The 4th July is a special day for our American friends. This is the day on which Congress adopted the Declaration of Independence from Great Britain in 1776. Independence Day is a national holiday in the USA to be celebrated with family and friends, parades, more parades and of course fireworks, lots of them!
Thomas Paine, English-born American political activist and one of the Founding Fathers of the U.S. inspired the rebels to declare independence from Britain and inspired me to also think about what it means to be independent.
In a business context, a firm’s ability to provide clients with advice “free from outside control; not subject to another’s authority” and “not influenced by others: impartial” (as defined by The Oxford English Dictionary) may be hampered by conflicts of interest arising from the supply of services and issues around ownership, the nature and identity of outside investors and other stakeholders with an involvement in the business. And of course, limited market competition is also seen as being damaging to business.
In 2011 the European Commission unveiled proposals to force the UK’s Big Four accountancy firms to separate their auditing services from their consultancy work in an attempt to restore credibility to European auditing firms after “considerable failures” around the 2008 financial crisis. The collapse of Carillion plc (a British multinational facilities management and construction services company) in June 2018, costing UK taxpayers an estimated £148m, caused the UK’s accounting regulator to again raise competition concerns.
Carillion’s demise, following a series of other high-profile corporate accounting failures, re-focussed debate on whether or not the big-four accountancy firms should be broken up with Stephen Haddrill, Chief Executive of the Financial Reporting Council calling for an investigation to consider forcing audit firms to divest their substantial and lucrative consulting work and various experts arguing for and against.
Natasha Landell-Mills (Head of Stewardship at Sarasin & Partners) writing in the Financial Times (Should the Big Four accountancy firms be split up? 21.03.2018) argued that separating audit from consulting would prevent conflicts of interest, observing that conflicts are exacerbated when audit firms also sell other services to management teams, particularly if that consultancy work is more profitable. In the same article Jim Peterson (author ‘Count Down: The Past, Present and Uncertain Future of the Big Four Accounting Firms’) countered that forcing Deloitte, EY, KPMG and PwC to shed their non-audit businesses would neither add competition nor boost smaller competitors, because the root problem is global and reflects the big-four’s multinational clients’ needs for breadth of geographic presence and specialised industry expertise.
The parallels with the real estate sector are all too evident with the five largest professional services firms in CBRE, JLL, Cushman & Wakefield, Colliers and BNP Paribas dominating. As firms sought to grapple with various issues impacting the professional services sector, principally the problem of how to deal with falling revenues and escalating costs, the real estate sector responded with a spate of high profile corporate mergers, the more notable being Savills acquisition of Studley in the U.S. in 2014; Cushman & Wakefield’s merger with DTZ in 2015 and latterly the French bank owned BNP Paribas Real Estate’s acquisition of Strutt & Parker in 2017, which it can be argued has reduced market competition and in the process limited customer choice.
But mergers can also lead to de-mergers. A case in point being Deloitte which expanded the size of its real estate business and transactional element in particular when it bought Drivers Jonas in 2010. Following a strategic review of its agency and investment businesses it subsequently agreed to offload the majority of its transactional staff just six years later, the review prompted due to conflicts of interest arising from being part of a big-four accountant and US Securities and Exchange Commission regulations. The acquisition of GVA by Germany’s Bilfinger in 2014 was also relatively short-lived but for different reasons, with a sale to EQT completed two years later. The Swedish private equity firm is reported to have begun market-testing another sale of the business (EGi 09.05.2018).
Deloitte Real Estate’s Managing Partner Nigel Shilton said “If you look at the transactional side of things and the consolidation in the market, it is not getting any easier to compete. You need to either be niche and boutique or large and global” (EGi 18.04.2016). With AI, blockchain, crypto-currencies and robotics reshaping the way in which data is gathered, stored and verified, businesses will need also to embrace change and adapt to new markets and technologies if they are to stay relevant.
In an article for CFO Magazine (Is Analytics the Answer? 27.06.2018) Avocat Group’s CFO Walt Batansky explained how his commercial real estate consultancy in the U.S. is currently beta testing a system that automates previously manual tasks. It will, for instance, comb through clients’ current lease information and compare it to market data to find variances and if market rents are significantly lower than is being paid by the client, the client may wish to consider renegotiating its lease terms or acquiring additional space at more attractive rental rates. The system can also send alerts for upcoming lease events and calculate real estate costs as a percentage of revenue and then compare real-estate-cost-per-revenue-dollar for each client location.
The desire to innovate and specialise may contradict the ‘one-stop-shop’ approach to business favoured by many of the established behemoths and cut across the old-fashioned notion that ‘big is best’ but my belief is that the ‘one-stop-shop’ model is no longer fit for purpose and that a firm’s ability to operate globally and act locally should not be dependent upon the ownership of its business. The good news for clients is that a plethora of independent firms is already busy collaborating across the globe to provide the highest calibre professional advice across the legal, accounting, management consultancy, architectural and real estate arenas via a network of business relationships which allow members to share resources, knowledge and skills and challenge the status quo.
McCalmont-Woods Real Estate’s exclusive focus on providing a specialist tenant representation service to corporate occupiers enabled us to navigate our way through the global recession and flourish and this year, 2018, sees us celebrate our 10th anniversary. As the UK member of the Alliance of Tenant Representatives McCalmont-Woods’s clients benefit from a network of affiliated offices across North America and since independence defines McCalmont-Woods, we are on this special 4th July day proud to declare our own independence!
We may not have a Bill of Rights, but we can promise to always:
1. Listen and respond appropriately to your business needs;
2. Act in your best interests with the highest standards of client care and integrity; and,
3. Ensure that all clients (irrespective of size) shall benefit from thoughtful, diligent and creative tenant representation.
And since we only act for occupiers of business space, we can also guarantee that client’s interests will never be subordinate to conflicting relationships with landlords or property owners, which as Thomas Paine might have said, “all makes perfect Common Sense”.
Independent firms are often viewed as innovators and sometimes disrupters, but what unites them is the increased choice they provide to clients seeking specialised industry expertise. So if you are interested in learning more about tenant representation in real estate we would invite you to contact us to receive your priority copy of our Guide to Independent Tenant Representation (available to download shortly).
Nick McCalmont-Woods, Founding Partner, McCalmont-Woods Real Estate LLP
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