Important competences to become a partner of a Dutch Multidisciplinary Practice – And an analysis how auditors perceive the development of these competences
Name: Jason Weites
Student number: S2364824
Address: Benningweg 2, Harkstede 9617BG Email: j.p.weites@student.rug.nl
Phone number: 06-58840411 Supervisor: S. Girdhar
Abstract
During the latter 20th century, accounting firms started to change and provided services other than the traditional audit services. The accounting firms became even increasingly reliant on these new provided services to realize growth and generate revenue. The contribution of new provided services shaped action of logics within these firms. Commercialism competed professionalism to gain dominance in the field. This shift resulted in different required partner competences. The shift from commercialism have been well-documented already. However, a research towards which specific competences are required to become a partner haven’t been conducted yet. Also, there has no research been conducted how partners perceive the development of these competences. Auditors as a member of an accounting firm are able to shape action of logics and thereby, realize organization change. Therefore, this research tries to explore the following. At first, this research tries to explore which specific competences are important to become a partner of a Dutch firm that provides multidisciplinary practices. Secondly, this research tries to explore how auditors perceive the development of these competences. Institutional logic is used as a centralized concept in this research. The research is explorative and therefore, held qualitative. The inductive content analysis is used as research method. During the research, evidence has been found that professionalism became more important in Dutch MDP’s recent years. The researcher found that technical competences, business competences, and leadership competences are determined as 3 key competences to become a partner of a Dutch MDP. The results also imply that, professionalism, and commercialism are still challenging within accounting firms. Auditors perceive this challenge because it influences human and organizational behavior. Dutch auditors perceived the pressure of the AFM and found it difficult to improve their quality. Nowadays, auditors are gradually satisfied with the improvement of their provided services towards clients. Thereby, professionalism and commercialism will stay challenging in the future to gain dominance in the field.
1 Table of Contents
1. Introduction ... 2
2. Theoretical framework ... 6
2.1. Defining institutional logics ... 6
2.2. Development of institutional logics ... 7
2.3. Multiple competing logics within accounting firms ... 8
2.4. Human behavior ... 9
3. Research methodology ... 10
4. Results ... 12
4.1. Important competences to become a partner of a Dutch MDP ... 12
4.2. How auditors perceive the development of these competences ... 18
5. Discussion and conclusions ... 22
6. References ... 26
7. Apendices ... 30
2 1. Introduction
In the past, accounting firms were classified as professional service firms, that provides the highest degree of professional service intensity and reflects the classic view of the profession that includes ideology and self-regulation (von Nordenflyght, 2010). These firms were very knowledge intensive and therefore, the leaders of this profession, the so-called “partners”, were mainly auditors with a lot of experience in auditing. During the latter 20th century and in the beginning of the 21th century, firms grew increasingly on a global scale. The expanding business of accounting firms’ clients together with the maturation of the audit market created growth in both scale and scope for the accounting firms (Boyd, 1999). The rapid expansion of accounting firms leads into an increasingly reliability on multinational clients whereas the traditional provided audit services are being used as an economic loss leader to sell the more lucrative consulting services and a world where audit managers felt pressure to meet the profit levels of consultants (Wyatt, 2004). Thus, the accounting firms grew in size and expanded the services they were offering to clients as well. The expansion of provided services by accounting firms related into new forms of professional service firms that distinct from the old professional service firm. Greenwood and Suddaby (2006) introduced a new organizational form, the Multidisciplinary Practice (MDP). This organizational form provides several professions such as accounting and consulting, or sometimes even law. Consulting and other examples of extra provided services by accounting firms are not part of a state regulated profession and therefore, these new professional service firms have an absence of clear defined status for professionals employed (Von Nordenflyght, 2010). Despite the lack of a clear defined status, accounting firms challenged and pioneered this new organizational form (Greenwood et al., 2002). The new accounting firms are using specialized knowledge of professionals to create customized client solutions and are recognized by client and competitors as professionals (Empson et al., 2015). Greenwood et al. (2005) acknowledged that there are many definitions for professional service firms. All these professional service firms are determined as knowledge intensive firms, whereas knowledge is the most important input. Performed work is done by high classified employees whereas the output is the intangible complex knowledge. This new organizational form differs from the old form in respect that these new accounting firms provides several other services to generate revenue whereas the old accounting firms provided mainly audit services.
Researchers (Faulconbridge and Muzio, 2008; Suddaby, Cooper and Greenwood, 2007) determined that accounting firms and their provided services are in a state of institutional flux
3 during the latter 20th century. Through this shift, other provided services by accounting firms increased and became more important. Regardless that services e.g. consulting do not meet the requirements as a state regulated profession, the accounting firms became even increasingly reliant on the new provided services to gain revenue and realize growth (Suddaby et al., 2007). Therefore, technical expertise was no longer the key to the top of an accounting firm instead, selling new services or cross-selling audit services became more important (Wyatt, 2004). Greenwood and Suddaby (2006) contributes to this view and state that firms that are offering multidisciplinary practices already shifted their preference and promoted partners based on their commercial competences instead of their technical competences. The organizational change of accounting firms in the latter 20th century created notion for new requirements for the partners of these professional service firms. Many research has been conducted towards the shift from technical competences into business competences to become successful within an accounting firm and is well-documented already (see e.g. Anderson-Gough et al., 2000; Carter and Spence, 2014; Carnegie and Napier, 2010; Greenwood and Suddaby, 2006; Hanlon et al., 1994; Malsch and Gendron, 2013; Suddaby et al., 2007; Wyatt, 2004). Regardless this area is well-documented, many of these studies have been conducted in Anglo-Saxion countries e.g. Canada, the UK, the US, and none of these studies tries to explore which specific competences are important to become a partner of an accounting firm. This implies an unexplored area towards important competences to become a partner of an accounting firm nowadays, especially in non-Anglo-Saxion countries. Therefore, it is important to study which specific partner competences are determined as important. This research will be conducted in the Netherlands and therefore, only auditors of Big 4 accounting firms in the Netherlands will be used in the analysis. The accounting profession in the Netherlands is highly subjected to a regulative body, the AFM. The AFM concluded that statutory audits performed by ‘Big 4’ audit firms in the Netherlands was not up to standard and published very critical reports in 2010 and 2014. It seems that this development has taken a battering on accounting firms in the Netherlands and maybe even towards some requirements within the Big-4 firms. Therefore, the conditions for the accounting professions in the Netherlands differs from Anglo-Saxion countries and may even differ from other non-Anglo-Saxion. However, which specific competences are perceived as important by auditors to become a partner of an accounting firm is not determined yet. Therefore, this research tries to explore which specific competences are determined as important to become a partner of a Dutch accounting firm. This research uses Big-4 auditors in the Netherlands to analyze these competences. Accounting firms are classified as firms that offers multidisciplinary practices (MDP) to serve their client. This leads into the following research question.
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“Which competences are important to become a partner of a Dutch MDP?”
After analyzing which competences are determined as important to become a partner of a Dutch MDP by Dutch auditors, this research also tries to explore how auditors perceive the development of these competences. The shift from the old accounting firms into firms that provides multidisciplinary practices created notion for new partner competences. Carter & Spence (2014) developed a qualitative research what aims to explore the meaning of success within the Big 4 who makes partner. They found that partners embody entrepreneurialism rather than they embody technical expertise and that different requirements are needed to become a partner of an accounting firm than the past. Carter and Spence (2014) concluded that central distinguishing features of partners are tied to commercialism instead of professionalism. Besides this, Hanlon (1996) mentioned that managers at senior level and above are increasingly evaluated on commercialism. Anderson-Gough et al. (2000) determine that the enhanced commercialism within the multidisciplinary practice firms emphasizes technical competences and professional ethics within these firms. Technical competences and professional ethics are based on values such as objectivity, independence, and integrity, whereas the focus lies on quality and the protection of public interest. These values are assumed to prevail over commercialism (Suddaby et al., 2009; Wyatt, 2004). In contradiction to senior-managers, partners are defined as the leaders of the profession who reached the top of the echelon and achieved the highest status and receive undoubted financial rewards (Carter and Spence, 2014). Leadership can be defined as an interaction between two or more members of a group that involves a structuring of the situation and the expectation and perceptions of the members (Bass, 1990b). Thereby, audit partners modify the motivation and competences of other auditors. Senior-managers perceive the pressure from the accounting firms to develop business competences if they want to make it to the top of the echelon in accounting firms. Therefore, auditors’ perception of required competences influences their behavior and eventually the way they act. When auditors are acting commercial driven to meet the desire of the accounting firms, this behavior will challenge the auditors’ professionalism. However, Arnold and Ponemon (1991) suggest that auditors have learned to balance moral principles with the expectations and rules of the profession, the organization and society. Thereby, auditors should be able to manage their professionalism and keep in mind the cornerstone values of auditing and provide their work with sufficient quality. Above suggest that accounting firms prefer to select a partner based on their business competences instead of their technical competences and that this shift enhance the partners’ professionalism. The shift of the preference of accounting firms to promote partners based on their commercialism rather than their professionalism is well-documented. However, the way
5 how auditors perceive the shift and development of these competences did not receive attention till so far. This implies an unexplored area on how partners perceive the challenge between commercialism and professionalism and the development of the underlying competences. According to this, it is very interesting to analyze how auditors perceive pressure from accounting firms to develop certain competences to become a partner and whether they are capable to manage their professionalism. Therefore, this study also tries to explore how auditors perceive the development of the competences that are determined as important to become a partner of a Dutch MDP. This leads towards the following research question.
“How do auditors perceive the development of these competences?”
This paper proceeds as follows. At first, institutional logics is introduced as a theoretical framework to draw a view on key competences and to provide a clearer insight in the development of these competences. Subsequently, the research methodology is described in the next section. Hereafter, this paper explores results based on interviews undertaken during the data collection. At last, this research draws a conclusion and provides some suggestions for future research.
6 2. Theoretical framework
To determine which competences are required to become a partner of a Dutch MDP and how auditors perceive the development of these competences, it is necessary to determine how these perceptions arise and if these perceptions are representative for all partners of Big-4 MDP’s in the Netherlands. To determine this, the institutional logic theory being used as centralized concept in this research. At first, this theoretical framework defines institutional logics. Secondly, it provides insight into the development of institutional logics. At last, this theoretical framework provides insight in competing logics and how these competing logics influences human behavior. This theory will contribute to the understanding of required competences and how auditors perceive the development of these competences, by explaining the organizational change and the relating institutional pressure to the profession and the partners of a Dutch MDP.
2.1. Defining institutional logics
In the past, institutional logics have been defined by several researchers (Friedland and Alford, 1991; Thornton and Ocasio, 1999). More recently, Reay and Hinings (2009) state that institutional logics are “taken-for-granted rules that shapes behavior of field level actors.” Dunn and Jones (2010) define institutional logics as “the rules and cultural beliefs that shape cognitions and behaviors of actors.” At last, Thornton et al. (2012) define institutional logics as “socially constructed sets of material practices, assumptions, values, and beliefs that shape cognition and behavior.” In sum, institutional logics refers to the norms, values, and beliefs that structure behavior and cognition of actors that provides a collective insight in the way how rational decisions being made within organizations (DiMaggio, 1997; Jackall, 1988; Thornton, 2002). According to DiMaggio (1997), institutional logic is appealing for 3 reasons. Firstly, because there is interaction between extern rituals and stimuli and routine generating mental structures. Secondly, because institutional logics agrees with the vision that a culture shreds through potential inconsistent elements, without a limited coherence of thematization of clusters of rituals and schemes that appears in organizations. Thirdly, because institutional logics provides a way to discuss cultural conflicts as a result of inconsistent action of logics. Institutional logics tries to connect broader institutional fields with the problems of individuals and the feeling of self-esteem. Institutional logics consists of material practices and symbolic elements that collaborate to shape an institutional order. Friedland and Alford (1991) argued that it is not possible to understand individual and organizational behavior without locating it into a social context and thereby, they defined
7 several institutions of society. Thornton (2002) revised the defined central institutions of Friedland and Alford (1991), he defined the family, the state, the market, the corporations, religions, and the professions as central institutions of society. Thereby, he emphasized that structural, normative, and cognitive processes are three necessary and complementary dimensions. Professions, such as accounting or consulting, shape their own cultural symbols and material practices that aligns organizational principles. These organizational principles do not only give actors vocabularies of motive and self-sense, but also constraints behavior within the institution and provides a source of agency and change (Friedland and Alford, 1991). Organizations are part of a broader socially-constructed system. This also means that cognitive organization cultures are part of a broader socially cultural system and that organizations are subjected to values, norms, and beliefs of society (Hinings, 2012). The complex relationship between culture and social structure arise after the integration of micro-, macro-, cognitive-, and material perspectives. DiMaggio (1997) described these networks as crucial environments to activate and shape logics. According to Thornton and Ocasio (2008), the definitions of institutional logics all presuppose a core meta-theory. They state that organizational and individual behavior have to be located into a social and institutional context and regularize behavior and provide opportunity for agency and change to understand these behaviors.
2.2. Development of institutional logics
A broader insight in institutional logic theory will contribute to explain the meaningfulness of changed partner competences over time. The development of this theory consisted of two different approaches. The first approach is from a macro-perspective that Meyer and Rowan (1977) used in their research. They state that the “rationalization of taken-for-granted rules” leads to isomorphism and shapes formal structures within organizations. DiMaggio and Powel (1983) analyzed the field of isomorphism. They described coercive, mimetic, and normative as isomorphic processes whereby rational persons make their organizations more similar when they are trying to change and improve it. The second approach is from a micro-perspective of Zucker (1977). He emphasized that cultural persistence and “taken-for-granted rules” are determinants of the institutionalization of organizations. After this, Friedland and Alford (1991) introduced the term institutional logics and state that institutions have their own central logic that guides organizing principles, give actors vocabularies of motive and self-sense, this constraints behavior within the institution and provides a source of agency and change. This view of Friedland and Alford (1991) on institutional logics shapes differences between the macro-perspective of Meyer and Rowan (1977) and the micro-perspective of Zucker (1977). This view caused a focus on the effect of differentiated institutional logic on
8 individuals and organizations in a larger variety of contexts, and no longer on isomorphism (Thorton and Ocasio, 2008). Differences and contradictions in institutional logics could lead to institutional change and therefore, institutional logics has become a centralized concept in institutional theory (see e.g. Rao and Giorgi, 2006; Seo and Creed, 2002).
2.3. Multiple competing logics within accounting firms
Environments often possess multiple logics. Therefore, organizations reflecting these multiple logics within their structures and practices (Greenwood et al. 2011; Kraatz and Block, 2008). It is common that multiple logics are present within professional service firms, such as an accounting firm (Smets et al., 2012). The expansion of the accounting firms during the latter 20th century created notion for services like consulting and other services. These services became more important within accounting firms and shaped the commercialism logic besides the traditional professionalism logic. Thereby, multiple logics within accounting firms were born. Multiple logics within organizations could contest and conflict (Battilana and Dorado, 2010), co-exist (McPherson and Saunder, 2013), or blend (Binder, 2007). However, during the latter 20th century, professions within organizations mainly compete to gain dominance in the field of business (Besharov and Smith, 2014). Some organizations maintain multiple logics in societal and field-level pressures through balancing a productive tension, while some other organizations are unable to deal with and perceive intractable conflict between these logics (Battilana and Dorado, 2010). The competition for these logics resulted in a power struggle between the several professions and thereby, shaped action of logics within the accounting firms. Besharov and Smith (2014) used compatibility in their research to explain why differences in the relationship of multiple logics exist. They refer to Jones and Dunn (2007) who explain that professional institutions, like accounting and consulting, influenced the availability of members who carry logic and thereby, professional institution influence compatibility of multiple logics. They also refer to researchers (Abbot, 1988; Dunn and Jones, 2010), who explain that members of professional institutions are seeking for legitimacy to maintain jurisdictional control. Besharov and Smith (2014) note that professional institutions as multiple logics at field level are not compatible, unless one of the professions is highly dominant. This suggest that different professions like accounting and consulting are not compatible, unless one of the professions is highly dominant. Gendron (2002) contribute to this view. He shows that commercialism and professionalism have a complex interplay but rarely coexists as equals. One logic tends to dominate the other logic depending on the situation. One example of this is the client acceptance process. Gendron (2002) shows that aggressive focus on attracting new clients and winning contracts by accounting firms dominated and tensions the professionalism within the firm. This is in line with prior literature
9 of DiMaggio and Powel (1983) whereas they state that structured processes adapt the norms, values and beliefs that are the most present and dominant actors within the organization, which reflects the dominant logic within the field. Subsequently, these dominant logics shapes formal and informal rules of action, interaction, and interpretation, that determine and restrict the decision-making process of an individual (Thornton and Ocasio, 1999).
2.4. Human behavior
One underlying assumption of the institutional logics perspectives is not whether action and motivation are irrational or rational but instead, how the comparative conflict of institutional logics influences human and organizational behavior (Thornton, 2002). As mentioned in the introduction, the conflicting and comparative logics within accounting firms are commercialism, what refers to business competences, and professionalism, what refers to technical competences. The challenge between these logics influences the behavior of the auditors within accounting firms and thereby, also influences organizational behavior. Consulting and other value-adding services are commercial driven and implies a displacement of professionalism, or at least an amalgamation of professionalism with commercialism (see e.g. Covaleski et al., 1998; Hanlon, 1999). In contradiction, Goodwick and Reay (2011) developed a theory about how professional work can reflect multiple institutional logics by analyzing changes in the work of pharmacists over time. They showed that competing relationships coexist between multiple logics and allow for the simultaneous influence of multiple logics on professions and their work. However, how far this can be applicable for professional services such as accounting and consulting is unclear. The way how multiple logics and their underlying rationality challenge within an institutional field can provide insight in variation and dynamics of the practice (Lounsbury, 2001; Lounsbury and Crumley, 2007). When decision makers are aware of their identities and interest, a set of decision premises and their motivation for action are generated (Ocasio, 1997). The challenge between professionalism and commercialism created a shift in the awareness of auditors’ identity and interest. Using institutional logics as the centralized theory in this paper will provide a better insight in important determined competences to become a partner of a Dutch MDP. This theory also contributes to the insight in how auditors of a Dutch MDP perceive the development of these competences as it refers to the norms, values, and beliefs that structure behavior and provides a collective insight in the way how rational decisions by actors being made within organizations (DiMaggio, 1997; Jackall, 1988; Thornton, 2002).
10 3. Research methodology
This research consists of two related parts. The first part is to determine which competences are perceived as most important to become a partner of a Dutch MDP and the second part consist of how senior managers, directors, and partners perceive the development of these competences. Both parts are relative unexplored areas, especially in the non-Anglo-Saxion countries, such as the Netherlands. The determination of which competences are perceived as most important to become a partner of a Dutch MDP is a complex one, which can result in many appropriate variables. Therefore, to analyze which competences are remarked as important and how Dutch auditors perceive the development of mentioned competences in the actual practice, the context of this study will be very important. In accordance with this context and to analyze the actual perceived competences, this research is explorative and therefore, is held qualitative. This research methodology can be used to uncover some trends in which competences are remarked as important by Dutch auditors, and how they perceive the developments of these competences. The interpretive approach of this research relies on former research studies by Greenwood and Suddaby (2006), whereas they state that individuals require different competences to become a partner of an accounting firm than the past, and research by Carter and Spence (2014), whereas they tried to identify which competences are important to become a partner of an accounting firm while making a comparison between business vs. technical competences. This theoretical background is not taken as a fixed framework instead, it only provides an explicit basis for interpreting perceived important competences by Dutch auditors. To make sense of the perceived important competences, the direction of the explanation cannot be predefined at the beginning of the research process. Therefore, some other perspectives and alternative explanations may be developed while conducting the research.
Data collection is done by a group of MSc. Accountancy & Controlling students during their Master Thesis 2017 by interviewing senior managers, directors, and partners of accounting firms in the Netherlands. To conduct this research, 24 in-depth interviews were conducted with accounting professionals of Big-4 accounting firms within the Netherlands between April and May 2017. The interviewees consisted of 8 senior-managers, 5 directors, 10 partners, and 1 former partner of Big-4 Dutch accounting firms to explore which specific competences they determine as important to become a partner of a Dutch MDP and how they perceive the development of these competences. The interviews are held anonymously to assure confidentially. Before the interviews, an email is sent to the participant about the topic
11 of the research, background of the researcher and confidentiality relating to the participant and company under research. The interviews lasted between 25 and 60 minutes. To analyze the interviews, the inductive content analysis is being used. This technique allows the researcher to gain insight in which competences are remarked as important and which competences are less important. The questions will be semi structured. The reason for this is to put the interview in the area of interest, and to identify the key competences. It allows the researcher to create more in-depth questions during the interviews to seek explanations and perspectives why some competences are mentioned as important and why some competences are remarked as less important and how auditors perceive the development of these competences. It also ensures that the researcher present the same subjects to the interviewees. Thereby, the researcher is able to measure the same theme at all interviewees to produce the results, what provides validity of the research. The interviews are recorded and fully transcribed into Word documents after the interviews held place. Two other members of the group reviewed the audio record and controlled the transcript at 3 interviews to ensure the intercoder’ reliability.
Relevant information about partner competences appears during the coding phase of the interviews. At first open coding takes place, whereas the researcher becomes familiar with the data and generate initial codes. Secondly, axial coding takes place. This phase consists of the search and review of themes. At last, selective coding being used to define the themes and produce the report. This thematic analysis allows the researcher to record patterns within the data. Two other members of the Msc. Accountancy and Controlling group reviewed the interpreted results of the researcher and watched if they came up with the same results to ensure the confidentiality of the results. Dutch auditors with a lower rank than senior managers are not taken within the interview because they do not have enough work experience and knowledge about the work of a partner of an accounting firm and therefore, it won’t be relevant to question them about their perception of required partner competences. Instead, senior managers, directors, and partners are highly relevant to interview because they are already partner or they are just below the partner level and are in the process to become a partner. Therefore, they should have a good idea which competences are required to become a partner of a Dutch MDP.
12 4. Results
4.1. Important competences to become a partner of a Dutch MDP
During the interviews, several competences were mentioned as important to become a partner of a Dutch MDP by the interviewees. These determined competences can be divided in 3 key competences to become a partner of a Dutch MDP. The most frequent competences that are mentioned can be divided into technical competence, business competences, and leadership competences. A statement of a senior-manager at a Big-4 audit firm in the Netherlands provides insight in the key competences that are determined as most important by the interviewees during the research.
“The competences determine if you are appropriate to become a partner or not. There are 3 main competences. At first you need to deliver quality, you have to ensure that you provide sufficient enough quality in your files, controls, and that you meet required standards. Secondly, you have to show that you are able to interact with the market, so business competences are also very important. So, what is your market position and how would you attract new clients and how would you keep them? Another major important competence is to attract people and how you keep them working for you. Accounting firms often struggle with attracting new employees and keeping them”. – (Senior-manager at Big 4)
Every respondent mentioned at least two of the three key competences and 18 out of the 24 interviewees determined all the three key competences as important requirements to become a partner of a Dutch MDP. The results show that multiple logics within Dutch MDP exists. Besharov and Smith (2014) note that professional institutions as multiple logics at field level are not compatible, unless one of the professions is highly dominant. Battilana and Dorado (2010) also mentioned that some organizations are able to manage multiple logics within the field through balancing a productive tension. During the interviews, strong evidence is found that the process to become a partner of a Dutch MDP depends heavily on the focus of professionalism within the firm. Therefore, technical competences are determined as very important to become a partner of a Dutch MDP. Many of the respondent also state that high technical competence is a boundary condition to become a partner of a Dutch MDP and that business competences became less important than it was used to be. A partner of a Big-4 accounting firm in the Netherlands explains the increased importance of professionalism and the tension with commercialism.
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“It is difficult to say if commercial aspects become more important. I found out that, when I was director and became partner, the focus heavily relies on commercialism and sales. However, the AFM aggregated a lot against that. Then we said as office, we must look at the partner competences profiles again, so we did. We decided that we will focus more on technical competence and that this become more important. If you want to be a partner, technical competence is a boundary condition.” – (Audit partner at Big-4)
Many interviewees recognized these technical competences as a boundary condition to become a partner of a Dutch MDP. Another partner highlights the importance of technical competences during the partner selection process when he was asked if some criteria have changed recent years.
“Definitely, recent years we focused to find a way to ensure audit quality. This affected the partner selection criteria within our firm. The selection criteria are tightened, even for the partners of the firm. Therefore, we are checking if someone has sufficient technical competence. Files of partners are reviewed and they have to justify themselves at our technical office.” (Audit partner at Big-4).
The above statements by two separate audit partners of a Dutch MDP shows that technical competences are determined as a threshold to become a partner of a Dutch MDP. Therefore, technical competences are an important part of the partners’ selection process within these firms. This observation does not fully correspond with prior literature (see e.g. Anderson-Gough et al., 2000; Carter and Spence, 2014; Carnegie and Napier, 2010; Greenwood and Suddaby, 2006; Hanlon et al., 1994; Malsch and Gendron, 2013; Suddaby et al., 2007; Wyatt, 2004), whereas researchers concluded that accounting firms prefer to select partners on their business competences instead of their technical competence. According to Hanlon (1996), managers at senior level and above are increasingly evaluated on their commercialism. The statements by the Dutch audit partners also suggest that partners are evaluated on their technical competences. However, the observation does not exclude business competence as an important requirement to become a partner of a Dutch MDP. The observation only implies that technical competences are a threshold to become a partner and therefore, it makes sense that every interviewee determines technical competences as very important to become a partner. This does not mean that technical competences are the key to top, it only reflects that technical competences became increasingly important in the process to become a partner of a Dutch MDP. The results are in line with Gendron (2002) and shows that commercialism and professionalism have a complex interplay. Gendron (2002) also mentioned that multiple
14 logics rarely coexists as equals. A Big-4 audit partner in the Netherlands contribute to this view and mentioned the sequence of important competences.
“To become a partner, you will be evaluated on some important criteria. Quality, attracting business, operations, and the ability to manage your people.” – (Audit partner at Big-4)
To create a deeper understanding of these criteria, the researcher mentioned these competences in a different order in the next question. The interviewee directly interfered and explained the importance of the sequence of the competences.
“Now you mention it in a different order. I specifically mentioned the competences in this order. So, quality, attracting business, operations, and the ability to manage your people. At first, it is very important that the quality of your provided work is perfect. When you are unable to provide high quality, you would not become a partner at all. Secondly, you have to be able to attract new businesses and manage your daily operations. At last, you need the ability to manage your people to run your office. You have to keep in mind this sequence because it is very important.” – (Audit partner at Big-4)
According to researchers (DiMaggio, 1997; Jackall, 1988; and Thornton, 2002), institutional logics refers to the norms, values, and beliefs that structure behavior and cognition of actors that provides a collective insight in the way how rational decisions being made within organizations. DiMaggio and Powel (1983) states that the most dominant logic within the field determine these norms, values and beliefs. The increased importance of professionalism within accounting firms created a greater awareness and notion for technical competences. When decision makers are aware of their identities and interest, a set of decision premises and their motivation for action are generated (Ocasio, 1997). Therefore, auditors at senior level and above are still motivated to develop and maintain their technical competences. During the interviews, several specific competences were mentioned that can be classified as a technical competence by the interviewees. Hence, some specific competences are mentioned below by an audit partner in the Netherlands.
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“The quality of the audit depends also on the quality of the client’s reporting. If a client does not have their reporting quality on point, then it would be very difficult to execute a good audit. So, you have to choose clients whom are appropriate and where you can gather sufficient audit evidence to execute a good audit. So, client acceptance is very important. When you accepted the client, the work relies in the hands of your people. If you don’t have qualified people, time, and attention to perform the job, you would not be able to perform a good audit. Therefore, planning, coordinating and commitment is very important. Besides, it is important that you are capable to intervene and modify by certain important decisions if necessary. At last, it is important that you are eager and dare to ask critical questions to the clients that will able you to audit and report in a proper manner.” – (Audit partner at Big-4)
Some more competences are mentioned during the research. However, above statement by a Big-4 audit partner in the Netherlands reflects some frequently mentioned competences that are determined as important by many auditors during the research. Many interviewees recognized critical client acceptance, technical skills, and professional judgement as a boundary condition to become a partner. Battilana and Dorado (2010) mentioned that multiple logics within fields could contest and conflict. The desire of the Dutch MDP’s to provide sufficient audit quality created a power struggle and shaped action of logics within the accounting firms. It shows that professionalism became more important and that this logic contest and conflict with commercialism within Dutch MDP’s. However, regardless that every interviewee reflects the importance of technical competence and that many interviewees recognizes that business competences became less important recent years, some other interviewees emphasized business competences as important competences to become a partner of a Dutch MDP.
“As a partner, it is your primary function to perform your job in a good manner. You have to ensure that you have high quality audits. Besides that, a partner need some certain business competences. You need to be entrepreneurial in a certain way. In the end, as a partner, it’s like you’re the boss of your own shop what you display to gain revenue and earn money.” – (Audit partner at Big-4)
Senior-managers are those who are just below the partner level and they have to show the firm that they possess not only the required technical competences, but also developed business competences during their career if they want to become a partner of the firm. Many interviewees acknowledge the importance of business competences to become a partner. Regardless they determine technical competences as very important, they say that only technical competence would not distinct individuals who are just below the partner level and
16 are trying to become a partner. This is in line with Wyatt (2004) and shows that technical competences on its own is not the way to the top of a Dutch MDP. During the interviews, there are several important business competences mentioned by many interviewees which can be classified as business competence. Interviewees determined that it is very important to communicate and represent the firm to the community and clients as well. Portfolio management is mentioned as very important. Portfolio management consists of the ability to generate revenue by attracting new clients, and being able to manage the relationship with existing clients. Gendron (2002) showed that aggressive focus on attracting new clients and winning contracts by accounting firms tensions the professionalism within the firm. This tension is also present within Dutch MDP’s. On one hand, Dutch MDP’s desire that partners possess the ability to generate revenue by attracting new clients. On the other hand, Dutch MDP’s desire that partners have developed the ability to critical accept a client to maintain the professionalism within the firm. According to Besharov and Smith (2014), some organizations possess the ability to maintain multiple logics in societal and field-level pressures through balancing a productive tension. The results suggest that partners are capable to manage professionalism and commercialism as multiple logics by using a productive tension between several competences. A Big-4 audit partner explains this tension.
“I attracted a very large client who could receive us a lot of money. However, when we are attracting new clients, we are also focusing on their internal control system. Clients need the desire to have their internal control system on point. When their internal control system is weak and the client does not have the desire to improve it, we do not accept the client. So, regardless that it could receive us a lot of money, we did not accept the client.” – (Audit partner at Big-4).
Another Big-4 audit partner highlights the importance of this tension.
“An important task for a partner is their portfolio responsibility that should be around 2 million. You have to ensure that your portfolio exist of good quality clients what result in high efficiency. This means attracting new clients and if necessary, drop off some client with low efficiency. You need to be able to communicate and negotiate with clients. You have to dare to communicate your actual performed work and negotiate what price actually should be paid by the client.” – (Audit partner at Big-4)
Besides the technical competences and business competences, leadership is another competence what is frequently mentioned as very important by interviewees. Comparative conflict of institutional logics influences human and organizational behavior (Thornton, 2002). According to this, the results suggests that the increased importance of professionalism
17 and the challenge with commercialism influenced the behavior of auditors within the firm. Dominant logics shapes formal and informal rules of action, interaction, and interpretation, that determine and restrict the decision-making process of an individual (Thornton and Ocasio, 1999). Thereby, professionalism within Dutch MDP’s shapes and restrict the decision-making process of auditors. Leadership involves the ability of a member to structure the situation and expectations and perceptions of other members in the group (Bass, 1990b). Audit partners with leadership competences are able to modify the motivation and competences of other auditors. Even a senior-manager at a Dutch MDP noticed the importance of leadership competences.
“Not only your national business is important, but also the business at your office. You are responsible for the people at your office, the well-being of your colleagues. How are you going to attract new employees and bind them to your organization? You must assure that you are an attractive employer and that people are satisfied when they are working for you. You have to be a nice office. So, the people aspect is very important.” – (Senior-manager at Big-4)
This view contributes with Greenwood et al. (2005). They state that high educated personnel are the key asset to generate revenue because the output what generate revenue consist of providing complex knowledge to create customized client solutions. To manage the most valuable assets of a Big-4 accounting firm in the Netherlands, several sub competences were mentioned in the interviews that can be related to leadership competences. These specific competences are the ability to, attract and keep personnel, motivate and coach people, create a suitable work-life balance and nice work environment, and communicate with personnel. Some more competences can be related to leadership competences however, these ones are frequently mentioned and determined as important by several interviewees. A Big-4 audit partner reflects some of the most important competences.
“The partner has two important tasks. On one side, it is important to be able to bind clients, the commercial aspect, to ensure there is sufficient work what is executed efficiently, so nice work. That’s more like the outside aspect. On the other side, it is important to bind employees to the firm. The inside aspect. Take care of people, be able to attract new people. Guidance and coaching of people and creating a suitable work-life balance with a nice work environment.” – (Audit partner at Big-4)
After analyzing all the interviews, it is obvious that there are 3 important selection criteria which influence whether someone could become a partner within a Dutch MDP. These selection criteria are related to 3 key competences which are determined as very important to become a partner. At first, technical competences are determined as very important. This
18 criterion is also determined as a boundary condition by many interviewees. It means that it would become very difficult to become a partner when there have been mistakes during the career of a professional. Some specific technical competences that were mentioned during the interviews were, the ability to critical accept a client, technical skills, and the ability to perform the job with professional judgement. However, technical competences were not the only important competences. To become a partner of a Dutch MDP, interviewees determine business competences as important as well. Some important mentioned business competences that are mentioned are portfolio management, which is the ability to attract new clients and generate revenue to realize growth, and being able to manage the relationship with existing clients to perform the audits in an effective and efficient manner. Another important business competence is the ability to represent the firm in a proper way to the community. These competences depend on the ability to communicate with clients and society. At last, leadership competences are determined as important to become a partner of a Dutch MDP. These specific competences are the ability to, attract and keep personnel, motivate and coach people, create a suitable work-life balance and nice work environment, and communicate with personnel. This section provides an overview of several specific competences that are determined as important to become a partner of a Dutch MDP. According to the interviews, a professional within a Dutch MDP need a mixture of mentioned competences to become a partner of the firm.
4.2. How auditors perceive the development of these competences
This section tries to explore how Dutch auditors perceive the development of the competences as provided in the previous section and compare it with prior literature. As stated before, accounting firms were in a state of institutional flux (Faulconbridge and Muzio, 2008; Suddaby et al., 2007), and became reliant on new provided services to generate revenue and realize growth (Suddaby et al., 2007). Therefore, there has been a shift from the preference of accounting firms to promote their partners based on their commercialism instead of their professionalism (see e.g. Anderson-Gough et al., 2000; Carter and Spence, 2014; Carnegie and Napier, 2010; Greenwood and Suddaby, 2006; Hanlon et al., 1994; Malsch and Gendron, 2013; Suddaby et al., 2007; Wyatt, 2004). This resulted in a shift of dominant logic within accounting firms and different required competences to become a partner of a firm that provides multidisciplinary practices. However, according to previous section, some evidence has been found that suggests that professionalism is still very important to become a partner of a Dutch MDP. Professionalism is determined as important because the regulatory body of the accounting profession in the Netherlands (AFM) provided critical reports on the profession. The AFM did research to audit quality provided by the Big-4 accounting firms.
19 They concluded that the audit quality was below standard with 45% insufficient audit quality of reports under research. This was quite a shock because the Big-4 represented 76% of the total revenue of accounting organizations in the Netherlands in 2014 (AFM, 2014). The AFM took measures to ensure that the Big-4 accounting firms will provide sufficient audit quality. A Big-4 audit director mentioned the influence of the AFM on the Dutch MDP’s.
“The critic of the AFM definitely influenced our audit quality. I think it influenced our quality in a positive way. The audit became better and we are working more in-depth. Also, when you look at the partner requirements, there is a bottom line of technical requirement as a partner. Partners saw the need for this requirement and lead their firms to a higher level of audit performance. Not only to show that they deserve it to be a partner of the firm, but also to make clear that they are still good accountants.” – (Director at Big-4).
Many interviewees contribute to this view and explain that there is a high focus on technical competences at the process to become a partner to ensure audit quality within the firm. This finding does not fully correspond with Hanlon (1996), whereas he mentioned that managers at senior level and above are increasingly evaluated on their commercialism. Instead, managers at senior level are increasingly evaluated on their professionalism recent years. This implies a challenge between professionalism and commercialism within Dutch MDP’s. Besharov and Smith (2014) already mentioned that commercialism contested and competed professionalism within accounting firms for dominance during the latter 20th century. The results suggest that professionalism is contesting and competing commercialism. This means that professionalism and commercialism as multiple logics within accounting firms challenged each other for over a long time and are still challenging to gain dominance in the field. Organizations are part of a broader socially-constructed system (Hinings, 2012). This means that Dutch MDP’s are subjected to values, norms, and beliefs of society. Thereby, the pressure from society on Dutch MDP’s shaped action between these logics. Structured processes adapt the norms, values and beliefs that are the most present and dominant actors within the organization, which reflects the dominant logic within the field (DiMaggio and Powel, 1983). Subsequently, these dominant logics shapes formal and informal rules of action, interaction, and interpretation, that determine and restrict the decision-making process of an individual (Thornton and Ocasio, 1999). This means that the challenge between professionalism and commercialism within Dutch MDP’s creates pressure on required partner competences because values and beliefs of individuals are affected by pressure from society. Thornton (2002) contribute to this view and state that conflict between multiple logics influences human behavior. When decision makers are aware of their identities and interest, a set of decision premises and their motivation for action are generated (Ocasio, 1997). The challenge
20 between professionalism and commercialism created a shift in the awareness of auditors’ identity and interest. Auditors perceived the pressure from society and the increased importance of their professionalism. Thereby, they prevail technical competences over business competences. This is in line with researchers (Suddaby et al., 2009; Wyatt, 2004), who state that these values should prevail to ensure the audit quality. According to the interviews, 17 interviewees determined that business competences are not as important as it was used to be.
“Recent years, business competences aren’t important at all. In the Netherlands, I perceived a lot of social pressure, read the AFM reports, and that thereby our key focus relies on technical competence. Commercialism was a dirty word recent years.” – (Audit partner at Big-4)
Above statement shows the increased importance of technical competences within Dutch MDP’s. However, according to the previous section, a professional need a mixture of several specific competences to become a partner of a Dutch MDP, including some business competences. Technical competences on its own does not determine whether someone could become a partner or not (Wyatt, 2004). According to Battilana and Dorado (2010), some organizations are capable to maintain multiple competing logics in societal and field-level pressures through balancing it with productive tension, while some other organizations are unable to deal with and perceive intractable conflict between these logics. The desire of Dutch MDP’s that partners possess a mixture of several competences suggest that these firms are capable to balance professionalism and commercialism through balance it with productive tension, regardless the social pressure that influences behavior. Thereby, audit partners have the ability to balances moral and legal principles with the expectations of the profession, the organization, and society, by following self-chosen ethical principles. This is consistent with the view of Arnold and Ponemon (1991), who state that auditors are assumed to possess this capability.
“Recent years, we have increased our quality, especially at the Big-4. This was quite good. However, you have to ask yourself when it is enough. Our clients complaining that we are focusing too much on quality. It is even observable at our employees. The first couple of years they were very anxious about how they should perform their job, because there was no provided standard guideline how to perform it. The guidelines were changing continuously, this caused uncertainty at our employees. Therefore, our employees provide many times more services than we in first instance determine as important to perform the audit. Just to make sure that they do not miss anything and perform a good audit. Last 2 years, guidelines are
21
becoming clearer and our employees are more confident with the way they perform an audit and the required quality to this audit. We become more confident that the quality standards stay high and that we are capable of managing that.” – (Audit partner at Big-4)
This was mentioned by the oldest interviewed partner of all the interviewees. He explains how auditors perceive the increased desire for technical competences and the challenge between technical logic and business logic. Auditors of a Dutch MDP perceive the challenge of technical logic in accounting firms and the increased importance of technical competences as an important criterion to secure professionalism within the firm. After auditors became anxious about how to perform their job, they are becoming more confident with the new guidelines and are satisfied how this affected the quality of their product. Therefore, some auditors perceive a slight focus towards commercialism again. A Big-4 audit partner explains below.
“I think that upcoming 2 years there will be a normalization. Not that we will provide a lower quality to our clients, but we are getting used to the pressure of increased rules and documentation. The guidelines becoming clearer and therefore, we dare to say the word commercialism cautious again.” (Audit partner at Big-4)
After perceiving pressure from society and the AFM, Dutch MDP’s increased the importance of the professionalism within the firms. The results show that professionalism and commercialism challenge since the latter during 20th century and are still challenging within accounting firms. Auditors perceive this challenge because it influences human and organizational behavior (Thornton, 2002). At first, Dutch auditors perceived the pressure the and found it difficult to improve their quality. The results suggest that auditors are gradually satisfied with the improvement of their provided services towards clients. Thereby, professionalism and commercialism will stay challenging in the future to gain dominance in the field.
22 5. Discussion and conclusions
The foregoing provides an insight in which specific competences are determined as important to become a partner of a Dutch MDP and how auditors perceive the development of these competences. To explore this theme, the institutional theory is used as centralized concept in this paper. This theory provided a better insight in which competences are determined as important by Dutch auditors and how they perceive the development of these competences by drawing the challenge of logics within Dutch MDP’s. According to the interviewees, 18 out of the 24 interviewees mentioned technical competences, business competences, and leadership competences as very important to become a partner. Other researchers (see e.g. Anderson-Gough et al., 2000; Carter and Spence, 2014; Carnegie and Napier, 2010; Greenwood and Suddaby, 2006; Hanlon et al., 1994; Malsch and Gendron, 2013; Suddaby et al., 2007; Wyatt, 2004) focused on the shift that accounting firms promote partners based on their commercialism instead of their professionalism. Carter and Spence (2014) determined that even partners embody entrepreneurialism rather than they embody technical expertise and that different requirements are needed to become a partner of an accounting firm than the past. In contradiction to prior literature, this research tried to explore which specific competences are determined as very important to become a partner. During the results, the researcher found that technical competences can be divided in the ability to critical accept a client, technical skills, and the ability to perform the job with professional judgement. Specific business competences were portfolio management, which is the ability to attract new clients and generate revenue to realize growth, and being able to manage existing relationships with clients. Another business competence that was mentioned is the ability to represent the company to the community. Besides the technical and business competences, leadership competences are mentioned as important to become a partner of a Dutch MDP. Important leadership competences are being able to, attract and keeping personnel, motivate and coaching people, creating a suitable work-life balance and nice work environment, and to communicate with personnel.
Besides the exploration of these important competences, this research present findings that Dutch MDP’s are under pressure from society to improve the quality of their provided work. Therefore, the process to become a partner depends heavily on professionalism and interviewees determine technical competences as a boundary condition to become a partner. Managers at senior level and above are frequently evaluated on their technical competences. This finding does not fully correspond with Hanlon (1996), whereas he mentioned that
23 managers at senior level and above are increasingly evaluated on their commercialism. Instead, managers at senior level are increasingly evaluated on their professionalism recent years. However, the results also show that Dutch MDP’s desire that partners possess a mixture of competences and that technical competences on its own are not the key to the top of the firm. This is in line with Wyatt (2004), whereas he states that technical expertise on its own is not the key to the top. The second research question of this study provides insight into how auditors of an accounting firm perceive the development of these competences. It turns out that the values of the profession such as, independence, integrity, and objectivity, are challenging commercialism within accounting firms. According to researchers (Suddaby et al., 2009; and Wyatt, 2004), these values should prevail over commercialism to serve public interest and ensure audit quality. The desire of Dutch MDP’s that partners possess a mixture of several competences suggest that accounting firms are capable to manage professionalism and commercialism through balance it with productive tension, regardless the social pressure that influences behavior. Battilana and Dorado (2010) state that some firms have these capabilities. Dutch auditors perceived this tension and found it difficult to improve their quality in first instance. The results suggest that, auditors become gradually satisfied with the improvement of their provided services towards clients. The results show that professionalism and commercialism compete and contest as multiple logics for a long time already and are still challenging to gain dominance in the field. This is in line with Besharov and Smith (2014), whereas they mention that professions within professional service firms continuously contest and conflict to gain dominance in the field. According to Gendron (2002), one of the multiple logics have to be dominant, otherwise the professionalism and commercialism cannot coexist as multiple logics within the Dutch MDP. The results suggest that the professionalism within Dutch MDP’s coexist among commercialism because professionalism became increasingly important recent years. Auditors perceived this increased importance and became aware of their professionalism as core identity and interest. When decision makers are aware of their identities and interest, a set of decision premises and their motivation for action are generated (Ocasio, 1997). Therefore, auditors generate action what is in line with their professionalism. This is also in line with DiMaggio and Powel (1983), whereas they mentioned that actors will behave according to the most dominant logic within the field. So, in contradiction to prior literature, the findings of this research do implicate that Dutch MDP’s desire that partners possess a mixture of technical competences, business competences, and leadership competences. Prior literature suggested that partners are increasingly evaluated on their business competences instead of their technical competences. The results of this research show that technical competences are determined as a boundary condition in the Netherlands to ensure the professionalism within the firm. Therefore, managers at senior level and above are
24 increasingly evaluated on their technical competences. This implicates a difference between important determined competences in the Netherlands and prior researched areas e.g. Canada, the US, and the UK. Therefore, this research can be used as a starting point to study differences in required competences between Anglo-Saxion and non-Anglo-Saxion countries. This research provides a foundation for further research into how auditors perceive the challenge between logics within the profession and if this perceived challenge has a positive impact on the profession. It also provides a further basis for research regarding how accounting firms are capable to manage multiple logics by balancing productive tension. The results implicate that auditors as actors are affected by pressure of challenging multiple logics. Dutch MDP’s have increased the importance of their professionalism and this affected the requirements to become a partner. The results implicate that auditors perceive this pressure and changed their behavior to manage their competences to fulfill the desire of the firm. As all research, this research has some limitations. Regardless that the research has been conducted in a non-Anglo-Saxion country, only Dutch auditors are used to perform the analysis. Therefore, the results are only representative for the Netherlands and not for other non-Anglo Saxion countries. The data collection has been conducted by a group of MSc. Accountancy & Controlling students. This means that several interviews were conducted by others than the researcher. Therefore, it cannot be excluded that some interviewers might provide some suggestions during the interviews what affected the answers of the interviewees and biased the results. It also cannot be excluded whether other group members transcribed the audio records in a proper manner. Wrong translation from audio records into word document might affect the results and therefore bias the research. The interviews were held in Dutch. Relevant information during the interviews are translated in English and used in the result section. Regardless that the research tried to translate the relevant citations with best effort, the researcher cannot exclude that there might be some translating errors what could result in biases.
Despite these limitations, this research provides an insight in important competences to become a partner of a Dutch MDP. It also shows the increased importance of technical competences within the accounting firm and how auditors perceived the challenge between professionalism and commercialism as multiple logics within a field. Further research towards these specific competences could be conducted to research which competences are determined as more important than others. It is also interesting to analyze whether the pressure on the accounting firms in the Netherlands differs in comparison with other countries. Therefore, a research between the Netherlands and other countries could be conducted.
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