Simpson, 2000, the annual report, an exercise in ignorance.pdf

Simpson, 2000, the annual report, an exercise in ignorance.pdf

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Unformatted text preview: Feature article The annual report: an exercise in ignorance? Llnda Simpson Abstract The connection between the informative function of company annual reports and the maintenance of ignorance in society would traditionally be regarded as remote. In this paper it is argued, however, that the use of imagery in company annual reports is linked to maintaining levels of ignorance in society which are essential for companies to maintain their . existence, and fOr society to maintain stability and order. Further, the connection between societal ignorance and the objectives of accounting education are briefly discussed. The paper concludes that in an environ- ment of increasing regulatory requirements for disclosure and trans- parency, companies maybe seeking to maintain ignorance, distract the reader and blur some facts through the use of imagery, in order that com- petition, and the survival of the company is maintained. ' Introduction A portrait is not a likeness. The moment an emotion or fact is transfor- med into «a photograph, it is no longer a fact, but an opinion...All photographs are accurate. None of them is the truth (Avedon, cited in Bolton, 1989, p.264). The potential of photography to make some valid social comment was , discussed by Bolton (1989), where, although he stated that photography is now a recognised discipline providing ‘practitioners and enthusiasts alike with inspiration and a sense of identity’ (Bolton, 1989, p. ix), he still had some reservations as to the assumptions made regarding the social function of photography. By using the above statement by the artist Richard Avedon, Bolton (1989) illustrated that there was an inevi- table conflict central to any representation; ‘the clash between objective and subjective—between description and self-expression that haunts much documentary’ (Bolton, 1989, p.264). Avedon had exhibited photographs purporting to represent ‘In the American West’. The exhi— bition was an attempt to portray the social fabric of that area through photographic techniques that emphasise the ugliness and horror of pov- erty. The work, although celebrated, became, in Bolton’s opinion, a ‘visual horror’ which ‘goes hand in hand with voyeurism and fasci- Address for correspondence: Linda Simpson, Department of Accountancy and Business Law, Massey University, Private Bag 11-222, Palmerston North, New Zealand. Phone: 64 6350 5799 Ext. 2171; Fax: 64 6 350 5617; email: [email protected] © Blackwell Publishers Ltd. 2000, 108 Cowley Road, Oxford OX4 11F, UK and 350 Main Street, Malden, MA 02148, USA. 232 i 7 Simpson nation, and so seldom leads to understanding.’ (p.264) Thus, although Avedon avowed that it was not ‘the truth’, and just an attempt at portraiture where he, as the photographer, controls the image, Bolton considered that this did not alleviate social responsibility. For, by mak- ing an attempt at social comment, whether it be ‘truthful’ or not, Avedon was constructing and shaping attitudes towards the subject, in this case, poverty in the American West. In addition, Bolton suggested that this attempt at self-expression by a privileged photographer exploited, rather than highlighted, the plight of another less-privileged class. This was done by selling these ‘artworks’, as another choice in a ‘parade of upper-class commodities’ (p.270), and ‘turning the subjects of the work into entertainment and consumerist frisson’ (p.270). Bolton showed how Avedon (who was also a public relations consultant) put Western poverty and alienation ‘to work for the economic system’ (p.270), which inevitably contributed to (rather than changed) the same economic system that caused the poverty and alienation being por- trayed. When one considers company annual reports, and the wide use of photography now seen to be contained in them, Bolton’s comments raise a pertinent question. What is the function of photography (and other imagery) in an annual report? Avedon’s (1989) comments suggest that there may be two alternative, or perhaps complementary, views that may be used to discuss the func- tion of imagery in annual reports: they may be either fact, or opinion. While the question of whether or not a factual representation is possible in a photograph can be seen to be the subject of much debate, it will not be discussed here. This paper focuses on the ability of imagery in company annual reports not to faithfully represent or inform, but to present Company opinions, to maintain ignorance by blurring the facts, to persuade, or even distract the reader from other information con- tained in the annual report. This paper will firstly look at John Ruskin’s nineteenth century views on the place of ignorance in a market, then how ignorance has come to be defined and relied upon in society to maintain stability and order. It will then highlight some issues regarding the relationship between education and ignorance, and then look at some of the literature on the connection between imagery and ignorance in annual reports. The paper concludes with the suggestion that perhaps the function of imagery in annual reports is to maintain ignorance that enhances mar— ket competition, and also the chances of survival for companies in a market environment that increasingly requires transparency and disclos- ure. © Blackwell Publishers Ltd. 2000 Accounting Forum Vol 24 No 3 September 2000 233 Ignorance and the market So far, therefore, as the science of eXChange relates to the advantage of one of the exchanging persons only, it is founded on the ignorance or incapacity of the opposite person... It is therefore a science founded on nescience... , . (Ruskin, 1906, p.133). In 1862, in an essay titled ‘The Roots of Honour’, the noted writer John Ruskin attempted to clarify the true function of the merchant with respect to other people. Ruskin first identified five great intellectual pro- fessions: the soldier, the pastor, the physician, the lawyer and the mer- chant (Ruskin, 1906, p.31). These professions were all credited with relating to the necessities of life in every civilised nation, and members of each profession were expected to die for this nation "on due occasion’. However, Ruskin could find examples of these ‘due occasions’ for only the first four professions, and was left to ask, ‘The Merchant—what is his “due occasion” of death?’ He found that this question was of fundamental importance for the merchant as, ‘for truly, the man that does not know when to die, does not know how to live’ (Ruskin, 1906, p.32). The moral issues emerging from the economic theories and policies of his (Victorian) times concerned Ruskin greatly, leading to the expression of his great creed: ‘There is no Wealth but Life’ (Ruskin, 1906, p.156). Ruskin eventually concluded that life was reliant upon merchants ‘pro- viding for the nation’. He noted that in order to fulfil this task, it was unfortunate that merchants, in order to preserve their profits, were obliged to maintain their authority over their workers (described as the poor and disadvantaged), by withholding education (Ruskin, 1906, pp. 15 9—1 60). Ruskin felt that profits obtained from the profession of ‘pro— viding for the nation’ should be sacrificed in order to construct a nurtur- ing, patriarchal, educational relationship between the worker and his merchant employer (pp. 35—36, p. 159—160n). Not only did the mer- chant have responsibility towards his employees, but also his customers and competitors. For, taking up this point further in an adjoining essay, ‘Ad Valorem’, Ruskin held that the relationship of the merchant with others was based upon taking advantage of ‘the ignorance, power- lessness, or heedlessness of the person dealt with’ (Ruskin, 1906, p.133). He expressed the view that the science of exchange upon which the merchant and the market relies is the only science which pro- motes ignorance: Tbis science, alone of sciences, must, by all available means, promul- gate and prolong its opposite nescience; otherwise the science itself is impossible (Ruskin, 1906, p.133). © Blackwell Publishers Ltd. 2000 234 Simpson Ignorance is commonly viewed as an undesirable element, something that contributes to social instability and lack of progress. Successful commercial enterprise is traditionally viewed as desirable, and further- more, essential for social stability and progress. Yet, Ruskin’s view is that ignorance is essential for successful commercial enterprise. This conflict between ignorance, and economic and social progress seems not to be widely acknowledged. Indeed, accounting, when reporting on merchants’ activities (these days often in the form of companies), is seen as contributing towards commercial success by providing information from which to make commercial decisions. This is done through a var- iety of methods, such as the annual report. The annual report is widely acknowledged as a method by which companies communicate infor- mation to their various publics, to be used for all sorts of purposes. The more factual and informative the contents, the higher likelihood that the market can make informed decisions regarding the activities of companies, which will be reflected in the share price, which is an indi— cator of commercial success. Thus, the, connection between company annual reports, and maintenance of ignorance would traditionally be regarded as remote. However, in this paper, it is argued that the use of imagery in company annual reports maintains the appropriate levels of ignorance which are, as Ruskin has long ago pointed out, essential for companies to maintain their existence. Some social and economic functions of ignorance Ignorance has been defined as ‘simply referring to “not knowing”, that is, the absence of empirically valid knowledge’, it ‘may refer to past, present or future conditions or events, as long as valid knowledge is conceivably available’, but, ‘it is to be kept distinct from “error” whether of fact or of logic, and from the act of ignoring what is known’ (Moore 8C Tumin, 1949, p.788). Far from treating ignorance as unde- sirable, these authors regard genuine ignorance as only a ‘disturbing element’ which ‘performs specifiable functions in social structure and action’, and as a ‘both inescapable and an intrinsic element in social organisation generally’ (p.788). Perfect knowledge is regarded as an impossible basis for social action and relations. In nee-classical economics, however, there is a presumption of perfect knowledge and foresight on the part of economic agents (O’Driscoll 8: Rizzo, 1985, p.3). These authors also state that ‘ignorance is not some- thing that can be avoided or overcome’, ‘that unexpected change is inevitable’, even with the existence of analytical devices that supposedly eliminate this element (p.4). They also state that modelling uncertainty © Blackwell Publishers Ltd. 2000 Accounting Forum Vol 24 No 3 Séptember 2000 235 merely relegates ignorance of the future to a state of possible knowl- edge: it is just a matter of obtaining the correct model to expose a future that is ‘out there’ independent of human choice. They have difficulty with this concept because it ‘abolishes the autonomy of the human mind’ (p.4), which is about the same conclusion Moore and Tumin ' (1949) reached almost 40 years before. O’Driscoll and Rizzo (1985) not only reinforce the work of Moore 86 Tumin (1949), but also show that it can be applied to economic markets as Ruskin thought: ‘time and ignorance make economic processes necessary’ (p.5), which means literally that the market exists because of ignorance. ' In a seminal work which looked at the reasons why firms exist, Coase (1937, p.19) originally stated two functions that individuals bring to an economic system that ‘works itself’: that of exercising foresight, and that of choosing between alternatives. O’Driscoll and Rizzo (1985) highlight and discuss the significance of ignorance for these two func- tions in relation to the growing field of subjectivism in economics: ‘it is not merely that we do not know which possibility out of a given set will occur, but the set itself is unbounded’ (p.4). No matter how well informed an individual is, knowledge of the future is impossible. Exercising foresight, is, at best, an educated guess. Unpre- dictability, uncertainty and risk are all factors that can be studied under the heading of ignorance of future market processes. Under conditions of ignorance, no individual can predict the consequences of a chosen course of action, and thus there is always an element of ‘surprise’ as to the outcome (O’Driscoll 8C Rizzo, 1985, p.7). Further, market com— petition is dependant upon the assumption of ‘an impersonal limitation on advantage of all participants’ as well as equality of opportunity to obtain some advantage through, for example, the possession of unique and specialised information, or ‘knowledge and technical training requi- site for class mobility’ (Moore '86 Tumin, 1949, p.792). However Moore 86 Tumin (1949) show that there is an additional fundamental role that ignorance plays in maintaining a fair, competitive market sys- tem, in that competitors must be unaware of each others’ chosen poli- cies and decisions, otherwise there becomes a system of overwhelming power combinations that makes ‘the outcome so certain that no further action would be required’ (p.792). By further action it is assumed these authors mean that the market becomes no longer competitive. ‘Sur- prises’ as to the outcome of market processes no longer happen. This means no further competitors enter the market, resulting in a closed market, or even a monopoly situation. Monopolies typically result in no further 'work on improving the efficient use of resources and reduction of wastage. The market is then deemed inefficient, and does not result in the optimal allocation of resources. Yet, this contrasts with the widely acknowledged fact that disclosure of policy decisions, future © Blackwell Publishers Ltd. 2000 236 ‘ Simpson intentions, and even disclosure of company values is an important part of the content of either the chairman’s report or directors report in an annual report. Further, to be efficient it is commonly acknowledged that ‘the economy must function as it would if individuals were revealing their private infOrmation willingly, because they had no disin- centive to do so’; and it must function in a way ‘that does not encourage the individual to conceal or misrepresent it’ (Hammond, 1995, p.103). An efficient market results in maximisation of profits. Thus, there must be some conflict in the market between the maintenance of ignorance of information about the firm’s future, which ensures fair competition, and the maintenance of optimal profits obtained through the access to all information. Put simply, if firms disclose too much and competitors predict their future actions accurately, the market fails; if they disclose too little (or falsely), the market becomes inefficient, and fails also. The other function highlighted by Coase (1937) that individuals bring to any market system is choosing between alternatives. O’Driscoll and Rizzo (1985) show how ignorance of the range of possibilities in any decision ‘set’ results in two divergent situations at opposite ends of a ‘behavioural continuum’: either rule following behaviour so that a safe, stable, and predictable economic environment can be provided, (which results in the development of institutions); or in entrepreneurial ‘dis- covery’ of possibilities that have been overlooked by other market parti- cipants (which results in further instability and unpredictability) (p.6). From a sociological point of view, rule following behaviour is important. Reinforcement of strict social rules suchas traditional values depends upon ignorance of alternatives by acting to reduce curiosity and knowledge about the alternative social action that is considered outside ‘normal’ activity (Moore 8: Tumin, 1949, p.791). Thus ignor— ance acts as a significant factor in determining social values, and social needs. Social needs and values also dictate what the individual requires from the market, whether it be to ‘keep up with trends’, or simply to appear to conform. Moore 86 Tumin (1949) in discussing the preser- vation of stereotypes generally, commented that ‘acquisition of the habit of appearing to conform to expected stereotypes’ (p.792) contributes to social order. Ignorance of individual habits and thoughts is an intrin- sic part of this. Institutions are the ‘social crystallisation’ of rule follow- ing behaviour, or, the overall pattern of many individuals following a similar rule. (O’Driscoll 8c Rizzo, 1985, p.6). Firms have a vested inter- est in ensuring their employees obey superior commands, and work toward company goals, while using skills and technical knowledge to maintain the firm’s entrepreneurial place in the market. This was explained by Moore 85 Tumin (1949) as a social function of ignorance: ‘where bureaucratic organisation exists, the continuity of the organis- ation depends on the effective balance between ignorance required for © Blackwell Publishers Ltd. 2000 Accounting Forum Vol 24 No '3 September 2000 237 orderly procedure, and the knowledge required by the participants’ (Moore 8c Tumin, 1949, pp. 792—793). This balance is highlighted else- wherein their article, where Moore 86 Tumin (1949) discussed the role ignorance played in preserving a privileged (whether social or economic) position. They pointed out that the continuity of any social structure depended on differential access to knowledge, or secrecy. Particular examples they used is where the consumer is prevented from gaining access to ‘trade secrets’, and protection by a ‘specialist’ of tech- nical standards. A sharp distinction is thus maintained between the knowledge of the ‘specialist’ and that of the ‘aspirant’. Professions, such as accounting, use this distinction, which could also be termed a ‘mon- opoly on professional knowledge’ (Godfrey, Hodgson 8c Holmes, 1994, p.393) to maintain their survival. It has already been acknowledged that a fair market competition is dependant upon ‘an impersonal limi- tation on advantage of all participants’ as well as equality of opport- unity to obtain some advantage (Moore 86 Tumin, 1949, p.792), but it is clear that there is, again, some conflict between the apparent supply of information, and maintenance of ignorance to’ensure the continuity of a system, whether social or economic. Rules work to ensure that individuals are provided with a stable, ordered system of activity options, but possibly also ensure that they are ignorant of a ‘set’ of possible alternative activity options. At the other end of the ‘behavioural continuum’ that O’Driscoll and Rizzo (1985, p.6) identified as the result of the unboundedness of the choice set, is the role of entrepreneurial discovery. Entrepreneurs go beyond the limits of their ignorance (i.e. by taking risks), to discover or create possibilities that have been overlooked by the market. This enables further knowledge to be gained by the market, and the firms within it. There are increasing suggestions that the theory of the firm is based upon knowledge, and intangible assets such as organisational learning, brand equity, and reputation, rather than resources based on transaction costs (e.g. Spender (1996), Leibeskind ( 1996), Tsoukas (1996)). Yet these'suggestions do not confront the implications of an extraordinary increase in the availability of information (Goslin, 1985, p.10). Goslin (1985) noted that communication of this wealth of con- stantly changing, often conflicting, information is designed to inform or persuade, or both. Reliance on experts leads to interdependence for advice on how to categorise and assimilate this information, and, as already discussed, experts have a vested interest in ensuring that the ignorance of ‘the aspirant" is maintained in order that a privileg...
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