In a startling opening to a recent Newsnight, presenter Emily Maitlis began with the words “They tell us Coronavirus is a great leveller. It’s not. It's much harder if you’re poor.”
Before too long, we may begin to see similar fracturing in the community of large accountancy practices. At present the Big Four and other major firms are all distributing similar messages – very much giving the impression that everyone is in this together. They are saying because we are now in the midst of a global recession, in order to safeguard the business for the future they are responsibly trimming the cost base, where appropriate taking advantage of the Government’s furlough scheme, whilst at the same time partners are taking significant cuts to their income. The implication is that all partners are shouldering the burden and the big firms are almost uniformly reporting that partner pay will be decreasing by somewhere between 20% and 25% depending upon the firm.
So far so good. But Accountancy practices these days cover an array of practice areas, from what was traditionally the mainstay that is audit, to advisory and consultancy services around tax, insolvency and re-structuring, mergers and acquisitions and other transactional advice. Partners frequently also specialise in particular sectors, such as hotel and leisure, oil and gas, financial services and so on. How long before those whose practices remain buoyant start to ask whether it is right that partners across all areas take an equal “hit” to their drawings? Will those in particular demand such as those working in insolvency and re-structuring, and tax, be content to have an ongoing income squeeze to support those, for example, doing more general audit work for companies where being realistic, right now we are being told a significant number will begin to fail in spite of furlough and the Government’s Coronavirus Business Interruption Loan Scheme?
And as firms get over the initial shock of coping with such an unexpectedly serious pandemic, which to their credit they have done well, to what extent is it sustainable for them not to start to differentiate between these different areas of practice? Management may also have to consider individual partners and their future “worth” to the firm. Might the time be coming when some are asked to consider their futures and if so, in what way?
These issues raise huge challenges for those in charge of these practices, for they will know the potential for morale sapping and divisive internal disputes at a time of national crisis, is real. To cope they are going to need to show significant management prowess, as well as real vision as to the shape of their practices moving forward. In unchartered territory, as we all find ourselves in today, this is not going to be easy.
But on the other side of the equation, for partners who consider they may become vulnerable, how are they to react? They will need to think carefully about what strategies to employ. If it comes to it, how would they deal with a “conversation” with the managing partner should there be one?
First, they should be considering carefully the terms of their LLP Agreement to see what rights they have in the event they are asked to retrench in some way. Relevant notice periods and the right to raise an internal grievance (and any relevant time limits if they are to appeal) are important. Keeping a close eye on personal finances and what change is feasible and what is not, is another. What would they want to do outside the Firm if it comes to that, and how do the Firm’s Restrictive Covenants impinge on their ability to pursue such activities? If a number of partners are asked to move on at one moment in time, might it be permitted for some to do so together, and how would that subject be broached with the Firm? If partners are asked to take a cut to their drawings and are then subsequently asked to leave the Firm, would any “termination deal” be on the basis of their then current draw, or that which applied before they agreed to any rearrangement. These and more are the sort of practical issues that are best considered well in advance of any difficult meeting, although of course if any specific proposals are suggested it is best to take time to reflect before making any substantive response.
These are heady times for Accountancy Practices so embedded in the world of business which is experiencing a real maelstrom. At present, partners and managing partners may well say Coronavirus is a great leveller. Arguably it's not. It will be much harder if you are in practice areas that are going to suffer the most…