Reviewed by Paul J. Miranti, Jr. Rutgers University
This outstanding work written to commemorate Price Waterhouse’s (PW) first century in America is an important addition to the accounting historical literature. The cogent analysis rendered by David Grayson Allen and Kathleen McDermott, a gifted team of professional business historians, glides smoothly on a plane far above the amateur chronicles that have thus far characterized this genre and also evidences the rich potential for firstrate scholarship that is inherent in practice histories.
A major strength is the delineation of the study into three epochs based on a changing mix of socioeconomic circumstances which shaped the course of professional development. The first, which spans the years 1850 to 1926, describes the firm’s British origins and explains how a small representative office in New York soon became transformed into an autonomous practice with a clientele national in scope. The takeoff in America began during the early years of the current century. It was fueled by investor needs for new types of professional knowledge that were effective in resolving the agency problems associated with the separation of ownership and control in emergent giant business enterprises. In this transition British professional firms had special significance because of the position of London as the leading international center for raising business capital.
The later integration of public accountancy into the complex federal structure for regulating American financial markets is the central theme of the second epoch which spanned the years 1926 to 1961. The reforms of the 1930s guaranteed a permanent place for audit services in corporate governance, provided a framework of legal sanctions which strengthened the role of public accountants as monitors of financial reporting and won broad public acceptance for a substantial degree of professional selfregulation. These developments contributed to the strong growth experienced by PW and other national firms after World War II.
Although the profession has continued to prosper since 1961, the most recent epoch is marked by considerable turbulence and a fundamental change in the tone of practice. Public accountancy became burdened with mounting overheads that resulted from adverse malpractice litigation, the extension of professional standards intended to strengthen practice quality, and increased competition in the market for professional services. The domestic economic environment in. which accountants operated also experienced severe shocks from rising inflation, a decline in industrial competitiveness, a growing dependency on foreign energy sources, deregulation and financial market instability. Moreover, larger practices units were also drawn overseas as the barriers to international trade continued to crumble. This flux compelled leading firms to reassess the fundamental strategies and structures they employed in managing their practices.
Against this general backdrop, Allen and McDermott skillfully embellish their rich narrative by analyzing the firmspecific qualities that contributed to PW’s longterm success. Foremost was the firm’s leaders who from earliest days recognized that success was not solely dependent on technical practice competency; it was also contingent on the ability both to contribute to the advancement of accounting professionalism and to persuade government and business leaders of the relevancy of public accountants’ specialized skills. Second, the pressing demands of practice were found to be better served through decentralized administration which allowed local office partners a high degree of discretion in decisionmaking. Third, PW established a strong economic base by emphasizing in its practice development the quality rather than the quantity of its clients. Such a strategy had positive implications both for its fee structure and for limiting its exposure to litigation. Fourth, the firm was sensitive to the need to redefine its target clientele in response to major patterns of economic change: thus, an initial strong commitment to heavy basic industries was gradually challenged by the rise of a vibrant service sector. In these and other ways, this unique entity assure its professional leadership.
This book should be read by all serious students of accounting history. Its achievement is not limited to providing an understanding of the factors contributing to the successful rise of one of America’s leading public accounting firms. It also serves as an excellent example for the professional scholar of what may be achieved in institutional history.
