Executive Summary
The monograph reports the results of a third ICAS sponsored project on the history of the organisation of the accountancy profession in the UK. Whereas previous studies in the series (Shackleton and Walker, 1998, 2001) examined the reasons why rationalisation schemes failed, this monograph reports on the factors which contributed to a successful unification. The study seeks to understand how and why five local and national organisations of accountants in England subsumed their ideological and status differences to form the Institute of Chartered Accountants in England and Wales (ICAEW) in 1880. In pursuing this object the study also provides a depth contextualised analysis of the formation of the ICAEW. A variety of published and unpublished sources were utilised to investigate the emergence of an organisation which became a major reference point in the development of the profession in the UK and beyond.
Organisational proliferation
Until 1870 the only organisations of professional accountants in Great Britain were those formed in Edinburgh and Glasgow in 1853 and Aberdeen in 1866. These city-based bodies received Royal Charters of Incorporation in 1854, 1855 and 1867 respectively. The Bankruptcy Act, 1869 introduced the Scottish system of creditor-elected trusteeships to England and Wales. This statute disturbed the relationships between accountants and solicitors in insolvency work and offered the prospect of an invasion of lesser ‘accountants’ who threatened the position of established public accountants in England. Public accountants formed professional organisations to resolve these inter professional and intra occupational conflicts. The Incorporated Society of Liverpool Accountants and the Institute of Accountants in London were established in 1870 and the Manchester Institute of Accountants was formed in 1871. The principal object of these bodies was to differentiate public accountants from uninstructed practitioners.
The formation of city-based institutes stifled the prospect of a single organisation of accountants in England and Wales. The geographical, financial and experience requirements for entry to the local bodies were prohibitive and created a significant community of outsiders. The conditions were ripe for the formation of other organisations and for an ongoing discourse about the desirability of a national body to represent all professional accountants. A movement for a Society of Accountants in 1871-1872 encouraged discussion of a wider ‘National Association of Accountants in England’ but the response of the Institute of Accountants in London was disdainful and ponderous. In January 1872 organisational proliferation continued with the formation of a Society of Accountants in England.
The response of the London Institute to the appearance of the Society of Accountants was to widen its scope to the UK and change its name to the Institute of Accountants. It was expected that an organisation comprising leading practitioners in the capital and the provinces would enhance the Institute’s case for the award of a Royal Charter. However, the conditions and procedures for admission to the Institute were strict and cumbrous and few country accountants joined. The Institute of Accountants therefore remained an exclusive organisation dominated by public accountants in London. The Manchester Institute suggested unification with the Institute of Accountants but was rebuffed. The Manchester Institute also unsuccessfully explored with the Liverpool Society the idea of regional rather than national restructuring. During the early 1870s, therefore, the accountancy profession in England and Wales was devoid of a united national vehicle for the defence of its interests. These interests came under increasing threat in the remaining years of the decade.
External and internal pressures for unification
Insolvency administration was a major source of income to public accountants. However, its main source, the Bankruptcy Act, 1869, was heavily criticised during the 1870s. Trustees and liquidators - offices dominated by accountants - were collectively accused of touting, excessive charging, maximising their own remuneration at the expense of the creditors, retaining the assets of insolvent estates for their own use, failing to distribute dividends, and neglect of duty. These criticisms emanated from influential sources: judges; the Comptroller in Bankruptcy; the Select Committee on the Companies Acts; parliamentarians; trade and commercial organisations; and, the press.
Legal journals were also scathing about accountants. Insolvency work brought accountants into conflict with solicitors who claimed this domain as their own. In response to the threat of accountants and other invading occupations lawyers formed a protective organisation, the Legal Practitioners’ Society. This served as a useful demonstration to accountants of the potential effectiveness of a national association which promoted measures for occupational protection in the legislature. By 1876 there were indications that the Attorney-General was sympathetic to solicitors’ complaints about invading accountants.
The Bankruptcy Act, 1869 encouraged the appearance of increasing numbers of ‘so-called’ accountants during the 1870s. The accountancy bodies were unable to exert disciplinary powers over non-member ‘quack’ accountants. The resulting widespread denigration of accountants was indiscriminate, attaching to anyone so labelled – professional or otherwise. Despite the formation of accountancy organisations in 1870-1872 the public perceived little difference between the professional accountant and the uninstructed individual who claimed membership of the same occupation. The defamation of all accountants was a scourge on respectable practitioners and revealed the anonymity and limited effectiveness of the organisations which represented them. The need to address the persistent problem of the soi-disant accountant encouraged demands for the creation of a high profile, united organisation, recognised by the state, to ‘purify’ the profession.
Widespread criticism of the Bankruptcy Act, 1869 resulted in demands for reform. Each year from 1876 the government presented a bankruptcy bill to Parliament. These measures provided for the imposition of tighter restrictions on the appointment, remuneration and removal of trustees. The government’s bills posed a threat to all accountants yet the professional organisations lobbied against the proposals unilaterally. Attempts by the Society of Accountants and the Manchester Institute to encourage unified representations and greater political activism were not well received by the Institute of Accountants. While lobbying secured the alteration of some clauses in the offending legislation the disparate organisations of accountants were unable to secure the removal of provisions most hostile to their members’ interests. This focused minds in the Institute and Society of Accountants on more effective means of protecting the profession.
The threat of bankruptcy law reform and scathing criticism of the occupation meant that strong, representative and cohesive institutions were necessary to defend the interests of professional accountants. However, the local organisations were ill equipped to provide unified responses to the range of powerful and hostile forces. The organisations formed in London, Liverpool and Manchester in 1870-1871 made limited progress. Membership growth was low, activism in pursuit of members’ interests was variable and little advance was made in implementing structures for developing, transmitting and testing professional knowledge. Lethargy was most obvious in the Institute of Accountants, to which the rest of the profession looked for leadership. Mounting discontent among the rank and file over the inactivity of the Institute and its ossified leadership culminated in the election of office-bearers in 1877 who were more determined to counter the threats to the profession. A ‘new spirit’ in the Institute of Accountants encouraged consideration of the better organisation and protection of public accountants.
Effecting organisational change
The formation of the Sheffield Institute of Accountants in 1877 represented a local manifestation of the pressures for organisational change which had been building through the 1870s, in particular, criticism of the defective working of the Bankruptcy Act, 1869 and its consequences for the status of professional accountants. A series of ‘bankruptcy revelations’ in Sheffield concerning ‘so-called’ accountants resulted in the vilification of all accountant-trustees and revealed the urgent need for institutional structures to secure occupational differentiation and protection. The rules of the Sheffield Institute of Accountants emphasised the difference between its members and those excluded from the organisation. The adoption and display of distinguishing credentials was a preoccupation of the Institute.
Since its formation in 1870 the Institute of Accountants had existed as a “voluntary association”. From 1874 calls for its incorporation were tied to the desirability of creating a single professional organisation for England and Wales. Initially, the preferred option was incorporation by Royal Charter. However, the idea of both incorporating the Institute and regulating insolvency practice by statute gained ground in response to the prospect of bankruptcy law reform and the increasing problem of the ‘so-called’ accountant. In 1878 Disraeli’s Government made a determined but ultimately unsuccessful attempt to pass a new bankruptcy act. As the measure was discussed in the legislature it was announced that the Institute of Accountants would pursue an act of parliament for the registration of trustees and thereby close insolvency practice to all but qualified men.
The Institute determined to present an Incorporation Bill to Parliament in 1879. There was a real prospect that this measure would be considered in tandem with the government’s next attempt to pass a bankruptcy act. Assurances by the Institute that the Incorporation Bill would be framed in the interests of the whole profession were soon disabused. Its narrow scope, attempts to transfer the governance structures and personnel of the old Institute to the new Institute, and strict rules of admission disappointed the other accountancy bodies. The bill was ‘exclusive’ and offered no guarantee that members of all the professional organisations would gain admission to a new institute. The Institute of Accountants thereby encouraged the displeasure of the other accountancy bodies even though their support was important to the success of the measure in the legislature.
The local accountancy bodies urged the automatic inclusion of their existing members in the new organisation proposed by the Incorporation Bill. The Society of Accountants advocated amalgamation with the Institute to bring its members within the scope of the bill. Those outside the accountancy bodies were especially threatened by the bill and an Accountants’ Incorporation Association was formed to ensure that the interests of unaffiliated accountants were protected. The astute leaders of this organisation threatened to prepare a rival parliamentary bill.
In January 1879 meetings at the Institute of Accountants disappointed the aspirations of the other organisations that their members would enter the new Institute en bloc. The Institute of Accountants insisted that entry would be confined to ‘bona fide public accountants’. Those engaged in pursuits deemed incompatible with this construct, such as stock broking and auctioneering, would be excluded. In consequence, opposition to the Incorporation Bill began to crystallise but despite mounting disenchantment the Institute of Accountants continued with its measure. Its determination was conditioned by the tight parliamentary timetable, a conviction in the rightness of its cause, the imminent appearance of a government bankruptcy bill and some encouraging comments from the oldest provincial societies of accountants.
The Incorporation Bill was read in the House of Lords in February 1879, on the day after the Bankruptcy Law Amendment Bill. The Society of Accountants now embarked on a more concerted campaign of opposition to the Incorporation Bill. In March 1879 a series of petitions against the measure were formally lodged in Parliament. An attempt by the Institute of Accountants to mobilise support for the bill in Liverpool and Manchester revealed lukewarm support and discontent over the lack of consultation with the local accountancy bodies. As the Incorporation Bill approached the key committee stage in the House of Lords, where its relation to bankruptcy reform and the extent of opposition would be visible, the Institute of Accountants began to shift its position. Amendments were made to bring the other accountancy bodies within the scope of the Accountants (England) Bill. Members of the professional organisations who combined accountancy with other occupations would now be admitted to the new Institute. In April 1879 it was also agreed to make the title of the bill more inclusive and widen membership of the council of the new Institute.
However, the Society of Accountants and the Accountants’ Incorporation Association remained dissatisfied with the bill. The former applied to the Board of Trade to establish a rival ‘Incorporated Society of Accountants’. Among the objects of this organisation was the promotion of legislation for the incorporation of public accountants and amalgamation with other bodies seeking the same object. The creation of an ‘Incorporated Society of Accountants’ for those professional accountants excluded from the proposed ‘Incorporated Institute of Accountants’ revealed the exclusive nature of the Incorporation Bill, the presence of opposition to the measure and its failure to establish a single organisation of professional accountants. In response, the leaders of the Accountants’ Incorporation Association were proposed as councillors of the new Institute and following further amendment of the Accountants (England) Bill opposition was withdrawn. By the end of June 1879 it was fully expected that the bill would be passed. The next stage in the parliamentary process was the scrutiny of the measure by a Select Committee of the House of Lords.
Expectations of an uncomplicated legislative passage were scuppered by the intervention of Lord Redesdale. The powerful Chairman of Committees in the House of Lords decided that the Incorporation Bill would not proceed unless an application for a Royal Charter was made and refused. The Institute of Accountants pursued this change of course. In early August 1879 a petition for an Incorporated Institute of Accountants of England and Wales was submitted to the Privy Council Office. However, a draft charter was not submitted to the Privy Council until 15 January 1880. Complications had arisen due to the formation of the Incorporated Society of Accountants, discussions over the credentialing of members of the new Institute and the inclusion of Edwin Guthrie and Charles Wade of the Accountants’ Incorporation Association on its Council.
The Royal Charter was approved by the Privy Council on 24 March 1880 and the Queen’s Warrant was received on 3 May. The grant of the charter to the ICAEW on 11 May offered the possibility that those it incorporated would be favourably considered in the government’s latest bankruptcy bill. There was increasing support for the idea that insolvency trusteeships should be confined by statute to professional accountants. The sudden dissolution of Parliament and the defeat of the Conservative government in spring 1880 frustrated this development. Despite the change of administration a number of bankruptcy bills remained on the parliamentary agenda in 1880. These included a measure containing a provision for the creation of a ‘Register of Professional Trustees’. Efforts were made by the ICAEW to ensure that trusteeships were restricted to chartered accountants. However, in August 1880, a Select Committee on the bankruptcy bills recommended that the Liberal government postpone reform.
The formation of the ICAEW, a single, national professional body with an elevated status conferred by the state and whose members assumed distinctive credentials, offered the prospect of a more enduring solution to the problem of occupational differentiation between the professional accountant and the unqualified interloper. Those who had been publicly hostile to accountants in England and Wales during the 1870s began to extol the virtues of the chartered institute. The public could now distinguish the qualified and reputable practitioner from the counterfeit accountant.
With the creation of the ICAEW the Institute of Accountants and the Society of Accountants in England were dissolved. The city-based organisations were reconstituted as societies of local chartered accountants. The Manchester Society of Chartered Accountants was formed following the merger of the Manchester Institute of Accountants with its former adversary, the Incorporated Society of Accountants.
Implications
During the 1870s the organised accountancy profession in England and Wales was characterised by division and sectionalism. In 1880 it achieved unification and state recognition. This successful integration stands in stark contrast to later attempts to obtain similar outcomes. The findings of the research suggest that various factors contributed to the achievement of unification in 1880. First, there was a widespread desire for organisational change. Accountants, together with those who observed and criticised the profession, called for new structures to control and protect the genuine practitioner. Whereas some rationalisation movements during the twentieth century were driven by office bearing elites without the benefit of wholesale rank and file support, during the 1870s the members of the Institute of Accountants felt compelled to shake their leaders into addressing the question of the organisation of the profession.
Second, demands for organisational change were motivated by a compelling external stimulus in the form of threats to the profession. During the 1870s accountants in England came under siege through their work in insolvency administration. Adverse criticism emanated from powerful sources: the judiciary; government officials; parliamentarians; the press; commercial pressure groups; and the legal profession. Resultant government measures for bankruptcy reform included hostile provisions. The fractured accountancy profession lobbied in vain against the offending legislation. The increasing numbers of ‘so-called’ accountants compounded the threat to professional men. These competed for insolvency and other work and their misdemeanours resulted in the vilification of all accountants. New organisations were necessary to differentiate the professional accountant from the interloper and make united, more effective representations to government. Third, and relatedly, given the widespread criticism of the accountancy profession, organisational change was perceived to be a response which was in the public interest.
Fourth, the Institute of Accountants, which promoted the measure to secure organisational change, was compelled to adopt an inclusive approach to re-organisation. The Institute pursued a strategy of change through legislation. This ensured receptivity to the demands of all interested parties if the measure was to succeed in Parliament. In this context a group of astute and persistent opponents to the original ‘exclusive’ proposals advanced by the Institute of Accountants embarked on a highly successful campaign to ensure that all organisations of accountants were included in the unification.
ISBN 1 904574 01 7
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