MAKING IT TO THE BIG 4

Excerpts from the book entitled "MAKING IT TO THE BIG 4 - A Journey of a Decade" by Perla Rizalina M. Tayko

Making It to the Big 4

NEWSFLASH! “C. L. Manabat & Co. (CLMC) landed within the coveted circle of the “Big Four” in just five years.” Can anyone believe this phenomenon? How did it happen? How could any firm with such humble beginnings, an unassuming entrant in the industry developed so fast and so on course? Does anyone wonder at this meteoric rise? Is there any lesson to be learned from this phenomenon? What was it like at the point of time when the choice “TO BE” was made?

The “Prequel” To CLMC: the LMSC Years

After a few years of establishing Laya Manabat Salgado & Co. (LMSC), Conchita found herself at the helm of the practice assuming the role of Executive Partner of the firm. In 1988, when there was yet another shifting of the global accounting practices, LMSC was approached by Ernst & Whinney (E&W), one of the Big Eight global players and whose requirements were previously being served by the biggest local accounting firm Sycip Gorres Velayo & Co. (SGV), to represent E&W in the Philippines. About eighteen months earlier, another Big Eight player, Arthur Young (AY), also ceased its Philippine representation by SGV and appointed another newly-established accounting firm, Punongbayan & Araullo (P&A), as its Philippine representative.

There was again another movement in the global scene when E&W and AY decided to merge to become Ernst & Young (E&Y) in 1989. As a result, the Philippine representatives of E&W and AY started to discuss likewise the possibility of a merger but the talks did not prosper. P&A successfully got the E&Y representation while LMSC decided to be on its own for a while.

Conchita later thought of introducing LMSC to Grant Thornton International (GTI), a second-tier international accounting firm (one of the largest tier-two firms in the world at the time but outside of what evolved into the Big Six after certain mergers within the Big Eight). For years, Conchita had been acquainted with GTI, particularly with its Hong Kong office, stemming from her past connections and business transactions. GTI had been advisor and service provider to some of Conchita’s consulting clients with overseas operations. GTI was willing to talk and appoint LMSC as its new Philippine representative. Consequently, LMSC was appointed as a GTI correspondent firm in 1993 and remained so until events would again redefine the course that Conchita’s career would take.

In 1995, a major upheaval in the local accounting industry took place. At the start of the year, trouble was brewing within one of the local accounting firms. That firm, where Conchita started her professional career as a fresh college graduate, had been in the business for a number of years and was considered one of the leading local accounting firms.

This large accounting firm was then representing no less than Coopers & Lybrand (C&L), the third largest global accounting firm of the Big Six. There was unrest among the majority of the firm’s partners and it reached its boiling point around the middle of the first semester of the same year. Unable to reach a mutual understanding with the firm’s leadership, a group of partners decided to form a new entity and claimed all the rights of the original partnership including the C&L representation. This led to the confusion in the marketplace and to the exasperation of C&L in dealing with “two firms” (the “original” one, and the other, the “break-away” firm), prompting it to scout for other alternatives.

C&L eventually found its way to LMSC and negotiations for a transfer of representation started. LMSC was able to convince C&L of its worth as a Philippine representative. Thus in 1995, LMSC was declared C&L’s member firm in the Philippines. Despite the significant challenges, C&L clients started migrating to LMSC. The former C&L representation (both “original” and “break-away” firms) did its best to prevent client transfers by launching a campaign to retain C&L clients, at least for another audit season. In the meantime, LMSC doubled its staff toward the end of the year to be able to handle the growing migrating clients. Conchita’s significant role in this turnaround, in winning C&L accounts, in expanding the practice and establishing the needed infrastructure within LMSC, did not go unrecognized by C&L. When Conchita decided, in 1996, to leave LMSC to move on, C&L offered her to lead the Philippine branch of its consulting practice. She seriously considered this offer for a while attempting to learn C&L’s consulting organization, meeting with their representative and initially serving some of their accounts. After some discernment, she decided to be on purpose and left C&L for the second time.

Conchita Remembers the Early Years

In 1997, when CLMC was still being conceptualized, three senior audit resources (Marites Buenaventura, Melissa Sanchez, and Bernadett Sanchez) from the former LMSC firm, sought Conchita and expressed their interest in joining her practice. Conchita’s previous firm had undergone changes in management and practices after her departure. Not being comfortable with the changes that took place, these resources naturally sought the previous management.

This put Conchita in a dilemma, as the existing work volume then was not enough to keep these people busy. In fact, there was no audit work yet. She however, felt a moral responsibility to take care of former colleagues and provide them with a new “home.” She took them in, inspite of the dilemma. “We had more staff than work to do,” Conchita would recall.

Eventually, she found a solution in sending them to overseas assignments, with the help of Grant Thornton International (GTI), CLMC’s first international partner. Conchita thought that this would keep them occupied while the foundations for CLMC were being built. This would also give them the proper training and exposure. Thus, Bernadett was sent to the GTI office in the U.S. for more than a year, Marites to the U.K. for eight months, while Melissa, along with Ofelia Gamad, who was also formerly connected with LMSC as manager, were assigned in Singapore for six months.

Evolution of the Partnership

Beginnings

Conchita, in 1996, decided to leave her partnership in Laya Manabat Salgado & Co. (LMSC), a firm which she helped to build and grow. She then re-established her consulting practice and operated under the company name, First Philippine Consultants, Inc. (FPCI), together with Luz Bernardo and Diane Yap.

When the opportunity to establish an accounting practice came, she had the firm C. L. Manabat & Co. (CLMC) established and registered in November 1997 with Virgilio Ramos as her initial (transitional) legal partner. Manuel Faustino then joined and replaced Virgilio as a partner. The two firms, while separate legal entities, operated as a team: CLMC took care of audit services and FPCI took care of consulting and non-audit services. In 1997, both firms were appointed as correspondent firms of Grant Thornton International (GTI). Shortly thereafter and upon Manuel’s invitation, Ophelia Jimenez, who was Manuel’s former colleague and tax practitioner in another firm, joined the team as Tax Director of FPCI. The group realized the need for a tax practice to support the services provided in audit and consulting engagements. The three heads of the service lines (audit, tax, and consulting), while having different titles, were considered as “Partners.”

The Getting Together

partners

At DTT’s suggestion, negotiations for the merger of CLMC with DTT’s former representation started. While this was ongoing in 1998 and 1999, Conchita realized that CLMC needed to have a more stable and complete practice. That means rendering the full suit of services: Audit, Tax and Consulting Services. To show strength particularly in Audit and Tax, Conchita invited other partners to join her team, one for audit and two for Tax. For audit, Rolando Santos, who was a former audit partner at LMSC, joined the team. For Tax, Conchita invited the firm of Leynes & Associates, through its Managing Partner, Jose Leynes, to merge with CLMC. They agreed and two tax partners became part of the team; namely, Jose Leynes and Ma. Lourdes Guillergan. Thus the firm had a force of seven partners with Conchita as Managing Partner and Jose as Deputy Managing Partner and Head of Tax when the firm was in full negotiations with DTT’s former representation, and simultaneously when the practice was subjected to a due diligence review, and finally when CLMC was appointed as member firm in 1999. Ophelia, Luz, and the rest of the staff under FPCI were now also officially integrated into CLMC.

As a result of the foregoing events, three partners from the former DTT representation, Angelito Cu, Mamerto Jayco, and Ofelia Barroga, along with their staff of about 35, migrated to CLMC. Thus by June 1, 1999, when CLMC became officially a member firm of DTT, CLMC had 10 partners and a staff complement of about 85

Falling Out

After barely a month, Ofelia Barroga decided to return to the former representation. The partners were then nine when the membership with DTT was launched and publicly announced in July 1999 at cocktails held in New World Renaissance Hotel. To quote from a memo of Conchita dated June 25, 1999 addressed to the partners and DTT’s expatriate consultant to the Philippines, John Jake Killeen, regarding Ofelia Barroga’s departure from CLMC:

“The dust has not yet settled…. When things have settled and the ripples are gone, what remains are what we need to move as one. I promise everyone that we will move on and we will make a difference. We just have to be together and do our best!”

In the beginning of the new representation with DTT, the partners had difficulty in getting immediate financial support to cover the increasing overhead of a growing manpower and infrastructure. The higher costs were necessary to prepare the firm for the coming busy tax and audit season, and breaking through to obtain that immediate support was as difficult as “having your wisdom tooth pulled out,” to quote one partner. The launch and public announcement of the international firm’s appointment almost did not happen in July 1999 due to delays in arrangements with the international firm. Conchita financed the firm’s requirements until the subsequent complements came several months later.

After the announcement, sustaining the international support for the firm became the main challenge. The partners had gone through several negotiations and meetings with the foreign officials. Some of the partners were becoming restless as their expectations were not being met. The negotiators from the international firm’s panel were also changed several times. In all these scenarios, the driving motto among CLMC partners was, “we are all for one and one for all.” This encouraged the group to stay together despite the challenges.

Nonetheless, these challenges and the pressures of negotiations were complicated by the unfortunate departure of the Leynes group from the firm in February 2000. Jose left together with Lourdes and the rest of his staff from the Tax group. Only Ophelia and a senior, Ana Liza Tan, were left in the Tax Group to brace for the 2000 tax season, the first for CLMC as a DTT member firm. Ophelia had to assume full leadership of the Tax Group.

On the firm’s first audit and tax season as a DTT member firm, it was critical to fill the void left by the Leynes group. Conchita turned to a good friend at an established law firm for support. CLMC successfully forged an alliance with The Bengzon Firm (later known as Jimenez Gonzales Liwanag Bello Valdez Caluya & Fernandez, or JGLaw) to assist CLMC on tax and legal matters. The alliance worked and continued for another year as CLMC transitioned and re-established its tax practice. Conchita also had to double as a tax partner to help Ophelia. Then the Tax Group started to hire new staff and tax practitioners including Luis Manabat (upon Manuel’s invitation, as Luis was his former colleague at a school in Binan, Laguna where Manuel was teaching part-time at the time) who joined CLMC as a tax manager in June 2000. Luis eventually became a tax partner in 2002.

Conchita, reflecting on the parting of ways with the Leynes group as well as on the rebuilding of the Tax Group, said,

“When we started the Deloitte representation in 1999, we merged with a small tax and law practice, which provided us the “strength” in Tax. Unfortunately, there was a parting of ways in the first quarter of 2000, the first tax season of the new Deloitte firm. The regional office was aware of the circumstances surrounding it and extended moral support. The tax practice was left with only one tax partner, Ophelia G. Jimenez, plus a senior and three juniors. We then quickly forged an alliance with a law firm for support and I did double duty in tax.”

The same year was focused mostly in winning the bigger accounts of Deloitte from the competition. One of these was a Fortune 500 leading multinational company catering to consumer products, a formidable account then being served by the largest accounting firm in the country. The partners spent months wooing the client by proving the firm’s and its professionals’ capabilities. With the support of the DTT regional office, CLMC was successful in convincing the major consumer products company to engage CLMC to handle its audit for the year end of 2000.

This win was not without its challenges and casualties. One major set back was Rolando Santos, who was the partner assigned to handle this major account, chose to leave CLMC as it was about to clinch the win. This happened around the 3rd quarter of 2000. Thus, the partnership eventually settled to having six partners (Conchita, Manuel, Angelito, Ophelia, Mamerto, and Luz) who were committed to supporting one another and being true to the motto of “one for all and all for one.”

Settling Down

For the next two years, the firm settled to having six partners, who became the core pillars of the practice. Each partner assumed a client servicing function as well as an administrative function. It was not unusual for a partner to wear several hats and juggle responsibilities, each one contributing to strengthening his/her respective functions and building the blocks of CLMC’s foundations.

Most of the firm’s policies and basic principles were established around this time. The firm operated on a matrix structure, a partner having one or more responsibilities. Administrative functions were divided amongst the six partners, each one usually working in tandem with another. The partners believed in always having a backup or understudy for every assignment. Each of the four areas of corporate functioning was focused on: people, clients, finance and the organization. Policies and practices were strengthened to include human resource, client management, quality control and risk management, practice management, accounting and finance, and other related areas.

One partner commented:

“One felt like a circus juggler attending to several responsibilities all at once. It was not easy and one would usually wish he or she could have done better if given more time and more resources. One could only do one’s best and under the circumstances, the results are probably as good as one can get. On the other hand, it has also been most fulfilling to have accomplished so many things with limited resources and in such a short period of time. As the firm continued its fast growth, we knew we needed more hands. But growing and maturing takes time and effort.”

In 2001, Conchita proposed to elevate Manuel to the position of Deputy Managing Partner and, in keeping with the firm’s matrix structure, simultaneously as Head of the Audit Group. The consulting group which was renamed Management Solutions Group (to include Financial Advisory Services, Business Process Outsourcing, Enterprise Risk Services and other consulting services) continued to be headed by Luz, while the Tax Group was led by Ophelia. Angelito became the leader of Risk Management and Independence concerns.

Strengthening the Partnership

partners

In early part of 2002, Cecilio Amoranto was invited by the partners to join the firm. Cecilio was the Chief Finance Officer of an international food chain franchise holder, one of the initial major clients of the firm. He had just retired from this position, his second retirement. His first was from a large multinational information technology company where he worked for more than 30 years. A seasoned professional, Cecilio was looking for something worthwhile to occupy his time. He initially joined CLMC as a part-time consultant. He eventually became a full-time director under the Management Solutions Group, handling financial advisory duties. He officially became a partner in September 2002 together with the promotion to partnership of four other senior managers.

In 2002 the partners felt the firm was ready to take its first harvest from its talent pool and elevate promising candidates to the partnership. Four senior managers were admitted to the partnership: Luis Manabat in Tax; Avelina Gille, Ofelia Gamad and Bernadett Sanchez in Audit. It was also in 2002 that Conchita was elevated to the position of Chairperson, and Manuel was promoted to Managing Partner.

Moreover, it was in 2002 when the firm received separate proposals from two large Philippine Big Five companies to merge with them. This was the time when an upheaval in the global Big Five was happening in the aftermath of the Enron downfall in the United States. After a long and highly charged deliberation in both cases, CLMC decided to remain independent and this was supported by DTT.

It was during this time too that a group of managers from a local Big Five company had approached CLMC for possible employment in the firm. Two of these managers eventually migrated to CLMC and joined the Tax Group, one being Fredieric Landicho who eventually became a tax partner in 2005, and the other, Richard Lapres, likewise in 2007. A third manager from the same group would later join, although briefly, CLMC’s Audit Group.

In 2004, Oscar Torres, an experienced audit professional who used to be a partner in a major accounting firm, expressed his interest in joining CLMC. After evaluation, he was admitted initially as a director in the firm. Later of the same year, he was promoted to the partnership.

In the meantime, there were plans to establish CLMC’s presence in Cebu. Geronimo Sta. Ana, a wellknown businessman and practitioner in Cebu, who has been the firm’s link in Cebu since CLMC’s founding, was formally admitted as a partner of CLMC to lead the Cebu operation. The Cebu office was subsequently launched and inaugurated.

Also in 2004, the firm started a program to prepare promising talents to assume leadership positions. Initially, three senior managers were promoted as directors, a stepping stone towards becoming a partner. These three were Luisito Amper for Enterprise Risk Services (ERS), Imelda Tapay for Financial Advisory Services (FAS) and Business Process Outsourcing (BPO), and Diane Yap for Audit Services. (Earlier, Diane was sent to the U.S. for an 18-month secondment to DTT-San Francisco as a Global Development Program participant. In like manner, Bernadett Sanchez was sent to DTT-Los Angeles). Furthermore, the firm started an empowerment initiative whereby certain key senior managers were identified, ready to assume higher leadership functions. This would accelerate their promotion as directors or partners if performance expectations were met or even exceeded.

First Retirements

Cecilio Amoranto, having reached the age of retirement, did so in 2005. He was retained however by the firm as a consultant for a few months to undertake the streamlining of certain administrative processes such as Accounting, Practice Management and Human Resource. Similarly, Geronimo Sta. Ana of the Cebu operation retired in the same year. Because there was no one to replace him, the firm continued to have a consultancy arrangement with him for the management of the Cebu office.

Oscar Torres, on the other hand, after completing the audit season, expressed his desire to leave the firm and pursue better opportunities overseas. He joined a client, a large global advertising company.

Launching the Next Generation and Leaving a Legacy

Company Executive Planning

In 2005, Manuel proposed to groom Luis Manabat as his deputy. In June of the same year, the firm was again ready to admit new partners, the three who were promoted as directors a year earlier, namely, Luisito Amper, Imelda Tapay, and Diane Yap. Likewise, in September 2005, three other professionals were admitted to the partnership, namely, Ma. Cecilia Ortiz and Marites Buenaventura for Audit, and Fredieric Landicho for Tax. This was to pave the way for leadership succession and the start of preparations for transition to a new and stronger firm that would join DTT’s restructuring in the region, in line with its global restructuring program. The firm would join the DTT ASEAN cluster, together with DTT member firms in Singapore, Malaysia, Indonesia, Thailand, and Guam, as one united regional group. This would be under the leadership of the CEO of the Singapore firm serving as the CEO of the ASEAN cluster. As one firm, there would be the sharing of resources with economies of scale. Thus the cluster would be in a more strategic position to acquire and service even larger and cross-border clients while minimizing professional risk. This was implemented in 2006.

The firm continued to harvest potential partner candidates from the firm’s existing talent pool. The year 2006 again saw the elevation of three young partners: Melissa Delgado, Drake Sombrito, and Bonifacio Lumacang (Bonifacio, years earlier, was also sent to the U.S. under the 18-month GDP initiative).

In May 2006, two of the six founding partners retired. The retirement of Luz Bernardo and Mamerto Jayco followed the plan of leadership transition (succession plan) for the firm which was implemented as early as 2004. The structure for the firm’s next generation of leaders was now complete and the stage was set for the next step in the leadership transition plan.

The time had come to pass the baton to the next generation of leaders, to bring the firm to the next level, and to even higher grounds. Thus, in December of 2006, the four remaining senior and founding partners, namely, Conchita Manabat, Manuel Faustino, Ophelia Jimenez, and Angelito Cu, formally retired from the firm. The senior partners believed that their work in building and nurturing the firm had been accomplished. It was then the opportune moment to leave a legacy to the next generation, with the thought that their dreams and aspirations for the firm and for themselves have been met. It was also with the confidence that the new leaders they have trained and developed will take the firm to greater success and will continue their journey together with Deloitte, to become the standard of excellence.

In March 2007, under the new leadership of Luis Manabat as Managing Partner, the firm registered its new name with the Securities and Exchange Commission: MANABAT DELGADO AMPER & CO.

(Still another transition occurred in 2011 - 2012 upon the retirement of Luis Manabat and the admission of Gregorio Navarro into the firm as the successor of Luis. Gregorio was formerly the Managing Partner of another leading accounting firm. And with this transition, Manabat Delgado Amper & Co. then became known as NAVARRO AMPER & CO. up to the present time.