Hindsight is a wonderful thing. A survey carried out in February by Accountancy Age sister publication Financial Director revealed some notable perspectives on the Enron collapse: ‘a US problem – there is no reason this will affect the current situation in the UK’ and ‘a massive over-reaction to a particular Andersen office’s incompetence’.
Sadly, the final outcome has been much more catastrophic than many people imagined. While this has provoked some fierce debates about auditing principles and industry practices, the brand positioning and reputation of the individual firms also warrants close examination.
He might well hear a sigh of relief coming from the other large firms, with the feeling of ‘there but for the grace of God …’. In private, many would agree that the Enron situation could well have happened to them.
In the past, others have been in the spotlight as a result of problems with companies like BCCI, British & Commonwealth and Maxwell Communications, but the impact on the audit firms involved has not been that significant.
Over time they have gained the benefit of the doubt and have been able to continue untainted by the problems. So, apart from the ‘shredding misjudgement’, what sets Andersen apart?
Andersen has always been different from the other large firms. While complaining about their arrogance and high salary levels, competitors will grudgingly acknowledge that they have exceptionally smart people who are driven to do the best for their clients and themselves.
This tough commercial orientation has given Andersen a reputation as being the strong, focused, ‘sharp’ people in the industry. While this brand positioning has helped to win significant amounts of audit and consulting business, it has left the firm with a fairly one-dimensional reputation.
The Sunday Times recently categorised them as, ‘known unaffectionately as Androids, taught to follow orders and not ask questions’. Andersen has been seen to be strong on the ‘hard’ factors but somewhat lacking in the softer values that help build trust.
The Andersen history, DeLorean and Accenture included, has not helped them to earn the benefit of the doubt. So when things went wrong, and ‘sharp’ became seen as ‘sharp practice’, many people were more inclined to assume the worst rather than believe that Enron was an isolated incident caused by a single errant partner.
With more attention and commitment to the softer side of their brand reputation, Andersen could perhaps have had a future as well as a past.
For an industry that has already been through major change, the Andersen disaster will have a significant impact on the structure and ways of working in the months and years to come. In the words of ACCA, ‘a sea change has already taken place in public perception which demands some immediate action’. Against this background the principle of responsibility will come (or should I say return) to the fore.
So as the audit and accounting industry contemplates its future, with or without input from external organisations like the Financial Services Authority, many changes should be expected. Working principles such as rotation of auditors, segregation of services and limitations on non-audit fees will be actively considered. Working practices will be assessed at both national and international levels in pursuit of standards that will provide the required reassurance.
As companies reconsider their audit and consulting suppliers, and subject all firms to the closest of scrutiny, there is likely to be a much more open marketplace with a premium placed on responsibility, respect and honesty. In this situation, big may not be seen as beautiful. The Big Four brands (without Andersen) have fee income that is more than seven times that of the next five firms in the UK league table, and this size and market domination may be seen negatively.
The larger firms may have to work harder than the smaller ones to earn the required level of trust. As one contributor to the Financial Director survey explained: ‘I use Mazars Neville Russell as being large enough to have the expertise and best practice input, but small enough to give personal service and quality service’.
So while the industry is looking to defend itself and set appropriate standards to re-establish confidence, the challenge for individual firms is to define and build brands that can succeed in this new era. They must not only meet the new standards set by demanding audiences, but must be properly differentiated against competitors. Following industry standards and being one of the crowd is just a route to extinction.
In order to win commitment from employees, clients, partners and suppliers, and the ‘licence to operate’ from society generally, all brands need to establish a clear positioning. People need to understand what the firm is all about, what it stands for and where it is going. The more of the picture they can see, the greater their willingness to give their support, and the more likely they are to extend their benefit of the doubt.
This brand ‘story’ can create the desired behaviour in staff and set a company apart from competitors – but only if the story is different and inspiring for all those involved with the brand.
Currently there appears to be little clarity, differentiation or inspiration in the sector. Just think of a few firms and ask yourself whether you know what they are all about, what they stand for and where they are going.
Too many firms focus on a long list of characteristics that are now only a minimum standard.
They then believe they have done the positioning job by simply communicating those words to internal and external audiences. Words like ‘integrity’ and ‘respect’ create no differentiation, and a focus on ‘innovation’ may be inappropriate for a sector now looking more for responsibility and reliability.
It should perhaps be disconcerting to find that at least one other of the Big Five has a range of values that run pretty close to those of Andersen.
In the past, trust has been something that many firms have taken for granted. Self-serving statements such as ‘we are trustworthy and honourable’ appear in too many places. But in business today, not just for the accountancy profession, earning trust is something that has to be carefully managed, with real commitment and leadership from the top of the organisation.
The existence of trust, or lack of it, has to be registered by the target audiences – not by the firm itself. Trust is earned through knowledge and experience and firms need to ensure that they are communicating their story effectively, as well as delivering the desired experiences to those with whom they are working. To succeed in this task firms need to focus on three factors – empathy, honesty and consistency.
With a full knowledge and understanding of the implications and actions required to deliver on each of these factors, firms have a chance of making trust a reality. But trust can’t be earned easily and won’t be achieved by words alone.
The industry has reached a watershed. The challenges for the industry are greater than ever before and success criteria for the participating firms are going to be more different than ever before. The most successful will master the differentiation and management of their brands. However this will be a particular challenge for the firms who are courting the various parts of the unencumbered Andersen empire.