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Impact | Learning from accounting history

Volume 19, Number 9
September 2013

Vaughan Radcliffe’s research shows that better accounting, in itself, is not enough to change corporate conduct.

radcliffe-impact-08.jpgIn the early years of the 20th century, a growing number of people in the U.S. began calling for corporate reform. Known as the “progressive era,” it was a time when political leaders joined efforts to rein in the abuses of large corporations and trusts.  Their solution was to publicize the financial dealings of these corporations, through the technology of accounting.   In the words of one, “publicity would be the perfect cure to the many great evils.” 

Ivey Professor Vaughan Radcliffe is an accounting historian. He believes that accounting history is important because it helps us explain how we got to where we are today.  In a paper co-authored with Ivey Professor Mitch Stein, he shows that the work of these early corporate reformers largely failed. “Their efforts led to more and better accounting,” says Radcliffe, “but not to a lot of improvement in the conduct of corporations.”

In the study, Radcliffe and Stein looked at three U.S. successor organizations that required higher levels of accounting information: the Industrial Commission, the Bureau of Corporations, and the Federal Trade Commission. To conduct the study they worked with an archive that comprised over one thousand boxes of materials stored in the U.S. National Archives, including minutes, correspondence, speeches, and newspaper accounts.   “At the time there was a very strong belief in publicity,” says Radcliffe. “Public officials really believed in the power of accounting to lay things bare, and through publicity to bring about changes in behaviour. There was a sense that accounting mattered.”

Radcliffe and Stein concluded that the problems associated with corporate power and abuse continued to persist, despite the more stringent accounting regulations. “In the language of the literature, there was an ongoing ‘problematisation’ of corporate governance, and the problem is that you never really find a solution,” says Radcliffe.  “The succession of structures and bodies that were meant to reform corporate behaviour didn’t satisfy the concerns that instigated them.”

Existing research by European scholars suggests the opposite - that accounting can be an effective way to deal with certain issues in society. Radcliffe and Stein’s research shows that in the context of U.S. corporate governance this was not the case.  “There was a sense that accounting in and of itself would change things,” says Radcliffe. “Our argument is no, you need to take more direct action. Accounting simply yielded more and better information, but whether people actually acted on that was a different matter.”

In another study now ongoing, Radcliffe and Ivey Professor David Sharp are looking at the role of accounting information in the Anglican and Roman Catholic Churches. Mainline denominations are declining, with the result that many churches are closing or on the verge of closing. “We’re interested in the way financial information is used in the downsizing decision,” says Radcliffe. “The question is how you manage this process.”

To answer this question, Radcliffe and Sharp are conducting interviews and a review of archival materials. They’ve already identified a significant difference in approach. Common to both the Anglican and Roman Catholic Churches is a triangle of forces: people, money, and buildings. Fewer parishioners mean less money to finance ministry and for the care of church buildings that are aging and in need of repair. In the Roman Catholic Church, there is an added dynamic - a declining number of priests. This has led to “clustering”, a planning process by which several parishes are brought together to share priests. Through this form of planning, the Roman Catholic Church has worked to absorb parishes which cannot justify the exclusive use of a priest’s time or that are financially weak and could potentially fail.

The Anglican Church, on the other hand, uses a more Darwinian model: the stronger survive, and the financial accounting model becomes the planning tool. Essentially, those parishes that fail to cover their expenses are the ones that end up closing. “One of our goals is to help the churches ask how they want to marshal their resources,” says Radcliffe. “Otherwise some churches just fail because they can’t make payroll.”

As an example of resource allocation problems, Radcliffe is looking at three Anglican churches in a small town. All of them have financial and demographic issues, but rather than seeking some form of consolidation, each church is spending money to upgrade its facilities, which devotes scarce resources to buildings that are potentially surplus to long term needs.

Radcliffe is drawing on research that he did in the 90s, published in the Journal of Management Accounting Research. That study focused on a series of Fortune 500 companies that were managing the pressures of downsizing. He’s finding that churches are facing some of the same issues, and is hoping to apply some management lessons from the experience of the Fortune 500.

When their fieldwork is complete, Radcliffe and Sharp have two goals:  to write a paper aimed at a leading academic journal, and to bring about action within the churches. Says Radcliffe: “We hope to give those in the church a sense of which elements of their approach are working well and which are not, and so bring improved management to the affairs of these two historically important institutions.”


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