Voices within the Winds of Change: The Demise of KMG Kendons
Accounting History, 19(1-2), 31-52, 2014
Posted: 2 Apr 2018
Date Written: March 21, 2014
During the 1970s and 1980s, the accounting professional environment underwent major changes. This case study, largely based on oral history narratives of retired partners, focuses on KMG Kendons, a well-known and respected New Zealand national accounting firm that did not survive the 1980s.
The objective of this study was to use longitudinal archival data to examine how an accounting firm and the institutions within it responded to accounting professional environmental changes and to identify the deinstitutionalisation forces present which led to the subsequent demise of a national entity – KMG Kendons. The major question of this study relates to what happens in professional partnerships when confronting competing institutions, and investigating how they interact with each other and with the economic, political and social forces for deinstitutionalisation. The research contributes to our knowledge of the processes of an accounting firm’s demise. The demise of a firm has implications for its clients, the community and the accounting profession. This study also provides an understanding of how institutions interact with each other, and the role of deinstitutionalisation forces. There are also more general lessons about small accounting firm growth through amalgamation. Other growth in this manner has been documented by Baskerville and Hay (2006, 2010), where it is clear that strong leadership committed to successful integration of partners was achieved after merger events at other loci. Lastly, and most importantly, given the economic and social costs of organisation demise, such research can suggest how this could have been avoided.
Notwithstanding the limitations of the case approach, the above analysis (as depicted in Figure 2) indicates that within KMG Kendons the presence of competing institutions generates social fragmentation and internal conflict; and thus weakens an organisation’s ability to protect or sustain the newer institutions against strong external forces in particular. In addition, the case suggests that the existence of competing institutions can be attributed to the earlier failure of a new institution to completely override or remove the previous and competing institutions. Further, the occurrence of an external environmental event makes the tensions between competing institutions both explicit and unstable, threatening organisational survival in the face of the political, economic and social deinstitutionalisation forces. It was the interactive and combined impact of multiple forces initialised through an external jolt that resulted in the demise of this national entity. The key political forces were those related to performance and external jolt that resulted in the demise of this national entity.
The key political forces were those related to performance and profitability, providing other entities with a capacity to split parts of KMG Kendons away from the national entity, and competitor behaviour relating to the Transatlantic mergers that were taking place at that time between the big international accounting firms. Key economic forces mainly resulted from the Transatlantic mergers: these gave Peats the power to conduct evaluations of individual KMG Kendons’ offices, and led them to take those which could contribute the most economically. This behaviour was partly possible due to the increasing technical specialisation in accounting firms. Competition for resources, and the power of the “big audits” drawcard, were other economic forces that came into play with the KMG affiliation loss.
However, in the case of KMG Kendons, the dominant deinstitutionalisation force appears to be a social one, relating to internal social and structural fragmentation. With Peats not wanting all the KMG Kendons’ offices, their aggressive approach split the entity structurally, allowing individual offices or groups to merge with them or other firms. Further, the implicit internal cultural tensions present in the earlier years of KMG Kendons, surfaced strongly during the Auckland partners’ merger talks creating social fragmentation. External societal expectations were also changing regarding what was required in terms of professional objectivity and independence.
An underlying question of this study is what could be done to counteract such deinstitutionalisation forces and thus ensure organisational survival? At a critical time for KMG Kendons, there was an absence of leadership and strategic direction, which compounded the impact of an externally precipitated jolt on internal stability. This study argues that strong leadership, strategic direction, and a strong organisational culture and identity (a coherent set of organisational values/institutions and identity) are critical factors in organisational development and survival, at least for firms exposed to such intense external pressures. Structural integration and the presence of custodians could have also provided counter-forces to the impact of deinstitutionalisation forces and may have saved KMG Kendons.
Finally, the case highlights the potential outcomes of deinstitutionalisation. Dacin and Dacin (2008) suggest that deinstitutionalisation can lead to the erosion or extinction of the whole institution, or institutional remnants. This study does not find the disappearance of the prevailing institutions within KMG Kendons, but instead different versions of institutional remnants. While the national entity fell apart, both the old and the new institutions were reinvented or survived in new or other organisations.
Keywords: Big 8, Accounting, Deinstitutionalisation, KMG Kendons, Professional Firms
JEL Classification: M41, L25
Suggested Citation: Suggested Citation