Dominique Bessire 149
The objectivity of accounting measures: a screen for conflicting
150 CSR and Stakeholders: Measuring or Discussing?
bookkeeping in a book devoted to mathematics, and the formula used by Lassègue, a prominent scholar of the twentieth century in the field of accounting, ‘accounting as an algebra for laws’, has been taught to generations of French students.
Accounting, therefore, traditionally benefits from the aura attached to numbers and to quantification. However, for a long time this perspective has gone along with the acceptance, to a certain extent, of interpre- tation and of subjectivity. With the process of international accounting standardization, mainly impelled by the IASB (International Accounting Standards Board; formerly IASC, International Accounting Standards Committee), things are rapidly changing.
Exclusion of weaker stakeholders as constitutive of financial accounting
Social accounting is usually conceived as a complement to, or an extension of, financial accounting. Standards-setters do their best to persuade us of the objectivity and of the neutrality of financial accounting (Colasse, 2004, p. 35), but their discourse cannot conceal the intrinsically unequal treatment of the different stakeholders.2
No space for a differentiated consideration
The IASB framework and standards put the emphasis on neutrality (which is necessary to ensure a true and fair view, IAS1) and try to reduce the scope allowed for interpretation and judgement which are presented as dangerous. The word ‘standards’ is in itself a whole programme.
Accounting in this perspective however resembles Procustes’ bed3 on which companies and their stakeholders, however different they are, have to lie. IAS1, for instance, explicitly expresses that ‘this Standard applies equally to the financial statements of an individual enterprise and to consolidated financial statement for a group of enterprises’. The strategy adopted by IASB at the end of the 1980s, moreover, puts this emphasis on comparability4 and focuses on the reduction of the number of options: each standard has to state one benchmark5 treatment and to allow only one alternative treatment (Colasse, 2002, p. 91).
However, as will be seen later in this chapter, exerting responsibility requires subjectivity, not neutrality. Equally, taking into account stake- holders implies applying to them a differentiated treatment.
Unequal treatment of the different categories of stakeholders
In the rhetoric employed by the IASB, the claim for neutrality is supported by the use of carefully impersonal terminology: standards talk about
Dominique Bessire 151 anonymous and abstract classes of ‘users’. People who are in charge of the accounting process, for example, are named under the heading ‘the management’. In most sentences of the framework, the subject is not a person or a group of persons but an object: ‘the framework’, the objective of financial statements, a very bureaucratic language indeed. However, like any accounting model, it gives a representation of reality which is the result of a rapport de forces between different categories of stakeholders who have their own specific interests (Heem, 2003b, p. 7).
Beloved investors. English and American accounting principles, which have been forged in countries where stockmarkets play a major role in the funding of companies, tend to favour investors’ needs for inform- ation. The IASB framework, although it is assumed to be international, follows the same pattern. This position is expressed in a sentence which deserves some attention: ‘the Framework also concludes that because investors are providers of risk capital to the enterprise, financial statements that meet their needs will also meet most of general financial needs of other users’. Readers are in this way gently but firmly invited to accept this assertion as something obvious, through an implicit and vague reference to economic theory and more precisely to neo-classical theory, putting aside the fact that this assumption is valid only in the case of perfect markets. Moreover, the most advanced microeconomic theories (Guerrien, 1996) have already demonstrated long ago that this assertion takes an initial distribution of wealth as a data, however unequal it may be. The sentence, consequently, may be understood as a pseudo-scientific window-dressing to put forward investors’ interests and to discourage any contest (see Bourguignon, forthcoming, for a careful analysis of the use of rhetoric in this field).
If there were still some ambiguity left, things become even clearer in IAS I: although it states again that it is intended to provide ‘information . . . that is useful to a wide range of users in making decisions’, it also notes, this time without any introductory remarks, that ‘general purpose finan- cial statements are those intended to meet the needs of users who are not in a position to demand reports tailored to meet their specific information needs’ (our emphasis).
As a consequence, users other than shareholders seem to be quoted in the framework and in IAS1 more as an alibi rather than an actual matter of preoccupation. The conclusion is obvious: financial accounting as is it conceived by the IAS/IFRS does not grant any space for an expression of the variety of stakeholders who may be affected by the enterprise’s decisions, and it does not allow the expression by any companies of any responsibility.
152 CSR and Stakeholders: Measuring or Discussing?
Standards-setters experts in strategy. The priority given to investors cannot be considered as the result either of democratic discussion or of a public, legitimate and uncontested authority. It is nothing else than the choice made by a private organization which has given itself the means to promote its own conception of financial accounting. Most of its human, financial and, still maybe more important, doctrinal resources are provided by the major auditing firms (Colasse, 2004, p. 35), the very ones which have been involved in the most outrageous accounting scandals of the past decades. We come to a situation where delinquents are granted the right to elaborate norms (with which all enterprises have to comply) and to control their appropriate application. Here also the parallel with Procustes is flagrant: as everyone knows Procustes was a brigand.
Irresponsibility rather than responsibility, whatever it may be, financial, environmental or social, is therefore encouraged.
Even if we accepted the unlikely assumption of the IASB members’
independence, we would have to recognize that they do not behave as neutral actors. On the contrary, they appear to have deployed in recent decades a sophisticated and adaptive strategy (Colasse, 2002, pp. 91–2).
In the first period, as standards-setters without coercive power, they adopted a ‘low profile’. The standards which were issued till the end of the 1980s (about 30) allowed enough options to be used in any country without causing difficulties: there was always a standard consistent with the local standard. In the following period, its survival being threatened by the process of financial globalization, they deployed a more offensive strategy, looking for institutional support: first from the IOSCO (International Organization of Securities Commission) which is notoriously dominated by the American SEC (Securities and Exchange Commission), and then from the European Commission: in June 2000, the EC indeed made the decision to subcontract accounting normaliza- tion to the IASB and thereby abandoned its political prerogatives in a field which is, however, crucial for economic competition.
Other stakeholders as impotent witnesses. Moreover, only those stake- holders who have sufficient financial resources and/or the required technical expertise may hope to participate in the due process and have their perspective taken into account by the IASB. Other stakeholders are nothing but passive witnesses of the negotiation between the Board and more powerful stakeholders: banks and insurance companies, for instance, were the only organizations which were able to prevent the application of IAS 32 and 39, and only after a desperate battle which still cannot be considered as over. (IAS 32 deals with the disclosure and the presentation
Dominique Bessire 153 of financial instruments, IAS 39 with their recognition and their measure- ment. According to these standards, financial instruments should be measured at fair value, ie in most cases at quoted market prices and, if there is no active market, at prices determined by internal models.)
We are therefore confronted with a situation where politicians abandon the mission which has been entrusted to them in order to commit experts, who are themselves under the constant pressure exerted by auditing firms and investors (Bissara, 2003). This situation has been well-analysed by Habermas as a process of inner colonization of the life world by technical systems. It clearly does not allow space either for weaker stakeholders nor for responsibility.
Social accounting as a means for engendering responsibility or irresponsibility?
Initiatives intended to implement accounting measures in the field of social responsibility have multiplied over recent decades (see for instance Capron, 2000, p. 411 for a matrix which tries to classify the various attempts in this area). For most observers the results are rather deceptive. Rationality, which is so often presented as a justification, would require that, in confrontation with what appears as a waste of energy and resources, efforts should be redeployed in other more fruitful directions. As this is not the case, we have to question the reason of this extreme focalization on measurement.
Swarming and deceptive initiatives
Social accounting frameworks tend to derive from financial accounting frameworks (for a detailed analysis of this analogy, see Quairel, 2004):
therefore they suffer the same limitations and more especially their inherent subjectivity, but ‘without the reliability and quality of the model of the financial accounting model’ (Quairel, 2004, p. 9, our translation).
The GRI (Global Reporting Initiative) is usually considered as the most complete attempt to standardize social accounting, and its own weaknesses are therefore present in most other frameworks. The methodical analysis of GRI made by Quairel (2004) may therefore apply to them. First, the two meta-principles which underpin GRI (transparency and inclusiveness) lead to ambiguities and contradictions in the way they are deployed: ‘although the elaboration process is presented as consensual, it conceals the reality of diversity in power and the nature of the relations between firms and their stakeholders’ (ibid., p. 19); moreover, the will to take into account all the stakeholders causes illegibility, which goes against the transparency principle. In addition, ‘information systems which should be able to
154 CSR and Stakeholders: Measuring or Discussing?
provide with the data required by the about two hundreds items which are listed in the minimum of a GRI report have still to be invented’ (ibid., p. 21). Managers can always argue about the cost or the lack of reliability in order to exonerate themselves from the non-publication of one or another piece of information. Quairel’s conclusion (ibid., p. 23) at the end of a meticulous analysis cannot be questioned: ‘there is still a long way to reach the same level of comparability, exactness and verification equivalent with the level which can be found in the financial reporting’.
A door opened to evasion and reinsurance manoeuvres
To focus efforts on measurement facilitates diversion of attention from the actions which should be undertaken; it prevents an analysis of dysfunctions and provides an excuse for not questioning the purposes of measurement. In a period when financial scandals (Enron, Worldcom and others), environmental disasters (Erika for example) and, moreover, human catastrophes (Bhopal for instance) are multiplying, it is indeed more comfortable to concentrate on the difficulties of measurement than to confront the fundamental problems. Enron, before it collapsed, enjoyed an excellent social rating.
Moreover, the concept of the three Ps (planet, profit, people), which is often put forward in the field of CSR gives in advance a justification to derogate from the principles of an actual social responsibility if, for instance, economic conditions prove to be unfavourable (for example a return on equity which would be lower than that expected by investors).
Finally, social accounting is still more amenable than financial accounting to manipulation and to evasion (Lespès, 2003; Quairel, 2004).
The definition of social accounting and rating frameworks is part of a movement of self-regulation which itself is part of the present process of privatization of laws. Among the countless frameworks which have been elaborated in recent decades, the enterprise selects the one which is the most suitable for it and adapts it more or less broadly to its specific needs. The enterprise takes on a moral commitment, but without being under the threat of legal sanctions. This soft law is obviously in preference to the state legality (Lespès, 2003). Even when social accounting is prescribed by law, legal texts remain blurred and favour a whole range of means of evasion. For instance, article 116 of the French law known as NRE (Nouvelle régulation économique, that is New Economic Regulation, 2001), which requires companies to publish social information, limits its field of application to the listed legal entities, although the main part of the productive and potentially detri- mental activity takes place in subsidiaries which usually are not listed.
Dominique Bessire 155 Initial studies conducted on the application of article 116 show that, confronted with this device, firms have behaved in various ways: some have taken into account a broad area (but most often without defining it very precisely); others have stuck to the legal text. Moreover, among the 900 firms which should have applied this device, more than one-half have published nothing without auditors making any remark on the subject (Alpha Etudes, 2003; KPMG, 2003; MEDEF – Pricewaterhouse- Coopers, 2003; Novethic, 2003; Terra Nova, 2002 and 2003; Utopies, 2003).
Focalization on measurement, the use made of the resulting numbers, discourses on neutrality and on objectivity of these measures, are indeed part of legitimation and reinsurance strategies (Quairel, 2004). However, they fulfil another and more pernicious function: they prevent confrontation with the thorny question of subjectivity and relevance;
fundamentally, they occult the necessary political dimension of any decision or action. Accounting measures, far from serving CSR, become a means for irresponsibility.