Global Inequality – the rise of the Accountants era:

Many articles have been written on global inequality. Why is over 50% of the world’s wealth held by less than one per cent of the population? Contrastingly, why does the bottom 50% of people only own two per cent? There are numerous reasons: Globalization; the rise of super companies; the growth in billionaires; compounding financial systems; Government policies; monopoly power; shareholder primacy over workers’ wages; technological advancements; global supply chains; historical legacies and political influence. I could list another dozen but you get the picture. I will add just one statistic which is stark – a recent Oxfam report states that eight men own as much wealth as half the population of the world.

Nowadays, everything travels around the world instantly.

Similarly, if I ask why there is still so much poverty in the world, you could say the main reasons are armed conflict, poor governance, corruption, limited access to education and healthcare, poor job opportunities in many countries; climate change affecting agriculture, and profound economic inequality, including low pay, which trap communities in cycles of deprivation. I would add to that list the apathy of the top one per cent and the sheer greed of that cohort to gain more and more wealth, often, if not always, at the expense of the poorer parts of society.

There is one area I want to concentrate on in this article because it is my belief that it has had an enormous, out of proportional influence on the way our world is shaped in the 21st Century, from a financial viewpoint. That is the area of Financial Services companies. Back in the day, as they say, there were numerous small companies which offered services such as accounting, audit and financial advice. To be fair, there are some small firms that exist today but they would probably account for one per cent of the business. The 99% is held by what is now called the big four.

Let me explain: back in the 1970’s and 80’s, smaller accounting firms began to be taken over by larger firms with global reach. There were numerous mergers and acquisitions and this was allowed to continue unchecked until at the end of the 1980’s, there was what was referred to as ‘the big eight.’ This subsequently became the big six, then the big five and today there are only four – imagine, only four major accounting firms in the entire world. These are KPMG, Deloitte, PWC and EY. They account for 99% of all transactions in financial advice and have reached a position of immense primacy and influence due to a combination of historical consolidation, immense global scale, and the expansion of their services beyond traditional auditing. They now dominate the auditing of public companies and also provide consulting, tax, and risk management services, essentially becoming institutional pillars of global financial infrastructure, or so they would have you believe.

My issue with this consolidation is that it is even worse than it looks. Financial advice is fine and necessary; the problem is when the behemoths (and that is what they are) move from just giving advice to managing companies themselves. If you examine the world’s major firms, this is what is happening. Practically all large companies are now run by accountants. My own personal experience is just a small example. In my lifetime of work, I was only employed by five different companies. However, each was progressive during my time with them and, this is the key point, all were run by entrepreneurs; risk takers; innovators; business people. Nowadays, four of the five companies are run by accountants. Needless to say, these companies are not progressive, unimaginative, living on past glories and the kindest thing I could say about them is that they are stagnant. How did this come about? Did more people study accountancy? I think they did. More were attracted to the larger firms and as they grew and grew, often these people found themselves parachuted into management roles in companies that they knew little about. But that didn’t matter because finance became primary.

Accountants will scoff at me and say that you cannot run companies with finance. I would readily agree with them but I would argue that you cannot run companies without people. I would also say that while the Chief Finance Officer (CFO) should always be a key adviser to the firm, they should never be its CEO. That role should always be held by an entrepreneur; a risk taker; innovator and preferably a generalist, not a specialist of any kind. Specialists are wonderful at specializing in their own discipline and that’s fine; the problems only start to surface when you put them in charge of the entire operation. If you look at some of the world’s most successful companies, almost all were started by innovators. Unfortunately nowadays many are run by accountants.

This, to my mind, is where our world has erred badly. The primacy is always given to finance. Money is important and you cannot do much without it. But put an accountant in charge and they will see nothing else but money – this is not necessarily their fault; it is their training and mindset. Accountants should be there to advise, never to manage, not unless they are someone like Ryanair’s chief Michael O ‘Leary, who though an accountant by training has innovated to effectively change world air travel.

A classic example for me is Apple. I’m not saying that Steve Jobs was perfect but he was an innovator. Look at what Apple produced in his time; The I-Mac, IPOD, I-Phone, I-Pad etc. All are marvelous inventions; what have Apple done since his passing? They’ve made better versions of the same thing but I don’t see anything new. Their CEO is Tim Cooke, who is not an accountant but he is an engineer and it is said that that profession is even more conservative and cautious. So what have Apple made since Steve Jobs passed? Answer – Money.

I’m not saying Apple are going anywhere but the corporate world is littered with companies who were initially great innovators, then made a lot of money; put accountants in charge and failed to develop or innovate and went broke. Companies like Kodak, Polaroid, Toys’R’us, PanAm, TWA, International Harvester – the list is endless. I didn’t even mention Lehman Brothers or Enron.

But I digress. Financial primacy means money is the be all and end all. In other words, it echoes the words of the fictitious Gordon Gecko in the movie Wall Street – ‘greed is good.’ Unfortunately too many firms today believe in that mantra and that is why we are in the mess we are in. I’m not saying that all accountants are unimaginative. They’re not necessarily by nature but their training makes them that way. The only ways accountants know, in my experience are caution, extra caution and extreme caution. I’m not advocating a return to the free-wheeling days of cheap money and the early 21st Century boom. That was a mistake and even accountants lost the run of themselves then. But please bring back a few innovators, businessmen who will develop businesses for more than just financial reasons; people with a bit of imagination. The World in general could do with them; the poorest sector, almost 50% of the world’s population might even benefit. Where are the innovators who will solve world poverty or disease? Why are our brightest minds totally concentrated on making more and more money? A man can only wear one pair of shoes after all. Think about it guys. We are waiting.