Why is there resistance to change in accountancy?

Why is there resistance to change in accountancy?

If the recent tensions in the Grant Thornton hierarchy have conveyed anything to the wider industry, is it that change is an essential focus for firms going forward?

Sacha Romanovitch’s character profile on the Grant Thornton website states: “My real passion is enabling others to meet their potential, which has led me to become a qualified coach; to champion our firm’s ground-breaking apprentice programme; and to challenge the norm on views regarding diversity.”

Three years on from being appointed the only female CEO of a top six accountancy firm, Romanovitch will be officially leaving on Friday 14 December.

This was reportedly the result of discord brewing between Romanovitch and Grant Thornton’s partners. Over the 3 years in which she presided as CEO, it was revealed in an anonymous memo leaked to the press that there had been acute dissatisfaction felt in response to her “socialist agenda” by a group of partners. According to The Financial Times: “Average pay per partner fell to £365,000 under Ms Romanovitch’s tenure – below 2014 levels. Meanwhile, those at its closest rival BDO nearly doubled to £531,000.” Later figures provided by Grant Thornton have shown that this has risen to an average of £407,000. However, there is still a notable difference between Grant Thornton and BDO partner remuneration.

Grant Thornton’s profits before tax fell by 12% in the first year of Romanovitch’s tenure to £72m; but did rise by 8% in the following year (£78m). Nonetheless, it cannot be said that Romanovitch did not encourage acceptance of change—she led by example; Romanovitch capped her own remuneration at 20 times the firm’s average.

Romanovitch’s influence undoubtedly had a massively positive effect on Grant Thornton’s brand and identity in this area; they are now considered to be perhaps the most advanced in social mobility.

It is interesting to consider how a CEO, who was reportedly very popular among her staff (in 2017, she received an approval rating of 88%), had a more disruptive relationship with some of her partners—enough so that targeted action was taken to force her resignation. This situation is a very public example of change versus hierarchical cohesion in the industry. Although, both publicly and in the long-term, it proved to be the best move for Grant Thornton, it has also shown that there is much that is still needed to be done to develop an established ‘future firm’ model.

This was not a decision made by all of Grant Thornton’s partners, but rather an estimated 15 who have chosen to remain anonymous. In three years, the amount of change Romanovitch implemented clearly led to such discord that this was deemed necessary by the anonymous few. Nonetheless, many partners did support Romanovitch’s changes, even if they did cause loss of revenue in the short-term.

However, Grant Thornton has since announced that 45-year-old David Dunckley will be replacing Romanovitch as CEO when she steps down.

In a statement, Grant Thornton said: “Dave began his career at Grant Thornton in 1998. His most recent role was on the Strategic Leadership Team, with responsibility for growing the firm’s presence in London with mid-market businesses. These currently represent around 60% of the firm’s clients, with Grant Thornton acquiring more mid-market customers in 2017-18 than any previous year. Prior to this, he led the Transactions Advisory business in London.”

Dunckley has confirmed that he wishes to continue leading Grant Thornton with a “clear social conscience” alongside commercial growth. He will also be maintaining the firm’s Shared Enterprise approach, something that is still considered to be unique in the professional services sector. It is “[built] on the fundamental premise that, if people share their ideas and take responsibility for delivering on them, the firm will grow, and they will have a share in the superior profits generated.”

In Grant Thornton’s official statement, Ed Warner, chair of the board, said: “Over the past few years, Grant Thornton has established a distinctive position in the market, attracting great people to our firm because of what we stand for. Dave’s appointment puts Grant Thornton in the best possible position to capitalise on these foundations, helping the firm to grow substantially. I look forward to working with him to map out the next phase of our future.”

Although Dunckley’s appointment may be a step backwards when considering that the top six accountancy firms in the UK once again have an all-male group fronting them, it is a huge positive that he aims to honour Romanovitch’s legacy.

Dunckley’s appointment could perhaps be the compromise that Grant Thornton currently needs to stabilise the firm. It could satisfy the anonymous partners who have objected to changes already made, as well as upholding the new values Romanovitch introduced to bring the firm into the 21st century.

Why is there resistance?

Recent events between Sacha Romanovitch and a few of the Grant Thornton partners is a reminder of a topic that has been circulating in the accountancy world over the last few years—the importance of change in modern day firms. So why is there a resistance to a lot of change in accountancy?

Accountancy is a naturally risk-averse business; moving away from previous societal norms and being expected to embrace and implement a shift in societal, cultural, technological, and practical thought processes has proven to be a slow process in the financial sector.

When asked about his opinions on how best to implement change in the accountancy industry, Andrew Sullivan – director at Numbers UK Ltd – replied that “there needs to be a clear understanding at the management level of how the changes will be interpreted by the team(s) that the changes will affect. Taking a step back and thinking how you would interpret the change if your roles were reversed can be very useful, as it can allow you to have answers ready to various questions, prior to rolling out the change. Or it can give you the opportunity to revise your strategy prior to implementation. Once the change is made, it’s very hard to make amendments without people fearing that the original decision was not correctly thought about.”

However, it must be said that firms are embracing the need to push forward in these areas. Firms are regularly releasing reports showing their gender and ethical pay gaps. They are establishing mental health support in the workplace, introducing wider apprenticeship schemes, and being far more transparent when outlining what steps they still need to take.

This is all positive progress, but it is taking the financial sector, as a whole, far longer to implement change than other sectors. More needs to be done to make sure change continues across the industry.

What is changing?

The Institute of Chartered Accountants in England and Wales (ICAEW) released a report looking into the future of accountancy as a whole: Navigating the Future: Resources for Reimagining the Firm.

The report stated that “monolithic teams, confined by bricks and mortar workplaces, are a legacy of history.”

Change is already very present in the industry, even though the professional services sector has a far more conservative foundation. According to ICAEW’s report, this conservative stability has “contributed to maintaining reliable, legal, and trusted business environments in which companies and other institutions can cooperate and trade freely.”

Stability in the financial sector is one of the most important consistencies every business attempts to maintain, especially in the face of uncertainty. It is understandable from this perspective, then, why resistance to too much change occurs in this industry.

However, companies in this industry are increasingly at risk of being “cumbersome and bureaucratic”, thus changes become more time-consuming and expensive to deploy—especially if a company has international status. For firms such as the top ten, it is unsurprising that change has been more gradually phased in.

The report continued: “Many of the structures, practices, and processes that made firms reliable and created barriers to entry or competitive advantage are now holding them back.”

We have seen change in accountancy firms, despite the enhanced difficulties the industry may have when compared to other sectors. For example, PwC has introduced flexible working hours, and it is likely that other firms will be following suit.

“The rise of social business tools, collaboration, and knowledge sharing platforms have begun to change this way of working over the past decade, but the bureaucratic operating system is so central to the functioning of most organisations that it persists even when most participants agree it makes little sense,” the ICAEW report concluded.

Accountancy needs a future focus: technology, the client, and the employee

“Too often, predictions for the future of the firm over-emphasise a single dimension, such as technology or culture, at the expense of the other aspects of what makes a firm,” ICAEW stated in Navigating the Future.

It is incredibly difficult to pinpoint the exact area of all-encompassing change in an industry that “spans a multitude of sole traders and small firms, to 200,000 people behemoths.” Because of this, it is unlikely that there will be a single solution to the age-old problem of encouraging change in accountancy.

The development of technology and the use of automation to undertake the more menial, repetitive tasks is an area that has dominated discussions on change in accountancy. Concerns were raised that the implementation of something like automation could result in a loss of jobs.

Since then, however, the discussion has changed and the idea of “re-skilling” has become the more acceptable summation of the influence technological developments will have on industry.

“The most important intersection of dimensions is the relationship between technology and people, notably around the question of how the impact of technology will change types of people the firm needs and also the work they do,” the ICAEW report said. “Other important intersections are the impact of technology on governance (and vice versa) and on the culture of the firm. There was a consensus that technology will also change the nature and form of services that firms provide.”

The younger generations – such as GenZ – moving into the workplace will likely go hand in hand with re-skilling. As a generation that has grown up alongside technological innovation, a change of this nature is far less likely to be rejected by them than older generations.

Furthermore, the way of work itself is changing. Traditional 9-to-5 hours are becoming a thing of the past as the younger generations move into the world of full-time employment. With the introduction of technology, it is now far easier for employees to work remotely and flexibly.

According to ICAEW’s report, some commentators believe that “the professions will continue, but working in tandem with automation and machines, implying that there will be fewer professionals who focus on high value-added activities that firms and the people who make them up will continue to need.”

Business must always respond to the needs of their market, or their clientele. It is undeniable that the client is also changing, “both in terms of how they select and buy services, how they want to experience them, and also the business problems they need help solving.”

Cultural change one of the driving forces of the future firm

As workforces across all industries are now moving to accommodate 4 very different generations, the importance of providing equal opportunities for everyone is more vital than ever.

Annual reports from most firms now include statistics such as ethical and gender pay gaps – public transparency going a long way to prompting change. Firms need to continue to allow for open discussions and insights as to how to ensure the financial industry remains as open and inclusive as possible.

ICAEW’s report points out that, “as the firms become more diverse in their recruitment processes, become more global and take on new responsibilities, it is important to think about how these might impact the professional ethos and values that shape the culture within a practice.”

For firms to modernise and adapt to new open models, they must continue to make a concerted effort to consider cultural inclusion beyond mission statements or statistics. By engaging with their employees openly and honestly, and considering all suggestions from every level within the organisation, this will be more likely to “promote genuine motivation in staff” – an essential factor for firm cohesion.

The beginning of the end for the traditional partner structure?

A notable consideration is whether the partnership structure that currently exists in accountancy will stand the test of time.

Conversations in industry have revealed that the partnership hierarchy does, in many ways, inhibit the cultural growth that needs to occur beyond these individuals. The short-term aspirations and goals of those in these senior positions may not always coexist peaceably with wider long-term goals for change that firms try to implement.

So, what’s next?

Accountancy is the backbone of UK governance, compliance, and financial understanding. As such, there is a responsibility to remain transparent and to reflect the aspirations of the society it exists in.

“Having core values that are shared by staff and who have similar ambitions and vision for the future of the firm is critical,” ICAEW’s report concluded.

Firms that lack cohesion, or that resist practical and entirely necessary changes, run the risk of being left behind by those that have fully embraced the new realms of work.

 

This is the first in our brand new feature length series: Tackling the Hot Topics from a Unique Angle. Follow us on Twitter (@AccountancyAge) and LinkedIn (Accountancy Age Group) to keep up to date with the latest content and to get involved in the discussion.

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