Posts Tagged ‘Business’

Why are companies so averse to training?

August 25, 2009

Reading the comments on a recent Telegraph article (via RateMyPlacement’s tweet) someone mentioned that many companies either cutting back training or do not spend any meaningful amount on training at all.

It struck me as being very true, yet something I find quite staggering really. I know of a fairly small business consultancy but with major multi-national clients, who you’d think would practice what they preach to clients and invest time and money in ensuring their non-consulting staff are trained up in the latest techniques (especially for things like creating training materials/books etc. which require specialist knowledge and the latest software) but they don’t…

I’m sure many would ask “why waste money on training someone up for them to just walk out the door?”, to which I would say well they might… but surely by demonstrating your commitment to them (through training) they are more likely to stay and once trained should be more productive and produce higher quality work.

Companies may also say they are perfectly able to import the skills needed, through hiring people who are already trained and have X years experience. But doesn’t this lead to more people jumping ship? If you see a possible career advancement (if you were trained up) that kept getting filled by those from outside the business you are likely to leave. Probably costing more to the company through disruption and lost productivity than any training!

I could see it leadig to an endemic problem within the employment market, where eventually nobody will be able to join a company (especially at the slightly lower end) without so many years experience yet have no way to actually get that experience because no companies are willing to give people the opportunity to advance themselves. (It was nigh-on impossible for me to get an accounts assistant role as I had no relevant experience, apart from my degree and a non-relevavnt year-long industrial placement).

I firmly believe training of staff should be a key objective of all managers, start looking further than the upfront cost.

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Crowdfunding: The future of raising capital for SMEs?

July 29, 2009

In yesterday’s FT there was an aritcle, “Financing model with bounce”, looking at Trampoline Systems and their efforts at raising £1m of new capital for business expansion.

They failed to get much interest from venture capitalists and “[s]o Trampoline hit upon another route: “crowdfunding” – raising small stakes from a large group of investors, particularly through online communities and social networks.”

It follows the same idea, but much smaller scale, of SellaBand and Slicethepie. Where bands can raise money to record and publish an album from small investments by fans, in return the investors get an exclusive copy of the cd, other gifts, and in some cases a return from sales.

But would it work for a business? I’m not so sure, firstly the amount of money that needs to be raised is likely to be much higher than the minimum amounts on these two band-based sites. Although for the very smallest start-ups it could be quite useful if raising money from banks or other means is not possible.

Also it requires the person looking for funds to fully engage with their potential investors. Who is going to put their own money into something (whether that is £5 or £10k) if they don’t get a clear idea of what the business is about, don’t like the product, don’t see that the fund-seeker has a clear plan on where to use the money, don’t see a benefit for themselves.

Andy Baio, chief technology officer of Kickstarter, an online platform which raises funds for creative projects through crowdfunding, agrees: “The success of projects hinges on two factors: first, rewards for supporters. It doesn’t need to be financial, it can be a phone call or a credit on a film, or an exclusive update on the project. Second, their ability to promote it to their social network.”

So the key issue for me basically boils down to transparency. How open are you willing to be to secure the funds. To get anything meaningful from complete strangers requires the fund-seeker to be absolutely transparent, candid, easily contactable and involved with reaching out to potential investors. Without absolute transparency the market cannot work as there is asymmetrical information.

I like the idea, and think it works for the small scale of £5-£50 where it can be an impulse investmet, but for the larger scale I don’t think it is possible. I reckon potential investors need to ‘touch and feel’ it firsthand before even considering it; and are super-rich going to bother to take the time to look for these investment opportunities, I doubt it.

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Impact of Web 2.0 and Social Media on graduate recruitment

June 21, 2009

In this post I want to explore what kind of impact Web 2.0 and social media are having on graduate recruitment and how I think recruiters should tackle it.

Quick summary of Web 2.0 and social media:

Web 2.0, described by the founder of Flock as the ‘participatory web’ is all about websites providing a platform for users to share, collaborate, and interact with each other (i.e. Flickr, Facebook etc.). Social media on the other hand is content created by ordinary users using easily accessible tools; according to Wikipedia it is: “transforming monologues (one to many) into dialogues (many to many) and is the democratization of information, transforming people from content readers into publishers.” It can be seen in the form of blogs, forums, wikis.

So what impact are these having on graduate recruitment?

I see it impacting in two main areas: (1) information about companies and their recruiting processes getting much greater exposure, (2) students and graduates making much more informed decisions about which organisations to apply to.

1. the rise of blogs, social networking sites, forums and wikis have led to a massive increase in the number of people sharing their experiences of companies, their recruitment processes, and what is actually involved in a job. So students and recent graduates now have much more information readily available to them than even five years ago. There are both positive and negative aspects to this… applicants may share the details of recruitment processes, I don’t think companies are particularly pleased when details about their current assessment centre case studies appear on the internet! But it can lead to candidates being more prepared for what to expect, reducing their nerves and enabling the company to see the true person.

2. With all of this extra information available at their fingertips, students/graduates are able to make more informed choices about their future careers and graduate employers. By having all the information about a particular role, career, or company available at their fingertips graduates are able to refine their job search to the most relevant careers and companies, and make more informed, relevant and honed applications. Benefiting both the applicant and the recruiters.

So how can recruiters get the maximum benefit?

Some organisations were quick to get a presence on social networking sites, and some of the biggest graduate recruiters have had diary-like “blogs” (PwC used to, but I can’t find any on their website nowUpdate: PwC now have a section dedicated to blogs by 8 employees at PwCPeople). But in the beginning these invariably were monologues, with no two-way conversations between readers and ‘publisher’. The only way I can see organisations benefiting from either a presence on social networking sites or engaging in social media is to provide and maintain a dialogue with the readers. One good example I have found is Ernst & Young‘s Facebook page , where someone is actively involved on “the wall” responding to and encouraging questions from prospective applicants. But this is only US-focused… What are the EY’s HR people doing in the UK about engaging with social media?

I see this simple act of engaging with applicants (much like real-life graduate job fairs), as adding to each applicant’s experience of the organisation, and that may help sway them to apply to your roles. Having a page on your careers website where someone writes a diary about their work life, while providing a good idea of what is involved in a career, does not really cut it in terms of answering people’s questions and providing a human aspect to the big corporate image!

But what about the things the recruiter cannot control?

With all of this user-generated content, it is possible for a few people sharing a negative experience of your organisation for your image to take a big hit (i.e. “Dell Hell”). To counteract this, not only is it necessary to have a right-first time approach to costumer-facing areas of a business but also to engage your target audience on their own turf. You have to be involved in the parts of the web where people might post comments, questions, or rants, and ideally respond to them, get involved.

That may be very hard with the likes of Twitter, but on targeted forums (such as those at WikiJob) it would be possible for a recruiter to develop a good dialogue with the people they need to attract to their organisation. I can see that this may pose issues for many organisations in terms of cost for someone to sit there and answer questions. But they could make a good start by embracing the ‘democratisation of information’ and opening up about all the steps in their recruitment process and what they are looking for (e.g. on the wiki pages at WikiJob).

Richard’s Conclusion…

Social media and web 2.0 platforms are here to stay, and with ever more internet savvy students and graduates it will be a necessity for graduate recruiters to get involved and by developing a dialogue with your target audience portray the true culture of the organisation, not stick to the publishing model of brochures and static websites dictating what you are about. Let graduates feel it and make their own mind up, trust me they will be taking what you say in your brochures with a HUGE pinch of salt. They would rather hear what it is like, and what is involved, from a real person (preferably one of their peers).

So recruiters: you will have to do it eventually, so why not start now and be the company all the graduates want to work for!

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WikiJob Poll: Is the recession over?

June 17, 2009

This is the latest post in the WikiJob Poll analysis series. This time I will be looking at WikiJob users’ views on whether or not the recession is over, and how that compares with other people’s views.

The latest poll asked “Is the recession over?” (with answer options of Yes or No) and as of writing this there have been a pretty credible 262 votes cast. With an overwhelming victory for those thinking the recession is not over yet; 216 votes compared with 46 votes for ‘Yes’ (see Chart 1).

WikiJob Poll: Is the recession over?

Chart 1 - WikiJob Poll: Is the recession over?

I had been keeping an eye on the poll’s progress and that ratio has been pretty consistent from the very beginning so it would appear that WikiJob users have not experienced much, if any, of the supposed “green shoots” appearing in the economy.

The CBI recently announced that it believed the UK economy was stabilising but that we wouldn’t begin to see a return to growth until early 2010. (www.cbi.co.uk). This was based on the second quarter GDP and inflation results along with the CBI’s own forecasts.

On the 17th the Office for National Statistics released the latest unemployment figures with a rise in May of those claiming job-seekers allowance of 39,000, less than what some economists had predicted.

Most WikiJob users would, I guess, base their impression of the recession on their experiences and probably from a jobs perspective (given WikiJob is about jobs!). I am sure there are many students who have just finished their exams, and who have been unable to get a position lined up earlier in the year, who are now really stepping up their efforts in finding a graduate role, but coming up with limited opportunities and massive competition. The stats aren’t great: with a fall of nearly 5% in the number of 18-24 year olds in employment.

The poll results probably also reflect the industry preferences of the WikiJob users (see Chart 2).

WikiJob Poll: What industry are you most interested in?

Chart 2 - WikiJob Poll: What industry are you most interested in?

With the users’ interest  heavily concentrated in the financial and professional services industries [Accounting, Consulting and Banking account for over 2/3 of respondents]. I see the banking and consulting sectors as being particularly hard hit (out of the options), slightly less so the large accounting firms. But still none of these compare to the pain being felt in the manufacturing sector in particular by the smaller specialist manufacturers which the UK seems to specialise in.

From what I have read many, better-informed people than me, believe that while the economy is showing signs of stabilising and some even believe there may be some positive signs. But current students and recent graduates don’t seem to be experiencing these, and are currently pretty pessimistic. An interesting employer perspective I received in talking with graduate recruiters druing my job search was that those companies who completely cut their graduate recruitment following the dot-com crash found that in the last couple of years there is a dearth of people coming up through the ranks to occupy the vital junior/middle management roles, which was why they hadn’t cut their graduate recruitment this time round.

I will close with a couple of quotes:

Alan Clarke, UK economist at BNP Paribas, said: “We are certainly moving in the right direction and this is one of a number of very encouraging signals that we have seen.”

and finally Stephen Boyle, Head of RBS Group Economics, said in his UK Monthly Economic Update “Signs of stabilisation are one thing, a sustained recovery is an entirely different matter as demand conditions remain weak. The sustained upward movement in long-term interest rates in recent months threatens to pour weed killer on any green shoots…”

Good luck in your job hunting, many jobs are still out there, at least you are giving yourself an advantage with the fantastic resources available on Wikijob and its forums.

WikiJob Stats Man (read more of my thoughts at richardthinks.wordpress.com)

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The Long Tail – Its impact on grad recruitment

June 10, 2009
The Long Tail, as in use by the book of Chris ...
Image via Wikipedia

I have recently been reading The Long Tail by Chris Anderson. The concept is quite clear, especially from a retail point of view, but we can see the ‘long tail’ appearing in pretty much every single situation you care to think of. Which Anderson acknowledges in his penultimate chapter. This got me thinking in terms of whether or not the long tail could be seen in graduate recruitment, and what impact it is having or could have in the future.

So does the long tail appear within graduate recruitment? I would say it does, when looked at from a ‘number of jobs vs. ranking of jobs offered high-to-low’ point of view. I think we can say fairly definitely that a few of the largest graduate recruiters (i.e. the Big 4 accounting firms), I can only talk about the UK, will have the largest number of vacancies right down to the SMEs that take on one or two graduates. Although, sadly,  I can’t find any freely available data to back that up. (anyone have that so I can make a pretty graph??)

What impact could the long tail ‘idea’ have on grad recruitment in the future? Something that Anderson talks about in his book is the increasing liklihood that someone’s individual tastes are catered for (in music for example). I think that in a few years time, and maybe we are beginning to see it already, graduates will increasingly want a graduate job that meets their particular needs. Maybe recruiters will have to start offering an massively expanded range of roles to satisfy all of the different niches. I can’t see recruiters liking that idea though!! What I have noticed is the increasingly common rotational placement-based graduate schemes, whereby a graduate moves to a new role every 6-12 months. This is something I particularly looked for when I was applying to grad roles last year.

I see it offering benefits to both the employer and the graduate. The employer gets a broader range of people interested in its programme, more choice of candidates. They also give the graduate experience of a wider range of roles which could be important a few years down the line when they are called upon to manage a section which they otherwise might not have had any knowledge of. For the graduate, they get to pick and choose the roles that interest them most.

I think most graduate schemes should take on this sort of rotational placement-style programme; with the exception of schemes in Audit where there isn’t much scope for variety except within types of clients. I see it being mutually beneficial for all parties and will , I believe, ensure that their programmes are relevant to and satisfy the needs of a wider range of people, leading to a greater candidate base to choose the best from.

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WikiJob Poll: What is the most important factor in choosing a job?

April 4, 2009

This is this is the first of an ongoing series of fortnightly posts which will analyse the results to the latest poll on WikiJob.

The latest poll looked at what WikiJob users thought was the most important factor to choosing their job, mirroring a previous poll from last year. the latest poll also included an option for ‘Job Security’ in light of the current jobs climate.

WikiJob Poll - Most Important Factor in Choosing a Job - Mar 09WikiJob Poll - Most Important Factor in Choosing a Job - 2008

Results are very similar…

The differences between the two sets of poll results are very minimal. But there has been a clear shift from career progression and pay towards training and job security. A clear reflection of the dramatically different graduate job market we are in compared to last year. As you would expect in a time of uncertainty over the future of jobs, let alone companies, WikiJob users have altered their decision making to take into account aspects of future jobs which will ensure they have good training (and are thus more employable should the worst happen) and the perceived job security of the offer (reflected in the increased popularity of public sector graduate schemes).

WikiJob users are, I would say from my experience, quite an ambitious lot; a reflection of the biggest sections on WikiJob, namely financial and professional services, and the competitiveness of those industries. So that ‘Career Progression’ is the biggest result with 43% is not a surprise. Interestingly I can’t really recall many organisations stressing the career progression available to their graduates, but I have probably been looking at a slightly different cross-section of organisations from the most common WikiJob users.

Second place is occupied by ‘Pay’ (with 25% maintaining second place from last year), maybe not quite as high as reality due to perceived negative connotations of choosing a job based on how much money you get. Undoubtedly it is an important factor for most graduates, especially now that those who had to pay top-up tuition fees are graduating this year with ever larger amounts of debt.

The option which I expected to come out top was ‘Training’ coming in third place (18%), which is my preference, but this may again be a reflection of the different groups of WikiJob users, with those seeking a move into accounting probably take into account the importance of getting good training and gaining a professional qualification.

‘Job Security’ came a distant fourth (9%), which tells us that graduates are worried about their careers suffering an early setback due to the economic problems currently being experienced. I would take this as reflecting the rise in demand for public-sector, and careers perceived to be more secure, graduate schemes.

‘Working Hours’ and ‘CSR’ finished at the bottom of the pile with 3% and 2% respectively. One thing I have always questioned is companies’ keenness on stressing how socially responsible and ‘green’ they are, do graduates really care that much? I’m sure a minority do, but at the end of the day does it bother people sufficiently to accept or reject an offer based on how socially responsible they say they are.

How can employers react to meet these desires?

From these results I would suggest that employers (if targeting WikiJob users) should ensure that their graduate schemes provide graduates with a clear path of progression up the ranks of the organisation; obviously easier in some industries than others, and rapid progression should not be a requirement if a good graduate does not want it. They also need to provide a clear commitment to high quality training and personal development, whether through professional qualifications or just internal training courses and development opportunities. Both of these need to materialise, they cannot just have lip-service paid to them, in this era of openness (with the likes of WikiJob and social networking sites) businesses cannot afford for people disgruntled with unmet promises broadcasting to the world.

Are WikiJob users different from others? More ambitious, money mad?

Do these results conform to received wisdom on what grads want?

WikiJob Stats Man.

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Transparency: does it work?

February 26, 2009

The Economist in this week’s (21/02/09) Economics Focus looks at whether transparency in financial markets is really beneficial. Transparency is currently one of regulator’s and governments’ most popular words, everyone seems to be demanding more of it.

In the recent past many in the financial services industry were calling for opacity, arguing that not having full-transparency allowed them to fully exploit the potential of secret trading strategies and that with full disclosure they would have little incentive to correct market inefficiencies through arbitrage. No one seemed to mind in the good years when everyone seemed to be benefiting.

So you can understand the attraction that greater transparency has in the current economic and social climate.

The Economist article says:

Yet transparency is amorphous; it can, frustratingly, be anything but transparent and, implemented wrongly, may harm the very interests it is supposed to serve.

When we think of financial markets and transparency we probably think of annual reports, interim trading statements etc. (in other words information disclosure). But the desire to provide full disclosure often results in “incomplete, irrelevant or outright incomprehensible” information for the user to understand. I can’t imagine Joe Bloggs on the street without training being able to understand it and make an informed decision based upon it. Maybe even most institutional investors don’t know what it all means with their poor record of investing other people’s money!

Does transparency improve liquidity?

Transparency of information and liquidity in markets are closely linked, markets are effectively based on an investor’s belief that they have better knowledge than everyone else, thus when investors start thinking that other people are privileged to lots more relevant information and that they have an unfair disadvantage they are likely to resist activity in the market.

So “[s]ymetry, not the amount of information, matters” (Economist, Feb 2009).

What does Richard think about this?

Calling for transparency through full-disclosure of information is all very well and it sounds right at first glance, but I believe that this full-disclosure can result in less transparency than you had to begin with, if the users of information are overwhelmed by the sheer volume of it, and its complexity, then you actually have a retrograde step. I would argue that regulators must instead focus on ensuring that when information is disclosed it is reliable, accurate, and relevant to its purpose. Anyone can pump out tons of information, but unless it is accurate and relevant then it is a pointless exercise.

Only time will tell what the world’s financial regulators will do…

Update: some links from the Economist.com article page.

Bengt Holmstrom, an economics professor at the Massachusetts Institute of Technology, has published a paper examining transparency. Another article on the subject is by by Marco Pagano, an economics professor at the University of Naples Federico II, and Paolo Volpin, a finance professor at London Business School. America’s government publishes the Sarbanes-Oxley Act of 2002. George Akerlof discusses writing “The Market for ‘Lemons’: Quality Uncertainty and the Market Mechanism”.

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Sir Allen Stanford makes cricket look stupid. And is there a common thread to the latest frauds?

February 19, 2009

A nice cartoon from an article in today’s FT. Well now we know where all of his money came from! It appears that he made his initial fortune in Texan real estate, then evolved the insurance and real estate business started by his grandfather in 1932 into a wealth management business with clients globally.

His Stanford Financial Group business based in Texas, with the banking division registered and located in Antigua (as Stanford International Bank, having been initially started in Montserrat under a different name).

I speculate here, but could all of his splashing out on sponsoring sporting events and sports stars, and especially the cricket world, have been part of some way to keep his mind off of any financial problems his organisation was facing? What probably started on a very small scale, I assume, grew and grew further and further out of Stanford and his associates’ control. (That is pure speculation on my part)

Is there a common thread to recently uncovered frauds?

Stanford:

  • Business named after him.
  • Audited by very small firm of accountants.
  • Offering improbably high returns.

Madoff:

  • Business named after himself.
  • Audited by very small firm of accountants.
  • Offering improbably high returns.

I will end with some questions… Ignoring the name idea, why do affluent investors get drawn into these sorts of frauds? If someone is offering you 10% returns on your investments, while the average return available in the market is around 5%, does that not ring alarm bells? Or is it simply greed? Also, do regulators ever check that an audit firm’s size is likely to enable it to carry out an audit to a sufficiently high standard? Would it not make sense that if some $50bn dollar business is audited by MickeyMouse LLP that it is placed under extra scrutiny?

Update:

Sir Allen is also suspected of laundering money for the drug barons of the notorious Gulf cartel, and that one of his private jets was detained as part a Mexican investigation last year. Telegraph report.

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Use the downturn wisely, prepare for the future upturn

February 17, 2009

John Baldoni in a recent Harvard Business Review blog post suggests that companies should be looking at preparing their organisation and its employees for when the economy starts on the upward trend.

So rather than sitting around moaning at a lack of demand and laying off workers or having enforced shutdowns (as in the automotive industry), managers should instead focus on activities which they would not normally have time to do, but nonetheless can be benefitial to the organisation.

John Baldoni gives four key suggestions for leaders on how to prepare their organisations:

  • Master your operations,
  • Use the downtime wisely,
  • Invest in your people,
  • Spread some hope throughout the organization.

To master your operations organisations need to work at understanding their strengths and weaknesses, so they know where to improve and what strengths they can leverage to greater use. Examine everything about your product offering and what your competitors are doing, can you learn anything from this? Secure your financial position to enable investment in the future, this may involve cost cutting exercises but could also be through divesting business units which are not core to the organisation’s strategic direction. As Baldoni says, “In short, get your house in order.”

Use the downtime wisely, with a reduced workload your employees can spend time to think about the activities they do on a day-to-day basis, what could be done better, does it even need to be done? Baldoni suggests organising brainstorming sessions and strategic planning exercises. And to encourage idea generation, it is in the downturn that organisations can be innovative and have potentially revolutionary products hitting the market just as the up-turn hits full steam. At an organisation I have worked for, they set one morning a week as a time to work as a team/section to come up with new ideas and reduce waste effort, this is the sort of thing I think organisations should be doing all the time and not just in times of trouble.

Invest in your people, with employees less busy now is an ideal time to invest in training them up with the latest skills. Apart from emerging with a more capable workforce,  which in theory should improve performance, organisations will also, Baldoni says, “demonstrate a commitment that has a better chance of being returned when the good times do.”

Spread some hope throughout the organization, Baldoni suggests leaders should “control what you can control and live on.” So, rather than dwelling on all the negative things, of which there is likely to be lots, they should concentrate on things they have control over and can make a positive contribution. In other words, have clear goals and objectives for the short term, work with purpose, not in hope that nothing bad will happen.

What does Richard think about this?

It would be nice to have some positive news from organisations for a change… Those organisations that do use this slow-period wisely to: take stock, reorganise, train and invest for the future, are the ones which are likely to survive for a long time yet, and if they are lucky out of this downturn might come that ‘killer idea’ which revolutionises their sector and sets them up for a long period of success.

I understand, however, that for a lot of companies the lack of credit availability is severely impacting on their ability to function when combined with severely diminished sales, in this situation it is imperative to undertake Baldoni’s first two suggestions, these will guide the way to scaling down their organisation to their restricted circumstances.

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UK Audit Market Concentration: The Solutions

February 15, 2009

In this second post on UK audit market concentration I want to look at the potential solutions to the problems I outlined in my first post.

The three main problems brought about by the severe concentration in the UK audit market are as follows:

  • High barriers to entry;
  • Negative Perceptions;
  • Lack of Choice.

What to do about the UK audit market has been the subject of numerous studies, the Financial Reporting Council (FRC) have an ongoing project looking at solutions to the problems, and that is upon what my solutions are based.

The Solutions:

Break up the Big Four:

One argument (McMeeking, 2006) is for audit regulators to mandate the break-up of one or more of the Big Four. Doing this will broaden the choice available to the largest companies, solving one of the biggest issues. However this solution would require the agreement of audit regulators across the world, given the global nature of the Big Four firms. Also the favour with which this sort of solution is viewed will depend greatly on the concerns held by the local regulators, for instance the UK Auditing Standards Board have few urgent concerns because audit quality remains high, this might not be true in other markets.

Raise awareness of capabilities:

As part of the FRC’s ongoing project, the FRC Market Participants Group (2007) found that:

“The FRC should continue its efforts to promote understanding of audit quality and the firms and the FRC should promote greater transparency of the capabilities of individual firms.” (FRC Market Participants Group, 2007)

The general idea being to obtain greater transparency on individual audit firm’s audit capabilities and resources, hopefully leading to a situation where audit committees are no longer reliant on reputation and branding of audit firms in making their choices, as there are no systemic differences in audit quality between Big Four and mid-tier firms (Grant Thornton cite Kyla Gillan and Lynn Turner).

It might also be possible for mid-tier firms to become specialists in certain industries, providing a viable alternative to the Big Four within these sectors.

Greater regulation for Big Four:

McMeeking (2006) proposed that legislation could be introduced which would open up the audit market to other suppliers (i.e. National Audit Office, Audit Commission). With the biggest change being the introduction of an “auditor of last resort” which would guarantee that all firms could turn to an independent auditor, this would have a beneficial impact on the stock market as the risk of there being no independent auditor available is removed.

However: “direct regulatory intervention […] has not been accepted by the OFT or the government.” [Beattie, V. and Goodacre, A. and Fearnley, S. (2003)]

Another regulatory option is to introduce compulsory auditor rotation periods, which might encourage audit committees to look beyond the Big Four, thereby having the dual benefit of increasing auditor independence and competition in the market.

Change Perceptions:

Oxera (2006) concluded that unless perceptions of the non-Big Four audit firms changed, entry into the FTSE 100 and FTSE 250 audit markets would require uneconomic levels of investment.

How this might happen is difficult to answer, but ultimately I think it is the only long-term solution. But it might be easier than it looks… could audit committees be seeing a problem (investors want only Big Four) that doesn’t exist? Peter Montagnon, the ABI’s Director of Investment Affairs, said: “It is important that companies approach this choice with an open mind. Investors are content for companies to choose an auditor from outside the Big Four, if this suits their circumstances.” [Montagnon (2006)]

Merger between mid-tier firms:

Finally, a solution to the issue is for mid-tier firms to merge, creating audit firms comparable on scale to the Big Four. This is obviously a very real possibility, as the Big Four have shown. However, merged mid-tier firms may get to a comparable size but the perceptions (stigma, possibly) might stick, so audit committees may still stick to the current Big Four.

Conclusions:

My personal favourite solution is a free-market one, without imposed regulations, but with assistance from the regulator bodies such as the FRC in reviewing and publishing, in a transparent fashion, the capabilities and resources of all audit firms, not just the Big Four.

It is a very tricky problem to overcome, luckily in the UK there are no real concerns over audit quality and so the need for solutions is not so urgent. Although some critics would argue that auditors are complicit in the current economic downturn, in particular within financial services, but I personally think this is significantly down to the expectations gap evident within the general population.

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