PricewaterhouseCoopers’ proposed takeover of the strategy firm Booz & Company would be the most prominent example yet of a Big Four auditor bulking up on consulting. But restrictions enacted after the Enron scandal of 2001 mean advisory services employees could end up battling with accountants over clients. While the midsize Booz & Company may feel pressure to compete with rivals like Boston Consulting Group and McKinsey & Company, the proposed deal with PricewaterhouseCoopers risks a huge culture clash.
There is some strategic sense to the tie-up. Growth in auditing and compliance, accounting firms’ traditional bread and butter, has leveled off since the 2002 enactment of the Sarbanes-Oxley law. Revenue from advisory services, like corporate strategy, tax and legal advice, is growing faster.
That’s driving consolidation in the industry. In January, Deloitte bought Monitor Group, a formerly high-flying strategy shop that had fallen on hard times. Adding Booz & Company’s consultants would give PricewaterhouseCoopers the kind of boardroom gravitas its existing advisory business lacks.
Booz & Company also has good reason to pursue the deal. Demand for high-priced advice delivered by clever people in sharp suits has yet to recover fully from the financial crisis. Clients in the market for such services increasingly want consultants to work on global, companywide projects. That gives big firms that can advise on both strategy and execution an advantage. Midsize consultants like Booz & Company risk being squeezed out.
Still, mashing the two firms together could set off a culture clash. Sarbanes-Oxley’s restrictions on cross-selling audit and advisory services are still in place â€" auditing clients can’t be consulting clients, and vice versa. That could create tensions if Booz & Company consultants who join PricewaterhouseCoopers end up sidelined on accounts that they’ve been cultivating for years. Prestige and pay may also prove divisive: strategy consultants tend to cost more than their Big Four counterparts.
The economic logic of the planned merger means it may not be as troubled as PricewaterhouseCoopers’ widely derided effort in 2002 to spin off its consulting arm and rebrand it “Monday.†But the accounting firm may eventually have to dangle some big checks in front of top Booz & Company talent to keep it from walking out the door.
Kevin Allison is a columnist at Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.
