“Nobody gets fired for instructing {insert big name firm here}” -the line remains etched in my memory and was the culmination of several years of prospecting, courting, onboarding and then cross selling. Peter who made the statement was and is one of the nicest gentleman and clients you can ever meet and remains a friend. The statement remains with me several years on for what it represents:

• Your brand is weak and I cannot trust my business and internal reputation with you;
• I am concerned about losing my job if I were to take a risk on you;
• The name and brand of the institution is more important than the individual service or offering, when awarding a mandate.

During this period (roughly between the GCF and Covid) most corporate relationships were institutional, between Companies and their service providers, which could include magic circle law firms, the big four accountancy firms and as expressed in the league tables for the leading Banks. This was after all the way of the world, with the larger firms winning the best mandates, and smaller firms scrapped to try and build market share. However, in the UK things do seem to be changing and although its difficult to quantify, sentiment seems to be shifting and we aim to explore this further.

Institutional Relationships

If we make the assumption that a business relationship is one between two parties at their respective firms and over the course of a number of years it becomes ‘institutionalized’ whether by way of being named on a panel or a recognized title (broker, auditor, M&A advisor etc), then its fair to say most of these relationships have endured for a number of years. The touch points are often at a very senior level, whether the management team or the board and key here is that they are ‘inherited relationships’ for the CFO, head of tax, head of legal or group treasurer.

In normal times, as was the case with Peter above, institutional relationships remain strong and it would take a lot to change this. However, we are living in a time of change and on the back of a sustained lockdown, the cultural ties both within a firm and more importantly between firms is the weakest they have probably ever been. The zoom catch up meetings, untailored market updates and Linkedin tombstones did little to sustain the ‘love’ and many institutional relationships have frayed more recently and it is only fair for a head of legal, tax or treasury to ask, why do we have to continue with this firm or bank? And in many cases they are now not doing so.

The Brand Effect

A brief visit to any of the major financial centres from Canary Wharf in London, Marina Bay in Singapore or La Defence in Paris will include a vista of skyscrapers with the logos of the largest firms adorned near the top. The name, logo and brand reinforced the quality associated with the firm, much like luxury watches or leading sport shoes. However, unlike retail products, lockdown has meant financial centres have been, and largely continue to be, sparsely populated, and that reinforced loop of brand strength is weakening. Furthermore, many of the services offered are commoditised whether for law firms, auditors and financial services and when delivered on Microsoft Teams, this really does come to the forefront. In the absence of the mosaic carpets, contemporary art work and delightful biscuits, is there really much between firms? In changing times, we feel sentiment is moving from relationships driven by institutions to being driven by individuals and the quality of service offered.

The Personal Effect

Pre-Covid, when Peter made the comment, job security and his relationship with his employer was a key part of his decision making. The ‘glue’ that binds firms and their workforce is being threatened by something more sinister than Covid and that is inflation. Lenin is reported to have said that the best way to destroy the capitalist system was to debauch the currency by a continuing process of inflation. An extension of this would be the best way for a firm to destroy its human capital is to pay workers less for doing the same job and this is happening with a few notable exceptions across the board. In fact, its reported that over 35% of the UK labour force are looking for a new better paid role to survive the cost of living crisis.

In this environment where thankfully unemployment is at a record low and moving between firms is relatively easy, especially for skilled workers, decision makers are not at all fearful of losing their jobs, many of them in fact quite the reverse. Whereas pre-Covid, you would hear the expression of working for a firm, increasingly we hear they represent a firm, this difference is more than semantics.

We have referenced the weakening of institutional relationships, but interestingly the other phenomenon which is perhaps less reported is the growth of localized relationships. Perhaps a relic of lockdown and more recently the train strikes, but geography is playing a factor, where relationships have blossomed across neighbourhoods, meeting frequently in the local pub or café and forming a local network, much as colleagues used to do pre-Covid. In this instance institutional relationships are to some extent being replaced by local networks, where the strength of the brand being represented is less important, but rather it’s the personal relationship, engagement and degree of trust that is key.

Building Relationships

We live in changing times and there are three points that relationship managers should consider, firstly that it may take a very long time for institutional relationships to recover to the level they were pre-Covid, secondly focusing on individual relationships across firms is more important than ever, the modern day colleague is not necessarily in the same firm, but could be in the same neighbourhood and finally the next few years present an unusually flat playing field for smaller players to win market share from the incumbents, something even my good friend Peter agrees with.