When It Comes to Middle-Market Growth, Grant Thornton’s CEO Has China on His Mind

Nearly 4 years ago, when Stephen Chipman was named CEO of Grant Thornton LLP, his global credentials certainly appeared impressive — but perhaps not necessarily essential for a leader tasked with overseeing the U.S.-based operations of a professional services firm.

After all, what would an executive most recently charged with building the accounting house’s China operations know about growing American middle-market businesses?

This is a question that is easily answered when you consider the Chinese middle class — a burgeoning market for goods and services that is expected to number 600 million people within the next 15 to 20 years. Or so Chipman explains.

It’s just this type of math that has made Grant Thornton’s appointment appear to be all so very timely.

“There’s really a movement away from viewing China as simply a low-cost manufacturing site, and the predominant strategy we see now is American firms looking to deliver goods and services into the China market,” says Chipman, who today operates from Grant Thornton’s offices in Chicago — the city where the accounting firm first took root almost 90 years ago.

“We are in a very mature marketplace here in the United States for most businesses, within an economy that has been very resilient but nevertheless fragile, and people — particularly dynamic, midsize businesses — are looking at markets like China and are seeing an opportunity,” he explains.

One concurring trend that is helping accounting and advisory firms such as Grant Thornton is a growing commitment on the part of American businesses to advance into China on their own, rather than through joint ventures.

“Joint ventures have proved to be a difficult road for many midsize companies — there are challenges in communication, culture expectation, management picking the wrong partner, and a variety of other issues — so the trend in recent years has actually been for midsize companies to establish their own operations. To do that with limited experience in the market, they need a lot of help and the right people on the ground,” says Chipman.

Asked how a firm might need to address its finances differently in China, Chipman replies: “Businesses have to look at their finance and accounting requirements through the lens of China, and not the through the lens of United States. There are a lot of local regulations that they will have to comply with in both tax and business reporting. The most important thing will be to attract strong finance talent on the ground.”

According to Grant Thornton’s leader, U.S. middle-market firms have a lot in common with Chinese middle-market firms including the fact that many are family owned. Traditionally, family-owned firms in China are passed down from one generation to the next and are frequently led by a family patriarch who is likely to lead the firm while well past what would be a normal retirement age in an American firm.

“This is both good news and bad news for Chinese companies. It creates stability and continuity, but over time they outgrow the organizational structure and you end up having everything having to pass across the patriarch’s desk — so you experience this kind of organizational gridlock,” says Chipman, who says that family ownership continues to dominate much of China’s middle-market even as financial structures evolve.

Says Chipman: “You will see equity coming into those family businesses, but the families still retain a lot of the control, even where there is public money coming in. That is really uniquely Asian, but particularly a Chinese apporach.”