KPMG CASE STUDY
City and State
KPMG Case Study
Large and reputable companies are often under close scrutiny from the public and regulators because of the important and large number of clients they serve. Any lapse in performance or conduct from such firms is often publicized highly and attracts heavy sanctions from the regulatory authorities. Although such firms can settle disputes out of court and pay large fines, their reputation is often badly damaged while they are also expected to take remedial measured to prevent the reoccurrence of the malpractices and misconduct. KPMG is one of the largest big 4 accounting firms globally that is headquartered in the Netherlands that is in the spotlight for delivering substandard work and being engaged in scandals during the Covid-19 pandemic. The ensuing analysis focused on KPMG problems as presented in the case, and how it can remedy them.
KPMG is suffering from damaged reputation because of delivering substandard audits and being embroiled in impropriety scandals. Specifically, the Financial Reporting Council (FRC), the accounting regulator in the United Kingdom, has criticized KPMG for delivering substandard bank audits for three consecutive years. Besides, the United Kingdom government has threatens to ban the firm from bidding for public contracts if it repeated its recent scandals, such as the case of Silentnight’s insolvency investigation in which a senior partner at the firm was alleged to have lied by the regulatory authority (O’Brien 2021). These accusations came in the wake of Covid-19, when the company had established working from home practices to adhere to the Covid-19 public health protocols. The company has since announced that it wants to reduce the working from home frequency to allow its employees spend more time at the workplace and work physically as a team. However, this is only one of the interventions expected to help repair the damaged reputation of the company and hopefully improve the quality of its performance going forward.
From this general description of the problem, the greatest problem KPMG is facing is a badly damaged reputation, considering that the firm is one of the 4 largest and highly reputable accounting firms in the world. Because of its reputation and size, KPMG has large and important clients, including governments and multinational across the world. Therefore, a badly damaged reputation can critically undermine its business, performance, profitability, and survival.
Associated with this problem is the challenges presented by telework policy framework that the KPMG instituted in the advent of the Covid-19 pandemic. In a bid to adhere to the Covid-19 public health protocols, KPMG introduced working from home in its flexible working arrangements with its auditors. KPMG employees could choose when to work from their offices, home, and clients sites provided they worked from the office for a maximum of four days every two weeks. Those who could work entirely from home were encouraged to do so, leaving those that need to work in teams to work occasionally from the office. However, this seems to have presented a quality delivery problem especially with auditors that have to work in teams and novice auditors that need to be mentored at the workplace. For this reason, the United Kingdom unit of KPMG decided to reduce the working from home flexibility and increase the days auditors come to the office. The company requires that employees dealing directly with clients cone to the office or to clients’ sites at least two days in a week.
However, intervention presents another problem. Specifically, following the emergence of the Omicron variant of the coronavirus, tighter restrictions in public places have been instituted by the United Kingdom government, which might conflict with KPMG intention to increase physical office attendance for its employees. In this regard, KPMG has to contend with increased traffic and employee population in its offices to ensure that the staff and clients are not endangered by the Omicron variant of the Covid-19 pandemic.
KPMG has three primary problems, i) reputation damage from repeated scandals, ii) lack of teamwork when working from home leading to poor work quality, and iii) increased risk of covid-19 infections from proposed increased physical office attendance.
Reputation Damage from Repeated Scandals
KPMG is facing an image crisis that threatens its organsational and corporate identities. The company has built a robust brand known for high quality accounting and auditing services globally. It has created this brand through portraying a positive image of itself through signaling. In turn, KPMG has established reputational capital by providing distinguished accounting services to differentiate its corporate identity and gain legitimacy among its key stakeholders as a responsible, ethical, and trustworthy corporate leader in the accounting world. Martin and Sinclair (2018) explained reputational capital to be the degree of differentiation and prominence of a company’s products and services, and legitimacy with stakeholders. KPMGs achievements and challenges can be explained using the signaling theory and the organsational identity theory.
According to the signaling theory, the signaler strives to communicate information that minimizes asymmetry. The communication by senior executives in an organization should be succinct to avoid distortions of the message by the receiver, who are the stakeholders in a firm. In this case, the manner of communication by KPMGs executives may send the right or wrong signals to the public and regulators, thus impacting the organization’s reputation. Zavyalova, Pfarrer and Reger (2017) argues that organizational reputation is a social approval asset that reflect the ability of an organization to deliver value consistently.
In this case, the reputation of KPMG was damaged when the company was entangled in several scandals, including when a senior partner presented falsified information about a client during an investigation by the regulator. These occurrences have featured prominently in the media and attracted negative attention and evoked negative emotional responses from the stakeholders (Zavyalova, Pfarrer and Reger 2017). These events indicated that KPMG is not a competent, fair, and honest corporate and accounting industry player because it sent out the messages that elicited negative perceptions about the company and its employees to clients, regulators and other stakeholders (Altay, Majima and Mercier 2020).
Similarly, according to organizational identity theory, an organization’s identity has three attributed; central attributes, enduring attributes, and distinguishing attributes (Mujib 2017). The central attributes are related to the history of an organization, which may change over time. The enduring attributes are explicit and deeply embedded in the organization. The distinguishing attributes are related to the standards and norms that make an organization similar or different from other organizations (Ashforth, Schinoff and Brickson 2020). In this case, although KPMG has a unique brand as an accounting giant, it shares many similarities with other large accounting firms, including being embroiled in scandals. In addition, its performance has lowered since employees stated working virtually. These have challenged the organsational identity of KPMG, which seeks to be viewed positively by the public, clients and regulators to maintain its social license to operate. Doering et al. (2021) noted that the performance of an organization was central to its identity, and poor performance can damage the identity of an organization.
Lack of Teamwork When Working From Home Leading To Poor Work Quality
KPMG’s executives believe that working from home during the Covid-19 pandemic may have undermined teamwork and learning, thus leading to the delivery of substandard outcomes to clients. Working from home has become the norm in many organizations since the advent of Covid-19 and has transformed the work environment in distinctive ways. Although it provides working flexibility to employees, it presents management challenges because of the increased physical and reduced power distance between the managers and employees, making employee supervision difficult (Waizenegger et al. 2020). Ipsen, Kirchner and Hansen (2020) demonstrated this through their study, which revealed significant differences between the experiences of employees and managers, and those working in knowledge and non-knowledge industries. Specifically, the findings indicated that knowledge workers had positive experiences with working from home while their managers found the working conditions at home challenging. Specifically, while knowledge workers achieved more while working from home using technology, managers were challenged by using technology to perform their managerial duties.
Other challenges faced employees working from home, such as reduced wellbeing, as was demonstrated by Schifano et al. (2021). Their study drew data about anxiety, depression, loneliness, life worthwhileness, and life satisfaction from employees in five European countries tracking their wellbeing after being forced to work from home during the Covid-19 pandemic. The study revealed that wellbeing was negatively correlated to the stringency of policies about working from home. However, although employees were affected differently by this working structure, the ones most negatively affected included those living in crowded homes, parents with young children, the better-educated employees and the older members of the workforce. A similar study investigating worker and manager experiences conducted across eight European by Ipsen, Kirchner and Hansen (2020) revealed some similar findings to those of Schifano et al. (2021). In addition, employees have to use technology to perform their work and communicate with their managers and colleagues. For instance, Raišienė et al. (2020) acknowledged that telework presented challenges related to applying information and communication technologies, collaborating, working in teams, and communicating with colleagues and stakeholders. However, their study revealed that employees working from home had different perceptions of the benefits and demerits of this working format. It also found that the variance in perceptions depended on age, gender, level of education, work experience, and experience in working virtually of the individual employee.
However, the employees’ ability to use technology efficiently and effectively to perform their work virtually depends on their technology skills. In the same vein, employees have autonomy to set their work schedules when working from home, because of the flexibility of their working conditions in virtual settings. According to the self-efficacy theory, individuals have beliefs about their capacity to behave appropriately to perform their tasks and duties. In turn, self-efficacy indicates the confidence of individual in controlling their motivation, behavior and social environment. The concept of self-efficacy was pervading employees working from home that had positive experiences with the new worming arrangement. For instance, Barrero, Bloom and Davis (2021b) revealed that a significant proportion of employees (20%) had better experiences with virtual work during the Covid-19 pandemic compared to those in the same environment before the pandemic (5%). The authors argued that the increased preference for working from home could lead to the entrenchment of the practice in workplaces and organizations. Barrero, Bloom and Davis (2021b) argued that the drivers of this trend was the diminishing of the stigma associates with working from home, increased innovation in virtual work-supporting technology, lingering fear of infection risks and crowds of people, and emergence of workplaces that leverage virtual work. In this regard, Barrero, Bloom and Davis (2021b) believed that the shift towards working from home would attract high-earning employees who would benefit most from the working configuration and drive workers from city centers towards neighborhoods. In another study conducted by the same researchers, the findings revealed as employers were considering bringing back employees to the workplace as the pandemic subsides, about 40% of employees would seek new jobs if their current employees insisted on more office hours or terminated the work from home option (Barrero, Bloom & Davis, 2021a).
Virtual work challenges the ability of an individual to control his or her behavior by presenting more freedom because of the reduced supervision by managers. Toniolo-Barrios, M. and Pitt, L., 2021) explained that working from home during the Covid-19 pandemic yielded negative outcomes to employees and their organizations, such as lower work productivity, increased stress, poorer mental health, and reduced motivation. Similarly, Waizenegger et al (2020) revealed that the increased use of technology when working from home presented an autonomy paradox because although information and communication technologies enhance flexible work and living configurations, workers are expected to use them to remain connected and responsive always, thus leading to negative emotions and fatigue. According to KPMG, teamwork is one of the biggest challenges presented by the virtual work environment. Because teams are not physically together, they rely of technology to communicate, thus limiting their interactions. In addition, the team members are unable to discuss freely among themselves because they lack the benefit of non-verbal cues. Also, technology may fail in some cases, interrupting meetings between virtual teams. This may lower the team’s performance and output. Van Der Lippe and Lippényi (2020) used data from 11,011 employees drawn from 9 European countries and working in different industries to determine the effect of workplace colleagues working from home on their individual and collective performance. Their findings indicated that coworkers working remotely performed poorly than when together at the office and team performance suffered in the process. Moreover, team performance suffered more and more colleagues worked from home. However, Aczel et al. (2018) provided some insights into the benefits and challenges of working from home from data provided by 704 academics drawn from universities in Hungary. The findings revealed that researchers preferred working in the office because it helped them collect data and share their thoughts with colleagues, while working from home was preferable then analyzing data, reading literatures and working on manuscripts. In addition, they enjoyed other benefits, such as working more efficiently when having independent children rather than when they also had care for young children. In this regard, Aczel et al. (2018) used the boundary theory to explain the workers’ perceptions of the work-home interface by explaining that people used different approaches of creating and maintaining ideal discrimination between work and home. This segmentation was effected using mental boundaries that simplified with role performed as an employee or caregiver. In this regard, the opportunity to demarcate boundaries between work and household chores when working from home can be viewed as autonomy and self-efficacy. Similarly, Bolisani et al. (2020) revealed that although knowledge workers delivered better outputs because of the autonomy provided by working from home, they became stressed by the long working hours and being online for extended periods.
Increased Risk of Covid-19 Infections from Proposed Increased Physical Office Attendance
KPMG is confronted with the dilemma of allowing employees to spend more time in their offices and the risk of contracting the very virulent Omicron variant of the coronavirus causing the ongoing Covid-19 pandemic. The proposal by KPMG’s senior management is that employees that deal with customers directly will increase their contact with the office and clients to four days in a week. This is the trend in many companies as they attempt to return to normalcy as the coronavirus pandemic subsides. However, the emergence of the omicron variant is clawing back on these developments and causing stricter measures of limiting physical interactions in workplaces to the returned. Nonetheless, KPMG is the first of the big 4 auditing firms to proposed increased physical presence at the office and clients’ sites and the rest of the industry players are keenly watching to see how this intervention plays out in the midst of Covid-19 resurgence. Altay, Majima and Mercier (2020) explain this intervention and its public announcement as an attempt to appropriate a novel idea that aims at addressing the complexities of working during a pandemic to gain instructor leadership and mend the damaged reputation.
Recommendation of Actions
KPMG can address these problems by taking urgent measured before the damage escalates to unmanageable levels. Firstly, it is recommended that KPMG repairs its damaged reputation by conducting a communication campaign to send out accurate information while addressing the stakeholders’ concerns. The external communication campaign should contain accurate and succinct information explaining the situation in the company and how the recent scandals were addressed to the external stakeholders. Similarly, the internal communication campaign should explain the benefits of working from home and office to the employees to make them accept the proposed working format of having more hours in the office or at clients’ sites. Secondly, KPMG should device a reputation management strategy to help it addressed reputational issues promptly and effectively. Thirdly, KPMG should implement a corporate social responsibility (CSR) project to help portray it as a responsible, sensitive, and reliable corporate entity. Aguilera‐Caracuel and Guerrero‐Villegas (2018) demonstrated the reputational benefits for corporate social responsibility activities when they studied 113 multinational enterprises in the United States drawn from the manufacturing, energy and chemical industries. The reputational capital was higher when the corporates operated in developing rather than developed regions.
The literature reviewed in this case revealed that working from home may be more viable and acceptable than managers would think. The shift introduced by the working from home configuration during the Covid-19 pandemic may have changed the workplace irreversibly and persuaded many employees with its benefits. In this regard, KPMG management should be prepared to lose some employees that would prefer working in the current virtual arrangement.
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