8 May 2019 01:47pm

Why professionals must be “better strangers”

How individuals, firms and organisations all play a part in maintaining independence in the world of professional advisers

Women boardroom
Caption: Real independence will rely on how organisations control the personal independence of individuals within them

Modern firms rely on cross-selling to increase revenues and getting close to the client is important to do this effectively. But perhaps independence itself is threatened by this approach and the profession would be better served if professionals distanced themselves and became better strangers.

Those making business decisions want to know that they can rely on a professional opinion used to support their decisions. When offered with the qualification of independence that opinion is elevated to a much higher level of reliability and trustworthiness. This becomes particularly important when making financial decisions, and even more so when those taking decisions are less sophisticated.

Over the years there has been a crop of financial failures that question what the professionals were doing and why they did not blow the whistle before catastrophe struck. Some of these failures were so blatantly obvious, once the facts and circumstances came to light, that it is hard not to imagine that professional judgment was either absent or in some way influenced by client management.

The concept of independence depends ultimately on an absence, or at the least a diminution of interdependence on other human relationships. An independent person is, in the words of Benjamin Franklin, “lord of myself, accountable to none”.

The threats to real professional independence operate on three levels: professional, organisational and personal.

Professional independence

ICAEW guidance states that “independence should be ensured by assessing and documenting, for each engagement, the actual or perceived threats to independence through self interest, self-review, advocacy, familiarity and intimidation”.

A key ingredient of the independence of a professional is the rigour with which the individual’s professional body guards itself from threats to its independence. Hand in glove with these standards is the need to be seen to be rigorous in the enforcement of independence with a view to protecting the public rather than the professional body or its members.

The difficulty of self-regulation is that all too often outsiders will tarnish the result of any enquiry with a challenge of self-serving protection of the member under scrutiny if the outcome of the enquiry is not to their liking.

Organisational independence

The modern professional firm long ago adopted a commercial approach to business management. Meritocratic partners’ rewards, adoption of strong cultures governing the behaviour of the individual and risk management – not least for insurance reasons – have paramount importance.

The problem with a strong risk management culture is that it too often leads to the individual being subjected to and required to conform with the opinion of risk managers, and this can lead to the neutering of individual independence.

The professional, perceived by outsiders as being independent will not in fact be so; they will be controlled by the attitude of the organisation. Professionals must be accountable to their organisation for the way in which they conduct their professional business, but the consequences must fall short of stifling independence.

Personal independence

Real independence will rely on the way in which an organisation controls the personal independence of individuals within it. Another definition of independence might be that an individual has “sufficient means for a comfortable livelihood”. And herein lies the rub: the modern-day professional, as do we all, relies on a regular flow of profit to support their lifestyle.

In the hunt for increased revenue for the firm and reward for the individual, independence can become quickly threatened. A partner leading a major transaction, being worked under a CFA, faces heightened pressure as transaction day draws nearer and a deal breaking issue is unearthed; or by force of personality a senior executive of a major client dominates the judgement of a professional to the point that they are eager to please the executive.

The fear of consequences to personal income or partnership continuity through loss of the conditional fee or the client relationship may well drive the individual to protect their personal position and over-ride the firm’s operating procedures.

Independence has to operate effectively at ground level. Professional organisations should accept external scrutiny; professional firms should encourage a culture where exercise of professional judgement cannot be prejudiced by the threat of reward systems; individuals should be accountable for the quality of their judgements.

It is individuals who are independent and who make organisations independent – and this means the priority has to change to make independence the critical success factor and not profit.

Christopher Honeyman Brown was a partner in BDO Binder Hamlyn and Arthur Andersen, CEO at Alsop Wilkinson and ash law, and director of operations at DLA. He is currently a consultant and a non-executive director at several companies