Accounting seems to hold to a pretty depressing view of human nature. If you listen to accounting theorists, you get the impression that each of us is no more than a utility-maximizing sociopath. Well, not every accounting theorist thinks this. Not me and my critical accounting buds, for instance.
However, it certainly is the perspective of those who subscribe to agency theory, which dominates accounting scholarship in the USA and parts of Canada. Agency theory says that companies can be modeled using the notion of principals and agents. Principals, the shareholders, need someone to do their work while they are busy doing whatever rich people do. Agents, the CEO and other senior managers, are the ones who do their work. (Actual workers are strangely absent from most discussions of agency theory.)
The supposed problem is that agents, being some pernicious combination of lazy and sneaky, will nap on the job unless you are watching them, and will line their own pockets at every opportunity, leaving the principals confounded by their diminishing stream of dividends from an otherwise busy-looking enterprise. Accounting, under this sad set of assumptions, is an exercise by the agents to prove to the principals that they have been faithful stewards of the principals’ resources.
Agency theorists get one thing right. It’s that accounting is about the provision of accounts, not the demand for accounts. In other words, accounting is something agents want to do to prove something about themselves to the principals. This is why corporations, rather than shareholders, pay for audits.
Agency theory goes wrong in many ways, but the crucial bit, in my opinion, is in the motivation it ascribes to the agent. This impoverished soul is imagined to be completely self-interested, a lazy money-grubbing cheat who will stop at nothing unless caught in the act of looting the treasury or sleeping on the job. This seems a bit narrow, don’t you think?
Apologists for agency theory claim that their accurate predictions prove their assumptions are right. There are two problems with this argument. One is that once everyone realizes that this assumption is behind accounting, they start behaving accordingly, leaving it up to the accountants to rein them back in just before they commit larceny. “Don’t blame me,” they say, “it’s my job to maximize my utility.”
Two is that agency theory is famously circular in its logic. It starts with an assumption, then goes on a wee mathematical journey, only to arrive smugly back at its assumption. QED. In other words, if we are all assumed to be utility maximizers, and utility is defined as whatever people prefer to do, then whatever people do is proof that they are utility maximizers.
The purpose of accounting, under this set of assumptions, is to hold people accountable who would otherwise not do as they were asked.
Accounting tries really, really hard to live up to this unrealistic expectation. Accounting is, as Peter Miller and Nikolas Rose pointed out, eternally optimistic but perpetually failing. Thus, the solution to any failure of accounting is always more accounting. (Accounting is not special in this regard. The solution to a failure of policing is always more police.)
Accounting always falls short of our expectations. That’s because our premise is wrong. People are not the sociopaths that agency theory assumes them to be. People are actually quite well socialized to behave appropriately. We drive more or less at the speed limit even when no one is watching. We are kind. We are generous. We were raised to share what we have (remember kindergarten?) and to help those in need.
John Roberts and Martin Messner, amongst others, have thought deeply about this. Roberts argued that accounting works not because of the relationship between principals and agents, but because of the relationships amongst co-workers. We are part of a community when we are at work, and we behave in ways that help our community function. Not always, of course, because shit happens, but more often than not.
Messner argued that there is only so much that accounting can do to provide accountability. The fundamental problem, he says, is that the accounts we are required to provide cannot possibly express everything we want to say. And wanting to say something about ourselves, wanting to tell our story, is deeply human.
So, all the accounting constraints I wrote about last time, all the requirements for certain disclosures, all the auditing, all the management incentives, are designed around assumptions that limit our humanity. This is a major problem, and it’s not going away any time soon.
There are good examples of alternatives, though. One of the best I’ve seen is Positive Action in Housing, a program to address homelessness amongst the poor and refugees in Glasgow. Their Annual General Meeting is as professional as you would ever hope to see, and their financial statements are as complete and accurate as you would ever hope them to be. But their AGM is a time for people to tell their story in their own words, not just a time to list expenditures and recite budgets. The humanity of the staff and the clients comes through beautifully at this celebration of support for those in need. The corporate world could learn a thing or two from them.
The title of this post ...
is from Judith Butler's book. Writing from a rich gender-theory perspective, she argues that we have to be able to own the account we give of ourselves, because it is, after all, our story. Accounting, as a calculative technology often imposed upon us, makes it very hard to own our account. This is Martin Messner's argument.
Butler, J. (2005). Giving an Account of Oneself: Fordham Univ Press.
Messner, M. (2009). The limits of accountability. Accounting, Organizations and Society, 34(8), 918-938.
Miller, P., & Rose, N. (1990). Governing economic life. Economy and Society, 19(1), 1-31.
Roberts, J. (1991). The possibilities of accountability. Accounting, Organizations and Society, 16(4), 355-368.
Roberts, J. (2009). No one is perfect: The limits of transparency and an ethic for ‘intelligent’ accountability. Accounting, Organizations and Society, 34(8), 957-970.
Shearer, T. (2002). Ethics and accountability: from the for-itself to the for-the-other. Accounting, Organizations and Society, 27(6), 541-573.