This week, the booklet by Merrill Lynch (2000) attempted to
help us understand some of the more fundamental aspects of a financial report
in the hopes that this would make us a bit savvier when in came to being
investors. But what happens when you know how to understand a financial report,
but can’t rely on the numbers contained in it?
I may have previously mentioned that I work for a state
agency that regulates certified public accountants. And while I am no great fan
of numbers, myself, and know very little about financial reports and what
they’re supposed to indicate, I am fortunate enough to have coworkers who are
well versed in this area. For a different perspective on this week’s readings,
I decided to visit with one of those coworkers.
I turned to a coworker who is a CPA and currently works as
an attorney in my agency’s Enforcement Division. She began her career as an
auditor in the 1980s and I thought she might be able to offer some interesting insights
about the regulatory changes that have occurred in the financial industry and whether she
believed the “calls for reform” after Enron had made a difference. I also
wanted to hear her thoughts about the idea corporate social responsibility
(Franklin, 2008).
What I learned from my coworker is that she has seen several
calls for reform: in the 80s after the savings and loan crisis, in the late 90s
after the dot com bust and then again after Enron (personal communication,
March 7, 2012). She likened the calls for reform to “closing the barn door
after the horse has run down the road” (personal communication, March 7, 2012).
When I asked her if she thought the calls for reform had led
to more clarity in the financial communications presented by companies, her
feelings seemed mixed. She said that she felt clarity was important, but that
the only way the public ability to know if financial reports are reliable
depends on what the auditor sheds light on. If auditors can’t or won’t shed
light on discrepancies then the information is flawed (personal communication,
March 7, 2012).
On the other hand, she said that something you will see on
financial reports now is the warning that investments are high risk. This, she
feels, was a result of what happened at Enron (personal communication, March 7,
2012). As my coworker sees it, this is a good thing; neither too much trust nor
too much emotion should be connected with issues of finance (personal
communication, March 7, 2012).
When it comes to corporate social responsibility, my coworker’s
point of pretty straightforward. Corporate social responsibility is equal to
companies telling the truth (personal communication, March 7, 2012). It’s that
simple.
References
Merrill Lynch. (2000). How To Read A Financial
Report Merrill Lynch, Pierce, Fenner & Smith Incorporated
Franklin, D. (2008) Just Good Business:
A Special Report on Corporate Social Responsibility, The Economist, January 19, pp.1-14
Allen, C. (2002) Building Mountains in
a Flat Landscape: Investor Relations in the post-Enron Era, Corporate Communications: An International Journal,
Volume 7 (2), pp. 206-211 (full article)
Interesting post, Marissa. You say that for your coworker, CSR means that companies are telling the truth. In light of this week's readings, do you agree that it is 'that simple'?
ReplyDeleteYou also mention that there have been several calls for reform in terms of financial transparency. Do you think that the latest financial crisis has lead to another reform effort? What changes, if any, have we seen?
Great questions! I actually don't fully agree with my coworker. The actions of corporations have a real impact on society (I now have a greater appreciation for this after studying organizational ecology, which makes me think that they do have certain obligations to make sure they are acting responsibly. However, I did find it interesting that my coworker completely separated the two ideas - even after I discussed the articles with her. She was of the opinion that it's a company's job to make money - social responsibility considerations weren't on her radar.
ReplyDeleteMarissa -
ReplyDeleteTo follow up on your reply to Courtney, I wonder if your co-worker could agree that by participating in social responsibility an organization increases its goodwill which could lead to an increase in profits.
I agree with your co-worker in that I don't think organizations would commit to CSR efforts if they didn't see the benefit in it for them in the bottom line. It is their job to make a profit for the corporation, but reputation management must be considered as a way to potentially increase that profit or to potentially lessen a decrease in a catastrophic situation.
Marissa, thanks for the post. Personally, I think CSR is only used by organizations who expect to receive a considerable gain financially. Yes, many, many organizations can help a community or even the world, but I think it solely to make themselves look better. In response to your co-worker, CSR does not mean companies are hiding the truth. It could very well mean that they are concealing the truth - or doing housekeeping. Organizations, of course, want their brand to be seen in the best light possible. That is how they generate revenue and profit. Do you think it's an organization's job to make money? Thanks a lot for your post. I enjoyed it.
ReplyDeleteps I liked her last quote, "neither too much trust nor too much emotion should be connected with issues of finance."