We are currently living in the new age of materialism which has not only jolted giant corporate entities like Enron, World Com, Global crossing etc but has also resulted in the collapse of one of the big five accounting firm, Arthur Anderson.
This accounting firm disappeared in the implosion alongwith 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 legislators and the Securities and Exchange Commission of Pakistan took upon itself the hard task of quality control in accounts, code of corporate governance etc.
This article is an endeavour to understand the myths and realities of the issues in a materialistic economy of which innocent accountants are just a part.
SOCIETY CULTURE: Owing to materialism almost all professionals are in a hurry to join the rush, under threat of being left behind in the access to riches.
Some of the bad fish in the professional community have even sacrificed their independence and integrity for which their profession is traditionally relied upon. This materialistic revolution is backed by the dot com.
In this age, belief in the revolution was so pervasive that the gatekeepers became the servants to the new players rather than remain as traditional independent guardians.
In this new age of professional behaviour, the traditional brakes on the system no longer worked.
This is just because of the fact that those whose mandate was to act as gatekeepers were tempted by misguided compensation policies within their firms which emphasised more fees at whatever cost to forfeit their autonomy and independence.
Giant corporate collusion is not new but this time the concept of listed limited companies has made the general public increasingly angry being badly maltreated and surprisingly, the accounting profession has arguably sunk to an all time low. Much has been written on the corporate greed and betrayal of the public trusts by accountants and auditors in this materialistic economy, but little thought has been given to the facts related thereto.
The biggest recent corporate scandals provide compelling evidence about how accountants and auditors together with other professionals such as lawyers, failed in their gate-keeping 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 categorised as corporate greed.
The collapses arising from a new age of materialism that the general public has embraced as a community. This reality also: is evidenced by the fact that corporate greed is as much about morality and culture as about economics.
People will be pleased to know that the Honourable Justice Owen, Royal Commissioner for the HIH Insurance collapse, lamented all the breaches of law and the flaws in the system identified by him.
The thoughtful remedy he advanced was that the core problem was something that he could not fix which was at the heart a profound failure of morality.
Such an attitude was almost absent in Pakistani society when the cases of Mehran Bank and Bankers equity appeared in the press, in respect of the accountants, finance directors.
The people would be astonished to know that the legislators' failure has been handled by the legislators and that they removed the "bug" efficiently by issuing a 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 judgement of the calibre of the Honourable Justice Owen in Pakistan.
Do the people have the right to know whether the legislators are now waiting for another major collapse for the revision of years old laws like the Contract Act, 1872, Partnership Act, 1932, Sale of Good Act etc?
The 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 politician's response to the electorate's increased materialism and the higher living standards that a more efficient economy could delivered.
The advice by economists to politicians on the need to cut protection and reduce government regulation was straight out of economics.
However, such doctrines had been unpopular even till mid the 1980's when we had a genius like Mahboobul Haq. Apart from that, the reforms have worked but an ancillary development has been the way in which money has invaded our lives, where it formerly played a less active role.
The obvious examples in Pakistan are of how the sport has been taken over by the media companies and professionalized, how the weekend has been commercialised 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 a bundle of credit cards, visa, master, etc. When we are stuck with the huge credit cards we pay for them through the balance transfer facility, ready cash, personal loan etc. We try to accomplish our goals through leasing and home finance also.
At the end, we receive calls from the banks threatening to send people to our homes. Such person normally shout at your door step and abuse you irrespective whether you are at home or not.
This is the litigious way adopted even by multinational banks and I was surprised to see one of my class mates, to whom the class normally does not talk to because of his excessive abusive language, shouting at one of my friends who had just become jobless.
As we know that taking money on interest is a sin. A weaker opponent in a war is always restless and in continual tension.
So are we, as Allah [SWT] is our opponent in the war, when we take money on interest. 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 the Opponent is the Almighty, the Creator [SWT] and the Last Prophet [SAW].
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 observes that the 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 demoralised children.
Through a series of polls, Myers noted that the proportion of students going to college believing it essential for becoming well off financially rose from 39% in the 1974 to 74% in the 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 lessons from United States!
CORPORATE CULTURE: The focal point is that our community values have changed with the passage of time owing to the developments in the corporate world.
The new age of materialism could help in explaining the fact 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, although the average wage may have increased, owing to the 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 the developed countries, for instance, share option scheme etc, hence, we may stop at this point in 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 options 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 values which Pakistan's corporate society has almost embraced!
This heightened materialism has also provided a context for the arguably declining ethical standards among company directors, accountants and auditors but none is daring enough to criticise 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 behaviour of analysts and some auditors in foregoing their ethics in return for record level fees and commission.
However, when the people started lamenting, the regulators, caught sleeping before the issue of Mehran Bank and Bankers Equity etc, came up with new policies, rules and regulations.
HISTORY AND THE FUTURE: With a bird's eye view of the experiences of the developed countries one can easily conclude that it was not merely the accountants and the accounting profession at fault who are a part of society.
The review of the key features of the 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 prevailing in many of the major collapses.
Basically, in the corrupt corporate system, fed by stock options, boardroom perks, and consulting, underwriting fees it seemed that enough was never enough. The seeds of the crises were sown in the technology stock boom in developed countries like Australia and United States, with the now bankrupt e-commerce companies in these countries hailed the way of their future.
At the same time, 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 the 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 behaviour in this new age of the materialistic economy?
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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