Indian Professional Firms – Road Ahead
 
CA T. N. Manoharan

 

Introduction

Indian professional firms, both in the accounting and legal field, are constituted by small and medium firms and hardly there are a few hundreds of firms that can boast of more than 10 partners. Many of these firms have grown only when the family members qualify as professionals but the trend is changing where non-family members constitute a firm and grow as an entity to compete with the multinational accounting and legal professional firms. Although size has no correlation to quality, in the emerging scenario, size would be of relevance to scale up to the growing economic needs and globalised competitive market. Therefore, Indian professionals need to measure up to the expectations of the service seekers both in the Indian context as well as in the international arena. While it is not difficult to comprehend both the opportunities in the anvil and the challenges that are facing the Indian professional firms, it is not so easy to identify the measures that need to be adopted to overcome those challenges and reap the benefits by capitalising on the opportunities. In this article, an attempt is made to deduce these aspects in a practical manner so as to provide food for thought for the readers and persuade them to act in a proactive manner.

Opportunities

Besides the traditional areas of practice, both the accounting and legal professionals in India have tremendous opportunities in the field of consultancy services. While the accounting professionals can contribute in terms of business, finance and capital advisory services, legal professionals can render services relating to drafting, vetting, documentation and compliance oriented services. The wide range of services that flows in the consultancy field include services relating to project appraisal and funding by way of private equity or other means; IPO; Valuation; Due Diligence; Merger and Acquisitions; Risk assessment; Debt syndication; Restructuring of business; ERP implementation; Internal audit; System audit; Knowledge process outsourcing (KPO) and Wealth Management. Knowledge in these areas would bring immense opportunities and there is no dearth of work for a professional who has the skill set to venture in these areas.

The basic difference between the statutory work and consultancy work is that in the case of the former, a client is compelled to engage a Chartered Accountant to prevent penal consequences for non-compliance whereas, in the case of the latter, the client approaches on his own volition for value addition. Similarly, a lawyer is engaged to represent a client in the courts due to the exclusivity in terms of eligibility to represent whereas, on the consultancy front, he is approached to provide value addition to business collaborations and transactions. In the case of statutory work, the client perceives it to result in an expenditure whereas, in consultancy, the benefit accrues either in the form of increase in revenue or reduction in expenditure thereby enhancing his willingness to pay adequate compensation for the services. Therefore, the ability of the professional to do proper billing of services commensurate to the time and expertise utilised is far greater with reference to consultancy services than billing for statutory work.

Challenges

Indian professional firms are facing many challenges in view of globalisation and unprecedented recession in the economy. These challenges demand reorientation in the approach and attitude of the professionals in public practice. The emerging areas of opportunities indicated above call for different skill sets, knowledge and delivery mechanism. There is one significant difference between the consultancy field and the traditional areas of practice encompassing statutory audit or appearance in the Court and that is the competitive environment. A Chartered Accountant or a legal professional in India has to compete with Multinational entities, corporate bodies and other professionals in the Management Consultancy field.

In order to ensure quality and timely delivery of services and to be in the reckoning, Indian professional firms have to re-orient themselves to provide for acquisition of skill sets by partners and associates; they need to create verticals paving way for specialisation within the firm; they must not only keep adding new talent but continuously endeavour to retain such talent within the firm; they need to aim at geographical spread and reach to cater to clients having regional or national presence; they ought to invest in infrastructure; they should also be prudent and proficient in billing the value for their services without underselling them and above all, they need to cherish and uphold values and ethics.

Knowledge and skill sets

In the present day world, knowledge is power. Across the globe, we find knowledge driven economies are growing faster. Therefore, every Indian professional would do well to constantly update the knowledge and consciously acquire the skill sets required for effectively applying such knowledge in the day-to-day activities. Soft skills such as communication skills, negotiation skills, presentation skills and linguistic skills would be of immense strength to a professional for the delivery of his knowledge oriented services. Appropriate support can be drawn from technological skills and managerial skills by periodical and proper orientation and training.

Knowledge in the new areas of consultancy work may be acquired by studying the relevant literature and accessing information through web. Attending workshops and training programmes focusing on specific topics would be useful. Participating in the execution of work by other professionals or mentor firms will help to provide the confidence required to handle assignments independently. Templates of reporting would serve as a model in the initial implementation of work. Mid-size firms can even afford to organise periodical in-house training programmes for partners and the senior staff. Individual empowerment by undergoing specialised post qualification courses seems to be inevitable. Every professional who has the competence in the consultancy field should groom and train others to create teams within the organisation.

Positioning of divisions

Indian professional firms should be in a position to create divisions demarcating the areas of operation into different verticals. For example, a Chartered Accountancy firm can segregate the areas of practice into audit and assurance division; tax and allied services division and consultancy division. Even if there are three partners, each one should attempt to specialise so as to head and lead one of these divisions. In the emerging scenario, specialisation is the order of the day. A specialist in audit, another one in tax and yet another professional having proficiency in consultancy can come under one roof to constitute a strong small and medium professional firm and render multifarious services to the client. With the emergence of Limited Liability Partnership since 2008 and the scope for having Multi-disciplinary Partnership firms involving professionals from accounting and legal field, there is enormous scope to expand and grow and also to build multi layer teams in each vertical created within the firm.

It is common knowledge that Indian entrepreneurs are consolidating their businesses to grow big and face global competition. Multinationals are establishing subsidiaries of large size in India.  Foreign banking Companies operating in India through Branches in India will soon be converting those Branches into domestic subsidiary companies. Takeovers, mergers, amalgamations and collaborations are the order of the day. Professionals should also become conscious of this factor and gear up to restructure their firms by mergers and consolidations, reorient their skills and expand their firm size as well as profile of the services rendered. When an enterprise or a business group grows and correspondingly the professional firm rendering service to that enterprise/group does not, the chances of replacement of that firm by a bigger firm as a service provider cannot be ruled out. Therefore, capacity building of Indian professional firms in terms of positioning divisions and reaching out with geographical spread are important.

Human Resource Development

India can be proud of having the demographic advantage in the global arena.  In the Indian context, it is no longer the problem of unemployment but it is the problem of un-employability. Even for the educated youth with whatever qualification, these days, orientation and training seems to be inevitable. Many of them are raw products coming out of the Institutions and Universities with a certain qualification; some are semi-finished and only a few are well developed competent ones. Therefore, good amount of time needs to be invested in grooming, nurturing and training them with orientation programmes
at the inception as well as at periodical intervals.

Attracting new talent in the profession to join a small or a medium size firm appears to be a challenging task. Every Indian professional firm should have a plan of succession so that such firms continue to exist and grow. A professional firm should identify talent and offer due recognition, salary and status so as to attract and also take steps to retain young professionals in the firm to grow and stabilise with job satisfaction and leadership skills. Retention is possible only by providing wider exposure; opportunity to handle work of greater magnitude and also providing right ambience resulting in a sense of belonging. A firm needs to provide the social status for every professional associated with it and it should also take care of fulfilling or facilitating the fulfilment of his social needs such as housing, conveyance, education, etc. of the partners and audit managers and their families. While humans are mortals, firms can exist eternally with proper succession planning and execution. Institution building with perpetual succession is essential for the posterity of next generation CAs to inherit the legacy.

Geographical spread

Another challenge faced by firms is to execute any work across the region/country due to lack of pan India presence. Similarly, getting assignment of certain works would depend on the extent of geographical presence of such firm in as many locations as possible. Expansion and growth coupled with the above outlined empowerment only can enable a firm to handle work that is spread across the length and breadth of the nation and even abroad. This situation demands that every such firm should identify professionals / firms in different geographical locations and develop an understanding for mutual reference and sharing of resources, particularly human resources, for execution of works.

Initially, this could be by affiliation or merely an association for convenience but gradually it can take shape as a formalised network arrangement. Once the reliability and compatibility is established after mutually collaborating for a few years, then merger can be contemplated by converting the firms within the network in other locations as a branch. Junior professionals who work with the firm for a minimum period of 3 to 5 years can be upgraded as partners subject to acceptability and compatibility. By this approach, a small and medium firm can evolve itself into a bigger firm by developing branches in many centres. The aim should be to render all services under one umbrella and make the firm a one stop solution for a client in our field. No doubt, this is easy to say but challenging to accomplish. But, if there is a sustained approach, systematic
planning and undiminished enthusiasm,
this can be gradually but certainly made to happen.

Infrastructure

Generally, infrastructure takes a back seat and it is a non-priority item for many Indian professional firms. This mind set should drastically undergo a change. Every firm should aspire to have stability in the place of operation and allocate a percentage of earnings every year for acquiring modern gadgets and tools. Further, every firm should spend in installing and documenting Systems, Procedures and Controls to secure and enhance operational efficiency. Knowledge database should be developed leading to industry-wise specialisation and also in select areas like transfer pricing. In the light of various reforms and legislations in the offing, such as convergence with IFRS; XBRL implementation; Direct Tax Code; Goods and Services Tax legislation and a new Company Law, appropriate investment in software solutions and tools; books and periodicals; equipments of latest technology becomes inevitable.

Billing Standards

It can be said without fear of contradiction that many Indian professional firms are unable to expand by recruiting young professionals for two reasons. One is the inability to pay near to market salary and secondly, not being able to guarantee partnership and provide lucrative practice with variety of work exposure in view of the limited areas of operation. While the second one can be addressed by tackling the challenges identified above, the first one can be handled only by proper billing of the services rendered. Under selling of services cripples the growth potential of a small and medium professional firm.

Service rendered, in many cases, is not properly identified and added on to the billing. Invariably, it is the practice of annual billing or common fee package for multifarious services that paves the way for under-selling of the services. Many do not even consider the man-hours spent as one of the important ingredients for billing. Of course, in deserving and exceptional cases, rendering of services for a low cost or free of charge may be justified but that policy or approach should not be extended to all clients. A professional who renders services backed by knowledge, values and competence always does the billing with absolute confidence unmindful of losing the client. He not only demands greater value for services, but also commands respect and credibility.

Quality and Values

Most important challenge to any small and medium professional firm is to ensure quality in anything it does and to adhere to the ethical norms laid down for the profession. The first one can be ensured by building quality team in the organisation and the later by imbibing values and appreciating that growth should not be at the cost of ethics. Adherence to Values is a challenging task these days as many players around us in the system do not attach any significance to this aspect.

Aspiration to become rich in the shortest possible time can be the root cause for deviation from established principles and best practices. We read in history that Gautama Buddha deserted all the prosperity and left the Palace in search of peace. On the contrary, many in today’s world seem to be joining the race in search of prosperity and in the process desert peace. Prosperity is welcome but not at the cost of peace of mind. Contentment is too great a virtue to be given up. No one is poor if he is contended and the one who lacks it can never be considered rich irrespective of the wealth that he may possess.

Some members of the profession strive and survive on account of the goodwill created by our forefathers. Many members contribute to and enhance such goodwill by their exemplary conduct, impeccable integrity and qualitative delivery of services. Unfortunately, the conduct of a few members has diminishing effect on the goodwill of the profession. We need to introspect as to which category we should belong to and the answer is obvious. Fee based approach in everything we do would be fatal in the long run whereas value based approach would enhance our reputation. Mahatma Gandhi said that there is enough for every one’s need but not for the greed. The Father of the Nation also indicated that ‘ends’ do not justify the ‘means’. It might pay to be unethical in the short run, but in return one loses self-esteem and peace of mind, which is too precious a price one should dread to pay and suffer.

Lord T. B. McCauley said, “the measure of man’s real character is what he would do if he knew he would never be found out”. Everyone aspires to grow and reach greater heights. It will be nice to always bear in mind that ability may take us to the top but it requires character to stay there. Quality in service without compromising on ethical values begets not only prosperity in the long run but undoubtedly helps us to build image and command respect. In matters of innovation and empowerment, one should swim with the current, but in matters of values and principles, one should stand like a rock.

Conclusion

There is tremendous scope for the accounting and legal profession in India to grow and expand. Business entrepreneurs, these days, require professional firms to do the hand holding in the establishment of their business as well as in the expansion and restructuring plans. They expect professionals to be part of the decision making process instead of merely providing inputs for decision making. If only Indian firms can address the above discussed challenges with vision, zeal and right attitude, they can accomplish their goals competitively and make a mark in the profession. By the year 2020, India is expected to emerge as a strong economic power in the comity of Nations. By the same year, even if a few hundreds of Indian professional firms can grow and emerge as Multinational firms, it would be a milestone to reckon in the annals of the Indian history about which all of us can be proud of. Let us join hands to co-author, along with the Government, an enchanting future of India by building a credible economy.

[Source : Article published in paper book at 17th National Convention held on 26th & 27th December 2013 at Mumbai]