7.4
HOPKINS CASE V. PRICE WATERHOUSE
Synopsis In 1983, Ann Hopkins was nominated for promotion to partner with Price Waterhouse. Hopkins, a senior manager in the firm at the time, seemed to have excellent credentials for a partnership position. In fact, of the 88 individuals nominated for partner that year, Hopkins had generated by far the most client revenues for the firm. Hopkins was also unique in that she was the only female among the partner candidates. Unfortunately for Hopkins, she was not promoted to partner and was subsequently told that she had little chance of being promoted in the future. After resigning from the firm in 1984, Hopkins began to question why she was denied the promotion to partner. Eventually, she decided to sue Price Waterhouse, claiming that she had been rejected for partnership on the basis of her gender. After a lengthy trial and several appeals, one of which was ruled on by the Supreme Court, Hopkins was awarded $400,000 in compensatory damages. Price Waterhouse was also ordered to offer Hopkins a partnership position, apparently the first time in U.S. history that a court had handed down such an order. The principal purpose of this case is to focus attention on several issues facing women entering the public accounting profession. Probably the most perplexing of these issues is the difficult task of successfully managing a professional career and having a family. Ann Hopkins, an energetic mother of three small children during her tenure at Price Waterhouse, achieved a good balance between her home life and professional work role. Another challenging issue that women public accountants face is the dominant male culture that pervades many CPA firms. In Hopkins case, she was apparently forced to deal with a work environment in which sexual stereotypes dictated how she was expected to behave. In fact, a court ruled in her civil suit that Price Waterhouse had evaluated her as a candidate for becoming a female partner with the firm rather than simply a partner. That is, there was an expectation that female partners and female partner candidates behave in a feminine manner, which was not Hopkins style. Hopkins, like many other women in the profession, also had to cope with the lack of female mentors. Finally, early in her career, Hopkins had been forced by the nepotism rule of her original employer, Touche Ross, to leave that firm so her husband would have an opportunity to be promoted to partner.
270 Case 7.4 Hopkins v. Price Waterhouse Hopkins vs. Price WaterhouseKey Facts 1. Historically, females and minorities have been under-represented in the large international accounting firms, particularly at the partner level. 2. Early in her career, Ann Hopkins had been forced to resign from Touche Ross because that firms nepotism rule precluded her and her husband from both being considered for promotion to partner. 3. Hopkins was the only female among the 88 candidates for partner with Price Waterhouse in the year that she was nominated for promotion. 4. Hopkins had generated more revenues for Price Waterhouse than any of the other partner candidates. 5. Hopkins office managing partner informed her, following the announcement that her nomination for promotion had been placed on hold, that she should behave more femininely. 6. The trial in Hopkins suit against Price Waterhouse revealed that several partners had made sexist remarks regarding her qualifications for partner. 7. The trial also revealed that prior female candidates for partner had been the target of sexist remarks by Price Waterhouse partners. 8. Evidence presented during the trial confirmed that Hopkins had deficiencies in her interpersonal skills but that similar deficiencies had not prevented prior male candidates for partner from being promoted. 9. The judge hearing Hopkins suit ruled that she had been evaluated by Price Waterhouse as a female partner candidate rather than simply as a partner candidate. 10. The judge in the Hopkins case ruled that the sexual discrimination she experienced had not been overt but rather latent in the culture of Price Waterhouse. 11. In 1990, Hopkins was awarded a judgment of $400,000 against Price Waterhouse; the firm was also ordered to offer Hopkins a partnership position, an offer she accepted. 12. In recent years, an increasing number of women have been promoted to partnership positions with the major accounting firms; nevertheless, women are still significantly underrepresented within the partnership ranks of those firms.
Case 7.4 Hopkins v. Price Waterhouse 271 Instructional Objectives 1. To demonstrate the unique challenges that women face in pursuing a public accounting career. 2. To illustrate that discriminatory attitudes against women public accountants may be latent within the culture of their employing firms. 3. To raise the issue of whether public accounting firms have a responsibility to implement measures specifically intended to facilitate the career success of their female employees. 4. To provide insight on the partnership promotion process of large accounting firms. 5. To document the historical under-representation of women and minorities in large accounting firms. Suggestions for Use This case can be integrated at practically any point in an auditing course. The most obvious point at which to discuss this case would be during coverage of the introductory chapter in the standard auditing text, a chapter that typically provides a broad overview of the public accounting profession, including the changes it is undergoing and the challenges it faces in the future. However, rather than discussing this case early in the semester, I typically defer presenting it until mid-semester. In a sense, I use this case to give my students a brief break from the technical aspects of auditing. The key purpose of this case is to sensitize both male and female students to the unique challenges that women public accountants face in their careers. Making both sexes aware of the subtle but often pervasive nature of sexual discrimination is the first step toward remedying this problem. As noted in the case, the presiding judge in the Hopkins suit against Price Waterhouse ruled that the firms partners were not aware they were discriminating against females. In fact, Ann Hopkins, herself, admitted during the trial that she never witnessed any overt discriminatory acts against her while she was with Price Waterhouse. Of course, subtle or latent discrimination is very difficult to detect and combat. Hopefully, by making aspiring public accountants aware of this problem they will be more sensitive to it and recognize the constraints and inequities that it imposes on women public accountants. If an instructor wishes to pursue the central issues in this case in more detail, he or she can refer to a number of articles regarding these issues that have appeared in the Journal of Accountancy in recent years. Many of these articles are reports by the AICPA task force that is responsible for monitoring the progress of women in public accounting. Another article that might be of interest is the following one that I co-authored with Soon-Yong Kwon: Toward a Better Understanding of the Underrepresentation of Women and Minorities in Big Eight Firms, Advances in Public Interest Accounting, Vol. 4 (1991), pp. 4762. Suggested Solutions to Case Questions 1. This is a question that typically generates quite different responses from students. Generally, the majority of students suggest that public accounting firms have an obligation to adopt policies designed to help women overcome the barriers to success that they have historically faced in the
272 Case 7.4 Hopkins v. Price Waterhouse public accounting profession. However, my experience has also been that a certain proportion of male students will mention the phrase reverse discrimination when they respond to this question. These individuals typically suggest that accounting firms should be fair to all employees do but not have a responsibility to bend over backwards to accommodate the special needs of any one group of employees. [I would caution instructors to deal with this issue with a great deal of sensitivity since it often evokes emotional responses from both female and male students.] Following is a list of measures, identified by former students of mine, that accounting firms could consider implementing to facilitate the career success of women public accountants (and minority public accountants as well). a. b. Accounting firms could make greater use of females and minorities in their recruiting processes. The large offices of public accounting firms could adopt a policy of having at least one female and/or minority involved in their personnel function. Females and minorities would likely be more comfortable in discussing sensitive issues related to job discrimination with such an individual. Accounting firms could develop a formal mentoring system for their female and minority employees. The executive offices of accounting firms could review their promotion and performance appraisal policies and procedures to make sure that they are gender and color blind. Sensitivity seminars could be developed for partners and employees to make them aware of the subtle discrimination that females and minorities often face within their firms. Accounting firms could give female employees an opportunity to adopt flexible work schedules to help them meet the dual responsibilities of their professional and family roles.
c. d. e. f.
2. The old boy network is a phrase generally used in reference to a small clique of key decision-makers within an organization. As the term implies, typically all of the members of such groups are male. In most cases, this phrase has pejorative connotations. For instance, members of an old boy network are often perceived as protecting and furthering their own economic self-interests and those of their colleagues at the expense of individuals outside their clique. Should professional firms attempt to break down old boy networks? Certainly, it does not appear proper or advantageous for professional firms to encourage the formation and continuation of such cliques since their existence can be very disruptive and counter-productive to an organizations operations. For example, women public accountants are often not included in the informal power groups that form within an accounting firm. As a result, they do not benefit from the often very significant influence that these groups can impose on a firms or practice offices personnel decisions. At the very least, accounting firms should ensure that personnel -related and other key operating decisions are not made behind closed doors by self-interested cliques. Instead, these decisions should be made in an open forum in which all appropriate individuals are allowed to participate fully and fairly in the decision-making process.
Case 7.4 Hopkins v. Price Waterhouse 273 3. The key criterion in assigning auditors to audit engagements should be the personnel needs of each specific engagement. For instance, one engagement may need an individual with significant EDP auditing experience, while another engagement may require an individual with knowledge of sophisticated cash management systems, and so on. Certainly, client management has the right to complain regarding the assignment of a particular individual to an audit engagement if that complaint is predicated on the individuals lack of technical competence, poor interpersonal skills, or other skills deficiencies. On the other hand, a client complaint in this context predicated upon the race, gender, or physical limitations of an auditor are nearly always unjustified. If client management objects to a given auditor being assigned to their companys audit team for an unjustified reason, the individuals responsible for staffing decisions within the given practice office should politely but firmly inform client management that its request is unreasonable. If the client persists, the audit firm should consider resigning from the engagement. Hopefully, over the long run, accounting firms will be rewarded for such a commitment to high ideals and ethical norms by their local business community. [Note: As a point of information, Case 7.6, Bud Carriker, Audit Senior, focuses on the key issue raised by this question.] 4. Nepotism rules have been adopted in many settings, not just professional firms. Historically, the principal purpose of such rules has been to ensure that the leadership positions within an organization are earned rather than bequeathed. That is, organizations adopting such rules believe that competence should be the key factor in the determination of which individuals are given leadership positions and other organizational rewards. As a general rule, the key benefit of such a policy is that an organization has a better chance to thrive and prosper over time because the most qualified individuals are the ones promoted and, consequently, the ones who generally remain with the organization. The key disadvantage of nepotism rules is that qualified individuals may not be allowed to assume leadership positions in an organization because they happen to be related to another individual in that organization. In most employment contexts, nepotism rules have historically been more disadvantageous for females than males. If a married couple is employed by an organization, the husband is more likely to have a longer tenure with the employer (because he is typically older than his wife). Consequently, the wife is generally perceived as having a smaller investment in the employer and thus is the spouse who is more likely to resign when the nepotism policy of the firm is invoked. [Quite often, married couples can work together at professional firms until they reach the partner level. At that point, however, only one of the individuals will typically be considered for promotion to partner.] 5. As you might expect, the U.S. Senate and the Big Eight firms had diametrically opposed views on this matter. The U.S. Senate believed that since the major accounting firms had essentially become a part of the regulatory process for the financial reporting sphere (through their role in the rule-making process for accounting and financial reporting), the federal government had an oversight responsibility with respect to these firms. Other critics of public accounting firms suggested that these firms should be the subject of federal oversight since most of them had very large contracts with the federal government or agencies of the federal government. On the other hand, the Big Eight firms argued that they were private partnerships and thus not subject to federal oversight. Were the requests of the U.S. Senate an invasion of the Big Eight firms privacy? An unequivocal answer can probably not be given to that question since both parties had legitimate views. However, it does seem appropriate that professional
274 Case 7.4 Hopkins v. Price Waterhouse firms that become involved in regulatory processes of the federal government and/or that become major suppliers of professional services to the federal government should be subject to federal oversight. Even if the information requested by the U.S. Senate during the Metcalf hearings is strictly private information, one could credibly argue that such information should be made available to the public. In 1984, in a case involving Arthur Young & Company, the U.S. Supreme Court noted that the primary responsibility of auditors and audit firms is to the public interest. Consequently, it seems reasonable to suggest that these firms should be responsive to the requests of elected officials who represent the general public. In a nutshell, the issue here is whether or not the public has a right to know if the parties to whom it has delegated a key societal role are maintaining high standards of professional and ethical conduct.