For five years now, we’ve run our annual FDs’ Excellence Survey. It’s the largest poll of its kind and the only one supported by the CBI, canvassing the opinions of the nation’s finance directors about how well they’re being served by their auditors, banks, law firms and technology providers.
More than 550 votes were cast by UK FDs as part of this year’s FDs’ Excellence Survey. The survey is an illuminating and remarkable insight into the heartland of the UK economy – the middle market. This year, the FDs’ Excellence Awards were supported by Heath Lambert, KPMG and Lloyds TSB.
In the survey, approximately 28 per cent of the responses came from finance directors from smaller companies – those with turnover below £10m. Forty-four per cent came from FDs of companies with turnover between £100m and £500m. Nearly 11 per cent of the votes were from finance managers working at companies with turnover of more than £500m.
Finance directors are generally pretty discerning types. With a hold on the purse strings, they’re not going to be happy shelling out cash for sub-standard service even when the country isn’t in recession.
But the country is in recession and FDs are becoming even more astute. They’re asking more questions of their service providers, demanding more attention, considering whether it’s time for a change and, above all, refusing to dish out praise that’s not deserved.
As the Outside the FTSE 350 FD of the Year, Scotty Group’s Hugh Edmonds, says: “I think, in this climate, all companies are more demanding. They’re still looking for value for money, but even more so now.”
Similar to the banking sector today, a few years ago, the audit profession was in crisis. In the wake of Enron, WorldCom and Arthur Andersen’s collapse, auditors were seen as a bunch of money-grabbing no-gooders, who didn’t deliver on service. To its credit, the profession has worked hard to change its image with firms taking on board the criticism of corporate Britain and amending its practices and processes to suit. (Bankers: take note.)
This year, we refined the audit firm awards category to reflect a changed profession. It’s split into two: Large Six Auditor of the Year and Mid-tier Auditor of the Year. The Large Six category includes the Big Four but also BDO Stoy Hayward and Grant Thornton, marking the arrival of these two firms as truly significant players on the national stage.
The Large Six Auditor of the Year was PricewaterhouseCoopers, with a score of 7.8 out of a possible ten, closely followed by category newcomer Grant Thornton on 7.7.
In the mid-tier, Horwath Clarke Whitehill was the winner, with an overall score of 8.4. Baker Tilly was once again highly commended after earning an overall score of 7.6
We found that most survey respondents (28 per cent) had been with their audit firm for five to ten years, while 17 per cent had been with their auditors for more than 15 years. The overall average score for the audit firms was 7.2, with the breakdown of the scores as follows:
Quality of staff provided from the outset: 7.6 Value for money: 6.9 Speed of process: 7.2 Preparation of audit staff prior to the engagement: 7.3 How demanding they were on your team’s time: 6.8 Overall quality of audit: 7.6
When survey respondents commented positively about their audit firms, it was mainly to do with their knowledge of the business. One FD noted: “They’re sensitive to our business needs and able to work their audit accordingly.” Another wrote: “Good market knowledge and excellent sector-specific feedback.”
The negative comments were generally about cost and inefficient audit processes. “Seemed badly organised,” said one FD. “Planned to be with us for three weeks. In week two, plan was for two or three auditors to be in attendance. In the end, it was only one. On the last day, they asked a member of the finance department to follow 73 transactions through new ERP system (later reduced to 40), then suggested that they were waiting for us to finish the task.”
“Very slow in spotting issues as these are not identified until partner-review stage,” commented another.
The scores are fairly respectable but what’s interesting is that 64 per cent of respondents wouldn’t recommend their audit firm to another FD. The audit profession clearly has some way to go.
However, FTSE 250 FD of the Year Eric Hutchinson of Spirent Communications notes: “Auditors can amend their audit approach and the way they staff an engagement to better serve us but we should also do things in a cleverer way so the auditors can be more efficient.”Banks
This has been, of course, a tumultuous period for the banking sector. This year’s survey, in line with that changed environment, asked respondents to focus on their relationship with their bank, how much support they received, and the ease with which they dealt with them.
Many finance directors were scathing in their appraisal of their bank: “We ask for little and get little,” said one. But others were pleasantly surprised by their bank’s reaction to the tough market conditions. One FD noted: “Because we had very poor results during our first year with them, a more frosty relationship might have been expected. However, so far they have given us the opportunity to redeem ourselves.”
The majority of respondents have a lengthy history with their current bank. Twenty-one per cent had been with their bank for five to ten years; for 15 per cent, the relationship has lasted between ten and 15 years; but 31 per cent had been with their bank for more than 15 years.
A whopping 76 per cent of respondents believe the length and nature of the banking relationship has counted in their favour with regard to their dealings with the bank in 2008.
More heartening for the banks is the fact 70.4 per cent of finance directors rated their confidence that the bank will continue to support their business in 2009 as eight-out-of-ten or higher.
And yet, 63.8 per cent of survey respondents wouldn’t recommend their bank to another FD.
Lloyds TSB was declared Bank of the Year for 2009 with an overall score of 8.1 out of ten.
The overall average score for the banks was 7.0, with the breakdown of the scores as follows:
Support given to the business: 7.2 Willingness to lend: 6.9 Speed of process: 6.9 Amount of detail required: 6.8 Security/collateral required: 6.6 Communication and access to decision makers within the bank: 7.3
The Young FD of the Year, Gü’s Melissa Foux, says she’s noticed a change in her relationship with the company’s bank. “Maybe they have to be much more diligent about their investments, but they come over a lot more. They’re trying to really understand how the business works. People are generally taking more time to really understand what’s going on.”
Many of the survey respondents touched on the importance of having a good relationship. “Having a direct relationship point of contact is a real boon,” said one FD. Said another: “They are supportive and we have a good working relationship; there is trust on both sides.”
As expected, a number of FDs were highly critical of their banks. One commented: “The bank tends to forget who the customer is in the relationship.”
Another noted: “Very unresponsive (for example, it took five months to get the online banking set up). Manager has been involved with the business since day one, yet still claims not to understand our business. Manager only works two days a week and assistant is no use. Worst of all, they did not pay our salaries on time before Christmas!”
Another said: “The bank is ‘running scared’, relationships no longer count for anything.”
One respondent said their bank was “very supportive for many years but put intense pressure on us to repay our overdraft last year, which we have done via the sale of a property”.
The scores pertained only to the year 2008. It will be interesting to see if the recession will result in fewer or more disappointed FD banking customers next year.Law firms
For the first time, we asked respondents to rate their law firms. Similar to the banks and audit firms, most FDs have a long-standing relationship with their legal advisers: 26 per cent have a relationship spanning five to ten years, while 31 per cent have used the same law firm for ten years or more.
Pinsent Masons was the winner with a score of 8.3. Eversheds was in second place with 7.9. The overall average score for the law firms was 7.3.
Here’s a breakdown of the overall scores:
Value for money: 6.7 Responsiveness: 7.6 Depth and breadth of expertise: 7.6 Knowledge of your business and sector: 7.4
Mostly, comments about the law firms were positive. A few FDs complained of high fees or “erroneous charges”, but many complimented their legal eagles on the support they offered.
Positive comments included: “Excellent, broad-based capabilities. Excellent relationship with managing partner, which we both work to maintain.”
“They’re a very supportive firm, happy to engage with problems and find solutions,” noted another respondent. “They have a number of talented individuals and, being local, respond quickly to requests for help.”
However, again, 69 per cent said they would not recommend their law firm to another FD.
Spirent’s Hutchinson offers this tip for getting the best out of your law firm: “With regards to our law firm, we’re much smarter now at asking the right question and much better at interpreting the answer. It means we rack up less chargeable time with the lawyer.”
A point on relationships
There are many conclusions that can be drawn from the research. FDs don’t want to pay loads of cash for nothing short of supreme service, particularly in a recession. They value firms with good staff who know their business, and who don’t waste their time or abandon them when times are tough.
But above all, a good working relationship with a service provider means a happy FD. As Scotty Group’s Edmonds says: “We’ve had quite a settled team of advisers for years now and I place great store on continuity and the relationship we have. The more they get to know the firm, the more they can give proactive advice.”
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