Can Organisational Accountability and Governance Ever be Amoral? Looking Back to Look Forward
| Author | Alan Lovell |
| Published date | 01 September 2006 |
| Date | 01 September 2006 |
| DOI | http://doi.org/10.1177/095207670602100304 |
| Subject Matter | Articles |
Can Organisational Accountability and Governance
Ever be Amoral? Looking Back to Look Forward
Alan Lovell
University of Glamorgan
Abstract
This article considers Adam Smith’s notion of self-love and its role within
market contexts. Consideration then moves to how that notion has become
equated with selfishness and the implications of this development in a context
where economic activity is portrayed as apolitical and amoral. The argument
is developed that the issues raised by this debate have significant policy
implications for corporate governance legislation of both profit seeking and
non-profit seeking organisations. The arguments of this article are three-fold.
The first is that accountability and governance, in their various forms and
located as they have to be within multiple sets of relationships, have to be
rooted in ethics and values. The second is that the law and ethics are both
diminished when decoupled. The third is that Anglo/American notions of
corporate accountability and governance practices portray business
organisations as apart from society, rather than a part of society.
Introduction
This article does not dispute the need for corporate governance. What are
questioned are the developments that have been implemented, particularly
since the early 1990s and the philosophical underpinning of those
developments. It is argued that, with one exception, developments to-date have
reflected an amoral, apolitical and asocial view of corporate governance. This
tunnelled-vision is argued to be a fundamental limitation of recent
developments, with only symptoms being addressed rather than causes. As a
result the remedies so far recommended by the various committees that have
been established to study failures in corporate governance are unlikely to be
effective, failing as they do to address two systemic problems of organisational
governance, i.e. the refusal to acknowledge the centrality of ethics and values
and their relationship with supportive legislation to promote effective
governance; and the symbiotic nature of economic and societal developments.
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The reference in the title to ’looking back to look forward’, refers to the benefit
to be derived for future corporate governance developments from revisiting the
writings and arguments of Adam Smith. Smith’s position as a forefather of market
based economic and social systems underscores the importance of his views on
the constraints he envisaged on laissez-faire economics. Smith viewed economic
activities as a part of societies rather than apart from them and Table 1 offers
a contrast in the relationship between classical economics (the Smithian
position) as political economy and market fundamentalism.
Table 1: Economic perspectives
The unit of analysis in market fundamentalism (and neo-classical
economics, accounting and finance for that matter) is the individual, whether
that individual is a single individual or a group that is assumed to operate as if
it were a homogenous, uniform, decision-making entity. The latter,
simplifying assumption allows economic modeling to be possible, but in so
doing it denies the interdependency of utility functions. Each decision-maker
is portrayed as vying with other decision-makers, but each is unable to
influence (in theory), demand and supply functions.
With economics yet to be recognised as a distinct academic discipline,
Smith wrote his great treatise, ’The Wealth of Nations’ (Smith, 1776: 1970)
from the vantage point of Professor of Moral Philosophy at the University of
Glasgow. This is an important observation. Smith, the architect of market
based societies, was a moral philosopher, although his treatise, The Wealth of
Nations, would now be described as a treatise on economic systems. Yet,
economics as an academic discipline, is now too often discussed decoupled
from its philosophical underpinnings.
Smith’s other great treatise was The Theory of Moral Sentiments (Smith,
1759: 1976 and 2000), but this is less discussed, in economics and social
policy terms at least, than The Wealth of Nations. However, it is in The Theory
of Moral Sentiments that Smith explores the notion of self-love, a cornerstone
of his advocacy of market-based relationships, but this key concept is barely
discussed in The Wealth of Nations. With the first edition of The Theory of
Moral Sentiments published in 1759, seventeen years before the publication of
The Wealth of Nations, and the sixth edition published in the year of his death
in 1790, Smith had thirty-one years to refine his understanding of the concept
of self-love before his death. The Theory of Moral Sentiments thus becomes a
fundamental reference point in understanding Smith’s conceptualisation of
market-based societies.
Within Smith’s theorising, the economic and the social were inextricably
linked. Table 1 reflects this in the distinction made at the unit of analysis level.
39
For Smith, both the individual and societal perspectives were central to the
debate, the latter being represented in the core values required of the
individual. However, the more critical distinction concerns ’utility functions’.
These are representations of preferences. In the case of Smith, because the unit
of analysis embraced both individual and societal perspectives, utility
functions would have been multiple and interdependent. This perspective
makes the notion of such utility functions both more realistic, but also
impossih1e to model, due to the complexity of almost infinite
interdependencies. Simplifying assumptions are required. For the neo-
classical economist, the problem is resolved by first limiting the unit of
analysis to the individual, although it must be stressed that the focus upon the
individual is not principally because it facilitates analysis. The focus upon the
individual is a choice borne of philosophical position, i.e. society is only ever
an aggregation of individual preferences. The second assumption is that,
whilst acknowledging variations in diminishing marginal utility at the
individual, disaggregated level, it is assumed that individual preferences can
be adequately represented in terms of utility functions and then aggregated
into a composite utility function, to facilitate economic modelling.
In the discussion that follows, one major deviation is notable from Smith’s
position. Smith sought to extricate politics from the realm of the economic.
This article argues that politics must also be considered in the broader debate
concerning what Walzer (1983) refers to as ’spheres of justice’.
Some limitations of current conceptions of organisational accountability
and governance
Smith railed against what he saw as the power and negative influences of the
state, the church and most emphatically, mercantilists. His advocacy of market
based relationships was to preference individual wishes and choices as being
the driving forces of exchange relationships. Over time there has been a
tendency to portray Smith’s economics as the precursor to laissez-faire
economics, with the market always being the most efficient and effective
mechanism for allowing the equilibrium point in any set of exchange
relationships to be established. While Smith was most certainly an advocate of
market forces being left to determine equilibrium points (market clearing
prices), Smith was neither indifferent to the imperfections inherent within
many markets, nor prepared to absolve economic and organisational decision
makers from the moral implications and hence responsibilities of their actions
A further complication is the long-standing passivity of shareholders. The
corporate public forum of accountability is the annual general meeting
(AGM), but only a small fraction of shareholders usually express an
independent postal vote and far fewer attend AGMs. This raises a further and
crucial element to this debate. The weak power position of shareholders
relative to corporate executives is compounded by, or maybe partially
explains, their passivity. Yet, notwithstanding this state of affairs, shareholders
are the only social group legally entitled to receive information from
40
corporations and to vote on executive performance, although even this facility
relates to only a constrained range of issues.
The above should not be interpreted as a refutation of the need for legally
defined corporate governance processes, whether or not they relate to profit-
seeking or public service organisations. What becomes clear, however, is that
on their own they are inadequate to address failings in organisational
performance. Mechanisms, or binding agents, are required between executives
and the publics they serve, or have effects upon, that move beyond compliance
and ex post monitoring to embrace concerns for common understandings,
values and objectives. The need for this transition is better understood if
Smith’s arguments are revisited. The first of these is the importance of self-
control and the basic assumptions we hold of human nature.
Self-love without self-control
Werhane (2002) took exception to the fact that &dquo;almost since his death there
has developed a caricature of
The Wealth of Nations&dquo;
....
(Werhane, 2002,
p.325). Werhane continued by arguing that Smith did not promulgate a
Hobbesian notion of egoistic human motivation. While Smith referred to the
natural liberty of man to pursue his own interests, where &dquo;all systems ... of
restraint, therefore, being thus completely taken away&dquo; (Smith, 1976b, iv,
ix.51), a critical element to Smith’s analysis and prognosis is...
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