So just tell me how big a threat all of this is to consulting.

Well, it's been gathering for a few years, hasn't it, since the launch of ChatGPT, but things seem to be coming to a head as clients now start to get much more confident about taking some project work in-house.

So that's forcing some difficult conversations between consultants and their clients.

And these IT transformation projects, which are at the core of what we're talking about here, these have been bread and butter for the giant consulting firms now for generations.

We spoke to Bayer, for example, the drug company, which says it's using dozens of AI agents to do things like coding and testing when the consultants come in and map an IT system ahead of trying to bring in new software.

A, a lot of that can be done much quicker now, and because it can be done much quicker, that is giving the clients an opportunity to say, "We want you to do it at a lower price."

So is the future essentially of consulting, can we look at it as sort of less reliance on technical transformations and maybe just more on human-centered things where we add value [chuckles] in terms of judgment and insight that at least so far we know that AI can't quite do?

Amen.

So Stephen, can you tell us a little bit more about the investigation into these reports by PwC? What did it find?

Yeah, so these are reports produced by PwC Middle East.

They're thought leadership reports that are put out, uh, to try and drum up business for consultants.

These are reports on the use of agentic AI by, uh, companies.

They are about the use of AI by governments, about autonomous vehicles, electric vehicles across the Middle East.

So these are big thought leadership pieces that are meant to be sort of flagship reports from this Big Four firm.

But the researchers found that, uh, once you dug down into the footnotes, they were riddled with hallucinations.

Why is this a trend that we are seeing across Big Four consulting firms?

So how is PwC set up now, and why does its leadership want to change that?

Well, like the other big four accounting firms, it's set up as a kind of, uh, federation.

It's almost like the United Nations.

You have all of these locally owned partnerships that all just agree to work together under the PwC umbrella.

The central organization under the chairman, Muhammad Kande, doesn't have the kind of power that a corporate CEO, uh, might have.

And, uh, it's a hi-historical artifact, frankly, of the fact that the accounting business is regulated on a very local basis.

Every, every country has different, uh, accounting regulations.

So given that PwC is not the only firm that's doing this, what impact do you think that integration will have on the industry as a whole?

[laughs] All the things.

Yeah.

Well, as, as, as you said, I'm the accounting editor, right? So I've been following private equity's march in the accounting sector for several years, and the way it's done in the accounting sector is you, um, you ring-fence the audit business from, uh, the rest of the business.

You keep everything that has to be described under the ethics rules as the practice of law, you keep all of that in one core law firm, but everything else you put into an organization called a management services organization.

Now, that's the back office, that's the technology, and you could also put the brand into that business and then license it back to the law firm.

And law is a very significant sector of the US economy, and, uh, it's the last sector, basically, that-- of the professional services that, uh, private equity has not come into, and, uh, they have a lot of money, and they want in.

What has caused this growing interest by private equity in law firms?

I think there's a couple of, uh, reasons.

Hmm.

The a-, accounting industry has been, um, through quite a big change over the last three to five years.

Private equity, which has not normally been, uh, associated with this sector, has been pouring in.

And lots of firms have given up the traditional partnership model where the equity in the firm is entirely owned by the senior accountants in the firm.

In fact, more than half of the largest firms in the US now are actually owned by private equity firms.

And, uh, at some point, private equity will want to sell out, so selling out to the public markets is likely to be one of the exit routes.

And there's a second factor too, which is that some accounting firm leaders are looking at private equity and thinking, "Actually, I don't want to be owned by private equity." An alternative to the partnership model is a good idea and they too are looking to the public markets, and that's what we've seen for the first time in the UK with MHA going public just a few months ago.

So Stephen, how is the arrival of PE making accounting firms reconsider this?

Do you have any examples of what this could look like?

There's a couple of different ways to do it.

The rules allow a certain amount of optionality about how you pick the price at which you're describing your import.

One of the strategies is to use an earlier price in the supply chain, so cutting out some of the markups that the middlemen have been adding to the cost of the import.

That's one strategy that's very popular at the moment, and another is also splitting out the fees that you're paying to the supplier.

So, if you're a supplier of say a whiskey or a, or a gin or something, you're sending that into the United States.

The importer is paying a price for the drink, but the company that they're buying it from is also, also owns the brand and does advertising and marketing and promotions.

I'm wondering, Stephen, what does this ultimately tell you about Trump's tariff plan? I mean, does this undercut what Trump is trying to do here with his tariffs, which is basically trying to bring American manufacturing back to American shores?