What you don't know about making decisions

Most executives think of decision making as a singular event that occurs at a particular point in time. In reality, though, decision making is a process fraught with power plays, politics, personal nuances, and institutional history. Leaders who recognize this make far better decisions than those who persevere in the fantasy that decisions are events they alone control. That said, some decision-making processes are far more effective than others. Most often, participants use an advocacy process, possibly the least productive way to get things done. They view decision making as a contest, arguing passionately for their preferred solutions, presenting information selectively, withholding relevant conflicting data so they can make a convincing case, and standing firm against opposition. Much more powerful is an inquiry process, in which people consider a variety of options and work together to discover the best solution. Moving from advocacy to inquiry requires careful attention to three critical factors: fostering constructive, rather than personal, conflict; making sure everyone knows that their viewpoints are given serious consideration even if they are not ultimately accepted; and knowing when to bring deliberations to a close. The authors discuss in detail strategies for moving from an advocacy to an inquiry process, as well as for fostering productive conflict, true consideration, and timely closure. And they offer a framework for assessing the effectiveness of your process while you're still in the middle of it. Decision making is a job that lies at the very heart of leadership and one that requires a genius for balance: the ability to embrace the divergence that may characterize early discussions and to forge the unity needed for effective implementation.     

A case study demonstrates a democratic methodology for making risk-based decisions

Abstract

Risk is a subjective notion allowing the boundaries between the role of a risk practitioner and a decision-maker to become blurred. A belief that the public misunderstands risk and the need to control the risk assessment process are two barriers to effective engagement. A lack of engagement and the ability to enable citizens to decide their own future can contribute to the controversy we see in important public debates. In our study, we surveyed four stakeholder groups in the New Zealand to determine how they each rated the risks and benefits of a case study on the three biophysical impacts of the economy, environment and human health. Our survey methodology incorporated a continuous scale along three axes and this design enabled costs and benefits to be traded-off between individuals, giving them a representative voice. We used these results to investigate whether or not it would be feasible to use such an approach to make decisions. Our results indicate that public decision-making is possible, which in this case broadly reflected agreement between the public and the official decision. Such an approach holds promise for expanding the role of public engagement and input into the risk assessment process.     

Understanding accounting as a career: an immersion work experience for students making career decisions

This paper reports on a project which is designed to increase the participation of high school students in accounting work experience placements. The focus of the paper is on an Australian-based project which overcomes the identified barriers to offering high school accounting work experience placements with a resultant increase in the number and quality of placements offered. The research project responds to a decline in both the number and quality of students enrolling in accounting degree programmes in Australia. The paper draws on the work experience, social psychology, careers, and accounting education literatures to design a ‘connective’ model (Guile &; Griffiths, 2001 Guile, D., &; Griffiths, T. (2001). Learning through work experience. Journal of Education and Work, 14(1), 113–131. doi: 10.1080/13639080020028738[Taylor &; Francis Online] , [Google Scholar]) of accounting work experience for high school students. The project adopts an action research methodology which engages professional accounting practice, high school career advisors, and the university sector to deliver a structured work experience programme which addresses barriers to participation in accounting work experience and improves the quality of the work experience ‘experience’ for both employers and students.     

The effect of audit seniors’ decisions on working paper documentation and on partners’ decisions

Prior research reports that the memories of working paper preparers may be biased toward evidence consistent with their prior decisions, but that reviewers exposed to the same set of evidence can mitigate the bias by evaluating inconsistent evidence. This study tests whether audit seniors’ decisions bias their ability to recognize evidence to document in working papers, and whether biased documentation affects the decisions of audit partners who are exposed only to the subset of evidence that seniors recognize and document. Experiment 1 confirms that audit seniors’ prior decisions bias their memories for evidence to document in working papers, and also creates materials for experiment 2. Experiment 2 offers a new insight: when exposed only to the evidence that seniors recognize and document, partners make decisions biased in the direction of the seniors’ decisions, since not all of the inconsistent evidence is documented. Experimental procedures controlled for four alternative interpretations: justification, evidence order, recency, and primacy.     

Investors’ distraction and strategic repricing decisions

In this paper I analyze investors’ reactions to changes in the expense ratios of equity mutual funds. I show that investment flows’ response to fees cannot be fully explained by looking at investors’ performance sensitivity. While performance sensitivity monotonically increases with past performance, price sensitivity does not: investors who buy top past performers seem to be “distracted” by the fund’s previous return and pay relatively little attention to the expense ratios. Moreover price sensitivity increases with fund visibility while performance sensitivity decreases, and while looking at data from 1986 to 2006 no discernible trend can be observed in the average performance sensitivity, price sensitivity strongly increases due to the dramatic increase in the availability of mutual funds’ information for retail investors. Finally I show that investment companies strategically time their repricing decisions in order to exploit time variations in price and performance sensitivities, and that fund governance quality affects the degree to which investment companies engage in this opportunistic behavior.     

Nonlinear incentives and mortgage officers’ decisions

In the aftermath of the recent financial crisis, banks should ensure that their incentive compensation policies appropriately balance long-term risk with short-term rewards. Using daily output data from mortgage officers in a US commercial bank, we test the notion that nonlinear contracts create time-varying incentives for the employees and impose costs on the firm. We provide empirical evidence that mortgage officers greatly increase their output toward the end of each month, when the minimum monthly quota is assessed. This occurs through a combination of reducing the processing time and approving some marginal applications. We also find that mortgages originated on the last working day of the month have a higher likelihood of delinquency.     

Narratives in managers’ corporate finance decisions

This article uses the extended case method to explore senior executives’ corporate finance decisions. We quantified firm’s finance practices using a mail survey, and then – to resolve puzzles in managers’ decision processes – conducted face‐to‐face interviews with chief finance officers of large listed firms. The interviews identified six themes as consistent influences on finance decisions: pressures imposed by clienteles; constraints on resources; risk management; heuristics; real options; and sustainability. We conclude that managers are logical and rational in their decisions, but employ a wider range of criteria than assumed in conventional finance theories.     

Overseas bankers in the UK and their use of information for making lending decisions: Changes from 1985

This paper is concerned with the information used by one set of users, namely bankers, and the changes in their usage of information over time. The work replicates and revisits the work of Berry, A., Citron, D., Jarvis, R., 1985. Foreign banks operating in the UK—their information requirements, usage and suggested improvements to financial reporting, implications for the accounting profession. European Accounting Association Conference, Brussels. The population surveyed was drawn from the same source as that used for the earlier study although, as might be expected in a dynamic environment, the individual bankers making up that population were not identical. The results show that accounting information, as a whole, remains a very important source of information informing the bankers' decision-making processes but that the relative importance and usage of the components has changed. Some of these changes are positive in that they suggest that there have been improvements to the information content provided, for example in contrast to the findings of Bartlett, S.A., Chandler, R.A., 1997. The Corporate Report and the private shareholder: Lee and Tweedie twenty years on. British Accounting Review 29, 245–261, the cash flow statement is seen as more important than the profit and loss account or balance sheet. Other changes are perhaps of more concern to accounting standard setters as the results represent a decrease in the perceived importance of key components of financial statements, for example, the audit report and the statement of accounting policies. This supports the earlier findings of Bartlett and Chandler (1997) in respect of the audit report. There is also evidence to suggest that the mix and type of information these bankers are now using has changed since 1985. This may indicate a move toward a greater use of a going concern approach to lending decisions.     

Stop wasting valuable time

Companies routinely squander their most precious resource--the time of their top executives. In the typical company, senior executives meet to discuss strategy for only three hours a month. And that time is poorly spent in diffuse discussions never even meant to result in any decision. The price of misused executive time is high. Delayed strategic decisions lead to overlooked waste and high costs, harmful cost reductions, missed new product and business development opportunities, and poor long-term investments. But a few deceptively simple changes in the way top management teams set agendas and structure team meetings can make an enormous difference in their effectiveness. Efficient companies use seven techniques to make the most of the time their top executives spend together. They keep strategy meetings separate from meetings focused on operations. They explore issues through written communications before they meet, so that meeting time is used solely for reaching decisions. In setting agendas, they rank the importance of each item according to its potential to create value for the company. They seek to get issues not only on, but also off, the agenda quickly, keeping to a clear implementation timetable. They make sure they have considered all viable alternatives before deciding a course of action. They use a common language and methodology for reaching decisions. And they insist that, once a decision is made, they stick to it--that there be no more debate or mere grudging compliance. Once leadership teams get the basics right, they can make more fundamental changes in the way they work together. Strategy making can be transformed from a series of fragmented and unproductive events into a streamlined, effective, and continuing management dialogue. In companies that have done this, management meetings aren't a necessary evil; they're a source of real competitive advantage.     

Stop holding yourself back

After working with hundreds of leaders in a wide variety of organizations and in countries all over the globe, the authors found one very clear pattern: When it comes to meeting their leadership potential, many people unintentionally get in their own way. Five barriers in particular tend to keep promising managers from becoming exceptional leaders: People overemphasize personal goals, protect their public image, turn their competitors into two-dimensional enemies, go it alone instead of soliciting support and advice, and wait for permission to lead. Troy, a customer service manager, endangered his job and his company's reputation by focusing on protecting his position, not helping his team; when a trusted friend advised him to change his behavior, the results were striking. Anita's insistence on sticking to the tough personal she'd created for herself caused her to ignore the more intuitive part of the leadership equation, with disastrous results--until she let go of the need to appear invulnerable and reached out to another manager. Jon, a personal trainer who had virtually no experience with either youth development programs or urban life, opened a highly successful gym for inner-city kids at risk; he refused to be daunted by his lack of expertise and decided to simply "go for it." As these and other examples from the authors' research demonstrate, being a leader means making an active decision to lead. Only then will the workforce--and society--benefit from the enormous amount of talent currently sitting on the bench.     

Client importance and non-Big 5 auditors’ reporting decisions

In this paper, we examine the effect of the trade-off between economic dependence and reputation protection on the link between client size and the audit reporting decisions of non-Big 5 auditors. We find that non-Big 5 auditors, like Big 5 auditors, do not allow their larger clients greater leeway to manage earnings. In fact, there is some evidence that non-Big 5 auditors treat their larger clients more strictly. In addition, non-Big 5 auditors, like Big 5 auditors, are at least as likely to issue a going-concern report to their potentially financially distressed larger clients as they are to their otherwise smaller clients.     

Reprint of Investors’ distraction and strategic repricing decisions

In this paper I analyze investors’ reactions to changes in the expense ratios of equity mutual funds. I show that investment flows’ response to fees cannot be fully explained by looking at investors’ performance sensitivity. While performance sensitivity monotonically increases with past performance, price sensitivity does not: investors who buy top past performers seem to be “distracted” by the fund’s previous return and pay relatively little attention to the expense ratios. Moreover price sensitivity increases with fund visibility while performance sensitivity decreases, and while looking at data from 1986 to 2006 no discernible trend can be observed in the average performance sensitivity, price sensitivity strongly increases due to the dramatic increase in the availability of mutual funds’ information for retail investors. Finally I show that investment companies strategically time their repricing decisions in order to exploit time variations in price and performance sensitivities, and that fund governance quality affects the degree to which investment companies engage in this opportunistic behavior.     

Litigation environment and auditors’ decisions to accept clients’ aggressive reporting

This study contributes to accounting and auditing literature by addressing two empirical questions: (1) whether litigation environment affects auditors’ decisions to accept clients’ aggressive reporting and (2) whether litigation environment, client business risk, and client retention pressure interact and jointly affect auditors’ decisions to go along with clients’ preferred accounting choices. Fifty-nine (59) US and sixty-one (61) Hong Kong auditors employed by the Big-4 accounting firms participated in this study. The result shows that litigation environment has a significant effect on auditors’ decisions. Auditors who practice in more litigious environments tend to be less willing to go along with clients’ aggressive reporting than those who practice in less litigious environments. This study also confirms that there is a significant interactive effect between litigation environment, client business risk, and client retention pressure on auditors’ decisions to accept clients’ aggressive reporting choices. Implications of the empirical findings for policymakers, standard-setting organizations, and international accounting firms, as well as directions for future studies, are discussed.     

Accounting for decisions and decisions for accounting

Behavioral decision theory (BDT) is concerned with “accounting for decisions”. The development of this interdisciplinary field is traced from the appearance of several key publications in the 1950s to the present. Whereas the 1960s saw increasing theoretical and empirical work, the field really started to flourish in the 1970s with the appearance of the review by Slovic & Lichtenstein (Organizational Behavior and Human Performance, pp. 549–744, 1971), and key papers on probabilistic judgment (Tversky & Kahneman, Science, pp. 1124–1131, 1974), and choice (Kahneman & Tversky, Econometrica, pp. 263–291, 1979). From the early 1980s to the present, BDT has seen considerable consolidation and expansion and its influence now permeates many fields of enquiry. After this brief history, eight major ideas or findings are discussed. These are: (1) that judgment can be modeled; (2) bounded rationality; (3) to understand decision making, understanding the task is more important than understanding the people; (4) levels of aspiration/reference points; (5) use of heuristic rules; (6) the importance of adding; (7) search for confirmation; and (8) thought as construction. Next, comments are addressed to differences between BDT and problem solving/cognitive science. It is argued that whereas many substantive differences are artificial, two distinct communities of researchers do exist. This is followed by a discussion of some major shortcomings currently facing BDT that include questions about the robustness of findings as well as overconcern with a few specific, “paradoxial” results. On the other hand, there are many interesting issues that BDT could address and several specific suggestions are made. Moreover, these issues represent opportunities for accounting research and several are enumerated. Finally, BDT presents “decisions for accounting” in the sense that scarce resources need to be allocated to different types of research that could illuminate accounting issues. The argument is made that BDT is one research metaphor or paradigm that has proved useful in accounting and that should be supported. Such support, however, may mean that some researchers may work on issues that, at first blush, might seem distant from accounting per se.     

户籍改革:“公民化”第一站

户籍制度改革已成为缩小城乡差异、加快城市化进程最重要的催化剂,然而难以推进的户籍制度改革该从何处下手?财政又将何以发力?为此,《新理财》特地采访了中国社科院农业发展研究所研究员党国英。