Why current scrutiny of the Big Four is a vital reminder of the need to reinforce purpose
It has been a tough year from a reputation perspective for the Big Four accountancy firms. The collapse of Carillion has led investors, unpaid suppliers and the Government to question KPMG’s audit capability. In June, the Financial Reporting Council imposed a six figure fine on PwC for failing to raise concerns around BHS one year before its collapse. In The Big Flaw: Auditing in Crisis, the Financial Times’ Jonathan Ford and Madison Marriage concluded that too often accounts are designed to be useful to users, i.e. investors and executive teams, rather than an objectively prudent view of performance and financial health. The Guardian has even suggested nationalisation of the auditing process.
Combined, Deloitte, PwC, KPMG and EY audit the whole of the FTSE 100 and earned $134.3bn in 2017. The Wall Street Journal reported global revenue from consulting and advisory work alone rose by 44% in 2017 compared with just 3% growth from auditing. Somewhere along the line the commercial purpose of these firms has deviated from their professional and societal purpose as audit providers.
According to the International Forum of Independent Audit Regulators, accounting lapses were identified in 367 out of 918 audits of listed public interest entities inspected last year. It has been suggested that client relationships and providing ‘what people wanted to hear’ from the audit is too often prized over using it to hold the business to account to drive change and improvement. The question is: how can these firms hold clients to account for financial failings if they have more to gain by selling advice and services?
PwC stated purpose is ‘to build trust in society and solve important problems’ and KPMG’s is to ‘Inspire Confidence. Empower Change.’ Both bold statements talk to a big role as leaders in business and society, with the responsibility to set standards. The intelligence gathered through the audit process puts the Big Four in a strong position to provide advice on where and how their clients can grow. But if their primary focus is to build trust in society or inspire confidence then they must maintain a steely focus on performing robust audits and being prepared to challenge management teams on performance. Living the purpose is key.
Reminding employees of brand purpose and core principles requires consistent dialogue throughout an organisation. New recruits and junior employees can provide fresh thinking on how purpose is lived just as management teams and long-term employees can demonstrate the difference it makes.
We work with firms across the professional services, technology and business service sectors to help them define and articulate their purpose. This thoughtful narrative work is one of my favourite parts of the job. But all too often our research, workshopping and creative work is put into a Play Book or a Messaging Document shared amongst the senior client team but not cascaded effectively to employees and new recruits. Articulating purpose is just the start. To succeed it needs a regular pulse check, perhaps not every week ala the Scout Promise ‘On my honour, I promise…’ or even monthly but certainly on a quarterly basis. Every organisation should spare a moment in executive, departmental and team meetings to evaluate what they’ve done to exemplify brand purpose and more importantly, what they plan to do next.
Key questions to ask include: Have we lived up to our promise? Is this the best we can do? Does this fulfil our purpose? The best activities need to be shared and celebrated and inertia needs to be scrutinised. Simon Sinek offers clear and compelling advice in his 2009 seminal work Start With Why? If the why is to build trust in society and inspire confidence then being rigorous, ruthlessly objective and prepared to have the difficult conversations is the how and must be central to the auditing process that these firms deliver.
How can an organisation prevent founding principles and purpose being diluted through expansion? Does adherence to purpose fade as a company grows into new markets and sectors and the cohesivity of the business weakens? It’s inevitably harder to galvanise a global team of thousands around key values and codes of conduct but organisations must maintain a focus on what they’re in business to do and implement creative approaches to keep this promise and purpose alive.
The Big Four will likely survive this reputational knock but not without bruising encounters with regulators, the media and influencers. Nationalisation is very unlikely but regulation that enforces a clearer if not total separation of audit from consulting services could be the outcome. Echo Research has proven that operational issues have a longer reputational impact than other types of scandal. Perhaps if purpose is cascaded effectively throughout an organisation, staff can spot and challenge behaviour that strays from the corporate promise.
In July I attended the excellent Global Reputation Forum where Philippa Foster Back from the Institute of Business Ethics defined business ethics as what you do when no one is looking. It’s a useful lens when reviewing the pivotal role ethics, purpose, principles play in business. Keeping them fresh and relevant to an expanding workforce is challenging. Hiring the right people to adhere to your principles, being clear on these principles from the start and regularly finding inspiring ways to remind and reinforce purpose is crucial to long term success.
By Harriet Rich, Managing Director, Corporate & Business Communications