(b) Ethical safeguards.
Mr Hu could undergo some instruction or continuous professional development (CPD) on the fundamental principles of
professionalism and the need to avoid conflicts of interest. As a professional accountant, he is bound in any case by the codes
of ethics and/or rulebook of his professional body and the IFAC code. Most of these specifically warn against such conflicts,
including the acceptance of gifts unless the value is trivial and inconsequential, and his professional body may provide such
a course of instruction.
Enforce a requirement to declare any conflicts of interest at the beginning of each meeting to consider student assessments.
This could be made a ‘standing item’ on the agenda so that it had to be considered before each time that assessments were
considered. The declaration of conflicts of interests could also be made a part of the recruitment process for new partners
where appropriate.
Rotate the partner who chairs the assessment committee. This would mean that the chance of Mr Hu being the partner
considering Polly Shah’s case would be reduced (in the case of Jojo) to one in five. Other partners without the conflict of
interest would, in any given meeting, be more likely to be chairing.
Involve an additional partner in the review of student assessments, more able to confront Mr Hu than the training manager
or HR manager, neither of whom are at partner level. Another partner would have the organisational ‘weight’ to confront
Mr Hu in a way that the training manager or HR manager evidently did not.
The outcomes of the assessments could be validated by an external party (akin to the role that a non-executive director might
play if Jojo were a public company). A retired partner could discharge such a role, for example, or a human resources
consultant. The final decision on each student would not be made known until each had been ‘signed off’ by the external
party.
Keep an internal HR file formally recording the list of students by assessment category. This would make the decision to
retain Polly, in spite of her ‘poor’ assessment, much more visible to relevant business managers. This would apply greater
consistency because it would be more transparent that Polly was retained even though her assessment was rated as ‘poor’.
[Tutorial note: allow any reasonable safeguard that addresses the problem.]
(c) Performance evaluation of partners.
Criteria for individual performance measurement
The criteria used to measure the performance of directors and/or partners (in a partnership) vary according to the situation.
Some criteria will be much more important than others, and highly context-specific criteria may apply in some organisations.
In general terms, however, four typical criteria are helpful to consider.
The level of independence of the person (such as being free from external vested interests) and commitment to the public
interest. This is especially important in accounting practices where serving the public interest is an important component of
professional service.
Preparedness and fitness to practise including maintaining the relevance of skills and undertaking relevant continuing
professional development. For the partners and Jojo, this would involve maintaining knowledge of current audit and reporting
standards, for example.
Practice, including levels of participation in their allocated roles and their competence in those roles. Linked to this is the
contribution made to the formulation and implementation of the organisational strategy.
Contribution to committee work and administrative duties as appropriate. Mr Hu’s effectiveness in his role as member of the
committee that evaluates student progress would fall within this area, for example.
[Tutorial note: allow other relevant criteria if appropriate.]
Difficulties of individual performance measurement at Jojo
As a privately-owned business, there is no external pressure for such a procedure. This is because, as an unincorporated
business, there are no listing rules enforced by a stock exchange and no external shareholder pressures to be applied. There
is no agency gap created by a separation of ownership and management.
14There is unlikely to be an independent non-executive director (NED) structure in place to support and carry out the
performance measurement. Because of the difficulties raised by full-time senior management appraising each other, NEDs
take a role in this in listed companies. Without this element of external independent scrutiny, it would be very difficult to
maintain independence and fairness in a performance measurement system.
The informality of relationships in a smaller partnership may make objective assessment impossible, especially if, as in a
smaller practice, longstanding personal friendships may be a strong component of the culture. With the five partners being
personal friends with each other, it would be very difficult for the partners to conduct objective performance appraisals on
each other.
There is likely to be resistance from some partners, at least from Jack Hu, who, if appraised, would be likely to receive a poor
assessment on some criteria. As the managing partner (the equivalent of a chief executive in a partnership), it would be
difficult to arrive at a fair measurement process for Mr Hu without the involvement of external parties (such as NEDs).
