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Interview: Ian D. Gow and Stuart Kells, Authors of ‘The Big Four’

Recently I got the chance to chat with Stuart Kells and Ian D. Gow, authors of The Big Four: The Curious Past and Perilous Future of the Global Accounting Monopoly. Having reviewed the book for this site, I wanted to get the authors’ take on what’s next for these powerful institutions.

How did the Big Four get so big without any checks on their growth?

The firms have an unusual structure; it is light on capital and heavy on labour. They can grow very rapidly (and easily and cheaply) by tacking on new partners and new businesses, and they’ve done this in sectors such as marketing, real estate, corporate finance, economic modelling, demography, IT advisory, and insolvency. Few people have paid close attention to the firms’ growth, which has been a commercial experiment on a grand scale. The firms themselves have been able in part to sculpt their own playing field, by helping to write audit standards and legislation. 

How did your experience in the accounting field contribute to the writing of this book? 

We’ve worked with accountants and auditors in many different capacities, including as clients, regulators, practitioners, scholars, and authors. The Big Four firms have a strong culture that is idiosyncratic, even eccentric, and not well understood outside the accounting profession. We wanted to capture the essence of the field and its culture, and to share it with a wider audience, at a time when the Big Four culture is just one of several challenges that are shaping the future of the firm.

Can you talk about a recent financial scandal — and connect the dots from corporation to accounting firm?

Stuart Kells
Stuart Kells
There are many scandals to choose from. Colonial Bank, Lehman Brothers, Carillion, the Guptas. A key connection relates to the Big Four as auditors. If public company auditing is just a ritual, then a clean audit opinion offers little assurance and no protection for shareholders, lenders, or employees. A ‘hollowing out’ of the practice of auditing has led to a commensurate loss of confidence in audit reports.

Of the four firms, is there one that is clearly worse or less sustainable than the others?

They are all very similar, and facing precisely the same challenges. They match each other’s staff and service lines and approaches. And they’ve all endured major scandals and court cases. In the face of industry-shaping innovation and new technologies, however, the firms will not all benefit in the same way. Sooner or later (probably sooner), one of the firms will have to break away and adopt a new structure, and use different technologies.

The book includes some fascinating details on the toxic culture of big accounting firms. Do you think the hierarchy is part of the problem?

The culture is not as toxic as it once was; the firms are making strides in diversity and equal opportunity. But there is still a strong internal pressure for conformity, and there are lingering prejudices about ‘lateral hires’ (people who haven’t risen up through the ranks of the firms) and people from other backgrounds and sectors.

There is also a ‘sweat shop’ tendency to run junior staff very hard for as long as possible. The partner model is a big part of the Big Four problem: It tends to limit the scope for innovation (due to partners’ incentives) and consistent risk management (due to the dispersed structure), and it can encourage a focus on short-term profitability rather than quality services.

How are ventures into China having an impact on the future of the Big Four?

The Chinese Government is determined not be stuck with a Big Four monopoly or oligopoly. It is encouraging the growth of local firms that can work globally and take on the Big Four. China is also ready to actively regulate the conduct of the Big Four firms there, and limit the ability of foreign regulators to operate on Chinese soil. China is a big risk for the Big Four and its loose international franchise model.

Are developments like artificial intelligence and machine learning going to affect the Big Four’s importance as accountants and auditors?

Ian D Gowl
Ian D. Gow
These new digital technologies are a major threat for the Big Four — and possibly an opportunity. The technologies offer new ways to achieve assurance about financial accounts, and they are a rapidly emerging competitor to the traditional technologies of accounting and auditing. In one plausible future, accounting and auditing will become a sub-discipline of IT.

What do you think could carry these firms into the future – and should they be saved?

The best route to safety for the firms is probably the most difficult: adopting new international corporate structures that allow the firms to raise capital and invest massively in IT. But this route will require collective decisions to move away from the loose partnership structure. There will be winners and losers around the world. Should the firms be saved? They are definitely not too big to fail — in part because their public value is questionable (in tax avoidance, for example, and auditing, and advisory). A big challenge for the firms is to revisit their business case (the firms arguably have a blind-spot when it comes to internal strategy). Are they adding value globally? And if not, how might they? They need to answer this question quickly.

Learn more at the authors’ website

About Patricia Gale

Patricia Gale has written and ghostwritten hundreds of blogs and articles that have appeared on sites such as Psychology Today, Forbes, and Huffington Post, and in countless national newspapers and magazines. Her "beat" is health, business, career, self-help, parenting, and relationships.

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