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How to change a business

In a rapidly shifting, complex environment, businesses need to be agile, flexible, and open to change.

But, asks Alison Coleman, how can traditionally risk-averse firms embrace innovation while also protecting the qualities that make them trusted auditors and advisers?

Changing the culture of an organisation is one of the greatest tests of leadership. While it’s true that a firm’s culture evolves naturally over time, shaped by new people joining the firm, new services being offered, new regulations, and even new technology, there are times when disruptions, both internal and external, force leaders to reconsider their business models and bring about a change of culture to reflect a new direction.

The key to a successful culture change lies in having a compelling reason for the change. It may be that the firm is losing talent, or clients, or both. It could be failing to achieve the desired business outcomes, and the strategy may require a different way of thinking.

Whatever the reason, the leader must believe in it, have the courage to make some difficult decisions, and advocate for others to join them on the journey. Kim Schmidt, global leader – leadership, people and culture at Grant Thornton International, says: “Leaders are increasingly aware of the importance of culture on performance, and use culture specific language as part of their strategy, with terms such as transformation, innovation, client-centred, etc. Culture change works best when leaders are passionate, clear, and consistent, while communicating key messages and modelling the behaviours they want to see exhibited in their organisation. When communicated with transparency, your people become advocates, as long as obstacles are removed.”

Nevertheless, human nature being what it is, some internal resistance to change is inevitable. The biggest barriers are largely psychological. Adversity to change is rooted in the need for emotional safety which all humans share. Creating a cohesive team cultivates a ‘safety in numbers’ feeling that lets individuals more readily accept decisions that affect the group. Because accounting relies more stringently on rules than most other business sectors, change can potentially produce more anxiety among the workforce.

In addition, many accountancy firms are still very traditional in terms of partnership structures and resistance to change can also come from senior partners mindful of protecting their position. Chris Dyer, founder of PeopleG2 and author of The Power of Company Culture, believes that at senior level, fear of change is about a desire to avoid regret.

He says: “No one wants to be responsible for a new initiative that fails. This is the underlying psychological driver that keeps us repeating the same actions and avoiding innovation and change. Realistically dealing with mistakes, using them as a chance to pivot, will allow senior partners to own both successes and failures. Employees respect that. It frees them to embrace change, knowing that if it doesn’t work out, they can try again.”

Others suggest that the difficulties of getting partner buy-in to change are due to the partnership model itself. Colin Abercrombie, a former partner at French Duncan LLP in Glasgow, says: “The partnership model is not an ideal vehicle for any forward thinking commercial organisation. The modern practice must create a commercial board to focus on the long-term strategic objectives of the firm as a commercial concern, regardless of the short-term impact on individuals’ earnings.

“The danger of unmonitored access to, and use of, company resources to service a declining earnings quality from traditional compliance based activity should not be allowed to inhibit any vision for the modernisation of the business. In short, the firm should not be afraid to walk away from current revenue streams for the longer-term benefit of the business.”

However he sees the real issue with most partnerships as one of apathy as opposed to resistance, citing the challenges of articulating a clear benefit of any change to every single partner. “To achieve real change, a background plan must be agreed at board level,” he says.

“Rather than communicating it in its full form, it should be broken down into small clear steps that can be swiftly and easily implemented. The key is to have a clear and detailed plan, assign a senior board member to implement and stay focused and disciplined in the implementation phase, especially when faced with open resistance from stakeholders.”

Responsibility ultimately lies with the leader, and when internal resistance to a cultural shift is so great it can cost them dear. Sacha Romanovitch’s exit from her role as CEO at Grant Thornton last year was a case in point. The first female boss of a major UK accountancy firm, she stepped down following criticism from colleagues for what they perceived to be a ‘socialist agenda’, which included capping her own pay at 20-times the firm’s average and introducing a profit-sharing scheme for all members of staff. Standard practice is to share profits only among equity partners.

Clive Stevens, president of the ICAEW South East District Society and currently chair of ICAEW’s Members and Commercial Board, says: “Successful cultural change depends on how a leader deals with the politics, and how personal they are with each of the political groupings within the partnership.”

Moving on

Having overseen a successful culture change, leaders also need to know when it’s time to step down, something that even the most successful struggle with, says Schmidt. “Most leaders produce impactful ideas within their first five to seven years in a role, and this is not to say leaders lose their edge after that, but it does depend on the person and their style. In an environment where so much is changing, a fresh leadership approach with new ideas and messages can certainly propel an organisation forward quickly.”

Stevens has been through that very experience, having transitioned from the role of managing partner at accountancy firm Kreston Reeves LLP, which he held for 20 years, to that of executive chairman four years ago. During his time in the top role he oversaw significant cultural change, as his firm also made a successful transition from a traditional chartered accountancy practice only employing accountants, to one that employs lawyers, HR people, and business planners, all with their own individual cultures.

“Succession is key. If somebody is in the top role for a long time it can block a position and doesn’t actually encourage leadership skills in the next generation,” says Stevens. “When I stepped down, we had put succession in place, and our current managing partner has been running the firm for the last four years. Things are going very well.

“I’d suggest there is an optimum time frame for leadership, with people possibly voted in for terms of three years, and after three terms stepping down. People staying around forever is not healthy, and part of your obligation as a leader is to help train and develop the next generation. Personally I’d rather leave the stage when people are still cheering than have to be forced out.”

Learning lessons

Organisational culture change is happening across all industries, and by looking at how it is being done elsewhere, for example, in the agile technology sector, accountancy firms could learn some valuable lessons, as Ross Timms, head of strategy at brand experience company Rufus Leonard, explains: “When you look at famous brands like Apple and Microsoft you can see how culture change is an essential element of their long-term survival. In spite of differences in how they’ve achieved success, both companies look to their core brand to inspire and lead business transformation, and accountants can learn a lot from them.”

However, an accountancy firm’s biggest assets aren’t pieces of software or buildings, but people. Moving an organisation with such complex assets forward requires ‘warning’ and ‘buy-in’. “Employees join a business because they believe in what that business does,” Timms says.

“If transformation veers too far from the company’s brand, employees will be resistant to change. What both Apple and Microsoft illustrate is that cultural transformation comes from what makes the brand unique and from gaining buy-in, ideas that hold true for accountancy as much as for tech firms.”

But as Schmidt points out, many accounting firms are, by their nature, risk averse, cautious, and traditional in their approach. She says: “Becoming more agile and responsible to change is important, but when it comes to culture, accounting firms have to work against their traditional and conservative personalities. The tech industry, while successful and quick to market, can be prone to the ‘wrong’ culture due to size and very fast growth.”

If they are to bring about a successful culture change, accountancy firms need to be transparent about the motivation and goals for change, and ensure that communication of this is on a company-wide basis to bring everyone on board. “There will always be those who resist, so enlist champions of the idea in your organisation,” adds Dyer.

“These advocates have a passion and energy that will help them guide others who are unsure. As the leader, your objective should be to create a clear understanding across all departments of where you want your culture to go.”

Originally published in Economia on 2 May 2019.