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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
What’s a boss to do after they reach the highest rung of their organisation’s ladder? For Japanese bureaucrats, the answer was amakudari; a “descent from heaven” into cushy corporate jobs. American corporate bosses enjoy a revolving door to Washington. Denied such paths, professional services executives like to strike out on their own.
Newly hatched Unity Advisory, which will offer accounting and consulting services primarily to private equity clients, illustrates the formula. First, you need top performers from top outfits. Marissa Thomas missed out on the senior partner role at PwC in the UK last year. Her new chair, Steve Varley ran EY UK for nine years up until 2020.
Then, raise a chunk of cash. Private equity is prowling around professional services, most recently backing Grant Thornton’s buying spree. In this case, Unity has raised up to $300mn from Warburg Pincus.
Step three of the boutique-building agenda involves politely deriding the modus operandi of one’s former colossus employer, be it Big Four firm, bulge bracket bank or “magic circle” law firm. Challengers should feel free to point out that being smaller means lavishing more high-level time and understanding on clients — rather than fobbing them off with consultants lower down the ranks — and eschewing conflicts of interest. That, in a nutshell, is Unity’s pitch. It is shunning auditing to eliminate conflicts and promises in situ man-hours.
The history of boutique investment banks suggests that this is a boast that clients buy. Three of them — Centerview Partners, Evercore and Lazard — last year each pulled in more M&A revenues than Swiss UBS. Evercore, founded by Roger Altman, an alum of both Lehman Brothers and the US Treasury, did more deals than Barclays, on Dealogic data.
Scandal-laden Big Four firms give the go-it-alone accountancies and consultancies a ready-made pitch. That is particularly true if the latter spurn the partnership model that provides an incentive to today’s partners to keep a lock on existing spoils rather than invest for the long term.
Boutique consultancies, like banks or law firms, have an opportunity to break the mould. That can relate to the type of clients served, services offered, staff recruitment and pricing models. On the latter front, for instance, consultancies are pushing to take a cut of the additional value created in a project. Aligning incentives may be sound in principle but is complex to monitor and, so far, short on success stories.
Nimbler boutiques are often alluring for employees too: most people, whether doctors or managing consultants, would sooner spend time on the actual job rather than cutting through thickets of admin.
Still, the sector as a whole is becoming harder to navigate. Artificial intelligence is already taking on most of the grunt work and generative AI is going further. Competition, too, is hotting up. In a world where private equity has cash to spend, management consultants are not the only ones that can go into a company and fire a tenth of the workforce.