The Ethics of profit manipulation: A Dialectic of Control Analysis

Abstract

This paper examines the profit manipulation (or income smoothing) phenomenon whereby managers of business components of large, multi-divisional, meganational enterprises make self-beneficial choices of accounting methods as well as taking actions to influence economic events which impact on reported profits. The paper reviews recent studies looking at the problem from an "ethics perspective" and concludes that these efforts are only quasi-ethics-based and instead they investigate "socially-acceptable" behavior. The paper then outlines what an ethics perspective (as it is thought of within social philosophy) might accomplish and concludes that even a conventional ethics approach would fall short since, as with agency theory and managerialism, it adheres to an "atomistic" assumption about the individual in society. Further, ethics seems to lead to "emotivism" with no rational way of deciding between the competing ethical claims of justice, liberty and survival for making judgements about the morality of profit manipulation. The paper then proposes structuration theory, with its "dialectic of control" central concept, as a valuable way to shed new light on the profit manipulation issue. The reason for this is that it brings meaning, power, and morality dimensions into the analysis and thus locates morality within the wider structures of signification, domination and legitimation. From this perspective, profit manipulation is an integral part of the basic, inherent dialectic contradiction in meganational corporations between the forces at headquarters for the appropriation of profits from the business components strung around the globe and the local forces of the social production of those profits. Management accounting and control systems are then seen to play a major role in this process and, in fact, become the turf for struggle and resistance by local business component managers who use the authoritative allocative resources at their disposal, including profit manipulation activities, as major means of resistance to acquire restore control over their own and the component's destiny.