City's most successful accountant still has plenty of fire in his belly

IT IS EASY to tell when you are nearing , Deloitte boss John Connolly&rsquo;s office because an awful lot of people you bump into in the firm&rsquo;s corridors begin to ask about his welfare.<br /><br />&ldquo;Is John in?&rdquo; asks one, a tad nervously. &ldquo;What mood is he in today?&rdquo; asks another. There is a feeling of being drawn closer to a flame. And there is little doubt that even at 58 the Manchester-born corporate finance accountant remains the firm&rsquo;s driving force, the reason why it has grown faster than its rivals in recent years.<br /><br />Connolly took over 10 years ago, but it was three years into his tenure that he launched a high-risk yet transformational deal to take over rival Arthur Andersen (which, as readers will remember, collapsed because of its association with disgraced US energy trader Enron).<br /><br />At the time Deloitte was the smallest of the Big Four accountancy firms &ndash; the others being PwC, KPMG, and Ernst &amp; Young. Critics then thought the merger, which would see Deloitte taking on 3,400 Andersen staff, would be a bad fit. But instead it helped propel Deloitte into second place in the crucial professional services firms league table.<br /><br />Connolly, who couldn&rsquo;t have been more charming on the day City A.M. met him, says: &ldquo;A decade ago PwC was 2.9 times our size, now it is only five to 10 per cent bigger.&rdquo; His rock star status thus rests on firm foundations, and he is well paid for his efforts. He is thought to be the UK&rsquo;s highest paid accountant in practice, earning &pound;5.7m last year, a 22 per cent rise on 2007.<br /><br />Connolly has spent his whole professional career with Deloitte and is the senior partner and chief executive of the UK firm and a member of the board of partners.<br /><br />He is also global managing director of Deloitte Touche Tohmatsu, chairman of the global management committee and a member of both the global executive and the global board of partners.<br /><br />His huge 10th floor office in a new complex just off Fleet Street suits a business leader of one of the UK&rsquo;s largest firms. Large windows on two sides of the office give expansive views of St Paul&rsquo;s and the City, as well as the London Eye and the West End. The rest of the room is kitted out in dark wood panelling, black leather easy chairs, a large desk and a sizeable meeting table and chairs. A striking, handsome five foot square black and white picture of the Beatles at the start of their fame, clowning around outside Abbey Wood studios, catches the eye. &ldquo;That was taken by Terry O&rsquo;Neil when the band was young, at the very start of their careers,&rdquo; says Connolly. &ldquo;I like that picture a lot.&rdquo;<br /><br />Connolly is in a good mood. The firm will post its annual results in August, and given the harsh economic climate he is pleased with them.<br /><br />He says: &ldquo;We are doing remarkably well. Our revenues are in line with the previous year. That is good, because from what we can see the markets we operate in have shrunk by three to four per cent. Our profits are down by single digits.&rdquo;<br /><br />This is not bad given the collapse in the UK economy but it contrasts with the previous year, when the firm posted a 16 per cent jump in pre-tax profits to &pound;654m on the back of rises in debt restructuring and forensic accounting work. Sales rose 12 per cent to &pound;2bn. On average the firm&rsquo;s then 650 partners took home &pound;970,000, up from &pound;870,000 the previous year.<br /><br />But a more detailed unpacking of this year&rsquo;s results shows a mixed bag compared with last year&rsquo;s stellar figures. As Connolly simply puts it: &ldquo;We have four units. Two grew and two did not.&rdquo;<br /><br />The group&rsquo;s star performer was audit, which grew seven per cent, followed by its consulting unit which grew five per cent.<br /><br />Not surprisingly corporate finance fared the worst, slumping 10 per cent as deals dried up. Lastly, the firm&rsquo;s tax unit dropped six per cent year on year.<br /><br />Growth and decline can come from surprising areas. He points out that its consulting division made its biggest returns from government and the financial services sector. He explains: &ldquo;Our strongest industry performances have been here, because there have been a lot of probes, investigations and activity that we have advised on.&rdquo;<br /><br />Around 60 per cent of Deloitte&rsquo;s consulting business comes from the British government and its financial services work. But, by contrast, fees from advising on how to save tax from M&amp;A deals tumbled 40 per cent over the last year.<br /><br />Connolly is pleased with the way the group responded when the markets froze last September, after the collapse of US investment bank Lehman Brothers. He says: &ldquo;When the market really turned we were quick to deal with it.&rdquo; He issued a five-point plan to all of the group&rsquo;s 12,000 staff worldwide. Most of the points were eminently sensible concerning cost cuts and the marshalling of resources.<br /><br />But Connolly says his first point was that the firm &ldquo;had to give our clients greater support at this time, because they were going through a tough time too.&rdquo;He adds: &ldquo;We told our people to abandon anything that was internal. Frankly, that is good advice to give at any time.&rdquo;<br /><br />The Deloitte boss also promised to &ldquo;keep building for the future.&rdquo; And that means adding partners, 40 last year, as well as continuing to look for acquisitions. Connolly says the firm is looking for targets to fit into its consulting unit.<br /><br />As well as promoting partners from within the group, Deloitte often buys smaller businesses and integrates the heads of these units as partners, something it does a lot more than the rest of the Big Four. It also hires partners from other firms; about half of its partners joined the group from outside last year.<br /><br />But one area Connolly is not looking at is a corporate law unit. He says: &ldquo;We had a chance to buy a legal practice as part of Andersen and did not take up that option. We want to be in businesses where we can be very important. The legal industry is very established and it would be very hard for us to start from scratch. It would be next to impossible to attract the best new talent to a start up.&rdquo;<br /><br />Connolly estimates the professional services market is beginning to show signs of recovery. He says: &ldquo;Twelve months ago I was talking to clients and partners and nothing was happening. At the moment there are signs of M&amp;A activity, but at the bolt on level for large companies. Banks are still not willing to lend huge amounts.&rdquo; But the Deloitte chief is confident of economic growth later this year and forecasts a growth in the value and volume of transactions early in 2010.<br /><br />Until then Connolly is determined to keep adding &ndash; both businesses and senior staff &ndash; so that it is pole position to compete with the rest of the Big Four when the UK&rsquo;s largest firms start spending again. There is still much uncertainty around, of course &ndash; but just as the sceptics were crushed after his Andersen deal, all the indications are that Connolly is about to pull it off again.<br /><br /><strong>CV </strong> JOHN CONNOLLY<br /><br /><strong>Age:</strong> 58<br /><br /><strong>Work:</strong> A Deloitte lifer. After qualification he ran an office in the Middle East, was later partner in charge of its Leeds office. He became head of the London office and then UK managing partner. He specialises in corporate finance and has worked on many mergers. Key clients include the Royal Bank of Scotland, Vodafone, Royal Dutch Shell and KKR <br /><br /><strong>Education:</strong> St Bede&rsquo;s College, Manchester <br /><br /><strong>Family:</strong> Married, two grown up children <br /><br /><strong>Lives:</strong> Homes in London and Sussex<br /><br /><strong>Hobbies:</strong> An Opera and a Manchester United fan. He owns six race horses