We are currently living in the new age of materialism which have not jolted down the giant corporate entities like Enron, world com, Global crossing etc but has also resulted in the collusion of one of the big five accounting firm Arthur Anderson. This accounting firm disappeared in the implosion along with the well known corporate giants. In the last decade, Pakistan has also evidenced big corporate failures like Mehran Bank, Bankers Equity but has not evidenced any implosion in any accounting firm. This position has left many question marks in the minds of the legislators and Securities and Exchange Commission of Pakistan took the hard task of quality control in accounts, code of corporate governance etc. This article is an endeavor to understand the myths and realities of the issues in materialistic economy where innocent accountants are just the song while the doldrums are for the accounting profession only.
Society Culture
Owing to the materialism revolution threat, almost all the professionals are in a bit hurry to join the rush being under the threat of left behind in access to riches. Some of bad fishes in the professional community had even sacrificed their independence and integrity for which their profession is traditionally being relied upon. This materialism revolution is backed by the dot com. In this new age, the belief in the revolution was so pervasive that the gatekeepers became the servants to the new players rather than they remain as the traditional independent guardians. In this new age of professional behavior, the traditional brakes on the system no longer worked. This is just because of the fact that those whose mandate to act as a gatekeeper were tempted by misguided compensation policies within their firms which emphasized more fees at whatever cost to forfeit their autonomy and independence.
Giant corporate collusion weren’t new but this time the concept of listed limited companies has made the general public increasingly angry being badly mal treated and drastically, surprising, the accounting profession has arguably sunk to an all time low. Much has been written on the corporate greed and betrayal of the publictrusts by accountants and auditors in this materialistic economy but little thoughts has been given to facts related thereto. The biggest recent corporate scandals provide compelling evidence that how accountants and auditors together with other professionals such as lawyers, failed in their gatekeeper role.
However, the other side of the mirror also portrays a similar picture regarding the other stakeholders whereby the recent wave of corporate collapses have been categorized as the corporate greed and collapses arising from a new age of materialism that general public has embraced as a community. This reality also evidenced the fact that corporate greed is as much about morality and culture as about economics. People will be pleased to know that Honorable justice Owen, Royal Commissioner for HIH Insurance collapse, lamented for all breaches of law and flaws of the system identified by him. All the thoughtful remedy he advanced, the core problem is something he cannot fix was at heart a profound failure of morality.
Such an attitude was almost absent in Pakistani society where the cases of Mehran Bank and Bankers equity appeared in press in respect of the accountants, finance directors. People will be astonished to know that legislators’ failure has been handled by the legislators and they removed the “bug” efficiently by issuing the code of corporate governance rules, quality control procedure and posting some penalties over their website on the accountants. On the other hand, they have effectively changed the way of thinking of the people. However, it seems that we have not evidenced any good judgment of the caliber of Honorable justice Owen in Pakistan. Do the people have the right to know that legislators are now waiting for another major collapse for the revision of years old laws like Contract Act, 1872, Partnership Act, 1932, Sale of Good Act etc!
Late 80’s and early 90’s of the last century evidenced a fundamental change in Pakistani society coupled with changes in corporate and professional culture. The rise of economic rationalism had been the politicians response to the electorate’s increased materialism and the higher living standard that a more efficient economy could deliver. The advice by economists to politicians on the need to cut protection and reduce government regulation was straight out of Economics. However, such doctrine had been unpopular even till mid 1980’s when we have got the genius like Mahboobul Haq. Apart from that, the reforms have worked but an ancillary development has been the way money invaded our lives where it formerly played a lesser active role.
The obvious examples of Pakistan are how sport has been taken over by media companies and professionalized, how the weekend has been commercialized which in turn means that more of us now have to work on weekends, how we are now more litigious so that after an accident we think about turning such misfortune into cash through insurance, how houses are getting bigger as families shrink. So while we are all happy to attack evil economic rationalists, greedy businessman or stupid politicians, it’s just not done to attack materialism as that would come altogether too close to home.
Practically, we are suffering from the bundle of credit cards, visa, master, etc. When we stuck up in such hugecredit cards we go for paying them off through balance transfer facility, ready cash, personal loan etc. We tried to accomplish our goals through leasing and home finance also. At end, we receive calls from the banks after the due threatening to sending people at home. Such person normally shouts at your door step and abusing you irrespective you are not at home. This is the litigious way adopted even by multinational banks and I was surprised to see one of my class mates, whom the class normally does not talk because of his excessive abused language, shouting at one of my friend’s whom who just become jobless. As we know that taking money on interest is not a sin. A weaker opponent in war is always restless and in continual tension so do we. As Allah [SWT] is our opponent in the war, when we takes money on interest, hence, as stated earlier, taking interest is not a sin but one is basically entering into a war with Allah [SWT] and Last Prophet [PBUH] and will be in severe tension and restlessness. The core reason is that Opponent is Al mighty the Creator [SWT] and Last Prophet [SWT].
However, this new age of materialism is not a peculiarly Pakistani phenomenon. The American social researcher, David Myers, has provided impressive evidence for similar changes in values in the United States. He observe that average Americans have doubled their real incomes and have access to relatively cheap goods and services such espresso coffee, mobile phones, four wheel drive vehicles and the internet. However, he also observes that Americans have less happiness, more depression, and more fragile relationship, less communal commitments, less vocational security, more crime and more demoralized children. Through a series of polls, Myers noted that proportion of students going to college believing it essential for becoming well off financially rose from 39% in 1974 to 74% in 1990’s and that over the same period the proportion that hoped to develop a meaningful philosophy on life slumped from 76% to 43%. This reversal stayed unchanged throughout the 1990’s. Could we, the Pakistani nation, take some lesson from United States!
Corporate Culture
The focal point is that our community values have changed with the passage of time owing to reason that many of the developments in the corporate world become clearer. The new age of materialism could help in explaining the fact that why CEOs have been awarded by themselves unprecedented and huge pay rises to become much more ruthless in their attitude to employees and customers. Corporate boards often justify astronomical salary and bonus payments by the need to compete on the international market. However, with the average wage have increased, owing to minimum wage act, the community perception of employee exploitation is heightened by revelations of multi million salaries and perks for senior executives.
As Pakistan is now moving in line with the customs and values of developed countries, for instance, share option scheme etc, hence, we may stop at this point of time and look at a ruthless experience from Australia. The rogue trading at the National Australia Bank during 2004 which resulted in the resignation of the CEO meant that he walked away from the bank with a reported $3.27 million payout including a payment in lieu of six months’ notice. However, he had to forgo almost $1.3 million in share option scheme. Nevertheless, all of this was cold comfort for NAB’s shareholders and the bank itself, which has endured a substantial loss of reputation along with the money. This is the developed countries’ practice norms, customs and value which Pakistan’s corporate society has almost embraced!
This heightened materialism has also provides a context for the arguably declining ethical standards among company directors, accountants and auditors but none is dare enough to criticize the outbreak of management greed, the failure of boards to put a brake on excessive and structurally unsound remuneration practices. Our focus is more on short-term pay-offs and the behavior of analysts and some auditors in foregoing their ethics in return for record level fees and commission. However, when people have started lamenting the regulators caught sleeping, before the issue of Mehran Bank and Bankers Equity etc, they came up with new policies, rules & regulations.
History and Future
Having a bird’s eye view over the experiences of the developed countries one can easily conclude that it was not merely accountants and accounting profession who are also a part of the society. The review of the key feature of recent collapses illustrate a number of common features including a dominant leader, a culture of outputs over prudence, a series of earnings management practices seemingly encouraged by senior management and a willful blindness about discrepancies apart from the unfortunate symptom of ethical standards being more lip-service than practice prevailed in many of the major collapses.
Basically, the corrupted corporate system fed by stock options, board room perks, and consulting, underwriting fees seemingly that enough was never enough. The seeds to the crises were sown in the technology stock boom in those developed countries like Australia and United States with the now bankrupt e-commerce companies in these countries has hailed the way of their future. At the same time, the telecommunication revolution, in a new world of unregulated competition, required billions of rupees of investments in fiber optic cables, satellites and microwave towers. People will be surprised to know that decision by the collapsed One Tel to invest in its own telecommunications system was a major reason behind its eventual downfall! These new technologies demanded financial manipulation schemes to ensure that share prices held up and options, huge salaries and bonuses would continue to be paid. Such a revolution is now about to cover us in Pakistan also!
Even a first year accounting student could work out that this was all financially unsustainable. In 1999, the managing partner of Arthur Andersen US was quoted on the firm’s independence and ethical standards CD-ROM as saying that “the day Arthur Andersen loses the public trust is the day we go out of business”. The rest is history and the accounting profession is now subject to more regulations than ever before because of its betrayal of public trust. Nevertheless, is it just the unethical and greedy accountants, auditors, CEOs, CFOs and other professionals that are to blame for arguably the worst period of corporate unrestrained behavior in this new age of materialistic economy?
Conclusion
The emergence of the new materialism is something for which we all are responsible and which provided the climate for corporate greed to flourish. Having known about the fact that public knowledge of recent corporate crises is very high, what should be the accounting profession’s future perspective! Is it the educational process that underpins the professionalism of qualified accountants or is it just social values! As we know that some professional codes are now reflecting on their deeds behind bars and the accounting community is pondering on how values have changed.
We should all perhaps reflect on our pursuit of increased materialism and how such materialism has impacted upon our daily life and expectations. The sharply rising KSE, LSE & ISE indices, property prices etc were never really sustainable. May be we all, in some way, contributed to the new age of materialism and the resultant corporate and professional greed. May be we would like to blame someone else – accountants & accounting profession - in order not to show ourselves as culprit!
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