

But before discussing our reservations, let’s first take a look at the background to the deal.

1. Background to the Deal

1.1 Enron Scandal

PwC is widely known as one of the world’s Big Four accounting firms.

People sometimes mistakenly believe that PwC only provides accounting services, when in actual fact its audit business generates less than half its revenues.

There is a good reason for the confusion.

Back in 2001, Enron collapsed in spectacular fashion and Arthur Andersen, Enron’s auditor of 16 years, was implicated in the accounting scandal and ultimately went out of business.

Why would a trusted global accounting firm like Arthur Anderson fail to properly audit Enron’s books? Well, as it turned out, Arthur Anderson earned more from Enron in consulting fees than it did in auditing fees.

Small conflict of interest.

In the wake of the Enron scandal (among other accounting scandals), regulators took a stronger stance on auditor independence, and PwC ultimately sold its consulting arm to IBM for around $3.5 billion.

And so, as of 2002, PwC was just a big old accounting firm.

1.2 Gold Fever

The consulting industry continues to grow and, in search of higher margins, PwC has thrown itself back into the consulting game head first.

While assurance services are PwC’s traditional bread and butter, revenues have stagnated. Less than half of PwC’s revenues now come from its assurance business, and consulting is one of its fastest growing operations.

Since 2009, PwC has made numerous acquisitions including Paragon Consulting Group, the commercial services arm of BearingPoint, Diamond Management, PRTM, and smaller firms in the digital, social media and environment space.

If the PwC-Booz merger goes through, PwC will gain an additional 3,000 employees in 57 locations worldwide.

The deal received the green light from Booz’s partners in December last year and we expect it complete without any major hiccups, pending clearance from regulators in various countries.

1.3 Industry Consolidation

On the other side of the table, Booz & Co appears to be responding to increasing pressure for industry consolidation. While there is strong demand for consulting firms with global reach, the value proposition of medium sized firms like Booz is becoming harder to sell. As a result, commentators are expecting a wave of consolidations, and we understand that Booz received multiple propositions before accepting overtures from PwC.

2. Headaches Ahead

The proposed PwC-Booz merger is likely to create headaches for PwC and government regulators.

There are 3 issues that the merger is likely to throw up.

2.1 Cultural Integration

Booz describes itself as a firm of practical strategists, collaborative by nature, and committed to its clients’ success. They are a mid-sized consulting firm that provides dedicated and flexible support to senior management. In stark contrast, PwC is a gigantic behemoth which comprises a network of offices in 158 countries with over 180,000 employees offering a smörgåsbord of services.

Our intuition is that the marriage is likely to be a difficult one, and the honeymoon period will be short.

Our view is informed by three observations.

Firstly, cultural integration is a difficult and delicate process. PwC will be tempted to do too much too soon, for example, by forcing Booz to adopt its branding, work practices, and support services. The more hoops that Booz employees are forced to jump through, and the faster the transition period, the more tension this will create.

Secondly, there will be conflicts of interest. Immediately post-merger, some of Booz’s clients are likely to be in doubt. Strategy consulting for audit clients is banned in some countries, and even where it is legal it raises serious “conflict of interest” issues (think Enron). This will place pressure on any Booz partners whose clients are affected and, to the extent that this prevents PwC and Booz from cross-selling, it will limit opportunities for revenue growth.

Thirdly, strategy consulting is more prestigious than auditing, and so Booz consultants may consider joining PwC as a career step backwards.

2.2 People Have Legs

Cultural integration may be the least of PwC’s worries.

In exchange for its $1 billion investment, the main asset that PwC will obtain is people. The problem with this deal is that people have legs.

We expect that the most talented Booz consultants will leave Booz even before the ink on the merger agreement is dry. As a case in point, shortly after the merger plans were announced in October last year, the Australian Financial Review reported:

Booz & Company management consultants have rushed to update their resumes and LinkedIn profiles after a proposed takeover by big four accounting firm PwC was announced…

Luckily for PwC most of the human capital is held by Booz’s partners with their years of experience and client connections, and key rainmakers will be required to stay with PwC for a number of years if they want to receive their full payout.

The real test then of the merger’s success will come in a few years time when Booz’s partners are free to leave. If they depart en masse, then PwC will be left holding the bag.

The problem is not just that many Booz consultants and partners are likely to leave, but also that the most talented graduates, the ones who may have considered working with Booz, are likely to stay away. For one thing, PwC is not as prestigious as Booz. In the coming few years, smart students will also want to avoid the turmoil that inevitably accompanies post-merger cultural integration.

2.3 Conflicts of Interest

In buying Booz and other consulting firms, PwC is not only purchasing revenue growth, it is also acquiring conflicts of interest and the reputational and regulatory risks that go with them.

Reputational risk destroyed Arthur Anderson 13 years ago. The conflicts of interest between Arthur Anderson’s consulting and audit practice encouraged a small number of its partners to turn a blind eye to the substandard auditing of Enron’s books. When the accounting scandal came to light, Arthur Andersen lost credibility in the market and experienced a mass exodus of clients. It ultimately went belly up.

In the wake of the Enron scandal, PwC placated regulators by retreating from consulting work altogether.

In 2011, following the 2008 collapse of Lehman Brothers, the European Commission published plans for the Big Four to sell their consulting divisions due to concerns about the quality of company audits. To our knowledge, the Commission’s plan wasn’t followed through, but the high-profile PwC-Booz merger will place the conflict of interest between auditing and consulting in the regulatory spotlight once again.

Arthur Levitt, former head of the Securities and Exchange Commission, warned that firms are slipping back into old, bad habits. Levitt noted that “as the accounting profession becomes more committed to consulting, their audit activities have got to be questioned.”

If regulators decide to take a stronger stance on this issue, as well they might, then any gains that PwC achieves from its acquisition of Booz may end up being substantially offset by the cost of responding to a regulatory crackdown.

2013 List: Global Strategy Consulting Firms

List of Global Strategy Firms for 2013

BELOW is a hand-picked list of leading Global Strategy Firms.

The litmus test we used to decide whether a firm is truly “global” was whether it has an office in Sydney. A fair litmus test? Maybe not, but seeing as Sydney is at the other end of the earth you would expect a truly global strategy firm to have an office there (if you want to see a list of purely Aussie strategy firms for 2013, click here).

The below list will be of interest to you if:

  • you want to work for a leading strategy firm, or
  • your company, non-profit or government agency is looking for quality strategic advice.

The firms are:

  1. Bain
  2. BCG
  3. McKinsey
  4. Accenture
  5. Archstone Consulting
  6. A.T. Kearney
  7. Booz & Company
  8. The Birchman Group
  9. CVA
  10. Deloitte
  11. Edgar, Dunn & Company
  12. L.E.K. Consulting
  13. Millward Brown
  14. Oliver Wyman
  15. Partners in Performance
  16. Peppers & Rogers Group
  17. PwC
  18. Simon Kuch & Partners

1. Bain & Company

Website: bain.com

Founded in 1973 when Bill Bain and others left BCG to form Bain & Company. Bain has 49 offices worldwide including Sydney, Singapore, Hong Kong, Bombay, New Delhi, Johannesburg, London, Toronto, New York, and San Francisco.

Bain helps to transform companies into sharper, smarter, better versions of themselves. Bain’s mission is to help management teams create such high levels of economic value that together Bain and its clients can redefine their respective industries.

2. BCG

Website: bcg.com

Founded in 1963 by Bruce Henderson, BCG has 79 offices worldwide including Sydney, Singapore, Hong Kong, Bombay, New Delhi, Johannesburg, London, Toronto, New York, and San Francisco.

BCG is a global management consulting firm and a leading advisor on business strategy. BCG partners with clients from the private, public, and not-for-profit sectors in all regions to identify their highest-value opportunities, address their most critical challenges, and transform their enterprises.

3. McKinsey

Website: mckinsey.com

Founded in Chicago in 1926, McKinsey is arguably the world’s most prestigious consulting firm. McKinsey has 102 offices worldwide including Sydney, Singapore, Hong Kong, Bombay, Johannesburg, London, Toronto, New York, and San Francisco.

McKinsey is a global management consulting firm and trusted advisors to the world’s leading businesses, governments, and institutions.

4. Accenture

Website: accenture.com

Founded in 1989, Accenture has approximately 195 offices worldwide including Sydney, Singapore, Hong Kong, Bombay, New Delhi, Johannesburg, London, Toronto, New York, and San Francisco.

Accenture is a global management consulting, technology services and outsourcing company. Accenture has capabilities across all industries and business functions, conducts extensive research on the world’s most successful companies, and collaborates with clients to help them become high-performance businesses and governments.

5. Archstone Consulting

Website: archstoneconsulting.com

Archstone has 13 offices worldwide including Sydney, Hyderabad, London, New York, and San Franscisco.

Archstone offers a range of services including business strategy, technology services, outsourcing, and supply chain management.

6. A.T. Kearney

Website: atkearney.com

Founded in 1926, A.T. Kearney has 57 offices worldwide including Sydney, Singapore, Hong Kong, Bombay, New Delhi, London, Toronto, New York, and San Francisco.

A.T. Kearney’s services include strategy, innovation, sales & marketing, operations, strategic IT, and procurement.

7. Booz & Company

Website: booz.com

Founded in Chicago in 1914 by Edwin G. Booz. In 2008, Booz separated its operations from the U.S. Government consulting business. That company retained the name Booz Allen Hamilton. In 2009, Booz combined with U.S.-based management consultancy Katzenbach Partners, a leader in organisational performance. In 2012, Axon Advisory Partners joined Booz to launch Booz Digital, a full-service team of strategists, designers, and technologists who help companies turn ideas into digital businesses.

Booz has 60 offices worldwide including Sydney, Hong Kong, Bombay, New Delhi, London, New York, and San Francisco.

Booz is a leading global management consulting firm focused on serving and shaping the senior agenda of the world’s leading institutions. Booz works with its clients to identify and build the differentiating capabilities they need to outperform. Booz has experience across a broad range of industries including high technology, finance, and consumer products.

8. The Birchman Group

Website: thebirchmangroup.com

Birchman has 15 offices worldwide including Sydney, Johannesburg, and London.

Birchman is an international company that provides Consulting, Solution Delivery and Managed Services to many of the world’s leading organisations. Birchman provides six core services: Value Management, Business Change, Software Development, Enterprise Applications, IT Advisory, and Business Advisory.

9. CVA

Website: corporate-value.com

Founded in 1987, CVA has 16 offices worldwide including Sydney, Singapore, Hong Kong, London, and Boston.

CVA is a global strategy boutique which has experience across a broad range of industries including Telecom Media & Technology, Financial Services, Private Equity, and Mining Metals & Materials.

10. Deloitte

Website: deloitte.com

Founded in 1893 in the U.S., Deloitte has a strong global presence including offices in Sydney, Singapore, Hong Kong, Bombay, New Delhi, Johannesburg, London, Toronto, New York, and San Francisco.

Although offering a large number of accounting services, Deloitte also has a consulting practice. Deloitte Consulting offers a broad range of services including Pricing & Profitability Management, Enterprise Cost Management, M&A, Enterprise Sustainability, Finance Transformation, Governance Risk & Regulatory, Health Care Reform, and Infrastructure Transformation.

11. Edgar, Dunn & Company

Website: edgardunn.com

Founded in 1978 in the U.S., Edgar, Dunn & Company has 8 offices worldwide including Sydney, Singapore, London, and San Francisco.

EDC is an independent strategy consulting firm that was founded on two fundamental principles of client service:

  • Provide deep expertise that enhances clients’ perspectives, and
  • Deliver actionable advice that enables clients to create measurable, sustainable change in their organisations.

EDC is recognised among the world’s pre-eminent experts in the payments industry. Additional areas of expertise include new financial services channels, technologies and markets, retail financial services, and e-business.

12. L.E.K. Consulting

Website: lek.com

Founded in 1983 in London, L.E.K. has 22 offices worldwide including Sydney, Singapore, Bombay, New Delhi, London, New York, and San Francisco.

L.E.K. is a global strategy consulting firm that counsels clients on key strategic issues, leveraging deep industry expertise and using analytical rigor to help them make informed decisions more quickly and solve their toughest and most critical business problems. L.E.K. has expertise in a broad range of industries and has a range of capabilities including Strategy, Shareholder Value Management, Mergers & Acquisitions support, Operations & Organisation and Marketing & Sales.

13. Millward Brown

Website: millwardbrown.com

Founded in 1973, Millward Brown has 85 offices worldwide including Sydney, Singapore, Hong Kong, Bombay, New Delhi, Johannesburg, London, Toronto, New York, and San Francisco.

Millward Brown is passionate about helping clients grow great brands. They are experts in advertising, marketing communications, media, digital and brand equity research, and work with 90% of the world’s leading brands.

14. Oliver Wyman

Website: oliverwyman.com

Founded in New York in 1984, Oliver Wyman has 50 offices worldwide including Sydney, Singapore, Hong Kong, Bombay, New Delhi, London, Toronto, New York, and San Francisco.

Oliver Wyman is a leading global management consulting firm that combines deep industry knowledge with specialised expertise in strategy, operations, risk management, and organisation transformation. As part of Marsh & McLennan Companies, Oliver Wyman is also able to draw on experts from its sister companies in the areas of brand and identity management, microeconomics, human capital strategies, and insurance.

15. Partners in Performance

Website: pipint.com.au

PIP has 9 offices worldwide including Sydney, Johannesburg, Toronto, and Atlanta.

PIP identifies and delivers performance improvement to industrial, resources and services companies, using a specialist team and a hands-on approach. PIP has three divisions: Resultant®, Transaction Services and Investment. The Resultant® Division works as business coaches applying practical frameworks to address issues including strategy, procurement, revenues, bottlenecking, costs, safety, environment, and organisational culture. The Transaction Services Division provides commercial due diligence for potential investment opportunities. The Investment Division looks for situations where PIP can improve the performance of an organisation through both financial and operational assistance.

16. Peppers & Rogers Group

Website: peppersandrogersgroup.com

Founded in 1993 by Don Peppers and Martha Rogers, Ph.D., PRG has 9 offices worldwide including Sydney, Singapore, Johannesburg, and Stamford Connecticut.

PRG is a management consulting firm recognised as a leading authority and thought leader on customer-based strategies and underlying business initiatives. PRG has particular expertise in the following industries: Financial Services, Government, Telecommunications, and Airlines.

17. PwC

Website: pwc.com

Founded in 1998 out of the merger of Price Waterhouse and Coopers & Lybrand, PwC has historical roots going back around 150 years. PwC operates in 158 countries worldwide including offices in Sydney, Singapore, Hong Kong, Bombay, New Delhi, Johannesburg, London, Toronto, New York, and San Francisco.

PwC helps organisations and individuals create the value they’re looking for by delivering quality assurance, tax and advisory services.

18. Simon Kuch & Partners

Website: simon-kucher.com

Founded in 1985, SKP has 26 offices worldwide including Sydney, Singapore, London, Toronto, New York, and San Francisco.

SKP is a global management consulting firm focusing on strategy, marketing, pricing and sales.

Short list of consulting firms in Spain 2011

HERE is a short list of quality consultancies in Spain:

1. Everis

Website: www.everis.com

Founded in Madrid in 1996, Everis operates in 26 locations across 13 countries (Argentina, Belgium, Brazil, Chile, Colombia, France, Italy, Mexico, Peru, Portugal, Spain, UK, USA).  In Spain, Everis has offices in A Coruña, Alicante, Barcelona, Bilbao, Las Palmas, Madrid, Murcia, Sevilla, Valencia, Valladolid, and Zaragoza.

Everis undertakes projects in corporate strategy, business consulting and process engineering across a broad range of industries.

2. Accenture

Website: www.accenture.com

Founded in 1989 and operating in Spain since 1965, Accenture has operations in more than 150 cities worldwide. In Spain, Accenture has offices in Madrid, Barcelona, Bilbao, Malaga, Valencia, Zaragoza and Sevilla.

Accenture is a global management consulting, technology services and outsourcing company. Services in Spain are offered through three major operating companies: Accenture, Coritel (Accenture Technology Solutions) and Accenture Outsourcing Services.

3. PwC

Website: www.pwc.com

Founded in 1849 and operating in Spain since 1929, PwC operates in 154 countries worldwide. In Spain, PwC has offices in Alicante, Barcelona, Bilbao, La Coruña, Las Palmas, Logroño, Madrid, Malaga, Murcia, Oviedo, Palma de Mallorca, Pamplona, San Sebastian, Santa Cruz de Tenerife, Santander, Sevilla, Valencia, Valladolid, Vigo, Vitoria, and Zaragoza.

PwC is the largest professional services firm in the world, and provides services in Audit, Accounting, Tax & Legal, Business Consulting, Corporate Finance, Transaction Advice, Corporate Restructuring, Forensics, HR Consulting, Corporate Governance, and Sustainability & Climate Change.

4. Roland Berger

Website: www.rolandberger.com

Founded in 1967, Roland Berger operates in 39 locations across 27 countries. In Spain, Roland Berger has offices in Barcelona and Madrid.

Roland Berger is one of the world’s leading strategy consultancies.

5. Lince Consulting

Website: www.linceconsulting.es

Founded in 2007 and run by the dynamic Conrad Garcia, Lince Consulting is headquartered in Barcelona, and has representatives and partners in more than 15 countries worldwide.

Lince provides integrated consultancy and internalisation services to small and medium businesses, mainly within Spain (the Spanish mainland, the Balearic Islands and the Canary Islands).