Manajemen | Fakultas Ekonomi Universitas Maritim Raja Ali Haji 2004 2
ROLES AND SOCIAL CONSTRUCTION OF
ACCOUNTING IN INDUSTRIAL RELATIONS
JOEL AMERNIC∗
AND
RUSSELL CRAIG∗∗
T
his paper aims to enhance understanding of accounting concepts and practices in
the industrial relations community by contrasting the alleged technical and nontechnical roles of accounting. By non-technical roles, we mean the ideological, social and
perception-fashioning roles of accounting procedures and processes. Our principal contention is that the industrial relations community would benefit from improved awareness of the non-technical character of accounting—especially through alertness to the
rhetorical features and social construction of accounting. Four often-unapparent nontechnical roles of accounting in industrial relations are discussed and their significance is
highlighted.
This paper is based upon our separate experiences of teaching accounting to industrial relations students and practitioners over the past 25 years. It is stimulated by
the conviction that accounting deserves to be acknowledged in industrial relations
as an equivocal and rhetorical social practice that is a socially-constructed means
of financial expression and rhetoric. Accounting should not be regarded merely
as a set of arcane but ideologically-innocent techniques or practices specified by
the accounting profession.
It is important to develop a critical language awareness (Fairclough 1992) of
the accounting language used in industrial relations. Accounting language is a
part of the language of New Capitalism, which is characterised by ‘an increasing
gap between rich and poor, less security for most people, less democracy, major
environmental damage’ (Fairclough 2000). Our focus on accounting as language
is important, for, as Fairclough argues:
. . . imposing the new order [New Capitalism] centrally involves the reflexive process
of imposing new representations of the world . . . new ways of using language are an
important part of the new order . . . the struggle over the new order is partly a struggle
over language.
Accounting language, such as ‘economic value added’ (discussed later)—as part
of the language of New Capitalism—helps create legitimacy and acceptance for
narrow corporate strategies to the detriment of non-management stakeholders
(see also Amernic et al. 2000). Accounting language may also steer corporate
industrial relation strategies, as we outline later.
∗ Professor
of Accounting, Joseph L. Rotman School of Management, University of Toronto,
Toronto, M5S 3E6, Ontario, Canada. Cross-appointed to the Centre for Industrial Relations, University of Toronto. ∗∗ Professor of Accounting, National Graduate School of Management, The
Australian National University, Canberra, ACT 0200, Australia. Email: [email protected]
THE JOURNAL OF INDUSTRIAL RELATIONS, VOL. 47, NO. 1, MARCH 2005, 77--92
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We seek to broaden the scope and agenda of industrial relations by encouraging
an improved comfort level with accounting technique and, more importantly, a
critical scepticism of accounting measures and processes. Specifically, we aim
to encourage the unmasking of ideologies that are often hidden in seeminglyobjective and quantitative accounting measures (Amernic & Craig 1995).
We begin by discussing views of accounting that are held commonly by industrial relations practitioners. We introduce recent research that challenges the
traditional perspective of accounting as a modernist reporter of some pre-existing
objective financial reality. We canvass four important examples of accounting’s
non-technical roles in industrial relations and then discuss some of the often subtle but crucial influences accounting has on industrial relations processes and
outcomes.
TECHNICAL ROLES OF ACCOUNTING IN INDUSTRIAL RELATIONS
Accounting is a seemingly-objective and seemingly-quantitative discipline whose
measurements of wealth, profit, cash flows and cost are often invoked in industrial
relations as means of technical support or economic arbiter. But accounting needs
to be regarded as helping to constitute (and as being constituted by) the social
and ideological realm within which it operates. The industrial relations community should acknowledge that ‘financial figures’ are more than ‘neutral depictions
of firm health’ and that they are ‘the result of larger organisational strategies
and power relations’ (Delaney 1994: 497). Indeed, many discerning accountants
are astounded by how accounting information is held to be ‘hard’, ‘objective’
information, even by those who should know better. The following anecdote is
instructive:
In August 1991, I had the dubious honor of being present in a room full of two
thousand academic accountants at the Opryland Hotel in Nashville, Tennessee, listening . . . to the distinguished economist Rudiger Dornbusch and his keynote speech
to the American Accounting Association on the future of the global economy. Dornbusch . . . felt compelled to address the accounting—economics relationship at the
beginning of his talk, and did so by saying, essentially, that the only thing factual that
economists talked about was accounting information—everything past that was mere
theory.
A ripple of unease with the speaker’s ignorance filtered through the large audience
as, theoretically aware or not, the assembled accountants noted to themselves how wrong
he was, since every accounting number ever produced has been, to say the least, highly
contestable. What Dornbusch revealed in his off-the-cuff remark was that accountants
had achieved, at least in the eyes of certain major economists, the ultimate goal of
the rhetorician’s art: to be perceived as not rhetoric at all. (Moore 1994: 583, italics
applied)
Anyone who regards accounting as a mere technical practice is being misled.1
There are very important non-technical roles of accounting in industrial relations
and a greater awareness of such roles would be beneficial because accounting
has been much implicated in industrial relations—as evidenced by a considerable
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body of literature in accounting (e.g. Amernic 1985; Owen & Lloyd 1985; Yamaji
1986; Bougen et al. 1990; Clarke et al. 1990; Amernic & Craig 1992) and in industrial relations (e.g. Fischer 1969; Foley & Maunders 1979; Clarke & Craig 1991,
1992; Mautz & Richardson 1992; Burgess & Lane 1993; Craig & Clarke 1993;
Brown 1999; Craig & Amernic 2000). This literature canvases a broad range of
subject matter, but has focused generally on technical, strategic and tactical uses
of accounting in collective bargaining; the unserviceability of conventionallyprepared published financial statements for assessing an entity’s capacity to pay;
and the effect of industrial relations settings on accounting policy choice by
entities.
Academics and practitioners often conceive accounting as depicting some preexisting financial reality. Examples include Canadian labour arbitrator Teplitsky’s (1991: 259) assertion that an employer’s ability to pay can be determined
‘objectively by an examination of the employer’s balance sheet’; American labour
educators Trumble and Tudor’s (1996: 90) assertion that ‘when labor leaders and
others are trained in how to read a financial report, a strategic plan, or annual
report, they can understand the true health of the firm’; and the contention of
Gomez-Mejia et al. (2000: 499) that ‘we can precisely measure revenue’.
The preceding examples are typical of an erroneous view that is held more
broadly in the industrial relations community—one implying that accounting is
an esoteric but largely technical practice through which notions such as ‘ability
to pay’ and ‘the well-being of the firm’ can be divined in a more-or-less precise
and objective fashion. What emerges is a misleading view of the technical fitness
(or serviceability) of accounting data for many of the purposes to which those
data are applied in industrial relations. This is despite the unserviceability of
accounting data in industrial relations having been exposed (e.g. Clarke et al.
1990; Clarke & Craig 1991, 1992). Such a view is limiting too because it focuses
on accounting’s ostensible technical role in industrial relations to the exclusion
of other, more pervasive non-technical roles (such as the ideological, social and
perception-fashioning roles of accounting procedures and processes).
Consequently, it is important to regard the role of accounting information
as extending beyond its conventionally acknowledged technical dimension to a
non-technical dimension as well. Such a questioning of the roles that accounting
data (such as net profit, revenues and costs) and accounting processes (such as
budgeting) allegedly play in organisations should be the subject of considerable
continuing debate that ranges from generic, abstract and normative aspects (e.g.
Burchell et al. 1980) to empirical descriptions of applications in specific organisational contexts.2 In the scholarly non-industrial relations literature, the roles
of accounting have been re-examined (Hoskin & Macve 1994), reviewed (Kren &
Liao 1988) and conceived of as expanding (Epstein 1993). They have been regarded
as providing meaning (Burchell et al. 1980) and legitimacy (Richardson 1987), as
helping to construct reality (Hines 1988) and as acting as an instrument of social
domination (Tinker 1980; Ogden & Bougen 1985).
Thus, in the non-industrial relations literature there are diverse views about
the roles and significance of accounting. These range in general perspective from
social constructionist3 to radical socialist and beyond, leading to a more accurate
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picture of the roles of accounting in organisations and society. In contrast, the
view of accounting that is sketched in the preponderance of industrial relations
literature is focused on the overt, apparently technical roles that accounting has
the potential to fulfil. Consequently, the subtle non-technical (and perhaps more
compelling) roles of accounting are under-analysed and under-appreciated.
Nonetheless, some contributions to industrial relations literature have addressed the subtler, less overt roles which accounting has the potential to play.
For example, Batstone (1979: 256–58) observes that accounting systems ‘reflect
the priorities of the dominant groups . . . [and help]. . . determine the terms of legitimate debate’. Craig and Amernic (1997: 279) have argued that ‘there would be
strong benefits if the social and rhetorical capabilities of accounting were understood within the industrial relations domain’. We contend that industrial relations
practice would be strengthened if the social and rhetorical features of accounting
were better understood. This would improve the way industrial relations practitioners perceive, use and react to, accounting. To suggest how this might be
achieved in a practical sense, we provide some examples of accounting’s nontechnical roles in industrial relations.
NON-TECHNICAL ROLES OF ACCOUNTING IN INDUSTRIAL RELATIONS
Accounting possesses many identities, a long pedigree, and a wide catchment of
current and potential users. It is much more than a series of quantitative processes
and calculative techniques used in preparing financial statements and estimating
costs (Mattessich 1987; Ezzamel 1994; Moore 1994). It is the ‘language of business’
and a profoundly social discipline whose information, processes and systems not
only have obvious technical importance (e.g. in monitoring contract compliance)
and technical character (e.g. in assuring that the sum of debits equals the sum of
credits), but which has perhaps even more importance in non-technical realms as
well.
Lehman and Tinker (1987: 517) have drawn attention to the ‘dual capacity’ of
accounting to not only ‘orient messages to specific constituencies and issues’—
that is, to a technical orientation or manifestation.4 But importantly, they contend
also that accounting has the additional capacity ‘to play on general themes that are
deeply embedded in the individual subconscious’ (a non-technical manifestation).
An example would be the use of accounting words with strong emotive effects
in our culture. For instance, naming a company’s expenditure of monies as an
‘investment’ rather than a ‘cost’ could elicit positive feelings related to the apparent
wisdom of such expenditure. Lehman and Tinker (1987: 517) interpret the ways
individuals act discursively in response to accounting as being affected by their
‘reservoir of folklore, themes, taxonomies and premises’.
In a technical sense, accounting outputs provide valuable information for industrial relations, for example, in costing contracts and in assessing ability-to-pay.5
However, the elusiveness of allegedly technical accounting phenomena, such as
‘cost’ and ‘profit’, has been well acknowledged, often by practical business people
and occasionally even social anthropologists (such as Chapman & Buckley 1997).
The latter argue that far from being objective, ‘costs are tricky things’ (1997: 229).
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In 1946, the National Association of Accountants observed that ‘costs are used
for a variety of purposes, and the same cost data cannot serve all purposes equally
well’. Indeed, two major research studies by Thomas (1969, 1974) provided extensive evidence that ‘income measurement—one cornerstone of accounting—is
largely an ambiguous and impossible endeavour’ (Manninen 1996: 655). So, even
in a technical sense it seems that accounting is not as objective and technical as is
believed commonly.6
For many years, labour studies advocates have asserted the importance of understanding financial statements and related accounting techniques (Fischer 1969).
But their writings usually contend that accounting outputs are some sort of optical
lens revealing an underlying financial reality. This representational view of accounting’s role in industrial relations disguises a broader capability to help constitute
such (alleged) reality. Delaney’s study of the roles of accounting in corporate
bankruptcy (1994: 514) put the issue thus:
. . . if we continue to treat financial figures as objective reflections of firm health and
bankruptcy as a reluctant reaction to bad times, we will miss the crucial role that
power and strategy play in creating the financial portrait of the firm.
Contesting this representational view of accounting ‘promises to infuse issues of
politics, professional discretion, and organisational power into formerly technical discussions of balance sheets’ and the myriad of other accounting creations
(Delaney 1994: 514). Of course, the lives of the industrial relations community
might be less ruffled if accounting could be relied upon to render faithful and
(ideologically) neutral representations of financial phenomena. But such reliance
would draw strength from an illusion—the hegemonic influence of an unobtrusive
(or at the very least unacknowledged) ideology.
Accounting’s significant non-technical dimension provides it with four important interrelated behavioural, social, ideological and strategic roles in industrial
relations. These roles (illustrated below) constitute means of
• social construction
• organisational control
• tactics formulation and
• corporate strategic objectives development.
Such roles are additional to the alleged technically-virtuous purposes often argued
to be the main, or even sole, influence of accounting on industrial relations.
Accounting as a means of social construction
Accounting is a calculative device, a decision-support system, and a means to inform. It affects human behaviour by naming and quantifying important social and
industrial relations constructs, including, for example, the ‘cost’ of a proposed new
employment contract, the ‘profits’ of an employer, and the ‘risk and measurement’
of derivative financial securities. Accounting thereby increases the visibility and
accountability of such social constructs.
Maines (2000: 578), drawing upon Hacking (1999), writes that ‘[t]he conceptual
center of the [constructionist] perspective . . . lies in the proposition that constructs
(definitions, ideas, values, beliefs) are inseparable from and mutually constitutive
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of social conditions (categories, “facts”, forms, structures).’ In the accounting
literature, Tinker and Neimark (1988: 56) have contended that
. . . annual reports, like the writing of history and other systems of meaning, are not
passive and neutral, but are partisan reconstructions through which individuals and
institutions define themselves and are defined by others . . . these definitions and selfknowledge cannot be taken for granted, but are themselves social constructions which
need to be challenged and reinterpreted.
Hines (1988: 257) summarises this social constructionist aspect of the accounting
craft: ‘It seems to me that your power is a hidden power, because people only
think of you as communicating reality, but in communicating reality, you construct
reality’.
Disputes about the measurement of accounting constructs (especially ‘profit’)
are often evident in controversies over labour contracts and quantifications of
ability-to-pay. And it seems plausible that the impacts of non-technical aspects of
accounting, in particular, are not unique to any industrial relations setting, but
are likely to be moderated by the prevailing bargaining regime in place in any
country.7 So, there is merit in acknowledging that controversies about accounting constructs and firm-level accounting are not confined to the North American
context of largely decentralised bargaining regimes (Granof 1973; Amernic 1985;
Fogarty & Radcliffe 1999). It needs to be recognised that such controversies have
been evident too over many decades in the approach to bargaining in Australia
which, until recently, was traditionally based on a regime of centralised wage fixation (Clarke & Craig 1991, 1992) In three landmark cases,8 central wage tribunals
in Australia have refused to grant trade union claims based upon the level of
profitability of an individual company or industry.9 Non-technical aspects of accounting have not been dominant influences in centralised wage fixation regimes:
of more relevance have been expected effects of wage case decisions on macroeconomic measures (such as consumer prices, capital investment, gross domestic
product).
In the past decade, Australia’s industrial relations system has been subjected to
widespread deregulation and decentralisation: it has gravitated to a regime based
much more on enterprise-level bargaining. Unions have had more scope to argue
contract claims on financial capacity to pay arguments, using accounting constructs at the level of the individual enterprise, and invoking arguments drawing
upon appreciation of the non-technical aspects of accounting. This decentralisation has brought Australia more into line with North American experience, with
non-technical aspects of accounting likely to become more central in determining
industrial relations outcomes.
Frequently, when accounting arguments are invoked in industrial relations,
disputes stem from the implicit and explicit power of accounting information to
prompt, sustain or rationalise decisions regarding wealth redistribution or claims
to future cash flows. Arguments over the best way to cost a proposed contract,
for instance, have invoked differing images of accounting and much more than
simple differences of opinion on technical issues. The use of accounting in such
situations is as much rhetorical as anything else.
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Amernic and Craig (1995: 133–36) analyse the linkages between labour contract
costing disputes and each of four images of accounting: as a historical record, as an
economic reality, as an information system, and as language, ideology or a limited construction of reality. Once various components of an accounting construct (e.g. ‘cost’
and ‘profit’) are admitted to collective negotiations, these new socially-constructed
phenomena intrude into the debate (Amernic & Craig 1992). Arguments over
which accounting information ‘best’ measures an employer’s ability-to-pay, for
example, often stem from fundamental differences about an organisation’s goal
achievement strategies: they reflect tactical and strategic uses of the ability-to-pay
construct in the dynamics of negotiations. Indeed, they may even reflect ideology
and corporate strategy more profoundly than neutral and objective measures of
some ostensibly-real phenomenon. The largely rhetorical nature of accounting
gives it strong potential to be an important part of the discourse that helps create
our shared ‘reality’ (Aho 1985; Walters-York 1996).
Therefore, once those involved in industrial relations accede to the use of accounting concepts and words, their world has been invaded by the ideology that
such concepts and words carry. For example, in the three years prior to the privatisation of Canadian National Railway (CN) in 1995, CN’s employees received
a sustained diet of accounting-related discourse from their CEO in the company’s
monthly employee newsletter. The discourse portrayed CN as a financial failure
with massive (alleged) losses and poor financial ratios of operating expenses to
operating revenues. It proclaimed that significant redundancies were therefore
necessary if the goal of privatisation was to be achieved. Accounting was marshalled in CN’s corporate communications with employees to create a sense of
crisis in the minds of employees, many of whom were soon-to-be redundant (Craig
& Amernic 2004).
Accounting as a means of organisational control
Management accounting systems are an important component of management
control, thus affecting industrial relations. Such systems comprise an array of
accounting and non-accounting-based measures and processes, both formal and
informal (budgets, standard costs, measures of return on investment etc.) which
help induce members of an organisation to behave as they do. Such systems are
tied, directly or indirectly, to corporate compensation reward and punishment
schemes. Some aspects of one such system are reviewed briefly here to illustrate
accounting’s role in organisational control.
In 1995, CN was fully privatised by the Canadian Government. A key part of
the strategic plan intended to make the fledgling privatised company competitive
was the ‘New CN Compensation Policy’ (pp. 55–6).10 Under this policy
. . . a significant proportion of annual and long-term compensation of all non-union
employees is variable and tied directly to the financial performance of the Company . . . cash bonuses [of employees were to be] based on the achievement of key
financial targets, including targets based on the operating ratio . . .
The operating ratio was defined in terms of accounting variables measured
by CN’s financial accounting system as ‘total railway operating expenses as a
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percentage of total railway revenues’ (p. 81). Thus, management rewards (and punishments) were to be (at least partly) determined by achieving accounting-based
targets. This became potentially complicated since CN, which had previously
been organised along geographic lines, had reorganised itself into six customer-type
business units. The operating decisions of one business unit were likely to affect the operating ratios and cash incentives of managers in other business units.
Consequently, the accounting-based operating ratio became very important for
management decision-making and for the lives of CN’s employees—both the
managers whose employment rewards and punishments were directly affected,
and the non-management employees affected by the accounting-inspired decisions of these managers.
Like all accounting-based compensation and performance targets, the operating
ratio has the potential to induce manipulative behaviour by management and to
provide ample opportunities for games playing through managerial prerogative
to determine ‘revenue’ and ‘expense’ of any reporting period (Bruns & Merchant
1990: 22–5). Clearly, a conservative definition of ‘revenue’ and a liberal definition
of ‘expense’ would make CN’s operating ratio targets harder to achieve.
Accounting targets, such as CN’s operating ratio, belie their ostensible objective
and quantitative surface. There is significant scope for equivocality regarding
the items to include in the numerator (‘total railway operating expenses’) and
denominator (‘total railway revenues’). For example, should goodwill arising on
the acquisition of another railway company, whose track system creates efficiencies
for CN, be charged off as part of ‘total operating railway expenses’ if it has been
deemed to be impaired? Furthermore, the method by which the items included
are to be measured is problematic too (e.g. should long-term freight receivables
be discounted to their present value?) There are many significant behavioural
implications as well. Given the equivocality surrounding the construction of this
accounting ratio, managers subject to control by it (assuming they act in their
short-term self-interest) have incentive to engage in games play in both accounting
and business decisions to construct a given operating ratio outcome. But if top
management is sophisticated in the ways of accounting, the railway business and
human nature, it might anticipate such behaviour. Consequently, the accounting
measures, far from simply measuring ‘what is going on’, have potential to create
social and economic complexities.
To better appreciate the industrial relations implications of accounting-based
management control systems, it is important to examine their detailed design,
the efficacy of the accounting definitions implied, and the checks and balances in
place. The construction and evaluation of compensation systems should not be
left solely to managers, accountants or compensation specialists because each has
incentives to act inimically to the interests of other stakeholders in an organisation,
such as labour.
So, the construction of an organisation’s management control system, using
accounting blueprints and the accounting paraphernalia of operating ratios, profit
centres, earnings targets, investment centres, return on investment, budgeting etc. are
connected intimately to organisational control. The inherent accounting concepts
and how they are operationalised are contestable.11 They are far from natural,
neutral, objective measures of some underlying financial reality. When the life
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world of CN’s managers becomes (at least partly) dominated by the accounting
construct ‘the operating ratio’, this construct will unavoidably mediate managers’
perception of (among other things) industrial relations. Indeed, the accounting
constructs in the management control system can help to constitute (and in turn
be partly constituted by) managerial industrial relations ideologies (Kochan et al.
1986; Godard 1997).
Accounting as a means of tactics formulation
Rarely are accounting measures unequivocal. Where there are conflicting collective bargaining perspectives there are often significant disagreements over accounting treatments. The domain of interest for the bargaining parties should
extend beyond different ways of accounting or measuring events. Of critical importance are decisions about what financial details are disclosed—not only to collective
bargaining parties, but to shareholders, other stakeholders, and the general public
as well. Thus, in collective bargaining and contract costing, accounting measurements and decisions regarding financial disclosure become tactical and strategic
resources for managements, and for unions and ‘anyone with the access and will’
to turn those disclosures to their advantage (McBarnet et al. 1993: 18). This occurs not only during collective bargaining, but in other general industrial relations
situations as well.
The equivocality and ambiguity of accounting treatments was well illustrated by
Australia’s CRA Ltd. in its annual report for 1984. CRA reported a profit of $AUD
29.5 million; its British parent calculated that year’s profit as $AUD 79.5 million;
various stockbroking analysts restated the company’s profit as $AUD 101 million,
$AUD 135 million and $AUD 180 million, respectively; and yet, the company’s
in-house accountants were said to want to report a loss of $AUD 84 million (Uren
1985). Furthermore, companies may adopt the tactic of switching to accounting
methods that minimise reported profit before bargaining, or delay switching to
profit-increasing accounting methods until after bargaining, while at the same
time complying with GAAP (Mautz & Richardson 1992). Yamaji (1986) reported
that a sample of Japanese companies disclosing profit forecasts before negotiations tended to underestimate profit. Amernic (1985) reported how accounting
measures and disclosures were used tactically in bargaining between a university
and its faculty association. Amernic and Craig’s (1992) ‘accounting as an excuse
for interaction model’ contended that accounting lends itself to tactical use in
certain circumstances: for example, where employer equivocality and union heterogeneity are both low, unions will be prone to ignore accounting data and thus
the compilation thereof by employers may be pointless. There may be situations
where ‘accounting is valued . . . not for its intrinsic information value, but rather,
for what it does in providing a convenient, contentious topic for discussion and
debate’ (Amernic & Craig 1992: 76). Thus, accounting can serve a non-technical,
social function by facilitating an ongoing dialogue between adversaries.12
Accounting as a means for the development of corporate strategic objectives
Corporate strategic objectives are often couched in accounting language. Earnings per share, return on assets and economic value added (EVA) targets are a few
of the accounting-based criteria by which companies’ boards of directors assess
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success or failure. Once senior managers adopt the language of accounting (and
its allied constructs) as a natural means of articulating corporate objectives, thinking in such ways becomes almost unavoidable. For example, many corporations
have adopted the language and ideology of EVA, an accounting-based measure
computed by deducting a charge for the use of capital from various versions of
the accounting measure, net operating profit after tax. Coca Cola (beverages), Eli
Lilly (pharmaceuticals), Alcan (aluminium), Federal-Mogul (automotive parts)
and Herman Miller (office furniture), are among the companies to realign their
strategic objectives (and consequently, their organisational control and performance incentives systems) to accord with the conceptual and ideological mantra
of EVA (see Amernic et al. 2000).13
Accounting is alluded to frequently as the ‘language of business’ (Lavoie 1987).
It is, therefore, unsurprising that top corporate management use ‘accounting talk’
to help articulate and implement corporate strategic objectives. Accounting language is used too by powerful institutions outside a corporation (such as investment analysts and credit rating agencies) which corporate leaders often want to
‘please’. Given the complexity of modern corporations, it is not surprising that
an overarching, holistic financial language is used by corporate leaders and the
powerful institutions with whom they deal (Oliver 1991). As humans, corporate
leaders have limited cognitive abilities, and accounting language conveniently suppresses much of the confusion and complexity which unavoidably characterises a
corporation and its environment (Swieringa & Weick 1987).
However, the use of accounting language and ideology in corporate strategy
discourse has strong potential for deviant impact, as illustrated by the bankruptcy
of Enron Corporation in 2001. In Enron’s annual report for 2000, senior management wrote that ‘Enron is laser-focused on earnings per share’. Thereby, they
elevated the accounting construct ‘earnings per share’ (EPS) to a strategic objective of the company. EPS has many severe and well-known deficiencies as
a measure of corporate achievement.14 But this is not our major concern here.
Rather, it is the almost psychotic fixation that such a strategic goal encouraged
that is worrisome. It had the effect of motivating senior Enron management to
construct illusory profits by hiding losses ‘off balance sheet’, apparently in order
to fulfil EPS targets (Powers et al. 2002). Thus, one of the important lessons from
the Enron collapse is that by articulating corporate strategic goals in reductionist
accounting language and concepts, a potential to subvert a broad awareness of reality is created. At Enron, senior management were ‘laser-focused’ on the limited,
and therefore limiting, world of accounting.
Participants in industrial relations would benefit by monitoring closely the resulting roles of accounting language in ‘sensemaking’ (Weick 1995) by corporate
leaders, especially in strategic objectives development. Such monitoring is important because the language of accounting, corporate finance and neo-liberal capitalism in general can, like all languages, cloud the mind with seductive metaphor
and other at-times unnoticed cognitive–linguistic devices. Such devices can have
important effects on industrial relations and other social processes and put the
welfare of individuals at risk.
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CONCLUSIONS
Industrial relations will benefit considerably if it captures the pervasiveness of the
accounting meta-discipline. There needs to be greater awareness of the actual and
potential technical and non-technical impact of accounting on industrial relations. A
more than superficial knowledge of accounting technique is necessary. If one does
not understand the technical and ideological construction of accounting numbers,
then how can one critique them?
According to Benston (1982: 161), a distinguished professor of accounting
The accounting data produced by companies, either for internal managerial purposes
or for published financial statements, have . . . inherent limitations . . . so severe that, in
general, these data do not provide valid measurements that can be used for answering
or gaining insights into most economic questions.
Benston was well positioned to enter this scathing judgement.15 He concluded
that whereas ‘these [accounting] data often provide very poor measures of economic values’, nonetheless they ‘are useful primarily for other purposes . . . [such
as] . . . control over resources and business activities, reports required by governmental and other authorities, and tax computation’ (Benston 1982: 212, italics
applied). To Benston’s ‘other purposes’, we would add the non-technical roles we
have described. A crucial point is that it is these non-technical roles of accounting
which make accounting important and potentially dangerous in industrial relations settings. This arises, in large part, because ‘accounting is a member of a
battery of belief-forming institutions, including the law, education, the media,
religion, and the family’ (Tinker 1985: 82).
Indeed, it seems incumbent upon industrial relations practitioners and academics who study industrial relations to treat gingerly the accounting information and the mindsets with which they engage. For example, in a business unit
downsizing, in which corporate management has claimed that the performance
indicator, EVA, would be improved, union negotiators might challenge the serious technical deficiencies of this accounting measure (Young 1999) and critique
the narrow reductionist ideology which underlies its use. Academics interested
in using accounting measures as (allegedly) objective measures in their investigation of industrial relations phenomena (such as the effect of unionisation on
profits), should consider Delaney’s (1994) advice regarding accounting numbers.
Even in its technical persona, accounting is far from being objective (Megill 1994),
and therefore, ‘[f]ar from being neutral devices for mirroring the social world, the
calculative technologies of accountancy are complex machines for representing
and intervening in social and economic life’ (Miller 1994: 246).
Accounting-related curriculum in industrial relations education should acknowledge the non-technical roles of accounting.16 This would help foster more
meaningful use of accounting data, and more humane and socially beneficial outcomes. Such consciousness-elevation would pre-empt, to an extent, the seductive
‘logic’ of accounting rhetoric. It would render obsolete regrettable conclusions
such as those by business and accounting historians (Oakes et al. 1999: 159):
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In the end, organized labor’s acceptance of financial accounting and other rationalized
management practices may have limited the ability of workers to respond imaginatively and critically to the normative challenges of global economic restructuring.
NOTES
1. By ‘accounting’, we refer to the constellation of such things as net profit, balance sheets, revenues,
costs, budgets, cash flows, and so on, including the professional accounting literature known as
Generally Accepted Accounting Principles (GAAP).
2. The roles of accounting data have been analysed according to:
• Activity, such as in ‘financial disclosure’ (Birnberg 1980); and in performance evaluation,
budgetary participation and organisational effectiveness (Hopwood 1972; Brownell 1982).
• Type of accounting data, such as management accounting (Johnson 1994; Kaplan 1995) or
social and environmental accounting (Gray et al. 1995; Lehman 1999).
• Industry, such as the Italian health care sector (Marcon & Panozzo 1998) and computerintegrated manufacturing (Gosse 1993).
• Decision context, such as in collective bargaining (Amernic 1985), organisations experiencing financial crisis (Ezzamel & Bourn 1990; Delaney 1994), executive information systems
(Stambaugh & Carpenter 1992), and project evaluation and control (Abdeen 1980).
3. Social constructionist scholarship has a long history, but its most prominent period seems to
have begun with Berger and Luckman’s The Social Construction of Reality in 1966. Accounting’s
role in the social construction of reality (or perhaps less grandiosely, ‘meaning’) may best be
analysed from the perspective of narrative inquiry (Maines 2000). That is, accounting is an
account—it tells a story (Delaney 1994).
4. Here they refer to ‘messages’ such as audited financial statements which are ‘oriented’ towards
‘specific constituencies’ such as company shareholders.
5. A small but sustained literature in accounting and industrial relations focuses upon the development of ‘improved’ accounting techniques for measuring contract costs (Granof 1973),
employers’ ability-to-pay wages (Foley & Maunders 1979) and in ‘costing’ human resources
(Cascio 1982).
6. An illustration reinforces this point. Management of companies such as Nortel Networks that
have grown rapidly through the acquisition of other high-tech companies, assert that earnings
numbers derived from the application of accounting institutional rules such as GAAP are not to
be used to assess financial performance. Rather, modified earnings numbers ‘which exclude the
impact of Acquisition Related Costs’ in computing net earnings should be used. Adoption of
this practice increased Nortel’s 1999 net income from a $197 million loss to a gain of well over
a billion dollars (Nortel Networks, 1999 audited financial statements, note 3). Such rhetoric
is not a mere difference of opinion about a technical issue, but is more akin to the rhetoric of
persuasion.
7. We are indebted to a reviewer for drawing this point to our attention.
8. Ex parte McKay (1907) (2 CAR 1); Vehicle Builders Employees’ Federation of Australia v. General
Motors-Holden Pty Ltd (115 CAR 931; 1966 AILR 323; IIB 1178); Electrical Trades Union of
Australia v. Altona Petrochemical Co. Pty Ltd (1970 AILR 465; 25IIB 2022).
9. There have been some exceptions; for example, employers have been allowed to cite evidence
of ‘poor profitability’ in seeking relief from centrally-imposed wage decisions and unions have
been permitted to contest such claims if raised (see the cases reviewed by Clarke and Craig
1992: 18–27).
10. References in this section, unless otherwise specified, are from the Amended Preliminary Prospectus, October 18, 1995, Initial Public Offering by Way of Secondary Offering, Canadian National
Railway Company.
11. As an example, Oakes et al. (1999) critically examine accounting-based incentive plans and
reaction to such plans during the first half of the 20th century.
12. Amernic and Aranya (1990), drawing upon Walton and McKersie (1965), provide some evidence that collective bargaining productivity in a not-for-profit setting might be affected by
disclosure of accounting information, and that such disclosure may be a bargaining tactic.
13. In its 1997 annual report, senior management of LucasVarity plc averred that the company
‘utilizes economic value added . . . as its principal measure of business and financial performance
[because it] is committed to delivering superior and sustainable performance to its shareholders
(p. 1) . . . [and that] . . . by February 1998 every LucasVarity manager had his or her performance
incentives tied to EVA targets.’ (p. 4).
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14. For example, the numerator is based upon accounting measures of profit (earnings), which
opens it up to all the manipulation possibilities to which accounting measures of profit are
susceptible.
15. Professor Raymond Chambers, an eminent accounting scholar, was even harsher about
the inaptness of accounting information for technical purposes in general, when he wrote:
‘Accounting as realistic and comprehensible communication? In the Shavian phrase: “Not
bloody likely”’ (1999: 247).
16. Such roles have been acknowledged in various ways previously, especially in the accounting
literature; see, for example, Ogden and Bougen 1985; and McBarnet et al. 1993.
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Kren L, Lia
ACCOUNTING IN INDUSTRIAL RELATIONS
JOEL AMERNIC∗
AND
RUSSELL CRAIG∗∗
T
his paper aims to enhance understanding of accounting concepts and practices in
the industrial relations community by contrasting the alleged technical and nontechnical roles of accounting. By non-technical roles, we mean the ideological, social and
perception-fashioning roles of accounting procedures and processes. Our principal contention is that the industrial relations community would benefit from improved awareness of the non-technical character of accounting—especially through alertness to the
rhetorical features and social construction of accounting. Four often-unapparent nontechnical roles of accounting in industrial relations are discussed and their significance is
highlighted.
This paper is based upon our separate experiences of teaching accounting to industrial relations students and practitioners over the past 25 years. It is stimulated by
the conviction that accounting deserves to be acknowledged in industrial relations
as an equivocal and rhetorical social practice that is a socially-constructed means
of financial expression and rhetoric. Accounting should not be regarded merely
as a set of arcane but ideologically-innocent techniques or practices specified by
the accounting profession.
It is important to develop a critical language awareness (Fairclough 1992) of
the accounting language used in industrial relations. Accounting language is a
part of the language of New Capitalism, which is characterised by ‘an increasing
gap between rich and poor, less security for most people, less democracy, major
environmental damage’ (Fairclough 2000). Our focus on accounting as language
is important, for, as Fairclough argues:
. . . imposing the new order [New Capitalism] centrally involves the reflexive process
of imposing new representations of the world . . . new ways of using language are an
important part of the new order . . . the struggle over the new order is partly a struggle
over language.
Accounting language, such as ‘economic value added’ (discussed later)—as part
of the language of New Capitalism—helps create legitimacy and acceptance for
narrow corporate strategies to the detriment of non-management stakeholders
(see also Amernic et al. 2000). Accounting language may also steer corporate
industrial relation strategies, as we outline later.
∗ Professor
of Accounting, Joseph L. Rotman School of Management, University of Toronto,
Toronto, M5S 3E6, Ontario, Canada. Cross-appointed to the Centre for Industrial Relations, University of Toronto. ∗∗ Professor of Accounting, National Graduate School of Management, The
Australian National University, Canberra, ACT 0200, Australia. Email: [email protected]
THE JOURNAL OF INDUSTRIAL RELATIONS, VOL. 47, NO. 1, MARCH 2005, 77--92
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We seek to broaden the scope and agenda of industrial relations by encouraging
an improved comfort level with accounting technique and, more importantly, a
critical scepticism of accounting measures and processes. Specifically, we aim
to encourage the unmasking of ideologies that are often hidden in seeminglyobjective and quantitative accounting measures (Amernic & Craig 1995).
We begin by discussing views of accounting that are held commonly by industrial relations practitioners. We introduce recent research that challenges the
traditional perspective of accounting as a modernist reporter of some pre-existing
objective financial reality. We canvass four important examples of accounting’s
non-technical roles in industrial relations and then discuss some of the often subtle but crucial influences accounting has on industrial relations processes and
outcomes.
TECHNICAL ROLES OF ACCOUNTING IN INDUSTRIAL RELATIONS
Accounting is a seemingly-objective and seemingly-quantitative discipline whose
measurements of wealth, profit, cash flows and cost are often invoked in industrial
relations as means of technical support or economic arbiter. But accounting needs
to be regarded as helping to constitute (and as being constituted by) the social
and ideological realm within which it operates. The industrial relations community should acknowledge that ‘financial figures’ are more than ‘neutral depictions
of firm health’ and that they are ‘the result of larger organisational strategies
and power relations’ (Delaney 1994: 497). Indeed, many discerning accountants
are astounded by how accounting information is held to be ‘hard’, ‘objective’
information, even by those who should know better. The following anecdote is
instructive:
In August 1991, I had the dubious honor of being present in a room full of two
thousand academic accountants at the Opryland Hotel in Nashville, Tennessee, listening . . . to the distinguished economist Rudiger Dornbusch and his keynote speech
to the American Accounting Association on the future of the global economy. Dornbusch . . . felt compelled to address the accounting—economics relationship at the
beginning of his talk, and did so by saying, essentially, that the only thing factual that
economists talked about was accounting information—everything past that was mere
theory.
A ripple of unease with the speaker’s ignorance filtered through the large audience
as, theoretically aware or not, the assembled accountants noted to themselves how wrong
he was, since every accounting number ever produced has been, to say the least, highly
contestable. What Dornbusch revealed in his off-the-cuff remark was that accountants
had achieved, at least in the eyes of certain major economists, the ultimate goal of
the rhetorician’s art: to be perceived as not rhetoric at all. (Moore 1994: 583, italics
applied)
Anyone who regards accounting as a mere technical practice is being misled.1
There are very important non-technical roles of accounting in industrial relations
and a greater awareness of such roles would be beneficial because accounting
has been much implicated in industrial relations—as evidenced by a considerable
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body of literature in accounting (e.g. Amernic 1985; Owen & Lloyd 1985; Yamaji
1986; Bougen et al. 1990; Clarke et al. 1990; Amernic & Craig 1992) and in industrial relations (e.g. Fischer 1969; Foley & Maunders 1979; Clarke & Craig 1991,
1992; Mautz & Richardson 1992; Burgess & Lane 1993; Craig & Clarke 1993;
Brown 1999; Craig & Amernic 2000). This literature canvases a broad range of
subject matter, but has focused generally on technical, strategic and tactical uses
of accounting in collective bargaining; the unserviceability of conventionallyprepared published financial statements for assessing an entity’s capacity to pay;
and the effect of industrial relations settings on accounting policy choice by
entities.
Academics and practitioners often conceive accounting as depicting some preexisting financial reality. Examples include Canadian labour arbitrator Teplitsky’s (1991: 259) assertion that an employer’s ability to pay can be determined
‘objectively by an examination of the employer’s balance sheet’; American labour
educators Trumble and Tudor’s (1996: 90) assertion that ‘when labor leaders and
others are trained in how to read a financial report, a strategic plan, or annual
report, they can understand the true health of the firm’; and the contention of
Gomez-Mejia et al. (2000: 499) that ‘we can precisely measure revenue’.
The preceding examples are typical of an erroneous view that is held more
broadly in the industrial relations community—one implying that accounting is
an esoteric but largely technical practice through which notions such as ‘ability
to pay’ and ‘the well-being of the firm’ can be divined in a more-or-less precise
and objective fashion. What emerges is a misleading view of the technical fitness
(or serviceability) of accounting data for many of the purposes to which those
data are applied in industrial relations. This is despite the unserviceability of
accounting data in industrial relations having been exposed (e.g. Clarke et al.
1990; Clarke & Craig 1991, 1992). Such a view is limiting too because it focuses
on accounting’s ostensible technical role in industrial relations to the exclusion
of other, more pervasive non-technical roles (such as the ideological, social and
perception-fashioning roles of accounting procedures and processes).
Consequently, it is important to regard the role of accounting information
as extending beyond its conventionally acknowledged technical dimension to a
non-technical dimension as well. Such a questioning of the roles that accounting
data (such as net profit, revenues and costs) and accounting processes (such as
budgeting) allegedly play in organisations should be the subject of considerable
continuing debate that ranges from generic, abstract and normative aspects (e.g.
Burchell et al. 1980) to empirical descriptions of applications in specific organisational contexts.2 In the scholarly non-industrial relations literature, the roles
of accounting have been re-examined (Hoskin & Macve 1994), reviewed (Kren &
Liao 1988) and conceived of as expanding (Epstein 1993). They have been regarded
as providing meaning (Burchell et al. 1980) and legitimacy (Richardson 1987), as
helping to construct reality (Hines 1988) and as acting as an instrument of social
domination (Tinker 1980; Ogden & Bougen 1985).
Thus, in the non-industrial relations literature there are diverse views about
the roles and significance of accounting. These range in general perspective from
social constructionist3 to radical socialist and beyond, leading to a more accurate
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picture of the roles of accounting in organisations and society. In contrast, the
view of accounting that is sketched in the preponderance of industrial relations
literature is focused on the overt, apparently technical roles that accounting has
the potential to fulfil. Consequently, the subtle non-technical (and perhaps more
compelling) roles of accounting are under-analysed and under-appreciated.
Nonetheless, some contributions to industrial relations literature have addressed the subtler, less overt roles which accounting has the potential to play.
For example, Batstone (1979: 256–58) observes that accounting systems ‘reflect
the priorities of the dominant groups . . . [and help]. . . determine the terms of legitimate debate’. Craig and Amernic (1997: 279) have argued that ‘there would be
strong benefits if the social and rhetorical capabilities of accounting were understood within the industrial relations domain’. We contend that industrial relations
practice would be strengthened if the social and rhetorical features of accounting
were better understood. This would improve the way industrial relations practitioners perceive, use and react to, accounting. To suggest how this might be
achieved in a practical sense, we provide some examples of accounting’s nontechnical roles in industrial relations.
NON-TECHNICAL ROLES OF ACCOUNTING IN INDUSTRIAL RELATIONS
Accounting possesses many identities, a long pedigree, and a wide catchment of
current and potential users. It is much more than a series of quantitative processes
and calculative techniques used in preparing financial statements and estimating
costs (Mattessich 1987; Ezzamel 1994; Moore 1994). It is the ‘language of business’
and a profoundly social discipline whose information, processes and systems not
only have obvious technical importance (e.g. in monitoring contract compliance)
and technical character (e.g. in assuring that the sum of debits equals the sum of
credits), but which has perhaps even more importance in non-technical realms as
well.
Lehman and Tinker (1987: 517) have drawn attention to the ‘dual capacity’ of
accounting to not only ‘orient messages to specific constituencies and issues’—
that is, to a technical orientation or manifestation.4 But importantly, they contend
also that accounting has the additional capacity ‘to play on general themes that are
deeply embedded in the individual subconscious’ (a non-technical manifestation).
An example would be the use of accounting words with strong emotive effects
in our culture. For instance, naming a company’s expenditure of monies as an
‘investment’ rather than a ‘cost’ could elicit positive feelings related to the apparent
wisdom of such expenditure. Lehman and Tinker (1987: 517) interpret the ways
individuals act discursively in response to accounting as being affected by their
‘reservoir of folklore, themes, taxonomies and premises’.
In a technical sense, accounting outputs provide valuable information for industrial relations, for example, in costing contracts and in assessing ability-to-pay.5
However, the elusiveness of allegedly technical accounting phenomena, such as
‘cost’ and ‘profit’, has been well acknowledged, often by practical business people
and occasionally even social anthropologists (such as Chapman & Buckley 1997).
The latter argue that far from being objective, ‘costs are tricky things’ (1997: 229).
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In 1946, the National Association of Accountants observed that ‘costs are used
for a variety of purposes, and the same cost data cannot serve all purposes equally
well’. Indeed, two major research studies by Thomas (1969, 1974) provided extensive evidence that ‘income measurement—one cornerstone of accounting—is
largely an ambiguous and impossible endeavour’ (Manninen 1996: 655). So, even
in a technical sense it seems that accounting is not as objective and technical as is
believed commonly.6
For many years, labour studies advocates have asserted the importance of understanding financial statements and related accounting techniques (Fischer 1969).
But their writings usually contend that accounting outputs are some sort of optical
lens revealing an underlying financial reality. This representational view of accounting’s role in industrial relations disguises a broader capability to help constitute
such (alleged) reality. Delaney’s study of the roles of accounting in corporate
bankruptcy (1994: 514) put the issue thus:
. . . if we continue to treat financial figures as objective reflections of firm health and
bankruptcy as a reluctant reaction to bad times, we will miss the crucial role that
power and strategy play in creating the financial portrait of the firm.
Contesting this representational view of accounting ‘promises to infuse issues of
politics, professional discretion, and organisational power into formerly technical discussions of balance sheets’ and the myriad of other accounting creations
(Delaney 1994: 514). Of course, the lives of the industrial relations community
might be less ruffled if accounting could be relied upon to render faithful and
(ideologically) neutral representations of financial phenomena. But such reliance
would draw strength from an illusion—the hegemonic influence of an unobtrusive
(or at the very least unacknowledged) ideology.
Accounting’s significant non-technical dimension provides it with four important interrelated behavioural, social, ideological and strategic roles in industrial
relations. These roles (illustrated below) constitute means of
• social construction
• organisational control
• tactics formulation and
• corporate strategic objectives development.
Such roles are additional to the alleged technically-virtuous purposes often argued
to be the main, or even sole, influence of accounting on industrial relations.
Accounting as a means of social construction
Accounting is a calculative device, a decision-support system, and a means to inform. It affects human behaviour by naming and quantifying important social and
industrial relations constructs, including, for example, the ‘cost’ of a proposed new
employment contract, the ‘profits’ of an employer, and the ‘risk and measurement’
of derivative financial securities. Accounting thereby increases the visibility and
accountability of such social constructs.
Maines (2000: 578), drawing upon Hacking (1999), writes that ‘[t]he conceptual
center of the [constructionist] perspective . . . lies in the proposition that constructs
(definitions, ideas, values, beliefs) are inseparable from and mutually constitutive
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of social conditions (categories, “facts”, forms, structures).’ In the accounting
literature, Tinker and Neimark (1988: 56) have contended that
. . . annual reports, like the writing of history and other systems of meaning, are not
passive and neutral, but are partisan reconstructions through which individuals and
institutions define themselves and are defined by others . . . these definitions and selfknowledge cannot be taken for granted, but are themselves social constructions which
need to be challenged and reinterpreted.
Hines (1988: 257) summarises this social constructionist aspect of the accounting
craft: ‘It seems to me that your power is a hidden power, because people only
think of you as communicating reality, but in communicating reality, you construct
reality’.
Disputes about the measurement of accounting constructs (especially ‘profit’)
are often evident in controversies over labour contracts and quantifications of
ability-to-pay. And it seems plausible that the impacts of non-technical aspects of
accounting, in particular, are not unique to any industrial relations setting, but
are likely to be moderated by the prevailing bargaining regime in place in any
country.7 So, there is merit in acknowledging that controversies about accounting constructs and firm-level accounting are not confined to the North American
context of largely decentralised bargaining regimes (Granof 1973; Amernic 1985;
Fogarty & Radcliffe 1999). It needs to be recognised that such controversies have
been evident too over many decades in the approach to bargaining in Australia
which, until recently, was traditionally based on a regime of centralised wage fixation (Clarke & Craig 1991, 1992) In three landmark cases,8 central wage tribunals
in Australia have refused to grant trade union claims based upon the level of
profitability of an individual company or industry.9 Non-technical aspects of accounting have not been dominant influences in centralised wage fixation regimes:
of more relevance have been expected effects of wage case decisions on macroeconomic measures (such as consumer prices, capital investment, gross domestic
product).
In the past decade, Australia’s industrial relations system has been subjected to
widespread deregulation and decentralisation: it has gravitated to a regime based
much more on enterprise-level bargaining. Unions have had more scope to argue
contract claims on financial capacity to pay arguments, using accounting constructs at the level of the individual enterprise, and invoking arguments drawing
upon appreciation of the non-technical aspects of accounting. This decentralisation has brought Australia more into line with North American experience, with
non-technical aspects of accounting likely to become more central in determining
industrial relations outcomes.
Frequently, when accounting arguments are invoked in industrial relations,
disputes stem from the implicit and explicit power of accounting information to
prompt, sustain or rationalise decisions regarding wealth redistribution or claims
to future cash flows. Arguments over the best way to cost a proposed contract,
for instance, have invoked differing images of accounting and much more than
simple differences of opinion on technical issues. The use of accounting in such
situations is as much rhetorical as anything else.
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Amernic and Craig (1995: 133–36) analyse the linkages between labour contract
costing disputes and each of four images of accounting: as a historical record, as an
economic reality, as an information system, and as language, ideology or a limited construction of reality. Once various components of an accounting construct (e.g. ‘cost’
and ‘profit’) are admitted to collective negotiations, these new socially-constructed
phenomena intrude into the debate (Amernic & Craig 1992). Arguments over
which accounting information ‘best’ measures an employer’s ability-to-pay, for
example, often stem from fundamental differences about an organisation’s goal
achievement strategies: they reflect tactical and strategic uses of the ability-to-pay
construct in the dynamics of negotiations. Indeed, they may even reflect ideology
and corporate strategy more profoundly than neutral and objective measures of
some ostensibly-real phenomenon. The largely rhetorical nature of accounting
gives it strong potential to be an important part of the discourse that helps create
our shared ‘reality’ (Aho 1985; Walters-York 1996).
Therefore, once those involved in industrial relations accede to the use of accounting concepts and words, their world has been invaded by the ideology that
such concepts and words carry. For example, in the three years prior to the privatisation of Canadian National Railway (CN) in 1995, CN’s employees received
a sustained diet of accounting-related discourse from their CEO in the company’s
monthly employee newsletter. The discourse portrayed CN as a financial failure
with massive (alleged) losses and poor financial ratios of operating expenses to
operating revenues. It proclaimed that significant redundancies were therefore
necessary if the goal of privatisation was to be achieved. Accounting was marshalled in CN’s corporate communications with employees to create a sense of
crisis in the minds of employees, many of whom were soon-to-be redundant (Craig
& Amernic 2004).
Accounting as a means of organisational control
Management accounting systems are an important component of management
control, thus affecting industrial relations. Such systems comprise an array of
accounting and non-accounting-based measures and processes, both formal and
informal (budgets, standard costs, measures of return on investment etc.) which
help induce members of an organisation to behave as they do. Such systems are
tied, directly or indirectly, to corporate compensation reward and punishment
schemes. Some aspects of one such system are reviewed briefly here to illustrate
accounting’s role in organisational control.
In 1995, CN was fully privatised by the Canadian Government. A key part of
the strategic plan intended to make the fledgling privatised company competitive
was the ‘New CN Compensation Policy’ (pp. 55–6).10 Under this policy
. . . a significant proportion of annual and long-term compensation of all non-union
employees is variable and tied directly to the financial performance of the Company . . . cash bonuses [of employees were to be] based on the achievement of key
financial targets, including targets based on the operating ratio . . .
The operating ratio was defined in terms of accounting variables measured
by CN’s financial accounting system as ‘total railway operating expenses as a
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percentage of total railway revenues’ (p. 81). Thus, management rewards (and punishments) were to be (at least partly) determined by achieving accounting-based
targets. This became potentially complicated since CN, which had previously
been organised along geographic lines, had reorganised itself into six customer-type
business units. The operating decisions of one business unit were likely to affect the operating ratios and cash incentives of managers in other business units.
Consequently, the accounting-based operating ratio became very important for
management decision-making and for the lives of CN’s employees—both the
managers whose employment rewards and punishments were directly affected,
and the non-management employees affected by the accounting-inspired decisions of these managers.
Like all accounting-based compensation and performance targets, the operating
ratio has the potential to induce manipulative behaviour by management and to
provide ample opportunities for games playing through managerial prerogative
to determine ‘revenue’ and ‘expense’ of any reporting period (Bruns & Merchant
1990: 22–5). Clearly, a conservative definition of ‘revenue’ and a liberal definition
of ‘expense’ would make CN’s operating ratio targets harder to achieve.
Accounting targets, such as CN’s operating ratio, belie their ostensible objective
and quantitative surface. There is significant scope for equivocality regarding
the items to include in the numerator (‘total railway operating expenses’) and
denominator (‘total railway revenues’). For example, should goodwill arising on
the acquisition of another railway company, whose track system creates efficiencies
for CN, be charged off as part of ‘total operating railway expenses’ if it has been
deemed to be impaired? Furthermore, the method by which the items included
are to be measured is problematic too (e.g. should long-term freight receivables
be discounted to their present value?) There are many significant behavioural
implications as well. Given the equivocality surrounding the construction of this
accounting ratio, managers subject to control by it (assuming they act in their
short-term self-interest) have incentive to engage in games play in both accounting
and business decisions to construct a given operating ratio outcome. But if top
management is sophisticated in the ways of accounting, the railway business and
human nature, it might anticipate such behaviour. Consequently, the accounting
measures, far from simply measuring ‘what is going on’, have potential to create
social and economic complexities.
To better appreciate the industrial relations implications of accounting-based
management control systems, it is important to examine their detailed design,
the efficacy of the accounting definitions implied, and the checks and balances in
place. The construction and evaluation of compensation systems should not be
left solely to managers, accountants or compensation specialists because each has
incentives to act inimically to the interests of other stakeholders in an organisation,
such as labour.
So, the construction of an organisation’s management control system, using
accounting blueprints and the accounting paraphernalia of operating ratios, profit
centres, earnings targets, investment centres, return on investment, budgeting etc. are
connected intimately to organisational control. The inherent accounting concepts
and how they are operationalised are contestable.11 They are far from natural,
neutral, objective measures of some underlying financial reality. When the life
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world of CN’s managers becomes (at least partly) dominated by the accounting
construct ‘the operating ratio’, this construct will unavoidably mediate managers’
perception of (among other things) industrial relations. Indeed, the accounting
constructs in the management control system can help to constitute (and in turn
be partly constituted by) managerial industrial relations ideologies (Kochan et al.
1986; Godard 1997).
Accounting as a means of tactics formulation
Rarely are accounting measures unequivocal. Where there are conflicting collective bargaining perspectives there are often significant disagreements over accounting treatments. The domain of interest for the bargaining parties should
extend beyond different ways of accounting or measuring events. Of critical importance are decisions about what financial details are disclosed—not only to collective
bargaining parties, but to shareholders, other stakeholders, and the general public
as well. Thus, in collective bargaining and contract costing, accounting measurements and decisions regarding financial disclosure become tactical and strategic
resources for managements, and for unions and ‘anyone with the access and will’
to turn those disclosures to their advantage (McBarnet et al. 1993: 18). This occurs not only during collective bargaining, but in other general industrial relations
situations as well.
The equivocality and ambiguity of accounting treatments was well illustrated by
Australia’s CRA Ltd. in its annual report for 1984. CRA reported a profit of $AUD
29.5 million; its British parent calculated that year’s profit as $AUD 79.5 million;
various stockbroking analysts restated the company’s profit as $AUD 101 million,
$AUD 135 million and $AUD 180 million, respectively; and yet, the company’s
in-house accountants were said to want to report a loss of $AUD 84 million (Uren
1985). Furthermore, companies may adopt the tactic of switching to accounting
methods that minimise reported profit before bargaining, or delay switching to
profit-increasing accounting methods until after bargaining, while at the same
time complying with GAAP (Mautz & Richardson 1992). Yamaji (1986) reported
that a sample of Japanese companies disclosing profit forecasts before negotiations tended to underestimate profit. Amernic (1985) reported how accounting
measures and disclosures were used tactically in bargaining between a university
and its faculty association. Amernic and Craig’s (1992) ‘accounting as an excuse
for interaction model’ contended that accounting lends itself to tactical use in
certain circumstances: for example, where employer equivocality and union heterogeneity are both low, unions will be prone to ignore accounting data and thus
the compilation thereof by employers may be pointless. There may be situations
where ‘accounting is valued . . . not for its intrinsic information value, but rather,
for what it does in providing a convenient, contentious topic for discussion and
debate’ (Amernic & Craig 1992: 76). Thus, accounting can serve a non-technical,
social function by facilitating an ongoing dialogue between adversaries.12
Accounting as a means for the development of corporate strategic objectives
Corporate strategic objectives are often couched in accounting language. Earnings per share, return on assets and economic value added (EVA) targets are a few
of the accounting-based criteria by which companies’ boards of directors assess
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success or failure. Once senior managers adopt the language of accounting (and
its allied constructs) as a natural means of articulating corporate objectives, thinking in such ways becomes almost unavoidable. For example, many corporations
have adopted the language and ideology of EVA, an accounting-based measure
computed by deducting a charge for the use of capital from various versions of
the accounting measure, net operating profit after tax. Coca Cola (beverages), Eli
Lilly (pharmaceuticals), Alcan (aluminium), Federal-Mogul (automotive parts)
and Herman Miller (office furniture), are among the companies to realign their
strategic objectives (and consequently, their organisational control and performance incentives systems) to accord with the conceptual and ideological mantra
of EVA (see Amernic et al. 2000).13
Accounting is alluded to frequently as the ‘language of business’ (Lavoie 1987).
It is, therefore, unsurprising that top corporate management use ‘accounting talk’
to help articulate and implement corporate strategic objectives. Accounting language is used too by powerful institutions outside a corporation (such as investment analysts and credit rating agencies) which corporate leaders often want to
‘please’. Given the complexity of modern corporations, it is not surprising that
an overarching, holistic financial language is used by corporate leaders and the
powerful institutions with whom they deal (Oliver 1991). As humans, corporate
leaders have limited cognitive abilities, and accounting language conveniently suppresses much of the confusion and complexity which unavoidably characterises a
corporation and its environment (Swieringa & Weick 1987).
However, the use of accounting language and ideology in corporate strategy
discourse has strong potential for deviant impact, as illustrated by the bankruptcy
of Enron Corporation in 2001. In Enron’s annual report for 2000, senior management wrote that ‘Enron is laser-focused on earnings per share’. Thereby, they
elevated the accounting construct ‘earnings per share’ (EPS) to a strategic objective of the company. EPS has many severe and well-known deficiencies as
a measure of corporate achievement.14 But this is not our major concern here.
Rather, it is the almost psychotic fixation that such a strategic goal encouraged
that is worrisome. It had the effect of motivating senior Enron management to
construct illusory profits by hiding losses ‘off balance sheet’, apparently in order
to fulfil EPS targets (Powers et al. 2002). Thus, one of the important lessons from
the Enron collapse is that by articulating corporate strategic goals in reductionist
accounting language and concepts, a potential to subvert a broad awareness of reality is created. At Enron, senior management were ‘laser-focused’ on the limited,
and therefore limiting, world of accounting.
Participants in industrial relations would benefit by monitoring closely the resulting roles of accounting language in ‘sensemaking’ (Weick 1995) by corporate
leaders, especially in strategic objectives development. Such monitoring is important because the language of accounting, corporate finance and neo-liberal capitalism in general can, like all languages, cloud the mind with seductive metaphor
and other at-times unnoticed cognitive–linguistic devices. Such devices can have
important effects on industrial relations and other social processes and put the
welfare of individuals at risk.
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CONCLUSIONS
Industrial relations will benefit considerably if it captures the pervasiveness of the
accounting meta-discipline. There needs to be greater awareness of the actual and
potential technical and non-technical impact of accounting on industrial relations. A
more than superficial knowledge of accounting technique is necessary. If one does
not understand the technical and ideological construction of accounting numbers,
then how can one critique them?
According to Benston (1982: 161), a distinguished professor of accounting
The accounting data produced by companies, either for internal managerial purposes
or for published financial statements, have . . . inherent limitations . . . so severe that, in
general, these data do not provide valid measurements that can be used for answering
or gaining insights into most economic questions.
Benston was well positioned to enter this scathing judgement.15 He concluded
that whereas ‘these [accounting] data often provide very poor measures of economic values’, nonetheless they ‘are useful primarily for other purposes . . . [such
as] . . . control over resources and business activities, reports required by governmental and other authorities, and tax computation’ (Benston 1982: 212, italics
applied). To Benston’s ‘other purposes’, we would add the non-technical roles we
have described. A crucial point is that it is these non-technical roles of accounting
which make accounting important and potentially dangerous in industrial relations settings. This arises, in large part, because ‘accounting is a member of a
battery of belief-forming institutions, including the law, education, the media,
religion, and the family’ (Tinker 1985: 82).
Indeed, it seems incumbent upon industrial relations practitioners and academics who study industrial relations to treat gingerly the accounting information and the mindsets with which they engage. For example, in a business unit
downsizing, in which corporate management has claimed that the performance
indicator, EVA, would be improved, union negotiators might challenge the serious technical deficiencies of this accounting measure (Young 1999) and critique
the narrow reductionist ideology which underlies its use. Academics interested
in using accounting measures as (allegedly) objective measures in their investigation of industrial relations phenomena (such as the effect of unionisation on
profits), should consider Delaney’s (1994) advice regarding accounting numbers.
Even in its technical persona, accounting is far from being objective (Megill 1994),
and therefore, ‘[f]ar from being neutral devices for mirroring the social world, the
calculative technologies of accountancy are complex machines for representing
and intervening in social and economic life’ (Miller 1994: 246).
Accounting-related curriculum in industrial relations education should acknowledge the non-technical roles of accounting.16 This would help foster more
meaningful use of accounting data, and more humane and socially beneficial outcomes. Such consciousness-elevation would pre-empt, to an extent, the seductive
‘logic’ of accounting rhetoric. It would render obsolete regrettable conclusions
such as those by business and accounting historians (Oakes et al. 1999: 159):
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In the end, organized labor’s acceptance of financial accounting and other rationalized
management practices may have limited the ability of workers to respond imaginatively and critically to the normative challenges of global economic restructuring.
NOTES
1. By ‘accounting’, we refer to the constellation of such things as net profit, balance sheets, revenues,
costs, budgets, cash flows, and so on, including the professional accounting literature known as
Generally Accepted Accounting Principles (GAAP).
2. The roles of accounting data have been analysed according to:
• Activity, such as in ‘financial disclosure’ (Birnberg 1980); and in performance evaluation,
budgetary participation and organisational effectiveness (Hopwood 1972; Brownell 1982).
• Type of accounting data, such as management accounting (Johnson 1994; Kaplan 1995) or
social and environmental accounting (Gray et al. 1995; Lehman 1999).
• Industry, such as the Italian health care sector (Marcon & Panozzo 1998) and computerintegrated manufacturing (Gosse 1993).
• Decision context, such as in collective bargaining (Amernic 1985), organisations experiencing financial crisis (Ezzamel & Bourn 1990; Delaney 1994), executive information systems
(Stambaugh & Carpenter 1992), and project evaluation and control (Abdeen 1980).
3. Social constructionist scholarship has a long history, but its most prominent period seems to
have begun with Berger and Luckman’s The Social Construction of Reality in 1966. Accounting’s
role in the social construction of reality (or perhaps less grandiosely, ‘meaning’) may best be
analysed from the perspective of narrative inquiry (Maines 2000). That is, accounting is an
account—it tells a story (Delaney 1994).
4. Here they refer to ‘messages’ such as audited financial statements which are ‘oriented’ towards
‘specific constituencies’ such as company shareholders.
5. A small but sustained literature in accounting and industrial relations focuses upon the development of ‘improved’ accounting techniques for measuring contract costs (Granof 1973),
employers’ ability-to-pay wages (Foley & Maunders 1979) and in ‘costing’ human resources
(Cascio 1982).
6. An illustration reinforces this point. Management of companies such as Nortel Networks that
have grown rapidly through the acquisition of other high-tech companies, assert that earnings
numbers derived from the application of accounting institutional rules such as GAAP are not to
be used to assess financial performance. Rather, modified earnings numbers ‘which exclude the
impact of Acquisition Related Costs’ in computing net earnings should be used. Adoption of
this practice increased Nortel’s 1999 net income from a $197 million loss to a gain of well over
a billion dollars (Nortel Networks, 1999 audited financial statements, note 3). Such rhetoric
is not a mere difference of opinion about a technical issue, but is more akin to the rhetoric of
persuasion.
7. We are indebted to a reviewer for drawing this point to our attention.
8. Ex parte McKay (1907) (2 CAR 1); Vehicle Builders Employees’ Federation of Australia v. General
Motors-Holden Pty Ltd (115 CAR 931; 1966 AILR 323; IIB 1178); Electrical Trades Union of
Australia v. Altona Petrochemical Co. Pty Ltd (1970 AILR 465; 25IIB 2022).
9. There have been some exceptions; for example, employers have been allowed to cite evidence
of ‘poor profitability’ in seeking relief from centrally-imposed wage decisions and unions have
been permitted to contest such claims if raised (see the cases reviewed by Clarke and Craig
1992: 18–27).
10. References in this section, unless otherwise specified, are from the Amended Preliminary Prospectus, October 18, 1995, Initial Public Offering by Way of Secondary Offering, Canadian National
Railway Company.
11. As an example, Oakes et al. (1999) critically examine accounting-based incentive plans and
reaction to such plans during the first half of the 20th century.
12. Amernic and Aranya (1990), drawing upon Walton and McKersie (1965), provide some evidence that collective bargaining productivity in a not-for-profit setting might be affected by
disclosure of accounting information, and that such disclosure may be a bargaining tactic.
13. In its 1997 annual report, senior management of LucasVarity plc averred that the company
‘utilizes economic value added . . . as its principal measure of business and financial performance
[because it] is committed to delivering superior and sustainable performance to its shareholders
(p. 1) . . . [and that] . . . by February 1998 every LucasVarity manager had his or her performance
incentives tied to EVA targets.’ (p. 4).
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14. For example, the numerator is based upon accounting measures of profit (earnings), which
opens it up to all the manipulation possibilities to which accounting measures of profit are
susceptible.
15. Professor Raymond Chambers, an eminent accounting scholar, was even harsher about
the inaptness of accounting information for technical purposes in general, when he wrote:
‘Accounting as realistic and comprehensible communication? In the Shavian phrase: “Not
bloody likely”’ (1999: 247).
16. Such roles have been acknowledged in various ways previously, especially in the accounting
literature; see, for example, Ogden and Bougen 1985; and McBarnet et al. 1993.
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