By Ian Fraser
Published: Financial Times
Date: 20 September 2007
Contrary to expectations, the inexorable decline in Scotland’s base of quoted companies has not slowed demand for professional services in Scotland. Indeed, the country continues to punch well above its weight in most professions, including law, accountancy, actuarial consulting and chartered surveying.
In each of these areas the main cities – Edinburgh, Glasgow and Aberdeen – can offer a healthy mixture of global, national and local firms. Almost across the board, the professional firms have been thriving over the past three years, with the reduced number of listed companies being more than offset by the boom in financial services, property and mergers and acquisitions.
Roddy Bruce, a partner in law firm Dickson Minto, concedes that having the headquarters of large banks such as HBOS and Royal Bank of Scotland in Edinburgh has been a boost to the sector as a whole. “That is the foundation upon which a lot else is built,” he says. In law, having a separate legal system has historically also been an advantage, not least because it helped prevent incursions by English firms.
Today Scotland is home to at least 10 sizeable commercial legal firms, including Dundas & Wilson, McGrigors, Maclay Murray & Spens (MMS), Shepherd & Wedderburn, Dickson Minto, Brodies, HBJ Gately Wareing, Burness and MacRoberts. Most of the larger ones have, over the past two decades, been seeking to transform themselves into truly UK-wide law firms through the opening of London offices. Magnus Swanson, chief executive of MMS, which opened its London base in 1988, says: “In order to be a leader in the quoted and financial services markets out of Scotland, we realised that we had to be in London.”
Dickson Minto was even quicker into the English market, establishing a London office in March 1986, just a year after Alistair Dickson and Bruce Minto founded the firm. The firm’s early decision to focus on advising private-equity houses and banks on leveraged buyouts also paid off handsomely. Today it is one of the leading players in its market sector at a European level. However Philip Rodney, chairman of Burness, says that most firms which are focused on building up their London arms have been neglecting their Scottish operations. “I get the impression some of their Scottish clients are beginning to feel unloved, which has presented some clear opportunities to firms such as Burness,” he says.
Another recent trend has been for English law firms to venture north of the border. CMS Cameron McKenna and Bond Pearce both have offices in Aberdeen to service the extremely active oil and gas sector, while DLA Piper and Pinsent Masons have been building more broadly-based practices across the Central Belt.
In accountancy the “Big Four” firms are, if anything, even more dominant in Scotland than in other parts of the world, particularly in the key areas such as auditing, tax and corporate finance. Craig Anderson, head of KPMG in Scotland, believes that one reason national and local firms have struggled to grow as fast as they would like is because of their lack of international networks. “There are very few businesses that do not have some international angle to them. Most would prefer to deal with a firm that can offer an international network where the quality is consistent across the world.”
He adds: “We think one reason our business has grown by about 60 per cent in the past three years is that unlike the other members of the Big Four in Scotland, KPMG has always retained a strong relationship with mid-sized Scottish businesses.” KPMG claims it is the Scottish leader in tax, restructuring and forensic accounting.
Even so, Deloitte – which was boosted by its 1999 acquisition of local success story Rutherford Manson Dowds – is “ahead of the game for corporate finance in Scotland”, according to Mr Bruce at Dickson Minto. The firm expanded its Scottish practice by an impressive 22 per cent last year. PwC is growing at a slightly more modest pace, but still remains the largest accountancy firm in Scotland. Frank Blin, Scottish managing partner, says: “One of our key focuses in Scotland has been in risk assurance services, particularly treasury and internal audit, where we are seeing burgeoning demand, mainly from the financial services sector.”
Hywel Ball, Ernst & Young’s recently appointed Scottish managing partner, says he is committed to usurping PwC’s number one slot in the Scottish market through a focus on growth in assurance, transaction advice and tax.
The strength of the Big Four has meant some of the so-called “national” firms – including Grant Thornton and BDO Stoy Hayward – have struggled to build a Scottish presence of scale. The nationals have also been squeezed by the success of a number of indigenous firms such as Aberdeen-headquartered Johnston Carmichael. Focused mainly on serving owner-managed businesses, Johnston Carmichael is Scotland’s largest independent accountancy firm, with 10 offices across Scotland and a turnover of £20.2m. Already the UK’s 24th largest accountancy firm, it recently unveiled plans to target London-based clients in its core sectors of food, construction, hospitality, energy, agriculture and fishing.
Sandy Manson, Johnston Carmichael’s chief executive, says: “We’re seeking to explode the myth that accountants are just there to deal with the numbers. Instead what we’re offering is pro-active business advice.”
Other home-grown accountancy firms of scale include Scott-Moncrieff (which is Edinburgh-based), Henderson Loggie (based in Dundee), Campbell Dallas (based in Glasgow but with other offices in Scotland), French Duncan (Glasgow) and Anderson Anderson & Brown (Aberdeen).
In management consultancy there is a distinct lack of locally grown success stories, and a shortage of global players such as McKinsey and LEK, which have not felt the need to establish a presence in Scotland. Scotland is better served by IT consultancies. Accenture, Capgemini, LogicaCMG, Sopra and Xansa are all increasingly making their presence felt. Having mostly hived off their management consultancy arms in 2001-03, the Big Four accountancy firms are also slowly re-entering the management consultancy space, this time with a focus on financial management and performance improvement.
This article was published in the FT Report, Doing business in Scotland, published with the Financial Times on September 20th, 2007. To view it on FT.com please click here.