Accounting, “economic citizenship” and the spatial reordering of manufacture

This paper addresses the roles of accounting within one of the most extensive programs of advanced manufacture undertaken by an American corporation. Three distinct levels of analysis are pursued: firstly, the profound alterations that were to be effected in the identity and mode of operation of a key assembly plant, and in the ordering of its manufacturing spaces, as diverse calculative and managerial expertises were brought into complex and tentative alignments within a factory modernization process; secondly, the hopes and ideals for advanced manufacture and for American competitiveness that were to be constituted and made operable within this process; and thirdly, the links formed between this ambitious program of plant renewal and the various appeals to a “new economic citizenship” that have become prevalent in debates on advanced manufacture. By focusing on the relays and interconnections between these three levels of analysis, and the shifting ensembles thus formed, we are able to explore the dynamics of a specific attempt to govern the economic and personal dimensions of an enterprise. The concern is with all of those programs and technologies, including accounting, which seek to act upon and to transform the conduct of manufacture and the conduct of persons in a certain way. For it is, we argue, through such interventions that a new mode of seeking to govern economic life is set in place. And it is through such means that a novel type of economic citizen is called upon to play a new set of roles within the enterprise and within the nation.     

A colonial “social experiment”: Accounting and a communal system in British-ruled Fiji

There is now an emerging literature that focuses on accounting practices in colonial processes of imperialism. This historical study theorises accounting's involvement in collectivistic social arrangements within a colonial regime. It analyses the colonial functions of accounting in British-ruled Fiji. We define colonialism by an official emphasis on the customary in 19th century utopian community-type ideas. The paper focuses on the moments and processes including that of accounting that produced such an expression of cultural difference. Rather than taking the communal division as given, this paper analyses the construction of such an identity and the role played by accounting from a political economy perspective. It examines the complex negotiations that sought to define a utopian communal arrangement that exploited, inter alia, the generation of much needed revenue for the state coffers.Archival documents highlight the emphasis on revenue that led to exploitative colonial labour policy for indigenous taxation and its attendant requirement for exacting unremunerated labour from the indigenous population. The paper also shows how accounting calculations were indiscernible from exploitative and oppressive acts of organising indigenous labour for colonial taxes as well as for the collaborating Chiefs’ personal services.     

The accounting of interpretations and the interpretation of accounts: The communicative function of “the language of business”

The objectivistic philosophical assumptions which underlie contemporary research in accountancy, as well as economics and elsewhere, are challenged and an interpretive alternative is proposed. A “hermeneutical” view of decision-making is examined, first with regard to science in general, and then concerning the human sciences in particular, and finally with regard to economics. Human decisions are not seen as objective, mechanical or behavioristic but as meaningful utterances of minds, as part of a bidirectional communicative process. That is, scientific decisions, like everyday decisions, are mutually interpretive processes of communication in language. Although it is true that much of mainstream neoclassical economics is incompatible with this interpretive approach, the “Austrian” school can be seen as an interpretive version of neoclassicism. This school of economics indicates a way to understand the communicative function the accounting “language” itself serves in the economic process. The professional judgments made by both accounting researchers and practicing accountants, then, are treated as “matters of interpretation,” but as not, thereby, arbitrary.     

How “Competitive Pay” Undermines Pay for Performance (and What Companies Can Do to Avoid That)

Almost all proxy statements say that the company's pay programs are designed to achieve pay for performance and to provide competitive pay. While companies assume that these objectives are perfectly compatible, attempts to provide competitive pay often have the effect of undermining pay for performance. As currently practiced, competitive pay means that the company's target pay levels match the pay levels of its peer companies regardless of past performance. By targeting the dollar value of an equity award each year, competitive pay plans effectively reward poor performance in a given year by increasing equity grant shares in the following year—and, conversely, such plans penalize superior performance in one year by reducing the number of shares in the next. Likewise, the target share of the annual incentive award increases with poor performance and decreases with superior performance. In this fashion, the competitive pay approach distorts incentives and weakens the link between cumulative pay and cumulative performance. The authors show that the focus on competitive pay is a modern development that replaced the sharing formulas that governed executive pay in the first half of the twentieth century. Companies adopt the competitive pay model because they believe it does a better job of achieving the three main objectives of executive pay: strong incentives; retention; and limited shareholder cost. While competitive pay directly addresses retention risk, it can greatly weaken management incentives. Furthermore, boards tends to rely on competitive pay data to set target compensation because they have no meaningful measure of incentive strength and the actual cost to shareholders. Without quantitative measures of incentive strength and shareholder cost, boards run the risk of retaining poor performers and losing superior performers. Using a case study of Dow Chemical, the authors show how companies can measure the incentive strength of their executive pay plans, and how a simple pay plan using annual grants of performance shares can provide “perfect” pay for performance.     

Disclosure policy: A discussion of Leuz, Triantis and Wang (2008) on “going dark”

LTW (2008) examine firms withdrawing from the SEC reporting system but continuing to trade on Pink Sheets. The paper finds that Sarbanes-Oxley increased the propensity of firms to go dark but, counter to conventional wisdom, had no significant effect on the rate of going-private transactions. Agency costs, as well as poor growth opportunities, proximity to financial distress, and increased compliance costs arising from SOX increase the propensity to go dark. Suggestions to improve the empirical implementation and interpretation involve including additional control and more suitable explanatory variables, and more attention to causation issues and to the quantification of economic significance.