Reflections on Amernic and Craig: A Note

In reflecting upon Amernic and Craig's excellent article, ‘Reform of Accounting Education in the Post-Enron Era: Moving Accounting “Out of the Shadows”’ (2004), I am left with the feeling that the relationship between moral relativism and university accounting education is indeed a Kafkaesque rope. In their paper, Amernic and Craig respond directly to President Bush's 2002 post-Enron speech in which he asserted that ‘our schools of business must be principled teachers of right and wrong, and not surrender to moral confusion and relativism’ (p. 346). Amernic and Craig reject Bush's plea for the avoidance of relativism. In doing so, they rely on the arguments that Campbell makes in Truth and Historicity (1992).

In their article, Amernic and Craig appear to accept the impossibility of anything other than a binary divide between moral absolutism on one hand and relativism on the other. They draw on Campbell to support this argumentation; however, Campbell's work cannot be used in this way. While Amernic and Craig leave the arguments as to the inevitability of this binary divide at this juncture, their discussion on the possibilities for accounting education reform offers the prospect of an alternative to relativism that avoids moral absolutism. Even more fortunately, Campbell's book does provide the necessary theoretical arguments to rebut both absolutism and relativism.

Accordingly, what I do in this note is demonstrate how Amernic and Craig might have used Campbell (1992) more forcefully in their calls for critical reform of accounting education. In doing so I also question how sincere Bush was in calling for the elimination of the teaching of relativism. To achieve this I offer a discussion of Campbell's arguments on relativism and then discuss the significance of this with regard to accounting teaching and research generally. This allows me to reflect on the significant possibilities of Campbell's work for Amernic and Craig's arguments, and on Bush's call for the abandonment of relativism. Finally, I draw conclusions on how Amernic and Craig's argument could be deployed to combat relativism in accounting education without accepting the type of moral absolutism espoused by Bush.

Precise definitions are desirable here. The Collins dictionary defines relativism as ‘a theory holding that truth or moral or aesthetic value, etc., is not universal or absolute but may differ between individuals or cultures’ (Treffry et al., 1998, p. 1300). It is related to the concept of historicism—that ‘each period in history has its own beliefs and values inapplicable to any other, so that nothing can be understood independent of its historical context’ (p. 733).

Campbell writes:

For Campbell, relativism usually comes down to ‘doing your own thing’ (p. 4) and Bush seems to pick up on the undesirability of this interpretation when he demands that academia not surrender to it. But the Enron accounting scandals of 2001 suggest clearly that people were doing just that, with disastrous results (Jennings, 2003).

Campbell expresses concern about relativism in the academic community. ‘What I am adverting to touches the core of the academic enterprise as it is pursued in modern universities . . . [and] . . . too often our degree courses require students to synthesize what we have not been able to integrate’ (1992, p. 3). He goes on to argue that one of the most serious difficulties engendered by this particular thinking is that different world views are presented as rivals, such that diversity of thought cannot be accommodated without resorting to relativism.

Amernic and Craig indeed express concern that they might be expected to adopt Bush's own moral standards, yet Campbell refutes the notion that the avoidance of relativism necessitates the adoption of a single prescriptive set of ethical standards. In contradistinction, Campbell takes the position that an ethical search for truth and reflection on oneself and one's relationships with others is how we reconcile the changing nature of what may be appropriate in specific circumstances with higher levels of truth.

Campbell argues that relativism embodies two concepts. The first is a very linguistic view of the truth. The second is the view that human existence is ‘exhaustively described as a naturally and historically situated self-making’ process (1992, p. 403). Society in this view is our own creation, limited only by our physical environment. If society is entirely of our own making we have great flexibility in how to create it. Logic and reason can therefore be used to create a better society. Latour (1993) notes that, while the view that society is completely flexible has never been true, it was once, but no longer is, useful as a basis for research.

I now turn to the implications of these arguments for accounting research. Many accounting researchers use the quantitative techniques of science, not the qualitative research methods Campbell alludes to. Smith and Hodkinson (2005) defend relativism in universities as part of a rigorous defense of qualitative methods and the important and inescapable role of subjectivity in research. Such relativism is the opposite of the ‘absolute truth’ claims of positivistic research. Smith and Hodkinson are clear that moral judgment is still required, and that individuals exercise moral judgment, even in these conditions of relativism. However, they do not specify whose morality should dominate. Latour (1999) comments that scientific research is often considered accurate only when subjectivity, politics and passion have been eliminated. This raises the question of the effect positivistic accounting research has on ethical issues.

In Financial Accounting Theory, Scott (2003) encapsulates the foundations of positivistic accounting research and the educational approaches with which Amernic and Craig are concerned. Decision usefulness has dominated accounting thinking since 1968 and market efficiency is assumed.¹ In this world view, accounting information is reported to the public and share prices quickly adjust to include the new information within a few days at most. Efficient market theory asserts that significant profits will not be available to investors who identify incorrect market valuations. However, in Enron's case this did not hold true: short-sellers who studied financial statements in depth were able to spot the problems at Enron months before the crash (Bryce, 2002) but this information was made available only to the wealthiest investors. Articles that did appear in the popular press regarding the problems at Enron were generally ignored (Jennings, 2003).

The acceptance of decision usefulness and market efficiency theory as the basis of accounting has two important implications. First, accounting standard setters can focus on the needs of professional financial analysts because it is their activity which keeps markets efficient. Second, accountants do not need to be concerned with small, naive investors, as these investors are price-protected by the market. That is, the desire of large investors for profits creates the conditions which protect small investors. If naive investors want further support they can hire financial analysts to advise them on stock selection (Scott, 2003). Unfortunately, in the Enron case neither market efficiency nor financial analysts protected small investors.

Eliot Spitzer, former Governor and State Attorney General of New York, has built a career on demonstrating that some financial analysts have in fact misinformed their small clients. In the course of his investigations Spitzer found emails in which analysts expressed concern that a stock was being promoted because the company was a client, not because it was a good investment (Jennings, 2003). In summary, financial analysts had used their information to profit at the expense of naive investors. Their activities and those of sophisticated investors provided no protection whatsoever for small and naive investors.

How do research paradigms help create this situation? With shades of Latour (1993, 1999), positivistic accounting academics seek to eliminate subjectivity and judgment in their research by relying on market efficiency theory which they assert is entirely objective. Market efficiency is driven by the desire of investors for profits. It follows from such belief in objectivity that there are no ethical judgments to be made. Of particular relevance to Amernic and Craig's thesis, Jennings (2003) outlines how education at the MBA-level is dominated by such positivistic neoconservative thinking. In her opinion, such thinking by Enron's senior management critically contributed to the fraud. In our historicity, greed and avarice are no longer morally absolute ‘deadly sins’, but instead are virtues that promote market efficiency. This is an excellent example of ethical relativism in action.

Jennings (2003) documents how the collapse of Enron involved entire financial systems in North America and points to three principal factors. These are: a weak board, weak external controls (auditors, securities analysts, and business press), and a dysfunctional culture (conflicts of interest, arrogance, autocrats, sycophants, hubris, and university curriculums). Jennings believes that effective intervention by any one group from a long list of participants could have prevented the tragedy. Enron provides an excellent example of how market efficiency should have worked but failed to do so at almost all levels.

I can now address two key issues on relativism that were raised by Amernic and Craig. With regard to Bush's accusation that business schools are teaching relativism, the evidence supports his position. However, since the relativism taught is primarily neoconservative, his sincerity in the accusation can be questioned.

The second key issue that Amernic and Craig raise is the common conundrum that if we do not take a relativist position, whose ethics do we choose? In a pluralist society we might be forcing the majority's ethics on minorities. Relativists, such as Smith and Hodkinson (2005), who believe that moral judgments need to be maintained, face similar issues.

Campbell's work can be useful here. His position is that we need to stop looking at truth as a philosophical structure which tells us what to do in specific situations. Rather, he suggests that we look at truth as a way of living our lives. His final chapter is called ‘Truth in Action’. In it he argues ‘that everything in this world is transitory, that even the most reliable is only relatively so’. But things can still be true ‘in so far and as long as they are faithful’. ‘To be faithful in this way—to act with integrity and insight towards others and the reality in which we are situated—is a challenge confronting us in all our life-activities’ (1992, p. 438). Ethics must, it follows, be taught as an experience lived in our daily lives, both professional and private. Such approaches would facilitate teaching in pluralistic settings. Such approaches would also equip students with the tools they need if they work in multinational corporations.

González agrees with Campbell that we should avoid trying to make moral philosophy a science based on ‘argumentative rationality’ (2003, p. 30). She notes that ethics are not about technical knowledge but are a human matter, and asks if, in a pluralistic society, we need to resort to having low ethical standards in order to avoid having one group impose their values on others. Her answer is that, if we do, then ethical discourse is banished to the private realm. For many individuals, public life dominates private life and in the end we have individuals seeking only their own interests. The alternative she supports is to have open public dialogue but, interestingly, with rigid positions eliminated and all parties showing some flexibility. She recommends that we speak to others with different opinions, and perhaps rectify our own.

González (2003) therefore presents us with two options for dealing with the differences of beliefs which occur in pluralistic societies. We could adopt low ethical standards, and end up with the instrumental logic so clearly demonstrated in the various scandals. Alternatively, we could start talking in an open and civil manner about our differences. ‘As long as we speak we avoid violence and we are doing something in common, that is, we are constructing the common good’ (p. 34). Campbell's search for higher truths is not a solitary pursuit. Rather, it is most effective when we seek the truth through dialogue with others, especially those with differing views.

The strength of Amernic and Craig's recommendations is how effectively they can be integrated into this approach to teaching ethics. In discussing the ‘Poverty of Discourse’ they recommend that we engage more rigorously with theory and underlying concepts of accounting rather than simply requiring students to learn current GAAP. As I have argued, neoconservative thinking is embedded in the current accounting curriculum to the detriment of ethical instruction. Engaging in an open critique of this thinking is important if students are to address truly the ethical issues facing business. Amernic and Craig also recommend that students be taught the lessons of history. Students do need to understand efficient market theory and its related implications, but this needs to be combined with the history of what takes place in a sudden collapse, when market efficiency breaks down. There is a need for everyone to understand the limits of objectivity when dealing with financial data. Accounting must be taught as an art not a science.

In reviewing the history of accounting, Amernic and Craig have drawn heavily from the work of Raymond Chambers. Chambers was highly critical of current accounting practice for ignoring the rules of logic and mathematics (1999). He pointed out that numerous ways exist under current accounting standards to report the values of assets, debts and income. This destroys the ability to compare the statements of different organizations. He believed that truth in accounting could be found by the rigorous application of scientific rules. By combining objectivity with corroboration, the usefulness of statements would be improved (1986). He did recognize that even with his improved approach to financial reporting some estimates would still be required, but in a measurable way. Introducing students to his persuasive arguments would be a very effective way of helping them understand the fragile and disputed nature of truth in accounting. But students should also be introduced to the arguments of those such as Gaffikin (2000) who believe there are limits to the extent that accounting can be based on objective facts. To allow them simply to accept the orthodoxy of the day not only fails to prepare their minds (Clarke, 1996), it also allows relativism into our classrooms. Students who can grapple with truth in accounting can then start addressing ethical truth. We must take our students beyond professional rules of conduct. Our goal should be to teach them to treat the readers of financial statements with, as Campbell puts it, ‘integrity and insight’ (1992, p. 438).