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Dangerous, Dominant, Dependent, or Definitive: Stakeholder Identification

When the Profession Faces Major Transgressions

Article  in  Accounting and the Public Interest · February 2004

DOI: 10.2308/api.2004.4.1.24

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 API
Volume Four
2004

Dangerous, Dominant, Dependent, or

Definitive: Stakeholder Identification When
the Profession Faces Major Transgressions
Rachel F. Baskerville-Morley

ABSTRACT: This study examines how professional associations respond to crisis situa-
tions. The theoretical concepts presented in a model of stakeholder saliency, developed by
Mitchell et al. (1997), are applied in examining how the New Zealand Society of Accountants
responded to a significant transgression situation. The embezzlement by John Graham, a
chartered accountant, gave rise to significant pressure being brought to bear on the profes-
sion by various stakeholder groups. The Graham scandal is described using landmark trans-
gression analysis (Nichols 1997). The stakeholder model is applied in identifying salient
stakeholder groups, in describing their activities, and in analyzing the profession’s response.
The analysis identifies an unprecedented level of activity among the professional body’s
stakeholder groups and provides a framework useful in making sense of the New Zealand
Society’s actions as it attempted both to protect its reputation of acting in the public interest
as well as serving the interests of its members.
Keywords: landmark narrative; stakeholder theory; landmark transgression analysis;
disciplinary processes; ethics.
Data Availability: Data in this research is freely available for use by others, subject to
any copyright controlled by the Public Interest Section of the American Accounting Association.

1. INTRODUCTION
Enron. Andersen. Tyco. Qwest. Global Crossing. Adelphia. Now WorldCom. Or should
that be WorldCon? Where can anyone have any confidence in the probity of corporate
America if a company’s accounts aren’t worth the paper they are printed on?
—American Broadcasting Co. (July 5, 2002)
Such views are a living nightmare for CEOs of any professional accounting body. Accountancy
bodies find the impact of such transgressions to be of such magnitude that events remain within the
public consciousness for many years. Members of the public and clients of chartered accountants

Rachel F. Baskerville-Morley is Senior Lecturer at Victoria University of Wellington, New Zealand.

The author appreciates the encouragement and constructive comments offered in two rounds of revision by anonymous
referees. Thanks are also expressed to Professor Shane Moriarity, Wayne Cameron, Debra Jeter, David Hay, and
colleagues at seminars at Unitec, Victoria University of Wellington, and the University of Auckland.

Electronic copy available at: http://ssrn.com/abstract=1213962

Baskerville-Morley 25

lose a great deal of personal wealth through fraud and defalcation by their professional advisors, or
a share price collapse due to revelation of corrupt financial information. The profession finds its
reputation and brand under attack. Furthermore, regulatory or professional organizations use trans-
gressions (crises) as a mandate for change, often within the organization itself by implementing
new standards for members—changes that would have otherwise been strenuously challenged by
members of the profession. Even when changes are implemented, criticism is sometimes leveled
at professional bodies that the public interest is not being served by such changes, but that they are
in fact furthering the interests of their own members. The same criticism may arise in the alternate
situation when the profession “does nothing” (Sikka et al. 1989; Lee 1995).
When a professional body is under pressure, how can responses to the multiple demands of
different stakeholders be effectively researched? There is a growing recognition of the need to
better understand the manner in which professional bodies respond to their role in the furtherance
of public interest (Sikka et al. 1989). Generally, insights can be gained into stakeholder pressures,
and the professional body’s response thereto, through the analysis of professional association
journals, financial media, minutes of association meetings, or other official archival records. Such
research is necessarily based on a series of historical readings concerned with a specific trans-
gression. Though admittedly such sources are not as comprehensive as may be desired, they can
provide considerable insights into the professional body’s reaction to past events and are useful in
determining the balance of public interest arguments during any such change. Using these data
sources, this study employs landmark transgression analysis (Nichols 1997) and a stakeholder
saliency model (Mitchell et al. 1997) to examine the opportunities and constraints faced by a pro-
fessional association when confronting a significant transgression situation.
The purpose of the research is to better understand stakeholder dynamics in a transgression
situation wherein the professional body strives to both maintain its reputation of protecting the
public interest while at the same time serving the interests of its membership. The case of John
Graham, a chartered accountant and embezzler, is analyzed using landmark transgression analy-
sis. This analysis provides context within which the stakeholder model proposed by Mitchell et al.
(1997) (MAW) is employed in identifying relevant stakeholder groups and providing insights into
their relative influence and/or interests. The MAW model facilitates stakeholder analysis along
three dimensions. First, the model provides a mechanism of identifying the relative salience of
stakeholder groups. Such salience contributes to an improved understanding of the construction of
distinctions between different transgressions, only some of which drive new standards for mem-
bers or the reorganization of the profession. These changes occur in the aftermath of an event that
has compromised the profession’s claim of safeguarding the public interest. Second, the MAW
model offers a mechanism of unbundling the qualitative distinctions between responses to de-
mands of different categories of membership within a professional body. Third, the MAW model
may assist accounting research in developing a mechanism for assessing the extent to which the
response is serving the public interest or the interests of the association’s members, or some
subset thereof.
Linking the MAW model and landmark transgression analysis clarifies how different stake-
holder groups achieve the critical attribute of urgency. The landmark transgression analysis pro-
vides a selective framework within which the “who,” “where,” “what happened,” and “when” ques-
tions can be analyzed. The framing, in a sense, freezes the event so a consensus more easily
evolves on what happened and what needs to be done. The MAW analysis can then address the

Accounting and the Public Interest Volume 4, 2004

Electronic copy available at: http://ssrn.com/abstract=1213962

Baskerville-Morley 26

questions such as how and why the profession responded in the manner it did, and why its re-
sponse succeeded, or failed, in relieving tensions among stakeholder groups.
An analogy is a basketball game, where the spectators (stakeholders) observe the players
(members of the organization) from different angles and with different interests. Suddenly an un-
usual event occurs, and during the replays within minutes or hours, or days after the occurrence,
the replay surrounds the object of interest with a halo of light, framing the interest of the viewer and
obscuring what other players were doing at the same time. The framing may extend to views from
different angles, but always with the halo of light focusing attention on the object of interest, until a
consensus is reached on the “where,” “when,” “who,” and “what happened” questions. It then re-
mains for referees and officials to consider this consensus on the event, and they may use it either
as a mandate to reinforce the status quo (e.g., penalize the wrongdoer) or as a mandate for change
(e.g., suggesting a rule change). Urgency may attach to the situation either by its widespread
occurrence, or the severity of the consequences. If nothing is done, the event may cause an adjust-
ment in the expectations of the stakeholders and players, and alter their measure of utility maximi-
zation in their dealings with or commitment to the organization concerned until new sets of transac-
tional equilibria are reached.
In order to examine how professional associations respond to such crisis situations in the
public eye, this study will firstly review existing methods of transgression and stakeholder studies,
and then add to this corpus of method a description of landmark narrative identification as pro-
posed by Nichols (1997). Part 4 gives further methodological background, and then Part 5 de-
scribes the theoretical concepts presented in a model of stakeholder saliency, developed by Mitchell
et al. (1997). Parts 6 and 7 provide details on an embezzlement by John Graham, a chartered
accountant, which gave rise to significant pressure being brought to bear on the profession by
various stakeholder groups and changes after these events. After a review of the ebb and flow of
public interest arguments during these events (Part 8), a synthesis between the MAW model and
the Graham transgression is provided in Part 9. This analysis identifies an unprecedented level of
activity among the professional body’s stakeholder groups and provides a framework useful in
making sense of the New Zealand Society’s actions as it attempted both to protect its reputation of
acting in the public interest as well as serving the interests of its members.

2. EXTANT ACCOUNTING LITERATURE

Accounting research that contributes to the foundations of this study includes that of Willmott
(1986), which examined the development of the major accountancy bodies in the U.K. Willmott
reflected on the number of contradictory forces and tensions that influence the professional bodies:
the ability to retain the right to self-regulation; problems of organizational identity and internal gov-
ernance; the ability to broker a consensus between different groups within the membership; and, in
the U.K., the disproportionate influence of one among the six professional bodies (Willmott 1986,
574).
In an examination of the expectation gap in the USA, Hooks (1991) offered both a taxonomic
and class analysis of the behavior of the accounting profession, suggesting that the tension be-
tween the different stakeholder groups was explicit: the conflicting objectives of pacifying the pub-
lic, maintaining a strong relationship with government, and protecting the profitability of its mem-
bers’ operations led to an outcome dominated by self-interest of the professional body. This suggested
that the profession’s actions appeared to benefit the public, while simultaneously strengthening

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Baskerville-Morley 27

their control of the market in which accountancy services are offered. She suggested the profession
typically responds to criticism in a manner that has more to do with self-interest of the professional
body than one that might better serve public interest.
Lee (1995) offered a review of studies of responses by the profession to politically sensitive
areas, such as standard setting or the response of repeated accounting errors in the U.S. Building
on the scholarship of Fogarty et al. (1991), Lee described one strategy as that of “doing nothing,”
and the apparent decoupling of pronouncements concerning ideal behavior from corrective ac-
tions. This course of action is very similar to that observed in the U.K. in the study of Humphrey et
al. (1992), where they observed that the manner in which the profession controlled the debate on
the role of the auditor reaffirmed the professionalism of accountants, but deflected attention away
from auditors to limitations of some proposed reforms. This study also reflects in part the interactionist
approach advocated by Willmott (1986). Interactionism studies professions as interest groups, but
the MAW model does not treat the professional body as a single interest group, instead categoriz-
ing it as an amalgam of different membership interests within one professional body.
There is also a body of research concerned with the aftermath of transgressions, but showing
different methodological approaches. Sikka and Willmott (1995) offer an overview of the develop-
ment of the U.K. profession with three case studies of how the profession has responded to chal-
lenges to its aura of independence: the corporate collapses of the 1980s, auditor independence
and reliability of audits, and the efficacy of self-regulation by the professional bodies. The profes-
sion responded to criticism after the mid-1970s economic crisis by strengthening its ethical code
vis-à-vis individual behavior, rather than “to address the adequacy of the regulation and enforce-
ment of auditing standards” (Sikka and Willmott 1995, 561).
Sikka (2000) identified other types of failure in his description of the pensions’ mis-selling
scandal, and the collapse of the Maxwell Empire in the U.K. with looting of the pension scheme to
the tune of £458 million, and its effect on 16,000 members. Although there were some fines on
firms, there were no further penalties on those guilty in the “Pensions scandal.” The Maxwell failure
was also not used as justification for major institutional or regulatory changes.
Other accounting studies that invoke stakeholder theory include discussions of actions by the
professional body by Dillard and Yuthus (2002), and Neale (1996). These refer to stakeholders for
the professional body, but do not further identify salience of stakeholder groups. Neale (1996, 200)
refers to “trios of participants”: the chartered accountants, their clients, and the general public or
community. The MAW model provides a mechanism to more sharply delineate the salience of
stakeholders. This assists in analysis of how the professional organization manages tensions from
demands of members, clients, and the public during periods of crisis. However, before applying
such a model, the Nichol’s (1997) method of landmark narrative analysis will be described as part
of the toolkit of analysis, in order to determine the nature of the transgression and the scale of its
(re)construction in the reporting.

3. IDENTIFICATION OF LANDMARK NARRATIVES

One approach to studying transgressions is provided by Nichols’ (1997) study of the Bank of
Boston money laundering scandal, in which he proposed undertaking analysis in order to deter-
mine if the transgression met the criterion of a “landmark narrative.” This entailed a study of media
reports, showing how potential ethical problems are selectively identified by moral claimsmakers to
further their causes. Using a constructionist approach to social problems, three processes that may

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Baskerville-Morley 28

be used by claimsmakers were described: (1) the transformation of raw information (e.g., criminal
charges and accusations) into public scandal; (2) the exploitation of accused figures for the pur-
poses of generating new, publicly recognized ethical problems; and (3) the exploitation of accused
figures to create warrants for desired policies. Nichols’ utilization of landmark narratives revealed
connections between the maintenance of, and pressure to enforce, ethical standards; they may aid
reform or support the status quo. His criteria are applied in Part 6 of this paper in order to test
whether the manner in which John Graham’s misdemeanors were framed could justify the “landmark”
characterization.
Other studies of failures in the banking industry offer various approaches; for example, consid-
eration of the Canadian Commercial Bank (CCB) failure provided by Lew and Richardson (1992)
and Neu and Wright (1992). The utilization of landmark narrative analysis is close to Neu and
Wright’s concept of stigma management: stigma is “an emergent property arising out of the defini-
tional processes associated with interaction” (Neu and Wright 1992, 648). The transgression drew
responses by the federal government, the Securities Commission, the media, the liquidator, and
the professional bodies. In this particular case of the Canadian Commercial Bank failure, Neu and
Wright suggested the profession had three possible responses: do nothing, scapegoat the indi-
vidual, or defend its members. The wrongdoer was a member of one of the Big 6 audit firms in
Canada, and a defense by the professional body was forthcoming; Neu and Wright suggested this
reflected asymmetry in internal disciplinary processes. Eventually the 1988 Macdonald Commis-
sion Report focused on the public’s expectation of auditors, and the need to strengthen structures
within which audit reporting takes place. The CCB failure was not used as justification for subse-
quent major changes. The next section provides a review of media reports, in order to examine if
this transgression met Nichol’s (1997) criteria of landmark narratives, before discussing how the
events provided the stimulus to reform instead of supporting the status quo.

4. METHOD
To identify the construction of the transgression of John Graham, a senior partner in a firm of
chartered accountants in New Zealand, news reports were examined throughout the period from
when the transgression was first revealed in May 1991 until statutory reforms were agreed to in
1993. The examination included careful reading to identify the manner in which media framed
Graham’s misdemeanors. This is based on Goffman’s (1974) notion of a frame as an organizing
principle. “News reveals the vulnerability of experience to framings” (Tuchman 1978, 216), and
Goffman’s work addresses the social organization of the experience, rather than the organization
of social structure. Therefore an analysis based on Goffman’s notion of a frame may include analy-
sis of the manner in which media organized the understanding, and also the manner in which the
profession’s response was constructed; but analysis does not extend to the impact on partnership
organizations or the ethical standards of the profession. Tuchman (1978, 214) suggests that news
can best be understood as a social resource, but one whose construction limits an analytic under-
standing of contemporary life; it affirms status quo, soothes new consumers, and reifies social
forces.
But the framing used in the newspapers and practitioner journals eventually limited the mean-
ing of this event to personal attributes. News is like a window frame: the size and shape limit what
may be seen. In addition, selection of particular aspects as the scene unfolds restricts access for
the outsider to consider other viewpoints, as already described in the analogy with a basketball

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Baskerville-Morley 29

game replay, where the halo of light on the play in question casts other activities into the shadows.
In this particular case it is notable that one of Graham’s partners committed suicide shortly after the
revelations, and such a reaction could also affect the frame being drawn closer around the indi-
vidual, rather than the partnership in which he had conducted his business. Subsequent to prepa-
ration of this study, drafts were distributed to a number of persons who had an intimate knowledge
of the case, including a President holding office at that time, the Chair of the Disciplinary Commit-
tee, and the Queen’s Counsel for the professional body. Triangulation among sources of informa-
tion permits the consideration of the historically constructed framing to extend to include profes-
sional journal literature, daily newspapers accounts, and personal recall.
Newspaper reports and the New Zealand Chartered Accountants Journal did not provide com-
parable information. Tom Quayle, an ordinary member of the professional body, complained that
no background to the events appeared in the Chartered Accountants Journal, to which the editor
replied, “I do not regard this publication as the appropriate place for such coverage … Mr Graham
is a criminal who also happens to be an accountant” (Chartered Accountants Journal 1992b).The
only description of the events in the Chartered Accountants Journal concerned firstly, the suffi-
ciency, or lack, of Fidelity Fund1 resources to cover the exposure, and the resulting changes in
levies and demise of the Fund, both driven by its drastic shortfall. Secondly, the Chartered Accoun-
tants Journal reported disciplinary decisions against Graham. This will be covered in more detail in
Part 7.
To summarize, the method was based primarily on using multiple information sources but
analysis was not extended to Minutes or other “official” institutional documents, because the focus
is on how the public face of the profession is renegotiated and reconstructed during periods of
change, in response to stakeholder tensions.

5. THE STAKEHOLDER MODEL

There appears to be little, if any, utilization to date in the accounting literature, of a model for
the identification of stakeholders proposed by Mitchell et al. (1997). They propose a hierarchal
typology, arguing that the traditional “bicycle wheel” model for stakeholder identification neither
captures the ebb and flow in these relationships, nor does it reflect the multilateral and coalitional
dynamics between stakeholder groups.
The foundations were provided by Freeman (1984), with a range of subsequent management
research studies concerning stakeholder identification, and from these Mitchell et al. (1997) pro-
pose a model based on power, legitimacy, and urgency.
Power: This is based on Weber’s (1947) idea that power is the probability that one actor within
a social relationship would be in a position to carry out his own will despite resistance. Mitchell
et al. (1997) concur with other writers: it may be tricky to define, but not difficult to recognize.
Legitimacy: This loosely refers to socially accepted and expected structures or behaviors.
Mitchell et al. (1997) base their separation of legitimacy from power on Weber (1947): these are
distinct attributes that combine to create authority, being the legitimate use of power. In a similar
manner Neu and Wright (1992) define legitimacy as the congruence between institutional ac-
tions and social values. Conversely, legitimization refers to actions taken by the professional
body either to change social values, or to signal value congruency (Neu and Wright 1992, 646);
1
The Fidelity Fund was a reserve fund administered by the New Zealand Society of Accountants to meet any claims from clients
who had lost monies from dealings with members of the Society; all members contributed to the Fund each year through a levy.

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Baskerville-Morley 30

this view is close to Nichols’ (1997) notion that landmark narratives lead to strengthening of the
status quo, or provide a mandate for change. Neu and Wright make it clear that the concept of
legitimization is different from legitimacy because it carries with it an active “power” as well as
“legitimacy.” The MAW model reflects Neu and Wright’s views that the maintenance of legiti-
macy depends on “the continuous resistance to and displacement of challenges from other
institutional participants” (Neu and Wright 1992, 647). Jones and Wicks (1999) also referred to
Mitchell et al. (1997) in their observation that there is widespread agreement that an important
distinction exists between legitimate and nonlegitimate stakeholders. Legitimacy is a character-
istic of dominant stakeholders in the MAW model.
Urgency: Mitchell et al. (1997) argue that this condition exists: (1) when there is a time-sensi-
tive dimension to the relationship or claim and (2) that relationship or claim is important to the
stakeholder. It reflects the degree to which the stakeholder claims immediate attention. A stake-
holder with this attribute only is irksome but not dangerous, bothersome but not warranting
more than passing attention by management.
Figure 1 schematically represents the representation of this model, with the three characteris-
tics appearing with overlap when a stakeholder exhibits more than one attribute. At the center of
the model the area of overlap where stakeholders show all three attributes is the area where those
stakeholders demonstrate the highest degree of salience or influence on the entity (refer to Figure
1). According to the schema in Mitchell et al. (1997, 868–869) these dimensions are detailed as:
• Dangerous: stakeholders who lack legitimacy but are powerful with urgent claims. The
stakeholder will be coercive and possibly violent, making the stakeholder “dangerous,”
literally, to the firm. “Coercion” is suggested as a descriptor because it is the use of coercive
power that often accompanies illegitimate status.
• Dependent: stakeholders who lack power but who have urgent and legitimate claims. These
stakeholders depend upon others for the power necessary to carry out their will. Because
power in this relationship is not reciprocal, its exercise is largely governed through the
advocacy or guardianship of other stakeholders.
• Dominant: stakeholders exhibiting both power and legitimacy will be part of an entity’s
dominant coalition.
• Definitive: all three of the stakeholder attributes—power, legitimacy, and urgency—are per-
ceived by management to be present.
Latent stakeholders are those possessing only one of the three attributes, and include dor-
mant, discretionary, and demanding stakeholders. Expectant stakeholders are those possessing
two attributes, and include dominant, dependent, and dangerous stakeholders. Individuals or enti-
ties possessing none of the attributes are nonstakeholders or potential stakeholders.
It is important in this analysis to propose identification of the stakeholders at only one specific
time in a sequence of events. Because the dimension of Urgency provides a chronological at-
tribute, the position of one particular group of stakeholders may change rapidly as their legitimacy
and power attributes fluctuate. Since initial publication of the MAW model, Agle has further tested
its utility in his investigation of stakeholder attributes and salience using data from 80 CEOs of firms
in the U.S. (Agle et al. 1999).
Application of the MAW model has appeared more recently in diverse areas as a study of
Saturn Corporation (Kochan and Rubinstein 2000), educational reform (McDaniel and Miskel 2002),
and a road-pricing project (Elias et al. 2002). Thus there is agreement in organizational literature

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Baskerville-Morley 31

concerning the major stages in stakeholder analysis: identification of the groups, determination of
their interests, and evaluation of the type and salience of stakeholder power (Wolfe and Putler
[2002, 65] referring to Mitchell et al. [1997]). When Rowley and Moldoveanu (2003) extended the
Mitchell et al. (1997) framework, their question was: When do stakeholders groups attempt to
influence the focal firms? Their analysis distinguished between an interest-based perspective and
an identity-based perspective. The objective in this study is not to test the MAW model; but to
extend its application, in conjunction with landmark transgression identification.
Three issues raised in accounting research literature are pertinent to the validity of the MAW
model: first, it does not automatically distinguish between internal and external stakeholder groups.
Such distinctions between internal and external dynamics were proposed by Klegon (1978) as
principal determinants of “professional imperialism.” Second, it gives a priori equal weighting to
external stakeholders. Klegon (1978) and Allen (1991) consider that achieving a relationship with
the State is key in the process of professionalization, and any new legislation or adjustments to
current legislation represent continuing adjustments in that relationship. This would suggest that
the State might hold permanent status as a dominant stakeholder. Third, although an interactionist
perspective is inherent in this framework, the entrenched institutional power that a profession can

FIGURE 1
The Seven Types

Stakeholder
POWER Typology:
Parties who ha ve, or c an ga in
one, two or
a ccess to, coercive, utilitarian or norma tive three attributes
means to impose their will present
Dormant stakeholders
Non-stakeholders Combine to
cre ate authority

Dangerous Dominant
Definitive

Demanding Discretionary
Stakeholders stakeholders
Dependent Ma y have expectations,
Ca lling for immediate
mora l claims, or
attention, or pressuring the
entity; may be a moral property rights
intensity

These examples are

not fixe d; membership
URGENCY LEGITIMACY of one cla ss may be
adaptive or dynamic

Sourc e: Figure 2 in Mitche ll, Agle & Wood (1997):

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Baskerville-Morley 32

access is particularly important, but one which may be overlooked in such micro-sociological ap-
proaches (Allen 1991, 51).
Mitchell and Sikka (1993) claim there has been a failure to recognize that some professional
pronouncements show deference to the ambitions of big firms, and the future application of this
model may alleviate that failure. The MAW model offers a mechanism to identify the extent to which
decisions of the professional body favor change to the advantage of one group of membership
(such as Big 6 members) compared with membership representing sole practitioners or middle-
and lower-tier firms. In order to further examine the extent to which this theoretical model can assist
accounting research concerned with the dynamics of the public interest/private interest interface,
the MAW schema of stakeholder identification is applied during stakeholder reactions to one land-
mark transgression, that of John Graham, a chartered accountant and embezzler.

6. “ACCOUNTANT GIVEN 6-YEAR JAIL TERM FOR

EMBEZZLEMENT”—THE CASE OF JOHN GRAHAM
John Graham was the senior partner in a five-partner firm in Auckland, New Zealand. He had
worked as an accountant all his life, starting his own accountancy practice at the age of 30. Subse-
quent to his sentencing, it was found that his fraudulent activity dated back to only eight years after
that: 1967. Graham fraudulently applied money held in trust accounts on behalf of his firm’s clients,
and covered misappropriation of clients’ investments with a second personal account at the same
bank branch as the Trust account. A detailed investigation by the New Zealand Society of Accoun-
tants covering the period from 1980–1991 found that his fraudulent handling of client monies af-
fected 127 victims. Other partners tolerated debit balances in the firm’s client trust accounts; those
run by Graham operated with a debit balance continuously from March 1977 until April 1991 (with
the exception of one month in 1978).
The cash flows from his defalcation were primarily applied to continuing investments in a
company employing 55 people, Furniture Makers New Zealand Limited. It had been one of his
clients from 1975, was poorly performing, and by 1978 John Graham was advancing the majority of
funds in order to keep this business afloat. By 1983 he owned 50 percent of the company, and was
a director. His motive in this was not as a “rescuer,” but rather that he had an affinity with the
business and always believed it would eventually make good. The cash he injected into this com-
pany kept it going until 1988, when it was placed in receivership. He had given personal guaran-
tees, and invested over NZ$3.5 million into it over that time (Watt 1991). 2 He appeared on 57
charges of misappropriating client funds totaling NZ$12.25 million, and was sentenced to 6 years
jail in May 1991 (New Zealand Herald 1991). His sentence of six years was almost the longest for
a white-collar crime in New Zealand at that time (McNabb 1995).3
Graham served only two years, 11 months before being released, and was discharged from
bankruptcy in April 1995. He was disciplined by the profession in October 1991, removed from the
Register of Members, fined $2,346 in costs, and it was noted that “in view of the extraordinary
nature of the case that the censure refer to his actions in using clients’ money in an irresponsible
and criminal manner which led to his conviction on 57 charges of theft and misappropriation. Such

2
Most of the other $9 million appears to have disappeared in interest payments to the clients, a few repayments of principal
amounts, or on personal expenses. He did not accumulate assets.
3
The other comparable cases were the sentences for two lawyers Renshaw ($6.47 million defalcated, 7 years in prison) and
Edwards ($3.46 million, 6 years); and Allan Hawkins, CEO ($66 million, 6 years).

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Baskerville-Morley 33

an expression of disapproval is to be recorded on the membership file” (Chartered Accountants

Journal 1991a, 90). He was fined only costs without monetary penalties, but at that time the
professional body could fine penalties only up to $200; to award such a small penalty may have
attracted derision and the maximum was soon after changed to $5,000. Clients who had suffered
personal loss made claims on, and most were eventually reimbursed from, the New Zealand Soci-
ety of Accountants’ Fidelity Fund, but the Fidelity Fund was subsequently abolished after this drain
on its resources, as will be further described. This was a very significant change, and was largely
precipitated by this transgression.
Nichols (1997) suggests that in order for a case to be perceived as justifying a change,
claimsmakers must convince the stakeholders it is qualitatively different from other violations. The
five criteria proposed by Nichols as occurring in key descriptions of such landmark narratives are
that the descriptions:
1. Attributed ontological primacy; that such a scale of transgression had not happened be-
fore; “the theft was by far the largest of its kind in New Zealand’s history” (Watt 1991, 83).
2. Attributed polarity; that the perpetrator had fundamentally different attitudes from others;
the media were ambivalent on this aspect, as he was seen as a typical accountant, if a little
unrealistic. “Time, reality and fourth-form mathematics had caught up with the senior part-
ner of a five-partner accountancy firm” (Watt 1991, 88).
3. Limited coverage of comparable behavior; the focus remained on this particular instance;
his background and career were described by media in detail; he had been devoutly reli-
gious, with a “poor” background, a loner, supported church and school activities, and met
his wife through church groups.
4. Glossed alternate readings. The claimsmakers sustained the impression that their interpre-
tation to the resolution to the problem was the strongest or sole solution; there was attention
as to how this transgression was allowed to continue for so long, but this aspect appeared to
diminish in media reports after one partner committed suicide two weeks after the revela-
tions. Other partners might have identified the detection of the misuse of Trust funds much
earlier than occurred; but even after the admission by Graham, partners found it very difficult
to “untangle” the transactions and the debts of the partnership. There was little further media
discussion of how any guidelines on monitoring of accountants trust funds, or internal con-
trols in the partnership, might have failed. The most was in Watt’s comment: “There are
some questionable aspects of accountants’ standards” (Watt 1991, 88).
5. Positioned the person at the center as victim; that it was the greed, failure or fraud of others
that caused the problem. Graham did not appear to have profited from the theft, and did not
evidence a flashy lifestyle (Watt 1991, 83); he appeared to have grossly underestimated to
himself the significance of the behavior. Watt also cited a psychologist’s view that he may
have been having problems living up to the expectations of his own family.
Although Graham was not identified as an atypical accountant, the case meets the other crite-
ria for landmark narratives. Thus his activities were neither accommodated nor denied, but ex-
posed in this framing as going far beyond the boundaries tolerated for any member of the profes-
sion. These five rhetorical techniques utilized by claimsmakers to distinguish a landmark narrative
are postulated by Nichols (1997) to lead to the utilization of the transgression as justification when
the status quo is under pressure, or as a warrant or mandate for organizational change. As stake-
holders became aware of the scale of the transgressions, the impact of this on each set of a priori

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Baskerville-Morley 34

expectations concerning the professional organization would immediately affect interactions with
each stakeholder. That their future interactions with the organization, or members of the profes-
sion, may be considerably constrained by the revelations would create urgency in their expectation
of change. Thus Nichols’ framework provides a useful analytical technique to identify the creation
and utilization of “horror stories” by the accounting profession as a rationale for a change that would
otherwise be slow, and possibly diluted, during discourse. The framing of Graham’s misdemeanors
portrayed the events as clearly as a carefully positioned halo of light around an errant player in the
replay of a basketball foul. It is paradoxical that this framing of the transgression both empowers
the dominant stakeholders in the organization with a mandate for change while at the same time
giving those outside the extant cabal sufficient urgency, power, or legitimacy to gain more salience
in the hierarchy of stakeholders.
Having observed how one transgression had sufficient characteristics to build a sense of ur-
gency among such stakeholders for organizational change, it remains to use the MAW model to
unbundle the relative salience of different shareholder categories during such a landmark trans-
gression. This may permit a clearer analysis of the relative importance of drivers from “public inter-
est” arguments compared with sector groups in the profession.

7. CHANGES AFTER THE JOHN GRAHAM EVENTS

Graham’s clients who had suffered personal loss laid claim to reimbursement from the New
Zealand Society of Accountants’ Fidelity Fund; the Society accepted liability for $8.5 million of
claims, but had insufficient funds to cover the claims. In 1991 the National Government 4 had changed
the law to allow the Society to impose higher annual levies for the Fidelity Fund, but this was still
insufficient. The Society had to persuade the Government to pass a statute to allow additional
levying of all members of the Society with a Certificate of Public Practice to cover the shortfall
(Chartered Accountants Journal 1992a).There were about 2,350 members with a Certificate of
Public Practice out of a total membership of about 19,000–20,000 members. Previously they had
each been levied $50 per annum, and the Fidelity Fund stood at $1.2 million in May 1991. The
maximum levy permitted was $150, set in 1977. The amendment passed by Parliament in May
1992 lifted the cap on this levy, and permitted a levy of $3,300 on each member with a Certificate of
Public Practice. Some members refused to pay; in May 1993 the Society had to serve summons on
five such members (MacEwan 1993).
It is not completely clear what specific factors contributed most to the increasingly negative
reaction from larger firms to a continuation of the Fidelity Fund. Possible factors include the interna-
tionalization of firm names in the mid-1980s, and the increased litigious consciousness engen-
dered by international affiliations and Big 6 auditor brand names. In June 1992 it was reported that
the Big 6 firms were applying considerable pressure on the Society to ban members from soliciting
funds from the public for investment; although they recognized that even if the Fund had “no place
in modern business,” the current claims had to be honored (Hunt 1992). Big 6 firms did not antici-
pate small practitioners would support this view, “many of whom depend on investing clients’ money
to earn a living” (Hunt 1992). This provides a very similar situation to that in the U.K. described by
Sikka and Willmott (1995, 562), when “fault lines within the accountancy profession had been
exposed but had not been rectified.” The feeling among the large firms was that they did not draw
4
In 1990 the National party won 67 seat s of a possible 97 in the Parliament under the leadership of Jim Bolger. This was the
largest majority in New Zealand’s Parliamentary history, and gave them a strong mandate for legislative changes.

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Baskerville-Morley 35

on the Fidelity Fund, as they did not handle client monies and their firm insurance covered out-of-
court settlements. The Big 6 was effectively underwriting risks incurred by small practitioners handling
client monies. At this stage, 60 percent of members with a Certificate of Public Practice were sole
practitioners.
These small public accountants then became more organized through meetings, and lobbied
that “they will reluctantly pay only if the Society convinces Government to rescind the May 12
legislation removing the limitation on fidelity fund levies” (Kennedy 1992, 5). The organized lobby-
ing by small practitioners was an extraordinary event, similar to the activities of practitioners in the
U.K. at the time the U.K. profession attempted to introduce an inflation-accounting standard. Such
coalitions do not appear to be sustained, and remain “single-issue” occurrences. In New Zealand,
the coalition did not extend to publicly present a unified view of arguments in favor of continuation
of the Fidelity Fund, in spite of underlying strong public interest arguments in favor of its continua-
tion. In fact there had been a resurgence in the number of small- to medium-sized firms in cities
outside the four main centers after the Big 6 firms shed many smaller branches—often rural with
nonauditing small business accounting activities—in the aftermath of the 1987 Crash. Many such
practitioners had previously been partners in the Big 6, and so may have been influential in redefin-
ing the domain of small practices away from investing client monies, or investing in clients, inde-
pendent business advisory services.
Other small practitioners clearly saw advantages in the continuation of handling client monies
and continuation of the Fidelity Fund; they might not have objected to paying the extra $3,500 to the
Society, as they might potentially suffer a much larger loss of income if the Fidelity Fund was not
continued. So this lobbying among small practitioners was only unified on one aspect: the desire
for reintroduction of the cap on the amount that the Society could levy each practitioner.

8. PUBLIC INTEREST ARGUMENTS

There had been some comment concerning public interest arguments in the debate in the
early months of the crisis. Tony Burns, the new President appointed at the end of 1991, suggested
that there were problems balancing “interests of members against interests of the community we
are serving, and different members have different views of where that balance lies. We have tried
to communicate with members affected by the situation very fully” (Chartered Accountants Journal
1991b, 90).Those members being kept informed were those with a Certificate of Public Practice,
but those 2350 were only around 12 percent of total membership.
With reference to the Fidelity Fund, Burns noted that “we are not going to be able to [take it
away] easily unless we have something very substantial to put in its place … I do not believe I have
an unlimited obligation in dollar terms to meet commitments of the Fund if we keep on having
people like Graham” (Chartered Accountants Journal 1991b, 90).
The submission by the Society in July 1992 to the Government advocating abolition of the
Fund drew attention to two aspects of public interest arguments:
1. “The public interest would not be served if members of the NZSA withdrew from member-
ship but continued to offer essentially the same services they render presently” (Chartered
Accountants Journal 1992c).
2. “The present Fund is unsatisfactory for clients who may think they have a level of protection
which in reality does not exist because practitioners do not have unlimited funds with which
to meet claims” (Chartered Accountants Journal 1992c). This was reflected in the recent

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Baskerville-Morley 36

experience of officers of the professional body in the aftermath of the Graham events,
when there were 177 claims totaling $10.93 million but a quarter of these did not meet
conditions necessary to be recompensed from the Fidelity Fund.
With no membership group advancing a public interest argument for retention of the Fidelity
Fund, the Society’s submission to the Government on July 23, 1992 sought closure of the Fidelity
Fund, with only passing reference to the John Graham crisis. The Society promised tighter control
on the manner in which their members managed client funds, and an ethical standard was forth-
coming. However, arguments were clearly related to the disunity between members subsequent to
the Graham embezzlement, for example:
“If the present fund legislation remains in place, there is potential for disintegration of the
New Zealand profession.”
“No other professional accounting body in the world is required to operate a fidelity fund
similar to that operated in New Zealand.”
“Society membership is almost unanimous that it is not prepared to continue under the
present regime.”
“The concept that the liability of the Fund is virtually unlimited and that practicing mem-
bers … must fund that unlimited liability is inappropriate in a deregulated market economy.”
(Chartered Accountants Journal 1992c, 20–21)
This last point gives substance to Neu and Wright’s view that such claims of congruence
between institutional actions and social values increased the chances of survival of a professional
body (Neu and Wright 1992, 646). The Fidelity Fund was abolished from April 1993, but then
legislation removed the protection previously granted by the New Zealand Society of Accountants
Act (1958) that had given members of the New Zealand Society of Accountants the sole use of the
descriptor “accountant” (Chartered Accountants Journal 1993). Members of the Institute of Char-
tered Accountants of New Zealand (the new name from 1996 for the NZ Society of Accountants)
retained the descriptor “chartered accountant” for their sole use. The Institute has since increas-
ingly developed that title as a brand.
In October 1996 the Institute reached an agreement to claw back $3.9 million with an uniden-
tified third party. Each member had $1,500 of the levy of $3,300 returned to him/her by the end of
that year (Dey 1996). Such a levy was relatively small compared with a similar levy imposed on
members by the New Zealand Law Society. In 1992 misappropriation and fraud by the law firm
Renshaw Edwards resulted in claims of $29 million. 2,800 members of the Law Society were each
levied $10,000 (Kennedy 1993). The Law Society achieved an amendment that ended unlimited
liability of its Fidelity Fund cover. However, its Fidelity Fund remains.
The submission to the Government giving the rationale for the abolition of the Accountants’
Fidelity Fund, which was a significant change in the interface between the professional body and
the public it served, did not solely focus on the Graham case. However, threats of dissolution or
weakening of the professional body came at a time when the reform of the Companies legislation in
1993–1995 relied heavily on the willingness of the professional body to resource the new account-
ing standard-setting regime. Although the Government established an Accounting Standards Re-
view Board as the standard-setting oversight board in 1994, this Board did not have (and remains
without) full-time paid staff. The seven Government-appointed members of the Board meet regularly

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Baskerville-Morley 37

on a part-time basis. To ensure adequate accounting standard setting resourced by the Institute’s
own Financial Reporting Standards Board, the Government was dependent on the goodwill of a
cohesive and inclusive single organization of professional accountants.
The profession had long harbored a desire for reforms. A raft of changes had been on the
Government’s “drawing board” since 1983. The Prime Minister Rob Muldoon (an accountant) had
promised to introduce an amendment to the previous 1906 Act, and this was reportedly carried in
his briefcase the night when, as Prime Minister, he dissolved Parliament and called a snap election
in 1984 (Booth 1996).5 However, it was the John Graham events eight years later, the subsequent
personal cost to each member in public practice, and antagonism of the Big 6 that gave sufficient
impetus for a consensus to form between the professional body and the State for urgent progress
with the whole package of statutory reform of the accounting profession. This outcome is consis-
tent with Sikka’s (2000, 378) determination from the U.K. study that power asymmetries meant that
private profit, not human welfare, was the dominant behavioral driver. The push to abolish the
Fidelity Fund concealed a power asymmetry between the influence of Big 6 firms and that of other
members of the profession in small and medium partnerships.
Although the Society promised action on four fronts to address public interest concerns6 after
the legislative change, stakeholders outside of Society membership had not been organized to
lobby strongly enough to ensure a better balance between changes favoring self-interests of mem-
bers and those providing improved benefits for the wider community. This can be clearly identified
with an application of the MAW model to these relationships. While landmark transgression analy-
sis provided answers to the “what,” “where,” and when” questions, the MAW model clarifies how
and why changes were introduced—changes that assisted in reestablishing the “normal” equilib-
rium betweens stakeholders.

9. THE DANGEROUS, DOMINANT, DEPENDENT,

AND DEFINITIVE STAKEHOLDERS
The examination of archival literature from media reports on this event has been restricted to
those materials in the public domain, as it is the public face of the reactions to these events that
determines the relative power of drivers of change on the continuum between public and self-
interested motives. It is proposed to now identify different stakeholders for the profession, by iden-
tifying which characteristics were demonstrated by different groups during these events. On this
basis, those in control of the professional body are part of the category that is “definitive stakehold-
ers” (the Council, key Management personnel, and the Executive Board of the Institute, for ex-
ample). The proposed identification of stakeholders (in Figure 2) for the professional organization
in New Zealand at the time just after the revelation of the transgression event (May–June 1992)
would not necessarily replicate in other instances, as the identifications are variable, and the con-
scious/willful exercise of power may or may not be present in individuals within different groups.
Any dominant, dependent, or dangerous stakeholders may move into the category of definitive
stakeholder when that group achieves the “missing variable.” For dominant stakeholders, such as

5
After failing to gain the support of Marilyn Waring over Nuclear Ship legislation, Muldoon called a snap election, held on July 14,
1984. The Labour Party under the leadership of David Lange reduced National’ s share to only 37 of 95 seats. Later that year
Muldoon was voted out as party leader after ten years at the helm.
6
These fronts include a new standard for handling client monies, auditing of trust accounts involving investment activities, an
extension of Practice Review, and a public campaign to increase awareness of the Complaints procedure.

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Baskerville-Morley 38

FIGURE 2
The Seven Types of Stakeholders
May – June 1992

POWER
Dormant stakeholders
•Me mbe rs of Voluntary Committees of the Society
not demanding a t present
•T he Governme nt receiving submissions
on the Fide lity Fund levy a nd other c hanges
•Me mbe rs organised into Spec ia l Interest Groups
with potentia l lobbying power

Dangerous
Demanding
stakeholders
•T he Press
•T hose concerned that there
is a public expectation of
protection from fraudulent
professiona ls
•T he Stock E xchange and
Sec urities Commission
c onc erned for an efficiently
organised a nd unified
a ccounting profession
Dominant
Graham’s clients
eligible for
•Big 6
Definitive refunds from
the Fund
•Coalition of Sole Practitioners
•Disciplinary Committee
•Fidelity Fund Trustees
•E xecutive & M gmt of the Soc ie ty
•Counc il of the Soc ie ty
Discretionary
Dependent stakeholders
• Grahams’ clients whose demands •Clie nts inve sting funds with
for repayment were not e ligible other a ccounting pa rtnerships
for refund from the Fidelity Fund •Staff at the Society who ma y lose
• Non CPP Members be ing left their job if the profession splits
uninformed while concerned for the •Professiona l bodies ove rseas
reputation of the profession •Student members

LEGITIMACY
URGENCY

the Big 6, membership lobby groups, or the government, it is only when there is a matter or urgency
that they move into the “definitive” category. In other jurisdictions, the Securities Commission may
have exercised influence to the extent that this influence puts them permanently into the dominant
stakeholder category, although it is suggested this was not the case in New Zealand in the 1990s.
For dependent stakeholders feeling urgency on some matter, such as clients with a claim from
audit failure, when they gain mechanisms of power to influence the Institute, they move into the
“definitive” category. MAW describes dangerous stakeholders as having both coercive power to
impose their will and urgency on a matter. When they gain moral legitimacy to exercise their griev-
ance, they move into the “definitive” category, able to actively influence renegotiation of the
profession’s domain.
Having proposed a tentative hierarchy of stakeholders for the professional body at that time,
there were two significant dynamics during the middle months of 1992 reflected in Figure 2:
1. Organized lobbying by sole practitioners, shifting from dormant to dominant, and then with
a consensus on the need for a cap on Fidelity Fund levies, was shifting to a definitive
status.

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Baskerville-Morley 39

2. Opposing demands from two categories of definitive stakeholders, as the Big 6 and “sole
practitioners” had differing perceptions of acceptable solutions.
In addition, there was a failure in that:
• The members of the professional body who did not have a Certificate of Public Practice
were “out of the loop” of the flow of communications. The Society did not invite informed
debate from those members, comprising approximately 88 percent of membership. These
were also outside the Definitive group, although they may have expressed concerns for the
reputation of their profession, and remained in the demanding category. Even when the
Society received a report (the Trapski Report) arguing against handling of client monies
and in favor of the abolition of the Fidelity Fund, both the terms and the outcome of this
report were sent only to members with a Certificate of Public Practice, further marginalizing
the majority of members without a Certificate of Public Practice.
• There was no dynamic from press or other media to actively develop public awareness or
public interest arguments in favor of a continuation of the Fidelity Fund. Thus there was no
resulting coalition of stakeholders (clients) in the discretionary category to gain power or
voice to represent public interest in the outcomes. This resulted in a lack of lobby group of
Dependent salience representing nonmembers.
• Neither the Government nor the Professional body invited public input via a Public Com-
mission or Task Force that would have supplied the vital “Power” element to dependent
stakeholders among clients or the wider public.
The extent to which the John Graham events created increasingly unmanageable tensions
between the governing body of the professional organization and other salient stakeholder groups
within its membership can be clearly identified in practitioner literature during the debate. This
resulted in the dismantling of the Fidelity Fund. As noted by Sikka and Willmott (1995, 550), “it is
necessary to be mindful of its highly complex and fractured organization as well as the diverse
kinds of work undertaken by qualified (“professional”) accountants.” Studies of the actions of the
professional body at such times have, as the undercurrent, the pull of tensions between those
different interests of diverse membership groups. Notwithstanding the damage to the reputation of
the profession, the Graham case provoked a deep antagonism among Certificate of Public Prac-
tice member stakeholders, and both the Society and the Government anticipated even larger costs
from a destabilized profession in the future if there were no changes.
The profession honored its commitments to Graham’s clients who had suffered losses from
the Fidelity Fund, but thereafter, during the process of abolishing the Fund, more clearly renegoti-
ated the core domain of accounting practice with different groups of membership within its ranks.
Accountants continued to support only one professional body, which added a new category of
Accounting Technician membership to its ranks, and increased monitoring of public accounting
practices by means of Practice Review.

10. DISCUSSION AND CONCLUSION

Using the theoretical concepts provided by the Mitchell et al. (1997) model of salience of
stakeholders, this study analyzed and interpreted a transgression of ethical standards. Such
transgressions may be observed to occur at random intervals as brief punctuations between long
periods of equilibrium that characterize the life cycle of professional accounting bodies. This review
demonstrated how transgressions provide professional associations with different opportunities
and constraints.

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The John Graham transgression was identified as a landmark narrative. Underlying this analy-
sis were questions of relevance to a constructionist understanding of disciplinary transgressions in
the accounting profession, when such events are recognized as instances of deep problems that
may require significant changes. Images of problems (e.g., a dishonest accountant) are linked to
particular remedies (such as prohibiting accountants investing client monies; ensuring separation
of auditors from business service partners). The “construction of putative conditions as problems
depends not merely on the creation of typifying examples, but on their successful use in storytelling”
(Nichols 1997, 325). The subsequent events were characterized by an unprecedented activity among
different classes of membership of the professional body. It would be of interest in subsequent
investigations to examine:
• If coalitions formed at the time of this lobbying activity were retained after the event; or
resurrected on a later occasion; and
• Did these activities provide the profession with a new standard or “peg in the sand” against
which to judge appropriate action with future issues?
The MAW model was shown to be useful in making sense of the professional processes
involved in a transgression situation when the professional body strives to both protect its reputa-
tion of protecting the public interest while at the same time avoiding behavior that appears to serve
the interests of its own members. In the events as described, the failure of the empowerment of
public interest advocates from within or external to the professional body resulted in an organiza-
tional change that appeared to primarily serve membership interests. Some researchers may pre-
fer to use the MAW model without first applying the criteria for landmark transgressions; but Nichol’s
(1997) criteria of landmark narratives offer a mechanism for more clearly identifying the framing of
the misdemeanours which gives urgency, thus creating the untenable increase in tensions from
different stakeholder expectations.
Sikka (2000, 371) commented that we need to acquire political, philosophical, and social skills
to enable research to address the behaviors of accountants as social beings. The role of public
interest/private interest arguments in the justification of organizational, professional, or regulatory
changes can be best understood when the relationships within different stakeholder groups of the
accounting profession are identified and analyzed. This study contributes to such analysis, and is
useful not only to officers of professional bodies involved with ethics and disciplinary matters, but
also accounting academics interested in regulatory issues and changes in professional bodies.
Other examples to which such analysis could be applied would be changes in accounting
standards, requirements for continuing professional education, the audit expectation gap, or changes
concerning requirements for auditor independence. Mandates for change can be achieved by lengthy
consultation or as a response to a transgression. For example, the failure of the FASB to succeed
in driving through recognition of stock compensation expenses reflected, in part, strong lobbying by
public interest representatives, some of whom appeared to genuinely believe that such a require-
ment would affect the well-being of business in the U.S. The lengthy consultation in this case
appeared to result in favoring public interest arguments. In contrast, the Sarbanes-Oxley legislation
was also fueled by public interest arguments for auditor independence, but largely in response to
transgressions referred to in the opening paragraph of this study.
The historic perspective and analysis of this transgression offered an example of the utility of
the MAW model enhanced by the analytical framework of landmark narratives. Together these
illustrate the adaptive nature of a professional organization’s purposive selection of particular driv-
ers to legitimate the desired change, and the manner by which such changes address and resolve

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conflicting demands. Application of this model not only facilitated identification of the salience of
stakeholders, but also provided an insight into the necessity for public interest advocates to present
their claims with both stridency and urgency during any period of change; especially when the
profession is advocating changes that may be contrary to the public good. Combining landmark
narrative criteria and the MAW stakeholder model can further stimulate research in accounting,
and provide a richer picture of the relationship accountants have with each society whose interests
they may claim to serve.

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