I am a hypocrite.
In their first-ever lecture in Accounts 1, I ask students to tell me the objective of business, a key question in introducing concepts such as net asset value and profit. The answer I am looking for is, of course: “to make the owners wealthier”. I usually make fun of anyone that suggests that a business should aim to contribute to society or to raise the living standards of employees, telling them to switch to a BA before it is too late.
Three-and-a-half years later, in their last ever lecture on Accounting Ethics, I ask them the same question, but this time I am looking for a different answer; one that acknowledges that – in addition to shareholders – there are other worthy stakeholders in most businesses, thoroughly deserving of a place in their objectives. In my best fake Russian accent, I decry anyone who suggests otherwise as a “capitalist pig”.
Of course, my hypocrisy is nothing compared with so many corporations currently in the news, whose mission statements, according to the fashion, boldly espouse the sanctity of every stakeholder, while the directors, who approved those missions, have screwed over everybody, shareholders included. There is no better example than the poster-child of corporate scandals, Enron, which proudly claimed four values as integral to its corporate behaviour: respect, integrity, communication and excellence. Are any four words less appropriate?
Trying to tell whether a corporation is truly committed to all its stakeholders by reading its codes, environmental reports or press announcements is like trying to tell whether a politician is honest by asking him – retailers, it seems, are not the only businesses that window dress?
Still, the idea that businesses should be committed to values other than profit-maximisation is less straightforward than the truism that politicians should be honest. Obviously managers that act in nobody’s interests but their own are unethical, but perhaps the current fashion is flawed: perhaps shareholder wealth should be the only objective. This view is losing traction in the developed world, but it is alive and well at home here in Africa. In Australia, Canada and the US, people respond that the role of large companies is to “set higher ethical standards and help build a better society” three to five times more often than simply “make profit, pay taxes, create jobs and obey all laws”. In South Africa, the two responses are equally popular (Millenium Poll, 1999).
I would not be surprised if CAs(SA) today generally have even less sympathy for the ideal of all-inclusive values. After all, despite the rhetoric about triple-bottom-line reporting, in practice, accounting’s main focus is still earnings. Hence, my emphasis on shareholders in Accounts 1. Also, there is a Rand-value mindset underlying the discipline; even the IFRS Framework instructs us not to recognise an asset unless we can ascribe to it a reliably measurable value. The happiness of employees and the purity of the communal water-supply, for example, have “value” only in a sense foreign to the professional language of most CAs(SA).
The reasons may go deeper than IFRS: perhaps my joke that students with a social conscience do not belong in the accounting class is not so far from the truth. A recent study of newly hired US accountants found that they had a disproportionately high incidence of a cognitive style “associated with relatively low levels of ethical reasoning” (Abdulmohammadi et al, 2003). As one student put it to me: “if we wanted to make the world a better place, we would have become doctors or social workers”.
I should mind my manners. How audacious to suggest in a journal for CAs(SA) that, on average, exemplary ethics may not be in their nature! Well, first note the qualifier “on average”: each individual CA(SA) is immune to the accusation, as he/she is a sample size of only 1. To tell if you agree with the suggestion, it would be better to look at your peers rather than yourself. Second, sometimes impertinence is an effective consciousness-raiser, exposing flaws in habitual modes of thinking.
If a company is seen as a person in law, why should it not have the same ethical – as well as legal – responsibilities as a natural person? Does it not therefore have a duty always to avoid doing harm, and (dare I say it?) even always to be kind: to employees, customers, suppliers and the environment? For a powerful version of this argument, watch the movie The Corporation, which shows that, when judged as a person, most large corporations are in fact psychopaths! Alternatively, perhaps the “personhood” of a company is too artificial a construct, and companies should instead be seen as collections of individuals. Still, those people should be expected to observe their individual moral duties, even when acting collectively.
The common over-reaction to holistic corporate values – that, if a company does not focus only on enriching its shareholders, it will fail – is clearly simplistic: no-one is suggesting complete abandonment of the shareholders’ interests, only that other stakeholders always must be considered. I know that this is more easily said than done, but that does not mean that it shouldn’t be done.
Some have suggested that redirecting resources to, say, employees, is simply stealing the fruits of shareholders’ investments, but it is not, because – whatever else he might have said – Marx was right that profits are also the fruits of the employees’ labour. Also, the claim that it is the job of government, not companies, to take care of other stakeholders is blind to the realities of the modern world, where a business like Wal-Mart has revenues greater than 85% of some countries’ GDPs; and every year corporations spend billions to influence politicians to legislate in their favour – and whose honesty is so famously in doubt.
Finally, there is integrity. A person that claims to be committed to all-inclusive corporate values is, if he/she has integrity, so committed. Anyone that only pays lip-service to the importance of other stakeholders – who says, for example, “our people are our greatest asset”, but does not treat them as such – is an infinitely worse hypocrite than I.
Jimmy Winfield, BBusSc, BCom (Hons), PGDA, is a lecturer in the Department of Accounting at the University of Cape Town and also runs the Cape Business Seminars.