Institutional change: Promoting the emergence of a natural order

Carlos Ramirez, Professor of Accouting and Management Control - January 15th, 2013
Changement institutionnel - ordre naturel

Institutional change on a global scale, such as the introduction of new professional regulations, can generate injustices at an individual level that jeopardize the success of that change. Carlos Ramirez analyzed this phenomenon by focusing on the events that took place in the United Kingdom’s largest association of accounting and auditing practitioners, the Institute of Chartered Accountants in England and Wales (ICAEW).

Carlos Ramirez ©HEC Paris

Carlos Ramirez is the holder of an aggregation in social sciences and has a Ph.D. in sociology. He was professor in accounting at HEC from 2002 to 2013. Carlos Ramirez’s work (...)

UK auditors remained the sole judges of the quality of their own work in a self-regulated system until 1989, when the Eighth European Directive regulating auditing activities was transposed into British law. The authorities then entrusted the ICAEW with the responsibility for setting up a system for monitoring the quality of members’ work.

 CHANGE IN INSTITUTIONAL LOGIC

With this change, the logic that had hitherto governed professional identity, independence, and the freedom to decide the material and intellectual means for performing tasks was turned on its head. The change was driven by a broader societal trend to hold professional organizations more accountable for the actions of their members. This first involved defining what it meant to be a responsible professional. However, although professional auditing standards existed, they only reflected one ideal vision that was far removed from other different conceptions of good practice. Moreover, the ICAEW was already in a period of internal tension when the quality monitoring was introduced. Small audit firms felt that they were being poorly represented, with some even suggesting that the institution was in the hands of a few large, multi-national firms. The initial results of the quality monitoring system reflected these feelings and exacerbated tensions.

 WHAT IS GOOD PRACTICE?

The inspectors noted numerous shortcomings, particularly in small audit firms. They struggled to judge the quality of the work due to the absence of sufficient material proof. In reality, audit procedures were less formalised in many small firms than in their larger counterparts due to the different nature of the clientele, but this does not necessarily mean that the auditing was of an inferior quality. Practitioners working in small firms thought they were being treated unfairly and accused those responsible for quality monitoring of basing their assessment of the entire community on rules that were only appropriate for large firms. They claimed that the process did not take sufficient account of the co-existence of different conceptions of worth regarding professional work and that a category of the institution’s members was being stigmatized. As a result, a change that had been intended to introduce greater openness and improved quality in fact created more confusion, which even threatened the very existence of the institution. In reality, no system of worth was capable of imposing a natural order that could enable different conceptions of professional identity to co-exist. How could they find a way out of this situation?

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Professional standards are a poor reflection of the diverse conceptions of good practice.



THE CONTRIBUTION OF THEORY: ECONOMIES OF WORTH

Boltanski and Thévenot suggest a theoretical framework for analyzing the processes people use to justify their position, express possible disagreement without resorting to violence, and develop more or less long-lasting compromises that allow different conceptions of worth to co-exist. According to their model, a limited number of worlds of reference are governed by a principle of worth, which is also a principle of justice, that makes it possible to rank people in a natural order benefiting “the great ones” as well as “the small.” In practice, it is rare to find situations that fall exactly into one or the other of these worlds of reference. Many situations represent tests: the actors try to determine to which world they refer as a way of applying a principle of equivalence that will allow the emergence of a natural order.

FINDING A COMPROMISE

The inspectors and inspected at the ICAEW judged the audits according to worlds of reference with different principles of worth. The inspectors required traceability, whereas the inspected considered this as serving merely to increase their workload and create a counter-productive effect on client relationships. Quality monitoring is the test of worth referred to by Boltanski and Thévenot. However, as it did not make it possible to establish an equitable order of worth regarding work, the harmonious co-existence of different conceptions of the audit in the same professional community became impossible. In response, the institution took corrective measures. The solution consisted of decoupling the inspection from the audit so that there could no longer be any confusion between the two. How? By having practitioners inspect their own work and by introducing new material aspects into the inspection. Following a reform of the inspection system in 1993, audit practitioners have subsequently had to attest that they have set up efficient measures for monitoring the quality of their firm’s work. The basis on which they are judged, therefore, is customized. This redefinition of the material aspects of the inspection makes it easier to assign new roles to the inspectors and practitioners under inspection. It helps to make quality monitoring an educational process. The decoupling of the inspection from the audit allows different conceptions of the audit to be considered at equal value.


Based on an interview with Carlos Ramirez and his article “We are being pilloried for something we did not even know we had done wrong! Quality control and orders of worth in the British audit profession”, Journal of Management Studies (forthcoming).

APPLICATIONS POUR L'ENTREPRISE
APPLICATIONS POUR L'ENTREPRISE

Les évènements survenus au sein de la communauté des auditeurs britanniques permettent d’appréhender la dimension morale et les enjeux liés à la notion de valeur inhérents au changement institutionnel. Ils montrent que le changement peut créer des situations conflictuelles telles qu’il devient impossible de déterminer la valeur relative de ceux qui y sont impliqués. Pour en sortir, il est nécessaire de trouver un compromis entre différents systèmes de valeurs et de mettre en place des changements matériels qui évitent les situations conflictuelles et facilitent l’émergence d’un ordre naturel.

METHODOLOGIE
METHODOLOGIE

Carlos Ramirez appuie son analyse sur le cadre théorique développé par Luc Boltanski et Laurent Thevenot. Il s’intéresse en particulier à la notion d’économie de la grandeur qui permet de comprendre comment différentes conceptions de la valeur peuvent entrer en conflit et sur quelles bases, à la fois matérielles et morales, il est possible d’en sortir.