Drawing on personal experiences of how organisations develop their core values, Paul Davis examines how accountancy firms can embed ethical decision-making.
Moral decisions are rarely black and white. Yes, we have laws and regulations and codes of conduct, but these are continually changing. You can think of any number of practices that were entirely acceptable at one time, but which are not acceptable any longer. Similarly, what is right for one person is often wrong for another. So what do you do when confronted by a dilemma? How do you act?
The fact is that accountants are frequently faced with serious ethical questions. One of my accounting clients was recently asked by their client to understate the company’s stockholding on its balance sheet by a significant amount in order to reduce its profit and therefore its tax liability. Another was asked to reverse their decision to have qualified accounts. Several times, I’ve had situations where accounting professionals were asked to massage the figures to allow the company to secure better credit terms from suppliers.
Ethical behaviour is embedded in an organisation when people are developed in accordance with their own values
If you work for a firm that has listed integrity, honesty and professionalism as its values, do you refer back to these before you make your decision? For many, the truth is that you don’t. You use your own judgement. And that is the fundamental misunderstanding that lies at the heart of the discussion around corporate values.
Despite the lofty claims that organisations always make on their websites, the truth is that a business can’t have a set of values. It’s an inanimate object. While a company can attempt to mandate being good, being fair, being honest and so on, doing the right thing falls ultimately on human shoulders. So values need to come from the individuals themselves.
Every human being takes an action based on their perception that it is more advantageous than disadvantageous to them. Therefore, unless an employee can readily see that there are more advantages to them to pursue the firm’s mission or the culture of that firm, they will not perform in line with desired outcomes on a consistent basis.
While people may describe their values using those aforementioned terms – integrity, honesty, loyalty, reliability and so on – these are not in fact core values, not in the true sense. What I mean by this is that when it comes to their business or relationships, their philosophy is to try to deal with people with honesty and integrity, and to be loyal and reliable. These are what are important to them, but they are not their core values.
Values – or internal priorities as I prefer to call them – are fingerprint specific. They are the cause of differing standpoints and why so many conflicts can develop in relationships. Internal priorities are what are most or least important in your life. They determine your world view and generate your behaviour. They determine what you label good and evil, what you respect and disrespect, and your sense of worth. To know yourself, you must know your highest internal priorities.
Our internal priorities are shaped by our upbringing – our parents, schools, our community and church, together with all of our experiences and the individual ways in which those experiences are interpreted. You could have twins who grow up with completely different sets of values. So when you talk about shared values in an organisation of 2,000 or 200 or even just two people, you’ve got to wonder how that could possibly mean anything.
Because these internal priorities are unique to an individual, the best way a business can have all their staff engaged in the business is to first identify the internal priorities for each individual, and then go through a process of linking those internal priorities to the mission and philosophy of the business.
How is this achieved? One approach is to take clients through a series of questions that looks for evidence to establish each individual’s top three internal priorities. Once your internal priorities are clear to you, when you are confronted by a moral dilemma you will ask: what is the right thing to do? What would a wise person do in this situation? Again, while the rules are there for us, ultimately, each of us will act according to our own internal priorities. Ethical judgements are developed from the inside out, not the outside in.
Culture and mission
When individual priorities are known, we then look at the firm’s culture and mission. What it is trying to achieve? Now it’s a case of matching individual roles with those goals and asking the question: ‘How does the firm’s mission fulfil my priorities?’ At the end of this process, you have clear alignment between individual priorities and the culture and mission of the practice.
Ethical behaviour is embedded in an organisation when people are developed in accordance with their own values, and then, when the dilemma arises, it is discussed and dissected in the light of those values. You can discuss hypothetical situations until the crack of doom, but you never know how anyone will act until you face that moral question in real life.
Ultimately then, values are not an empty promise on a website, they emerge as a natural by-product of making sure that you have the right people in the right roles. Establishing each person’s unique set of internal priorities is a central part of making sure that individual values line up with the company’s culture and mission.
Paul Davis is an executive mentor at Davis Business Consultants.
Published by ACCA
Accountancy firms need to rethink how they handle billing if they want to maximise practice profits and maintain a good work/life balance, says Paul Davis.
Pricing is a sensitive subject. In contract negotiation, it is the moment when hearts beat a little faster, the breathing quickens and everyone suddenly comes wide awake. Yet for all that excitement, the vast majority of accountants agree fees in the same old way. They settle on an hourly or daily rate, and once the task is completed, the client is invoiced and then pays some 30 to 90 days later.
The truth, however, is that time billing is systemically flawed. It focuses on effort rather than results, even though it is the results that justify the expenditure in the first place. By breaking that connection between what the client spends and what they get for that expenditure, time billing becomes regressive and counterintuitive. It discourages improvement. There’s little point in doing the job more quickly if you end up getting paid less. The only way to increase earnings is either to charge more or work more hours. The former exhausts your clients, the latter exhausts you.
Value-based pricing allows you to link the fees you charge not to the time you spend working, but to the value you create for the client
Let’s pretend for a moment there’s no such thing as time billing and focus instead on this universal truth: the only reason accountants can charge for their services is because the profit the client makes from using them outweighs the cost. A full understanding of the implications of this principle could transform how you do business.
If you could define the value your services generate for your client and demonstrate that value, you would suddenly have a more equitable, ethical, transparent and sustainable means of pricing your services. What’s more, you would have a vastly more profitable business model.
In their first meeting with a prospective client, practitioners tend to adopt a presentation mode: this is our practice, this is why we’re the best, this is the list of things we can do. With value-based pricing, you put the client at the centre of the conversation and you keep them there.
Your first contact should not be a recitation of your services; it should be a conversation where you respectfully and tactfully explore the client’s business, asking open-ended questions that get to the heart of the problems the client faces. Only then can you begin to unearth the value you can generate for their business.
As professionals, practitioners harness their expertise to deliver outcomes, while clients harness these outcomes to deliver value. Building a trust-based relationship short-circuits this dynamic, allowing you to link your expertise directly to value delivered.
Moving from time billing to value-based pricing allows you to link the fees you charge not to the time you spend working, but to the value you create for the client. How to begin? By having the value conversation as early as possible in the relationship, and by continuing that conversation throughout the project and beyond.
How it works
Here’s one example of how a value-based professional relationship operates. I was asked to do a piece of work for a Tipperary-based client whose company was making serious losses and carrying €350,000 of debt. Within three months, we had turned the company around, giving the client a positive cashflow and clearing the overdrafts that had dogged the balance sheet.
At the conclusion of this process, we were sitting over coffee after lunch in the local pub and I asked my client what difference the intervention had made to him. He didn’t say: ‘Well, I’ve got money in the bank,’ nor ‘I’m back in profit.’ What he said was: ‘I don’t have to worry about paying for my daughter’s wedding.’
Having such conversations requires confidence. Part of the reason why startup practices price themselves so low is they panic. They need to get money in the door, so they take anyone with a pulse. But when your confidence is high and you feel more sure of yourself, you can redraft the relationship and begin to ask those value questions.
The power of three
Moving from billable hours to commodity pricing is also worth examining. In this model, you always offer three different plans.
Suppose the service is company formation. Your entry-level service costs €250, and covers simply registering the company with the Companies Registration Office. Your €500 service might also include tax registration. Finally, your €1,500 service offers a more in-depth, customised approach, where you sit down with the client, discuss the aims of the company, perhaps provide templates for their bookkeeping and explain the key measures they should monitor.
How does this help? If, by contrast, you were to say: ‘Our company formation fee is €500,’ the client has nothing to compare that with and will respond: ‘Well, can we negotiate on that?’
By presenting a tiered offering, you offer an intelligible suite of services and that vital element of choice. Moreover, you will find that the entry-level service is frequently eschewed in favour of the mid-range option.
But it is through that seismic shift from time billing to value-based pricing that you unlock real earnings growth, as I’ve found time and again with clients. I recently commissioned independent research that found that moving to value-based pricing has allowed my clients to raise their fees by an average of 274%. And that’s not a misprint!
Paul Davis is an executive mentor at Davis Business Consultants.
Published by ACCA
In this interview you will learn…
- Compliance for accountants is becoming a smaller proportion of accounting firm income
- Accountants have NOT been listening over the years, both to what their clients are wanting and what the market is driving
- Clients see little value in compliance, which is why it’s becoming a commodity
- Many accounting firms are unable or unwilling to give their clients the direction and advice they need
- Most accounting websites have the same buzz words – integrity, honesty, professionalism, reliability, so where is the differentiation?
- Most accountants have lied, bent the rules, committed things if they answer honestly
- The vast majority of accounting firms have not changed over the years and are not open to change
- A picture of what will happen to accounting firms who cannot or refuse to change and really listen to their clients and their own staff
- The younger accountants coming through to replace the older generation are more empathetic and ask better questions of clients
- One possible reason why accountants don’t listen and ask good questions of clients is that they’re supposed to have all the answers
- Dashboards, graphs and charts are easy for accountants to produce, but this is not what business owners are looking for
- Most accountants are doing well from a revenue and profitability point of view but are not thinking long term and will suffer in coming years
- What separates the good accounting firms from the great ones
- Commercially minded accountants are few and far between, and many are not open to this coachable skill
- The difference between the good and great accountants is offering strategic advice
- Why accountants should not Simon Sinek’s ‘start with your why’ as that’s not why clients buy from you
- Values are completely misunderstood in all companies – accountants should properly use them for better impact and differentiation
- A business cannot have a set of values – it’s an inanimate object and not a human being
- Values are better phrased as priorities or philosophy when it comes to representing your accounting firm
- Almost all accounting firms are seeing huge downward pressure on fees and a huge increase in salaries, and economics says these two lines will cross
- Accountants are a 6 or 7 out of 10 when it comes to time management and productivity
- Accountants can put all manner of new business systems and processes in place, but if they don’t change human behaviour, they won’t succeed
- Very few business coaches and consultants who serve accountants do not invest in learning and so dish out the same information and methods.
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