Note From the Chair - May 2009

Note From the Chair - May 2009
Terry Allen, CPA/ABV, ASA
tallen@fvginternational.com

In this column, John Barton, Vice Chair of the BV Committee, and I want to update BV members concerning developments in ASA’s relationship with two other professional organizations—the Canadian Institute of Chartered Business Valuators (CICBV) and the Royal Institute of Chartered Surveyors (RICS). No decisions have been made about proposed changes in these relationships but ASA members need to be informed about these organizations and the conversations and activities that have occurred to date. This is especially true of RICS which is largely unfamiliar to U.S. BV professionals. In contrast, ASA-BV has had a long standing relationship with the CICBV. ASA’s interest in discussions with these groups is propelled by (1) consolidation in the appraisal profession and (2) the desire to lead the appraisal profession internationally.

ASA and other valuation organizations have faced increasing financial and operational challenges in the effort to provide quality member service. ASA faces unique challenges in trying to meet the needs of six disciplines with different markets and different needs. In addition, the users of valuation services such as the SEC have been critical of the lack of uniform standards for the BV profession in the U.S. Thus, interest in consolidation of the profession has increased in recent years.

Interest in valuation expertise has been mounting in countries around the world driven in part by International Financial Reporting Standards (IFRS). Professionals in these countries need education, standards and accreditation to provide quality valuation services and to implement the fair value concepts promulgated by IFRS. The International Valuation Standards Council (IVSC) has recently reorganized to take on the challenge of the internationalization of standards. ASA and the BVC are committed to participating in the IVSC to make sure that international BV standards are consistent with best practices. We are also looking for ways to strengthen our voice in guiding the development of international valuation standards.

Thus, ASA is weighing the advantages of two different opportunities—(1) joining an “umbrella” international “organization of BV organizations” co-founded by ASA-BV and the CICBV; and (2) merging ASA into RICS. Ron Seaman, ASA President, has named committees to consider each of these opportunities.

Institute of Chartered Business Valuators (IICBV)

The CICBV has recently invited ASA-BV to be a founding member of the International Institute of Chartered Business Valuators (IICBV), a BV umbrella association which plans to extend its membership internationally and promote BV education and standards around the world.

Facts about the CICBV

The CICBV with 1,200 members is the largest valuation organization in Canada. It is a non-profit professional organization established in 1971 to promote high standards in business and securities valuation. Like ASA, the CICBV has a strict Code of Ethics and Practice Standards. The CICBV is recognized by organizations throughout Canada as the accrediting body for BV. The CICBV Practice Standards have been quoted by various regulatory agencies as the professional standard in Canada.

Since the 1980s, the CICBV has had a close relationship with ASA-BV including:

• Joint conferences every four years, alternating between a U.S. and a Canadian location;
• Provisions for reciprocity of BV credentials with over 100 people holding credentials from both organizations (including Richard Wise, FASA);
• Participation in each other’s standards committees;
• Frequent communication concerning issues of interest to the profession, such as the IVSC; and
• Attendance at each other’s leadership meetings (the ASA BVC meeting and the CICBV board meeting).

CICBV Proposal

The CICBV plans to create an international umbrella organization of leading domestic BV organizations—the International Institute of Chartered Business Valuators (IICBV). It has invited the ASA-BV to be a co-founder of this organization. The IICBV will be an umbrella organization—an “organization of organizations”—in which individual organizations maintain their autonomy. Existing groups in other countries would be able to join or form an organization for their country, and individuals and firms would be able to join one or more of the organizations under the umbrella. The idea is that, if the ASA and CICBV join together to build on their cumulative BV expertise, we can expand our international influence and image. The new IICBV would have a strong voice in the development and dissemination of standards and best practices for the global BV profession.

Advantages and Disadvantages of the CICBV Proposal

Advantages of the CICBV Proposal include:

• The ASA-BV and CICBV have a long-term close relationship with mutual respect and trust. The IICBV would be controlled at the outset by two organizations that have a long history of operational and strategic synergies.
• The IICBV will be structured to enable organizations to join together to speak with one voice concerning international valuation standards and best practices and to offer BV education worldwide.
• The IICBV would be focused on the BV profession.

Disadvantages of the CICBV Proposal include:

• The Proposal does not resolve ASA’s operational and financial challenges in attempting to provide quality service to members in six disciplines with dissimilar markets.
• Combining ASA’s 2,100 BV members with the CICBV’s 1,200 members results in what is still a relatively small organization. The plan would be to expand that number by reaching out to other countries, but the initial “organization of organizations” would only have approximately 3,300 members.
• While the proposal would unite a growing group of BV professionals, it would not unite the broader appraisal profession. (Members of the BVC have different definitions of the profession which they wish to see united—some focus on the business valuation profession while others focus on a broader appraisal profession including other disciplines.)

The Royal Institute of Chartered Surveyors (RICS)

ASA has been considering a merger with RICS since early 2008. . In August of 2008, three organizations, the ASA, RICS, and the American Society of Farm Managers and Rural Appraisers (ASFMRA) signed a Memorandum of Understanding (MOU) to pursue closer collaboration and to “provide a mechanism at a senior level for continuing dialogue among RICS, ASA and ASFMRA toward a unified valuation profession in the United States and around the world.”

To facilitate this collaboration, a Unification Committee was formed by Ron Seaman on January 9, 2009, to be chaired by Donna Walker. In his letter to the Unification Committee, President Seaman charged them as follows:

Your charge will be to explore the major issues that would arise if ASA were to merge with RICS. I encourage you to identify and explore those major issues yourselves. Some (but by no means all) of those issues will be: a) the structure of RICS and how ASA's disciplines might fit within that structure; b) the decision-making processes of RICS and how ASA's members might function within those processes; c) RICS's designations and accreditation paths and their similarities and differences with those of ASA; d) financial matters such as dues structures, financial stability, melding of ASA's assets and liabilities with those of RICS, and control of expenditures

The Unification Committee was asked to try to complete their mission by April 9, 2009, although their final deadline for RICS discovery is July 11, 2009.

Facts about RICS

RICS has approximately 145,000 members in 17 specializations, including real property valuation, construction management, engineering, and related fields. They have no business valuation discipline, nor do they have an MTS designation.

The organization is divided into seven “World Regions,” each of which has a central RICS administrative office, as follows:

1. London (also serves as the world headquarters)
2. Brussels (European HQ)
3. New York (Americas HQ)
4. Hong Kong (Asia HQ)
5. Dubai (Middle East/Africa HQ)
6. Sydney (Oceania HQ)
7. Delhi (India HQ)

As part of a merger, ASA would become part of the Americas region, overseen by the RICS New York office.

Arguments in Favor of a Merger with RICS

Several arguments have been posed in favor of the ASA merging into RICS. Those arguments recognize consolidation pressures in the appraisal industry as well as the financial and operational weaknesses within ASA.

• International expansion - The ability to grow in a substantive manner beyond the U.S. is the single greatest advantage to ASA. With the advent of International Financial Reporting Standards (IFRS) and the assumed follow-on of international valuation standards (IVS), BV members of ASA would benefit from being part of an organization that has a global presence. RICS has an international infrastructure that would allow the globalization of BV membership to proceed more quickly and effectively.
• Valuation Standards – It would benefit ASA-BV to play a key role in the creation of, and adherence to, international valuation standards and IFRS. This is crucial since as both sets of standards become a reality, our BV members will be best-positioned to serve their markets. Achievement of this goal will also position us to be the one voice sought by governments around the world. By merging with RICS, some ASA members could gain the resources to more effectively communicate industry’s point-of-view to governmental authorities. It would also position RICS to be an authoritative source for international BV standards.
• Financial & Operational Backing – ASA-BV has played an increasingly important financial role in the ASA in recent years largely due to the growth of BV education. Since our financial support has been necessary to fund other areas of our Society, we have missed opportunities within the BV market which would have extended our reach around the world and improved services to BV members. RICS would presumably have the financial wherewithal to help BV compete more effectively in recruitment efforts and in educational programming.

For its part, RICS also stands to gain from a merger with ASA. RICS has only a small presence in North America and virtually no presence worldwide in BV or MTS. Since BV is a growth market, the merger would give RICS a well-respected trademark in a growing field and a solid footprint in the U.S., which they currently lack. With 5,000 members in ASA and 2,100 in BV, the membership list includes some of the most respected practitioners and thinkers in the world. This base would provide RICS a platform to grow an international BV membership group.

RICS would also be acquiring an educational program that is highly regarded internationally. ASA’s BV education program is the oldest of its kind in the U.S. and is in high demand in Europe and Asia. More and more companies are retaining the ASA to provide in-house valuation principles training for their staff. Furthermore, ASA’s intangible asset valuation courses—BV 301 and BV 302 (to be offered beginning in 2010)—have attracted interest around the world.

Arguments against a Merger with RICS

• Despite the tactical advantages mentioned above, it is not clear how BV fits with RICS’ overall strategic mission. RICS is primarily a real property organization that has no experience with BV. They also have very little experience in the U.S. market.
• ASA-BV would be a very small part of RICS (2,100 members out of 150,000 members). Our members would go from being a cash cow with some influence within ASA (the status quo within the ASA) to being a cash cow with no influence.
• Despite RICS’ size, it is largely unknown in the business valuation market, even in Europe.
• RICS does not elect organizational leaders. They are appointed by other organizational leaders. Once those leaders are in place (and many BV leaders have already been named), members appear to have no input. This is particularly problematic when one considers the fact that BV leadership in the merged organization has already been determined without consultation with the current BVC or ASA-BV members.
• RICS’ annual dues are twice as high as ASA’s dues. It is unclear what services or products would be offered to members in return for doubling their dues.
• RICS’ efforts so far appear to be focused on large firms and the financial reporting side of the profession. Smaller BV practitioners, especially firms providing litigation support or estate tax services, appear to be less important to RICS. Given RICS’ dues structure it is conceivable that, after a merger, these practitioners would gravitate to NACVA (which now has a credential for non-CPAs) or the AICPA.
• Although formal merger negotiations with ASA have not begun, RICS has been actively recruiting ASA-BV leaders. Several of their “Councils” have been fully or partially staffed; current ASA members will have no input into the BV leaders who represent them.

Conclusion

The committee named by Ron Seaman, ASA President, to discuss a possible merger with RICS has not reported its findings, but we believe that it is important that members familiarize themselves with the organization. There is also a committee which is discussing reciprocity of RICS and ASA credentials. Because RICS currently has no BV credential, there are no discussions of reciprocity for the BV credential. No timeline has been set for a formal merger decision (which would be put to a vote of the ASA members). However, RICS has accelerated its entrance into the U.S. BV market by: 1) offering seminars on valuation for financial reporting; and 2) recruiting individual ASA members to join RICS. Therefore, the BVC is in the process of gathering information and plans to take a position on the RICS merger at its July meeting in Orlando.

The committee named by Seaman to consider the CICBV Proposal has just been formed and no recommendations have been made. The BVC also plans to take a position on the CICBV Proposal at its meeting in Orlando.