Professors of accounting

On Friday I attended the annual Conference of Professors of Accounting and Finance where there were two speakers who have recently written books which may be of interest.

Linda Evans is Professor of Education at the University of Manchester and her book is “Professors as Academic Leaders: Expectations, Enacted Professionalism and Evolving Roles”.   This is based on four extensive studies that she has undertaken, exploring the role of professors across all disciplines. Her conclusion is that the definition of “academic leadership” which underpins the role is poorly defined and thus problematic, leading to professors being stretched too thinly over a range of scholarly and administrative roles. She suggests that the professoriate in a university should be treated as a team with specialisms allowing all requirements across the university to be fulfilled but with professors able to contribute according to their strengths, in a manner similar to the canons at Westminster Abbey. This could then preserve space for research and scholarly activity which, she suggested, was under grave threat.

Michael Shattock has for many years been the guru of university governance and his new book is “Governance of British Higher Education: The Impact of Governmental, Financial and Market Pressures”. He presented an interesting historical analysis of university governance, arguing that boards of governors comprised of lay people cannot fulfil governance accountability requirements and that academics have been progressively side-lined from any influence on university strategy and need to take back control. The audience was a bit sceptical about this, having already spent the day listening to speakers who had painted a gloomy picture of the overstretched professoriate: Michael’s somewhat unsatisfactory response to this scepticism was to point to the enduring success of Oxbridge where senior academics take an active part in strategy development and manage to do everything very effectively.  No Oxbridge academics were present to comment on this.

I was particularly interested in the parallels with corporate governance in the private sector: the adoption in public sector institutions of mechanisms developed in the private sector has not been very successful in improving accountability – indeed, such mechanisms have largely failed in the private sector, too, where non-executive boards have been unable to deal effectively with issues such as CEO pay. The Shattock solution of including more academics on boards of governors is remarkably similar to Labour policy proposals to put employees on corporate boards.

Robert Caro

Until a few days ago I had never heard of Robert Caro but the title of his recently published book - "Working: Researching, Interviewing, Writing" - intrigued me. I've spent much of my working life doing those three things and I'm always interested to know how other people do them.

Caro is a highly respected journalist who, now in his eighties, is still working on the fifth volume of his biography of Lyndon Johnson and previously wrote a biography of Robert Moses. This book is a collection of pieces in which he describes the background to his writing - his motivation and the way he works.

Caro began by wanting to explore the nature of political power: he didn't set out to write biographies but saw this as the most interesting way to investigate this topic, focusing on the role of a single man who exercised great power, and considering its source. Not (yet) having read either biography, I can't assess how far he achieved this ambition but the diligence he exercised in his research is hugely impressive.

His account of working with documentary sources is amazing. His description of the Lyndon Johnson library and the colossal number of files held there is very vivid. The prospect of investigating them would be daunting for anyone less committed than Caro but with the help of his wife Ina he tackled the task. His research was meticulous. These days, when so many archives are available online, one might think it would be easier to do such work but Caro's description of working with documents illustrates the importance to a researcher of the feel and look of the originals. I noticed this myself when working on the Cadbury archive: looking at digitised documents is undoubtedly convenient but it is very different from holding the paper in your hands, seeing hand-written annotations, and this prompts different ways of thinking about the context in which the documents were produced and their meaning for those who produced them and read them.

His interviewing was equally diligent. Just tracking down the people who could provide him with the most useful insights took immense effort and great determination: researchers who complain about difficulties in accessing interviewees could learn a lot from Caro. And he is a very persistent interviewer, braving the irritation this caused to some of his influential interviewees.

Caro had no funding to do this work. He realised quite early on that working as a journalist and writing in his spare time was not an effective way to undertake such big projects. His first publisher made him a small advance but eventually his wife sold their house to support his work. It took a while before they were in position to feel more financially secure. This didn't prevent them from moving from New York to Texas to understand Johnson's background and to get closer to the people who could tell him about Johnson. This is an astonishing commitment to the project.

I found this book quite fascinating. Caro is a great storyteller and a fine researcher. Anyone interested in researching, interviewing and writing should read it.

Risk, regulation and blame

I've read two interesting articles this week. One by Gillian Tett in the FT: "A thicket of laws strangling the land of the free?" and one by Alex Edmans in economia, on Kodak.

Alex argues that Kodak's demise is an example of poor corporate governance because good corporate governance should not only focus on preventing egregious behaviour with regard to management rewards but also on the promotion of proactive innovation, which is where Kodak failed.

This reminded me that I had once written about the tension between enterprise and accountability. I find it a slightly worrying experience to reread things I wrote a long time ago. It's not a very good paper although it's interesting to see how much of it prefigures thinking that I developed in later publications. And I was surprised that it had gathered some quite recent citations, given that the corporate governance literature has expanded so much in the twenty years since I wrote it. But the point that I think I made and that Alex makes more cogently is the importance of balance in corporate governance and the need to think carefully about the impact of regulatory policy on long term value creation objectives.

Gillian Tett's article explores the increasing development of rules and bureaucracy and by implication its impact on innovation. She comments that "..the surplus of modern rules and bureaucracy has not emerged by accident: on the contrary, it reflects a mixture of powerful vested interests and (sometimes) well-meaning efforts to protect consumers and workers from exploitation." This prompted me to reflect on the management of risk and its use as a means of placing blame, which her article does not mention as a motive for regulation and which Mike Page and I discussed in our paper "Risk management: the reinvention of internal control and the changing role of internal audit" - another paper written about twenty years ago which stands up rather better to the test of time judging by its citation history.

Gillian Tett mentions the work of anthropologist David Graeber; we drew on the work of another anthropologist, Mary Douglas. There is much to be said for interdisciplinary approaches which can enable different perspectives on corporate governance and can raise broader issues for policy consideration beyond a focus on regulatory compliance.

Invisible Women

I have been trying to read "Invisible Women: exposing data bias in a world designed for men" by Caroline Criado Perez but I have given up. Which is disappointing because I have much sympathy with the author's argument, I just don't like her style. Her passion comes across to me as hectoring and, although she provides a great deal of evidence, I find an endnote in every other sentence very distracting.  I'm a reader who follows them all up but in this case not only is the quantity overwhelming but I also found the quality worrying. I prefer to see research evidence from the horse's mouth rather than filtered through media reports. It doesn't claim to be an academic book but for this reader rigour is important. Anecdotes are good hooks to capture reader interest but they are not data.

A couple of examples of things that bugged me in the first 100 pages.

1. On page 97 Criado Perez asserts that women receive less credit for jointly authored academic papers than men do. This article from the New York times is the reference to back up this assertion. A respectable author but I still dug around, followed the link to the working paper, checked to see if it had been published in a peer-reviewed journal (it has), thought briefly about comparing the working paper with the published version but decided life is too short. But I'm not convinced that there would be similar evidence in Europe and found myself irritated by generalisations based on a narrow US context.

2. In the early section on transport, the author clearly believes that if more women were involved in transport planning, transport policy would be more female friendly. This is very much like the belief that more women on boards would make them more effective and I've ranted on about that quite enough. The section on toilets must surely demonstrate that this assumption is flawed: I am sure that there are female architects involved in designing public buildings but there is always a queue for the ladies.

The accounts of the toilet problems of women in less developed countries were horrifying but Criado Perez is too young to know that the UK situation used to be much worse than now. Women used to have to pay a penny to use a public loo: men paid nothing. A wonderful Labour MP named Barbara Castle did more for women than many other female MPs ever had when she got that charge abolished.

I realised that I am not the target audience for this book. I'm not entirely sure who is but it may open up some useful conversations. Criado Perez' argument is important but we also need to recognise that there is some danger in expecting significant and fast change from increasing female representation.

Then I opened the June issue of economia. I always start with the disciplinary listings since someone observed that true equality in the profession would not be achieved until there were as many women being hauled up for disciplinary offences as there were men. On that basis we still have some way to go.

But look at this. Page 14. Strapline at the top of the page. "From the Institute this month: A woman steps up as ICAEW president..." Can you imagine reading "A man steps up as ICAEW president"? Maybe this just proves Criado Perez' point.

Advice for young accounting academics

The BAFA conference was a great way to catch up with people I hadn't seen for a while but I was concerned to learn that so many of my younger academic friends are struggling with increasing workloads and poor management support. I think I was very lucky that my academic career spanned the last two decades of the 20th century when UK higher education was better resourced and creeping commercialism was only just starting to bring in the heavy-handed management that they are now suffering. But I soon learned that I had to be proactive in managing my work situation. Reflecting on this, I wondered what advice I would give to young academics starting careers in business schools now.

Build and maintain your personal network. Your network will be really important for your career: as well as providing friendship and personal support, it will be a source of  information about project and job opportunities, as well as referees for grant and promotion applications.  Doctoral study gives you the chance to start building an academic network: if you've attended any research training courses or doctoral colloquia you will have met others in the same career stage as you, as well as leading academics in your area. It's worth keeping in touch with these people.

The resources to support conference attendance have diminished in many universities but it is the best way to establish contacts with colleagues in other institutions. Make the effort to meet new people: I know it's not always easy for those who are not naturally extrovert but it pays dividends.  Emphasise the value of conference attendance to your line manager by showing what useful general information you have brought back, beyond the benefits to you personally. Get involved in the main learned society in your discipline: committees are always looking for volunteers.

Don't forget your local network: take every opportunity to meet people in other parts of your university - getting yourself known can lead to interesting cross-disciplinary activities.

If you are a qualified accountant, you will also have a professional network through firms you have worked for and your professional body. This will help you to keep up with developments in the profession and with research access. It will also enable you to offer appropriate careers advice to your students.

Record what you do. Much of the work that academics do is invisible. I started writing this blog because a senior manager who was not a researcher had, in an informal conversation, questioned how I spent my time, implying that professors had an easy life compared to managers. You need to make all your activity visible - to yourself to start with, so that you can be realistic about your work-life balance - and then to managers. This may not at first seem relevant in an academic job - after all, you have a teaching timetable.  But what about all the admin you have to do to support that teaching? And the research that you often have to fit in during evenings and weekends and annual leave?

There may be allowances to support admin and research (although they are never large enough!) but there is also other activity which supports your role as a good "organisational citizen" which is not formally recognised. There are many examples, including ad hoc jobs that have not been anticipated in your workload planning, such as membership of validation panels, both internal and external; committee membership within your university or in academic or professional bodies; reviewing papers for academic journals and conferences; membership of editorial panels; external examining. These are all career-enhancing opportunities, worth pursuing, and often not obvious to your manager.

You will find it very helpful to have detailed information to hand when appraisal time comes round. Proactively, where there are areas of your work which you want to develop, you can show how your current activity may constrain this and ask for help. Reactively, if you are asked to take on extra work, being able to say "This is what I am doing at the moment. What would you like me to drop to make space for this new task?" focuses attention on *all* your activity, beyond the work reflected in whatever allocation system is used in your university.

Study the politics of your institution. Where does the power and influence lie? Understanding the pressures on your head of department and dean will help you to manage upwards. It will also help you to see what your career development opportunities might be.

Back in 1985 I quickly realised that the head porter was more important to my daily life than my head of department: he had the power to make my daily life much more comfortable in an old and poorly maintained building. My tiny office was always too cold or too hot: he could find me a heater or a fan. Equally important were the AV technician who could replace the bulb in the overhead projector and the library assistant who could find the current journal issue missing from the shelf. New buildings, new teaching technology and online library access have made these particular issues less important but making friends with admin and support staff is always worthwhile.

Fangirling

I'm not very interested in finance from an academic perspective. Too many equations. Theories that seem so distant from lived experience that I don't get the point. I have tried. Katherine Schipper* once gave me a good piece of advice: at a conference, go to sessions that have nothing to do with your area of expertise. I've learned a lot by doing this and it's especially useful if you are studying corporate governance which spans a range of different disciplines. Much corporate governance research is undertaken by finance professors. So I have sat through some mind-numbingly boring presentations by finance researchers, at the end of which I could only creep out murmuring "So what?" and seeking strong drink to revive me.

So I was very surprised to find myself enthralled by Professor Ian Tonks' Distinguished Academic lecture at the recent BAFA conference. His subject was the workings of the Universities Superannuation Scheme. My pension is with the Teachers' Pension Scheme (my former employer was originally a polytechnic) so there is no reason for me to be at all interested in USS and pensions are not remotely connected to my areas of interest. I didn't intend to go to the lecture but I was engaged in conversation with someone heading for it and found myself there quite accidentally.

This took place more than a week ago so I have of course completely forgotten the content but I have not forgotten the strange sensation of actually understanding what Ian was talking about. I also experienced something similar in a lecture by Stephen Hawking when I really couldn't have known what he was talking about but felt as if I did. I attribute this sensation to the great and unusual skill of someone who really knows their subject and can talk about it in an accessible way.

So Ian's lecture was the first time I have found a finance professor worth listening to. Or rather the first time I've heard one in person. Because there is one professor of finance who I greatly admire but have only watched online.

His name is Alex Edmans. I first came across him when I was asked by BEIS to analyse the responses to their consultation on corporate governance.  Alex's submission was the first I had read that suggested that the evidence about board gender diversity should be looked at critically. I wanted to cheer! Who is this person who agrees with me? I looked him up - a professor at LBS, no less. A finance professor. I searched for his publications and my heart sank. But then I thought a bit more. Here is an academic who certainly knows his stuff, on a large scale, and can also express his conclusions in accessible language. I found his web site - http://alexedmans.com/. Well worth digging around in - good stuff on the pros and cons of Brexit,  a couple of interesting TED talks and even some of his data to share. This is a finance professor who wants to do research that matters and can be understood.

Then I found his Gresham lectures. He has now delivered five out of the series of six. Every time I've planned to attend, something has prevented me but they're on line here, together with transcripts and slides. And they are very good. His idea about the difference between pie splitting and pie growing is simple to express but very illuminating in the context of corporate purpose (and I do like a pastry-based metaphor...)

His January lecture on reforming corporate governance is especially good and worth reading alongside the paper authored by Sikka et al for the Labour Party as a 'compare and contrast' exercise. The final section on diversity makes the points that I've been rabbiting on about in this blog for a long time, but rather more elegantly.

Best of all, Alex is not afraid to emphasise the difference between correlation and causality which is often ignored - or indeed dismissed - in the diversity debate.

One day I hope to meet him. For now, I follow him on Twitter and wherever else he pops up. You should, too.

*No, she's not my BFF. We were on a plane, both travelling away from a conference where she had spoken, either side of the aisle, and she looked very nervous so I introduced myself and engaged her in conversation to distract her.

Can corporate governance keep up with the 21st century?

I was invited to join a panel to discuss this question at the conference of the British Accounting and Finance Association this week. the panel was chaired by Keith Hoskin and the other members were Prem Sikka and Nigel Garrow. We each had ten minutes to speak and then the audience posed questions. This is what I said:

What is corporate governance? A commonly used definition is the one given by the Cadbury committee in 1992 – the system by which companies are directed and controlled – which leads to a central focus on the board of directors and is quite narrow, which is understandable given the context in which the committee was working because it was tasked with looking at the financial aspects of corporate governance.

But the term existed before then, although not in such wide use as today, and it’s worth looking at its history. The earliest use of the term that I’ve been able to trace is in a paper published in 1953 written by a US lawyer on the economic consequences of an atomic attack: the author notes that flexibility in corporate governance would be needed with reference to the legislative arrangements required to enable companies to continue under such catastrophic circumstances. No explanation of the term is provided which, to me, suggests that it was in fairly common use among US lawyers at that time.

A decade later a US management scholar, Richard Eells, published an extended discussion of corporate governance in his book The Government of Corporations, in which he focused on the role of companies in society, rather than a purely legal approach. Later studies have shown how the vocabulary of corporate governance developed from the 1970s onwards in the US and observe how the meaning of the term shifted from a broad concern with public policy and corporate social responsibility to boards and internal company arrangements.

It seems to have travelled across the Atlantic in the 1980s, largely in the work of Bob Tricker who studied the role of non executive directors, wrote the first corporate governance text book, established the first academic journal  devoted to corporate governance and was an important influence on the thinking of Sir Adrian Cadbury.

So we can see that the idea of corporate governance originated in the US where it started with a broader scope but then in the UK narrowed from its earliest focus to concentrate on boards and internal processes.  Which are potentially easier to fix.

However, a major problem with the UK corporate governance system is that it exists within a regulatory framework devised in the 19^th century to meet 19^th century business requirements. And we’re now in the 21^st century when businesses are very different and exist within very different economic, social and political environments.

Another problem is a developing expectation gap.  Corporate scandals give rise to blame placing: the auditors are often the first in line but scandals are also characterised as failures of corporate governance. Sometimes boards make bad business decisions or fail to exercise proper oversight. Such events happen in companies which apparently comply fully with relevant legislation and codes. Corporate governance cannot prevent such things happening.

To address these problems, we need to broaden the perspective again, look away from boards and reconsider the role of corporations in society.

We need to consider much more carefully exactly who companies should be accountable to. From that basis, we can define how a new accountability system can be designed: what information is needed, how it can be communicated and how its credibility can be assured. This would also address the seemingly intractable issues encountered with corporate reporting and audit.

This is difficult. It needs some radical thinking. In the past, the accountancy profession has done radical thinking (The Corporate Report 1975, Making Corporate Reports Valuable 1988, even the more recent integrated reporting framework which revisits some of the ideas in those papers) but it doesn’t seem inclined to do more than defend audit at the moment. Maybe we need a bigger crisis to spark it off. But really, we have enough crises to deal with at the moment.

The danger, though, is that solutions purporting to improve corporate governance will be proposed which may appear attractive because they are easier than a fundamental rethink, but which may have unintended consequences. Prescribing board composition is just such a dangerous solution.

This prescription really started with the Cadbury Code in 1992 which recommended that boards should appoint non-executive directors. Many large UK public companies already had NEDs on board but they tended to be decorative in terms of their status, rather than functional. Cadbury found them a new monitoring role in board sub-committees – audit, remuneration and nomination. No-one thought too deeply about how this created a difficult paradox: all directors have the same duties responsibilities and liabilities under law so how could this little group of part-timers effectively monitor their executive colleagues?

The NED requirement has persisted and become stronger in later iterations of the code but it remains the most frequently cited area of non-compliance with the code.

And at the same time boards have become smaller. The only remaining executive directors on the boards of many FTSE 100 companies are now the CEO and CFO. The executives form another group under the leadership of the CEO. They no longer sit around the same boardroom table as the NEDs. How do the NEDs know what is going on? How do the two groups communicate? I’m not aware of any research looking at this but it seems to me that the corporate governance developments that were intended in part to curb the power of the CEO have effectively increased it, as the CEO is the main link.

The fear of many critics of the Cadbury committee’s report was that establishing audit committees would destroy the unitary board which has puzzlingly long been seen as something to be protected. It seems that we do now have two tier boards in practice but by a process of attrition rather than through any rational approach to their construction.

Add into this situation further prescriptions about board representation with regard to gender and ethnicity, and the assembly of an appropriate board becomes a very complex issue.  and certainly doesn’t guarantee good governance, whatever that is. Surely a board should be constructed with regard to the most appropriate combination of skills and competence relevant to a company’s objectives?

But tinkering with board composition makes it look as if steps are being taken to improve corporate governance – and, importantly, steps that can easily be measured.

But as we’ve seen corporate governance was not originally all about boards. It shouldn’t be. we need to return to its original conception. Our current system assumes that shareholders should be the focus of corporate accountability, dating from an era when shareholders were a relatively homogenous group of resource providers. That is clearly no longer the case. The investment intermediary chain is complex.  Mapping accountability through it is hampered by its opacity. And how does our corporate governance system account for company relationships to lenders, employees, consumers and society at large?

A number of groups are currently exploring issues around corporate governance and the role of the corporation in society. These include: The Purpose of the Corporation. The Modern Corporation. The Purposeful Company. The members of such groups usually comprise academics and practitioners in the area.

And there are other things happening which impact corporate governance. Experiments with different legal forms of business organisations such as benefit corporations. The integrated reporting project. So there is some broader thinking going on. But it’s fragmented and locked in silos.

The role of academic research in this area could be stronger. There are big gaps in our understanding. For example, the structures recommended by Cadbury are now standard in the public sector – government departments, NHS Trusts, universities now have boards with NEDs and audit committees. Yet we know very little about how these structures work in the context of completely different accountability frameworks. Is there something to be learned from this adaptation?

Disciplinary silos are also a problem. For example, corporate governance studies by academic lawyers are rarely cited by accounting academics – US legal scholars in particular have done some really interesting thinking about the role of boards.

So from a practical point of view there needs to be some co-ordinated leadership to bring together the various strands of thinking around corporate governance issues and to arrive at some consensus for substantial change to the regulatory structure which at the moment constrains major change.

Accountability is the key element to address. To whom should companies be accountable? I would argue it should be those who provide all the resources to enable companies to function. Determining those groups could then lead to an examination of the information they require in order to hold companies accountable and the processes by which that information can be made available and be assured. Reform of corporate reporting and audit could follow within a coherent accountability framework, rather than being undertaken in a piecemeal fashion as is currently happening via government and regulators.

We need to move away from a focus on boards and back to that initial broad conception of corporate governance and to question some of our fundamental assumptions about who is accountable to whom.

Genderism: plus ca change...

Today I attended a meeting at Chartered Accountant's Hall, where the decor and furnishings have been brought up to date but it seems that the minds may not have been.

I was invited to participate in a round table discussion about developing a code of ethics for directors. The table was not round: it was several tables combined, making it much too large for the room and with lots of wasted space in the centre. The chairs, while comfortable, were also too big for the room. Most participants were trapped in their assigned seats for the morning.

My assigned seat was at the chairman's right hand. This may have been a sign of respect (rather unlikely) but it was inconvenient as I am deaf in my right ear and, even with my fancy hearing aids, found it hard to hear the participants seated at the far end of the table to my right. Even if I'd flagged up this disability in advance, I doubt whether much could have been done to accommodate it but it did prompt me to reflect for a moment on how a wheelchair might have been shoehorned into the room.

The participants came from a wide variety of backgrounds and there were more men present than women. Millennials were mentioned several times in the discussion but I don't think any of those present were quite that young.

The meeting was very efficiently chaired and the discussion was interesting but what struck me most forcibly was the language used. When talking about directors the men (notably, not the women) invariably used "he" and "him". Eventually I corrected the chairman when he did it. I was reluctant: over many years of doing this, I have learned that women who speak up in this way are immediately viewed as, at best, challenging, at worst, difficult - which often then taints the perception of any subsequent contribution that they may offer.

He responded apologetically but seemed to think that this should be quite acceptable as a convenience of expression and shouldn't be construed as offensive. I wasn't offended: I just thought that it was important in the context of the discussion to recognise that women could also be directors and I thought this use of language was quite telling in the context of considering ethical director behaviour. I have argued elsewhere that there may be sound social, political and ethical arguments for increasing board gender diversity which are never explored.

He then went on to tell us that ICAEW has recently decided to amend its use of pronouns to be more inclusive which will lead to the possibly confusing use of singular "they", although he thought that "he/she/it" should cover everything. People smiled. A light-hearted throw-away remark but how could he know that none of those present identified as non-binary and might be offended? I didn't think it was appropriate to call him out on this. Am I a coward? My understanding of gender politics is certainly quite limited (but I have watched "Billions" which deals with it in an interesting way).

I am pleased to know that the leaders of the professional body of which I am now a life member have reflected formally on this aspect of inclusivity. But I wonder how long it will take to become the norm in conversations in its hallowed halls.

At one point in the discussion, reference was made to a speech made by Lord Benson in the House of Lords in 1992 during a debate on the professions. The only contact I ever had with the noble lord was in 1968 when I applied for articles at his firm. My application resulted in a brief letter from Henry Benson informing me rather curtly that Coopers did not employ women as articled clerks. Sadly, I lost the letter: I really should have framed it. In the speech Lord Benson said: "I believe that in every profession the citizens should be allowed to join irrespective of colour, creed, class or money." No mention of gender there...

Metaphors and reform

I’ve just sent this off to the FT, having been mightily irritated by Madison Marriage’s piece on Saturday.

“A vivid metaphor can illuminate understanding of an issue but metaphors can also block thinking by reinforcing stereotypes and distracting from deeper analysis. Solutions to perceived problems with audit (“Time to rebuild flimsy foundations of accountancy”, 23 February) may be compared to a sticking plaster placed over a suppurating wound: such solutions will probably be ineffective until the underlying problem is properly addressed. Audit is only one part of an inadequate framework of corporate reporting. Addressing its foundations requires a return to the fundamental questions: Who is corporate reporting for? What information do they need? What is the best way of supplying this information? How can the credibility of the information supplied be assured? “

But she did at least prompt me to reflect a bit more on why these issues were seen as important in the 1970s and 1980s and have now vanished from debate.

One factor could be accounting standards. At that time, the accounting standards project had yet to be fully institutionalised and the FRC was new. The few critics of the project predicted that the most difficult area to standardise would be around measurement (see Professor Will Baxter’s views;  Shyam Sunder’s paper on Will Baxter is also worth reading).

The protracted attempts to deal with the problem of accounting in inflationary conditions is a good illustration of the challenge, and similar problems arose with accounting for goodwill and other intangible assets. A changing economic environment rendered the issues less pressing but the problems have never been resolved: the construction of the conceptual framework provided further obfuscation. And the impact of accounting standards on the education of the profession has no doubt constrained thinking. Baxter’s comments on this are worth quoting in full here (from the source linked above):

“The study of standards now plays a big part in any accounting curriculum. They must have a profound influence on students, just when these are at their most impressionable and uncritical. You have only to look at an up-to-date textbook to see how much weight is given to official pronouncements, how little to the economic reality that accounts are supposed to show. Standards are a godsend to the feebler type of writer and teacher who finds it easier to recite a creed than to analyse facts and to engage in argument. If an official answer is available to a problem, why should a teacher confuse examination candidates with rival views? Thus learning by rote replaces reason; the good student of today is he who can parrot most rules. On this spare diet, accounting students are not likely to develop the habits of reasoning and skepticism that education should instill.

And the student will have little cause to abandon his passive attitude when he leaves the university and enters practice. Here too he must be the respectful servant of standards. We may indeed envisage a brave new world in which an accountant spends his whole life applying rules pro-pounded by others -- unless at last, full of years and honors, he himself ascends to the Accounting Principles Board, and then for the first time must face reality. I am sorry to end so glumly. But the trend in accounting education must make one pessimistic. For many years, academic critics viewed accounting -- wrongly, to my mind -- as unworthy of a place in higher studies. It got in at last. Now that we are substituting rule-of-thumb for reason, one must sadly admit that our critics were right.”

But, at the same time as these issues were challenging the profession, two important discussion papers were published: “The Corporate Report” in 1975 and “Making Corporate ReportsValuable” in 1988. They stepped back from the standardisation issues and took a much broader view. We need to return to the ideas in those papers but there is a leadership vacuum. Neither the FRC not the professional accountancy bodies seem to stepping up to the plate and academic accountants have other preoccupations in the stressful world of higher education.

Back to metaphors. I was wondering how to link all this to the concept of the Overton Window, which I have just discovered, but I think Chesterton’s Fence may be more appropriate. According to Wikipedia, Chesterton's fence is the principle that reforms should not be made until the reasoning behind the existing state of affairs is understood. Chesterton wrote:

“In the matter of reforming things, as distinct from deforming them, there is one plain and simple principle; a principle which will probably be called a paradox. There exists in such a case a certain institution or law; let us say, for the sake of simplicity, a fence or gate erected across a road. The more modern type of reformer goes gaily up to it and says, 'I don't see the use of this; let us clear it away.' To which the more intelligent type of reformer will do well to answer: 'If you don't see the use of it, I certainly won't let you clear it away. Go away and think. Then, when you can come back and tell me that you do see the use of it, I may allow you to destroy it.”

Perhaps we could call this “informed reform”: policy makers should only make changes when they understand why what they want to change exists in the first place. This would apply even to apparently marginal changes which could avoid the sort of tinkering which Kingman refers to in his description of the FRC, which the FT article quotes approvingly:

“What this spotlight has revealed is an institution constructed in a different era – a rather ramshackle house, cobbled together with all sorts of extensions over time. The house is – just – serviceable, up to a point, but it leaks and creaks, sometimes badly. The inhabitants of the house have sought to patch and mend. But in the end, the house is built on weak foundations.”

Maybe an “informed reform” approach could have called for a structural survey much sooner.