Crunch time for best practice

by admin on July 30, 2006

in Tax and Ethics

Over the weekend I read and re-read several posts which talk to the issue of integrity, ethics and ‘best practice.’

It all started with David Maister’s post: Are You Dispensing Useless Pills? and the conversation that followed. In essence, the discussion questions whether professionals routinely dish out advice based on what they think the client wants to hear. Sadly, the consensus is that in their consulting capacity, many professionals are little better than snake oil salesmen. I’d agree with that.

During my time as a practitioner I used to say that my real job is to comfort the disturbed and disturb the comfortable. Some might say: ” He calls a spade a spade.” I preferred: “I call a spade a JCB shovel.” In my time as a hack, US PR reps would invariably introduce me as: “He tends to ask direct questions.” I used to think: “What other kind are there?”

The point being that reality is something most people don’t see. It’s impossible because very often they’re too tightly wrapped into what they’re doing. They’re myopic in the extreme because their frame of reference has become fixed. Like Pavlov’s dog. Taking people out of that place is the real goal of consulting – IMO – so they can objectify their circumstances rather than continue to jump up and down in the bucket of crap in which they’ve been standing before the stink got bad enough they’d call guys like me in. That’s when clients see solutions for themselves rather than being sold a solution.

But then a trackback from Michelle Golden made me think more about the paramount importance of integrity and it’s cousin ethics in the execution of consulting engagements. More to the point, Ron Bakers’ very long comment. Here’s a nugget:

A lot of consultants will espouse, and sell studies based upon, best practices, which is nothing but mimicking the actions of successful companies––also known as benchmarking.

I have no problem with benchmarking as such but like Ron, I have deep misgivings about how it is used. There is a reason why the best performing companies are what they are. They cannot be mimicked. It’s impossible. Gary Loveman, CEO of Harrahs knows this and it is one of the reasons he is so open about how his casinos do so well. He can explain in the minutest detail what drives his business success. He is so far advanced in his thinking that it is almost impossible for anyone else to catch up – unless competitors find something unique in their businesses they can exploit. So where’s the ethical dimension?

Today, you’ll find the top software companies talking about vertical market offerings that include…best practices. What they mean is…we’ve found these things we think work in these circumstances and because yours are similar, they’ll probably work for you. I call it higher order BS. Once you scrape the surface, it’s easy to see that no two companies are alike. Never. Ever. Because…as Irvin Wladawsky-Berger points out in relation to understanding the service component in business:

Such systems are not just incredibly complex because of their sheer size; they are inherently unpredictable or emergent, because they now encompass market forces and the behavior of people who are themselves unpredictable.

As an aside, I think Irvin is chasing a ghost in his quest to engineer technology that overcomes the problem but that’s for another day.

Which leaves me with a question for professional accountants. If you’re not taught the fundamentals of integrity and ethics as a practical discipline based on solid theoretical grounds, then what value is there in your benchmarked advice?

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David Maister July 30, 2006 at 5:44 pm

A lot of different strands in this thread, Dennis, but let me jump on board a couple.

First the challenge for you and I (the blunt, provocative "tell it like it is" types) is that we have to be sure we're truly doing it our way to HELP people (shaking up their perspective) and not just doing it for the fun of being outrageous. And we have to make sure that other people perceive that, or they'll reject us as annoyances and move on.

Second, I think the challenge is much broader than consultants. It's ALL of us in advisory roles. For example, how many college professors take the time to question whether they are actually helping anyone through either their research or teaching? It's all too easy to lapse into "I'm getting paid for it, let me not ask too many questions."

Finally, Ron Brown contrasts anecdote with the scientific method – which stripped to its basics, is nothing more than is there any systematic evidence for this? Ron is right that in business generally (and business schools) we rarely ask for the evidence. In the words of Jeff Pfefefer's latest book, we (the clients, the consuming public) like what's NEW, not necessarily what's TRUE. That's why all these providers get away with "charlatenism" (spelling?)

And it may also be true of Wladasky-Berger and the work he cites – 30 years ago people like Earl Sasser, Jim Heskett at HBS and Richard Chase at USC were talking about the special needs of "front room", inherently unprdicatble and emergent services. Yet we all treat it as new.

Dennis Howlett July 31, 2006 at 1:19 am

Thanks for that David and yes, I'd go along with that.

I studied philosophy as a foundational element in what we call a double degree – in my case psych/sociology. I was fortunate enough to have professors who constantly said 'state your case, locate in theory, test, examine, refine' so I'm familiar with different schools of thought about applying the scientific method. I guess we have a different way of educating in the UK that encourages that style of thinking? It's a while since I was in the system but our best universities still turn out great thinkers.

I read Ron's comments with interest. I see far too many pop-culture driven 'ideas' that I see as little more than flights of unfounded fantasy. In that, I'm not sure the post-modernists did us many favours.

I sometimes think that for many, there is a timing issue. Some ideas are way before their time. Or maybe it's a (so-called) Long Tail thing – whatever that means :)

Richard Murphy July 31, 2006 at 8:40 am

I agree with a lot of what you say Dennis, and like David's additional comments.

But let me suggest the hypothesis we need to challenge most often. This is that all business profit maximises. I have two articles over at my place on why I think this untrue http://www.taxresearch.org.uk/Blog/2006/07/24/why…

We're taught that this is true. You can't practice as an economist right now unless you say it is true. And French students got it right when they called the resulting theories 'autistic eocnomics'. See http://en.wikipedia.org/wiki/Post_Autistic_Econom… where it is rathre usefully said that this refers to "closed-minded" or "self-absorbed".

Most accountants buy this logic because they are told it is true. They don't test the hypothesis. In my experience it is not true. Of course people want a positive cash flow to survive. If they have shareholders to whom they are accountable they will want to keep them happy, possibly with growth (which is not the same as maximising) and they'll be open to a deal when one comes along. But in the meantime the objectives they're trying to fulfil are much more complex than economists and accountants assume.

If we project our assumptions onto the client we fail. We have an ethical duty to listen. When we have we can advise. Until then we're best keeping our mouths shut.

alastair July 31, 2006 at 9:11 am

So how do you teach integrity? And do you think the (for example) a few lessons in integrity for certain people would have stopped Enron?

cynicism aside, I might have a view of what an accountant should be, but I live in the real world, and I will continue to rely on an understanding of how controls work, an understanding of how people work, and my professional training which has taught me how to critically assess both. Or as a colleague and friend of mine used to describe it – a B***S*** detector!

Dennis Howlett July 31, 2006 at 11:41 am

Not everyone has a BS detector Alastair – I'd argue very few people really do.

My point is that if you're not taught the theory and practice of ethics, you have no frame of reference. Sounds old fashioned but it's not and it serves a genuine business purpose.

I see nothing whatsoever in professional training that gives (most) accountants even a nodding acquaintance about the critical assesssment of how people behave. That's the bailiwick of social scientists (my educational background.) And even that's far from perfect because people behave in unpredictable and irrational ways.

Enron is a phenomenon we don't fully understand. We have some facts around events but I don't think we've come close to understanding the motivation behind those Andersen partners' activities. It doesn't come close to the way Andersen operated.

David Maister July 31, 2006 at 1:16 pm

I'm not sure that you can teach integrity, in spite of some of the eminent business schools trying.

But you can screen for it. here's how I would do it. Design a course or program that had lots of ethical temptations in it (leaking of exam papers, for example,or opportunities to keep or fail to keep your word to your colleagues. )

Then, boot out anyone who succumbed!

alastair July 31, 2006 at 1:16 pm

the world is a complex place! But surely we understand Enron enough to realise that it was a house of cards built from the inside – almost a classical fraud? Perhaps there is more to it, but the Anderson collapse looked to be a domino effect, related to professional liability, and a desire to cover up after the event. Whether they should have or did know what was happening before the s*** hit the fan is the moot point we may never get answers to?

There are lots of ways of viewing professional training, and to some extent what you get is down to luck of the draw (e.g. there must be some "big firm" trained students that understand double entry bookkeeping?), but the syllabus is only part of it – at least as important is the quality of the on the job training you get, and equally the "baggage" you bring with you. I think Richard Murphy understands this well, even though we may disagree on some of the content.

You should not have to teach ethics to accountancy students – that should be part of what they are, and failing to uphold the required standards should have consequences.

I think that the fact of this debate is one of the symptons, along with a principles based system thet depends on 600 impotent standards of some 10 trillion pages (which is what the current raft of accounting and auditing standards are becoming) and IMO it goes back to the fact that the institute allowed firms to compete on price for audits without properly dealing with the conflicts that the pricing mechansim they adopted (cross selling consultancy) provided, and from the knee jerk reactions that followed.

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