Accountant’s firms
The major firms, which were partnerships with unlimited liability, have been on top for a long time. The number of firms has fallen from 3880 in 1928 and 8711 in 1978 due to mergers. These led decline of medium sized firms and growth of big boys. There has been a increase in market concentration. Top 10 accountancy firms had 23% of audits in 1928, 31% in 1968, but 51% by 1978 and about 80% now.
The firms started off mainly doing insolvency, but then grew, as we have said, due to the growth in audit business which until recently was 60-75% of the accountancy firms’ earnings. Recently there has been the growth in consultancy and taxation work.
Firms now operate on global scale via mergers with US and European firms e.g. PricewaterhouseCoopers, Ernst and Young, KPMG, Touche Ross.
A major controversy surrounds the role of accountants as auditors and their patent failure to detect fraud in companies like BCCI, Polly Peck and Robert Maxwell. Accountants argue that an audit is not designed to detect fraud but only to say if the accounts present a 'true and fair view'. Debatable. Is clear that accountants have failed to detect problems with take-overs. e.g. allowed the take over of an American company by Ferranti in 1989 on the basis of fictitious contracts from bogus clients. and this led to the demise of Ferranti and an independent company.
Growth of accountants in business
Originally outlawed by ICAEW, from the 1st world war accountants increasingly left practice to work for industry: 3% accountants worked in business in 1911, 49% 1951, 64% 1991. They were mainly employed in the financial function of companies, surprisingly little in management accounting or in general management.
But accountants have also risen into top management in increasing numbers. Note the growth in the % who were chairmen, MDs, secretaries and directors; and % of companies that had an accountant on the board. More so than any other profession. Also note the preponderance of chartered accountants. Company boards became more professional generally in the 1950s but the accountants were the most successful due to the rise of the Financial Director. There were very few in 1951 but most companies had FDs by 1970. But the increase in the % of companies with accountant directors was not primarily due to the increased number of FDs because other non-FD accountants were also numerous.
Two questions arise:
Why has the accountant risen to play such a prominent part in management in Britain?
- accountants are self selected as well educated, middle class etc
- exams mean accountancy is more a meritocracy than other areas of management in Britain
- accountancy is a good management training
- auditors experience wide variety of companies in terms of size and sectors: industries from banks to multinational manufacturers, from corner shops to road haulage firms
- auditors need to understand the business being audited
- auditing teaches objectivity
- it also teaches negotiating skills
- auditors can see all client’s secrets
- help both set up companies and close them down
- no other management training in Britain until 1950s and 1960s
Has the rise of accountants in top management been a good or a bad thing for the performance of British companies and therefore the British economy?
This is an interesting question but one which is of course impossible to answer conclusively.
Some writers, like Stacey (1954), have seen the trend to more accountants in management as beneficial, but perhaps most of those engaged in this debate have argued the reverse. In Britain, the President of the Board of Trade, Michael Heseltine (an aspiring accountant at an early stage in his career), in a speech to the Institute of Directors 1993, suggested that, by comparison with the position in Germany and Japan, accountants play too prominent a role in British management
It has been suggested that the participation of accountants in management has led to a:
1. 'penny-pinching negative approach', excessive caution and an unwillingness to take risks, audit training teaches caution and prudence is a principal of accounting. Anthony Sampson has detailed examples where projects have been scotched by accountants as too risky, but it is impossible to tell (a) how common this is and (b) whether or not this was sound advice.
2. too great an emphasis on 'the bottom line', and to the need for investment to show a quick profit - short-termism. It is true that Hanson Trust had in the 1990s 9 accountants on its board of 20 and an acquisition for Hanson must have made profit in one year and pay for itself in four years. It is also clear that Hanson a non-accountant was the driving force behind this policy.
3. Accountants have been accused of promoting holding companies in the interwar period, which have been criticised by Chandler as allowing the continued influence of the family firm as opposed to the divisionalised corporation. True accountants like James Jolly at GKN did believe in the holding company form. Some holding companies were highly successful e.g. Beechams. Also there is often little difference between the holding company and a divisionalised firm which gives a great deal of autonomy to the divisions, like the highly successful GEC under Arnold Weinstock.
4. Neglect technology and see problems and solutions in narrow financial terms
But:
Accountants do have many success stories as managers. e.g.
D’Arcy Cooper at Unilever
Webster Jenkinson at Vickers in the 1920s and 1930s
Basil Smallpiece at BAOC and Cunard in the 1940s and 1950s
They do value R&D e.g.
Sir Paul Girolami at Glaxo in the 1970s and 1980s developed Zantac as cure for ulcers
Sir Ernest Harrison head of Racal developed cellular phones and set up Vodaphone.
Evidence by R. Barry et al, who surveyed managers at the top of a range of companies in the early 1990s, shows accountant managers have the best record of using new technology.
Some accountants have made successful entrepreneurs and show no sign of the alleged caution e.g
John Ellerman who build up his shipping line at the end of the 19th century and became possible the richest industrialist in British history.
Also Nigel Rudd of Williams Holdings in the 1980s. Accountants that ran steel companies in 1930s invested heavily in latest technology.
Barry Hearns the boxing and sporting promoter.
