Thursday, 31 January 2013

Corporate Responsibility Reporting Assurance (2)

First, a little caveat: some of this could be dated. At the time when I pulled most of this material together, I did a kind of close reading of "independence." I checked out Big Four’s web sites and other marketing materials; I examined the assurance and general ethics standards promulgated by the International Federation of Accountants (“IFAC”) and by the Institute of Chartered Accountants in England and Wales (“ICAEW”), the popular AA1000 standards developed by the non-profit organisation AccountAbility, the G3 standards developed by the non-profit Global Reporting Initiative, and some of the assurance methodology recommended by audit text books. I also tried to get a sense of the self-regulatory mechanisms of the accountancy profession. I did this by looking at the web sites of various entities, and corresponding with very nice representatives from IFAC and the Financial Reporting Councial (“FRC”) - though not, if I remember rightly, from the Big Four? - to further clarify this regulation architecture. This close reading exposed how the concept of “independence” is constructed in close relation with two others, “professionalism” and “stakeholders.” So I also engaged closely with primary sources which articulate these concepts. This was all about four years back though; a lot may have changed since then. If something has changed, or I'm wrong about something, I'd love to hear from you.

Second, a quick digression. It's a funny world, corporate responsibility. And corporate responsibility reporting is a funnier world inside it. The funniest little world is corporate responsibility reporting assurance.

Or perhaps it's corporate responsibility reporting awards-judging. It's that time of year again: wants you to vote for your favourite CR report (AKA sustainability report or CSR report)! You have a chance of winning cash prizes if you vote! What's that? You don't have a favourite CR report? I'm sorry, I don't understand.

Perhaps those incentives are there because so few people will trouble themselves reading one, let alone two, let alone many CR reports. And even if you did read one, how are you supposed to say if you like it? We like the CR reports that are the most true. Which are they?

Yet a company's CR and CR reporting are really the only things about that company that matter to most sensible people.

There needs to be more journalistic mediation between places like CorporateRegister and members of the public. At the very least, there needs to be an accessible, one-stop-shop that summarises the assurance processes which have gone into each report.

CorporateRegister: you in particular, for your "credibility through assurance" category in particular, need to rejig your layout so that information about who the assuror was, if GRI criteria were used, etc. appears on the same page as you cast your vote. That allows for a quick comparison, and energetic voters can still do depth research if they need to (which one of our two tomorrows does Two Tomorrows really support? etc.).

Third, an introduction to one or two concepts from political sociology. (I didn't really need them to do this analysis; in fact, I think it would have been a lot stronger had I proceeded without formal methodology, and only that sense common to the humanities / liberal arts. But as it happens, I did use them, and at least the history of these concepts being applied is enriched (if only enriched with my bungling)).

It is difficult to invoke Habermas with a clear conscience in a blog post about anything other than Habermas. His core preoccupations undergo constant and nuanced revision throughout his ouevre. I've elected to take concepts from The Theory of Communicative Action, but their application here also points to successors in later and precursors in earlier works by Habermas. One point I'm going to make later on - that organisations seeking a “license to operate” from society are systemically hampered, in harvesting credibility, by the disparities between genuine sources of legitimacy in the socio-cultural sub-system and the representative institutions open to those organisations - recalls Legitimacy Crisis (1975). In characterising the accountancy profession’s structure of mixed orientation to success and to understanding as legal rationality, I'll be parallelling one core idea of Between Facts and Norms (1996), that law derives its legitimacy from networks of communicative power, and thereby expresses the tension between the claims of reason as concretely specified and their context-transcending idealizations (Habermas 1996:449). Furthermore, there are parts of The Theory of Communicative Action which I have only cursorily engaged with here. The concept of legal rationality constitutes abbreviated and speculative reconstruction of aspects of knowledge embodied in accountants’ everyday practices, whereas Habermas’s theory of reconstructive science provides a comprehensive framework within which the concept could be more rigorously linked to empirical fallibilistic enquiry.

Power and Laughlin (1999) also apply Habermas to the accounting profession, suggesting that “the nechnical neutrality of accounting practice is illusory and that accounting is a potentially colonizing force which threatens to ‘delinguistify’ the public realm” (132). To suggest a model of the entanglement of independence and professionalism, which can operate outside both concrete discursive connections and a sociology of the professions, I'm going to draw on categories developed by Habermas (1985), especially socially-integrated and systemically-integrated action settings. Habermas develops these to contest Max Weber’s “identification of instrumental reason with the rationalisation characteristic of modern life” (Power and Laughlin 1999:121).

Habermas’s analysis of modernity proposes two parallel processes of rationalisation. In the domain of instrumental-purposive action, action is oriented to success. Rationalisation here consists in the optimisation of success. Action can be optimally integrated by steering media, that is, non-linguistified communication media such as money and power. These steering media relieve the participants in complicated regimes of action of the burden of achieving linguistic consensus, while preserving and extending the integrity of their action networks. Each actor is steered according by the contours of incentives and disincentives which confront her, not motivated by her linguistically-attained intersubjective understanding. This is what is meant by “systemic integration,” contradistinguished from “social integration.” Since action in this domain is oriented to success, its systemic integration by steering media is considered non-pathological.

In the domain of communicative action (the “lifeworld”), however, action is oriented towards understanding. Rationalisation in this domain consists in the accumulation of intersubjective moral-practical understanding. This process is identical with the increasing generality of that understanding, which Habermas understands as the gradual uncoupling of the institutional, cultural and personality symbolic structures which together comprise the lifeworld. To make sense of this triptych, we need to consider that social integration consists in the reciprocity of socialisation (the internalisation of cultural values by the personality system) and social control (the internalisation of cultural values by institutions). As the lifeworld rationalises, and the three symbolic structures float apart from one-another, their interpenetration coming more and more to depend upon the interpretive accomplishments of actors, who reciprocally raise and redeem the validity claims inherent in their communicative practices. See Habermas (1985:146).

Socially-integrated action in this domain is non-pathological. But systemically-integrated action is associated with the distortion of communicative rationality. The tendency for this to occur is what is meant by “the internal colonisation of the lifeworld.” It is this tendency – and not rationalisation in either the dimension of purposive-instrumental action or of communicative action – which is the closest correlate to Weber’s understanding of rationalisation as the expansion of formal reason to ever more domains of social life.

Is that OK? Does that seem about right to you?

Now, in my view, the professional independence of auditors means that audit cannot be reduced to the internal colonisation of the lifeworld. In line with Habermas’s thesis that purposive-instrumental action remains anchored in communicative action (1985:196), I'm going to argue that the systems rationality embodied by auditor independence relies on the lifeworld resources of the accounting profession, including: a permanent regime of training and mentoring, a tradition of professional congeniality and discussion, a preoccupation with ethics, as well as a relatively homogeneous pool of cultural and ideological norms. Professional independence straddles both system and lifeworld. It contains a mixture of strategic and communicative action. Somewhere in the coming posts, I'll analyse this mixture, in its institutional specification in the accountancy profession, as that profession’s legal rationality.

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