AAHANZBS 2011
Change and Control:
Perspectives from
Business and Labour
History
Paper 34-2011
PROCEEDINGS AND ABSTRACTS OF THE THIRD
ANNUAL CONFERENCE OF THE ACADEMIC
ASSOCIATION OF HISTORIANS IN AUSTRALIAN AND
NEW ZEALAND BUSINESS SCHOOLS
Conference Hosted by the Business and Labour History
Group, NZWALMI, 8-9 December 2011
2011 © - Copyright of the Author(s)
The opinions and views expressed in this paper are those of the author(s) and not
necessarily those of AUT of the General Editor or Review Panel of Enterprise and
Innovation, the B&LHG or the AAHANZBS
INTRODUCTION
“CHANGE AND CONTROL: PERSPECTIVES FROM BUSINESS AND LABOUR HISTORY”
It is my great pleasure to present the proceedings of the third annual AAHANZBS conference,
hosted by the Business and Labour History Group of the New Zealand Work and Labour
Market Institute. This collection of papers reflects the vibrant interest into historical
research within business schools which the AAHANZBS seeks to promote. The papers herein
span research into the development of the professions, accountancy, leadership and
motivation theories, management, business economics and international business, and
present an overview of the historical tensions between the needs for economic and social
controls, countered by the pressures for change. Historical research here provides a broad
contextualisation with which to understand the contemporary world, as Rob Allen notes in
the opening paper examining the ongoing tension between change and control in the US
political and business nexus reflected in today’s occupy movement. Likewise the need to
control the process of change is highlighted in papers emphasising innovation and
technology by Pancote et al, Cox and Mowatt and Mowatt. These themes are also reflected
in the way in which different professions develop within their local context, as Sinclair et al,
Rasmussen and Foster and Xu establish. The ability of historical approaches to give insights
to long-run socio-economic change is further developed by Puckey in an exploration of
Maori trading culture, and institutional reform, change and control are explored by
Molineaux and Colley. This research opens up the ability of historical inquiry to trace the
development of ideas, and this theme was explored in papers by Allen, Lake, Littrell and
Mees. Finally historical research would not be possible without the support and aid of
business archivists, and Nielsen provides an introduction to one of New Zealand’s leading
archives.
www.nzwalmi.aut.ac.nz/news-and-media/aahanzbs-conference-december-2011
Best wishes,
Associate Professor Simon Mowatt, conference chair, coordinator of the B&LHG, AUT
Business School and President of the AAHANZBS
CONTENTS
Paper title and author
Page
The People vs Wall Street: From the Greenbackers to the 99%
Rob Allen, AUT University ………..…………………………………………………………………………………….2
From process controlling to controlling processes: Information technology and business
management evolution in a case study
Admir Pancote, Luiz Carlos Duclós, and Anderson Luiz Ravanello,
Pontificia Universidade Catolica do Parana, Brazil ………………………………………………………….10
Here is one I prepared earlier! Considering Queensland asset sales in historical contex.
Linda Colley, University of Queensland ………………………………………………………………………...23
Change and Control: 300 years in the making of magazines.
Howard Cox, University of Worcester, UK …………………………………………………………………….24
The relevance of scientific management in the 21st century labour process
Samuel Lake, University of Waikato ………………………………………………………………………………25
Motivation by Maslow: What Maslow really said
Romie F. Littrell, AUT University ……………….…………………………………………………………………..32
Transformational leadership as theology
Bernard Mees, RMIT University ……………………………………………………………………………………..49
Ignore history and context at your peril? Comparing organisational reforms across
jurisdictions
Julienne Molineaux, AUT University ………….…………………………………………………………………..56
How AS Paterson controlled technological change
Simon Mowatt, AUT University ……………………………………………………………………………………..57
Strategic change and control - how Vogue went multinational
Simon Mowatt, AUT University and Howard Cox, University of Worcester, UK ……………..58
Trading cultures
Adrienne Puckey, University of Auckland ….…………………………………………………………………..71
Introduction to the Fletcher Challenge archive
Dorothy Neilson, Fletcher Challenge Archives ……………………………………………………………….79
Practical men and registration: Regulation of plumbing and building apprentices in New
Zealand
Erling Rasmussen, AUT University and Barry Foster, Massey University …………………………80
The French legacy on professional development in accounting in Vietnam
Rowena Sinclair, Lisa Nguyen and Keith Hooper, AUT University …………………………………..81
The impact of social thought on the morality of professional accountants in China
Gina Xu, AUT University ………..……………………………………………………………………………………….94
1
The people vs wall street: from the greenbackers to the 99%
Rob Allen
AUT University
Introduction
The recent ‘Occupy Wall Street’ movement (and its global alliance) has focussed
considerable attention on the role of the financiers of Wall Street (and its global alliance) in
the present economic turbulence. While bringing together an eclectic group of activists with
a wide range of grievances, it has centred its resentment on the banks and the financial
sector. They were, it is argued, very quickly bailed out by the taxpayers in the crash of 2008,
without anything being done to change disparities of wealth among private citizens and
without anyone being punished. The Occupy movement claims to represent the 99% of
Americans against a small elite of concentrated wealth-owners who largely control the
government and are able to influence laws and regulations in their favour, and who neither
political party seems able to rein in. The movement has some clear parallels with an earlier
populist movement in the US in the late 19th century which focussed around ‘monopolists’,
and which railed against ‘robber barons’, labour conditions, the manipulation of currency,
and the inadequacies of the two-party system in constraining them.
In the 1960s, the renowned US historian Richard Hofstadter criticised these 19 th century
populists for their ‘paranoid style of politics’ and he would undoubtedly have taken a similar
view of the Occupy movement. This paper considers Hofstadter’s idea of a ‘paranoid style’,
and whether it illuminates these outbreaks of anti-monopolist/anti-capitalist populism over
the last century or so. In particular, it considers whether more recent discussions of
‘conspiracy theory’ can help to understand the recurrent search by Americans for
alternatives to the mainstream Democrat/Republican party structure when it comes to
managing the US economy, particularly when it is in crisis. It concludes that the progressive
populism that underpinned both the populist ‘Greenbacker’ and ‘Free Silver’ movements of
the 1890s and the Occupy Wall Street Movement of 2011 are better seen through an
understanding of the tensions in the democratic structures of the US, rather than the
paranoid or conspiratorial mindsets of populist protestors.
Wall Street
There is a long record of Wall Street demonstrations and riots that dates back to after the
Revolutionary War. In many ways, Wall Street and the New York Stock Exchange are the
nation's town square, second only to the National Mall in Washington, and Wall Street
protests are something of an American institution. Although their effect on public policy, big
financial interests and public perception varies, the movements have generally shared a
central theme: greed run amok, inequality of income and a government beholden to
financial interests.
The 19th century
In the late 19th century, the Greenback Party - its name referring to paper money - promoted
an anti-monopoly ideology. The party opposed the shift from paper money back to a bullion
coin-based monetary system because it believed that privately-owned banks and
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corporations would then reacquire the power to define the value of products and labour. In
the late 1870s, the Party controlled local government in a number of industrial and mining
communities, and had 21 members elected to Congress. It broadened its platform to include
support for an income tax, an eight hour day, and votes for women. It was only to last for a
decade, but many of its members moved on to become activists within the populist People’s
Party of the 1890s.
Of particular interest to these later populists was the issue of ‘free silver’, that is an
inflationary monetary policy using the ‘free coinage of silver’ as opposed to the Gold
Standard that was seen as benefitting the wealthy alone. It came to a head in 1896, most
memorably in the ‘Cross of Gold’ speech made by the populists’ presidential candidate,
William Jennings Bryan. In this speech, Bryan talked of ‘the struggle between the idle holders
of idle capital and the struggling masses who produce the wealth and pay the taxes’. ‘You
shall not press down upon the brow of labour this crown of thorns’, he said, ‘you shall not
crucify mankind upon a cross of gold’. Free Silver became associated with populism, unions
and the fight of ordinary American citizens against the bankers, railroad monopolists and the
‘robber barons’ of the laissez-faire capitalist era. Free Silver became the People’s Money.
The 20th century
The populist movement was over by the beginning of the 20 th century, and things quietened
down until 1920 when an anarchist bomb was exploded outside the offices of J. P. Morgan,
killing 38 people, with hundreds injured. In 1970, in the shadow of Vietnam and the killing of
students at Kent State, the Hard Hat Riot took place on Wall Street with anti-war rioters
confronted by 200 construction workers and Wall Street brokers and traders acting to break
up the fights. A few years later, Wall Street was the site of more protests, this time over
shareholder rights, and then, in 1990, protesters were arrested when groups such as Earth
Day Wall Street called for corporate environmental responsibility and marched on the New
York Stock Exchange. A pamphlet from that protest summarised the situation: ‘Wall Street is
the symbolic center for an economy based on limitless greed and speculation.’
The 21st century
Moving into the 21st century, this year’s Occupy Wall Street movement, now nearly three
months old, has brought together a wide range of activists. Aside from those specifically
angry at Wall Street, there are those with more general concerns about finance and the
economy, about the loss of jobs, the political manoeuvrings of Washington, the wars in Iraq
and Afghanistan, and a myriad of other grievances. Some are self-proclaimed anarchists or
communists, some are associated with niche activist groups, some are from the far left, and
others are fringe democrats. In this diverse sort of membership, they share much with the
late 19th century anti-monopolists and populists. The element the two movements have in
common is that they see the need for the political and economic system to be dramatically
changed and that the traditional methods of change – voting, political participation,
donations – are either broken or co-opted by narrow interests. Some have hoped for a
critical mass of engaged citizens, some for revolution, but all have had the hope that
ordinary citizens – the people - can find a way to disrupt existing power structures in order
to have a meaningful influence on the well-financed, well-guarded status quo.
3
Populism
History, particularly in the 20th century, has given populists a generally rough ride. Despite
their wide range of interests and activities, they were, until relatively recently, generally
written off as reactive and reactionary. Michael Roe, writing in the 1960s of England in the
1870s, summarised populism as follows:
‘Populism is social protest that asserts the welfare and capacity of the people at large
against those of society’s ruling elites. It sees the people at large as the repository of society’s
virtue….Conversely, elites establish and maintain their power by conspiratorial cunning’.
Less benignly, and carrying on the British historical tradition of writing off those who didn’t
evidently contribute to the onward march of socialism and/or the emergence of the British
Labour Party, he added that the key characteristics of a populist were that they were: ill at
ease in this world, tending to become desperate, even hysterical; veered towards doom and
destruction; fated to fail; emotional and religious rather than intellectual and scientific;
generally averse to learning and logic; and also hostile to liberal beliefs. Roe also noted ‘a
lust for discovering conspiracy and corruption as the key characteristic of populism’ with the
believer in conspiracy and corruption ‘open to fear, despair, hate – in short, the populist
syndrome’. Populists were, by definition, marginal, counterproductive and potentially
dangerous.
Similarly, 19th century US populism had an equally difficult time at the hands of mid-20th
century US historians, acquiring in the 1960s, through Richard Hofstadter’s work, the burden
of being deemed to be of a ‘paranoid style’ of politics. This style, he claimed, ‘evokes the
sense of heated exaggeration, suspiciousness, and conspiratorial fantasy’ with its ‘angry’ and
‘agitational’ mind; the pervasive framework of ‘suspicious discontent’; and the impossible
demands and millennial dreams of victory.
Why, Robert Collins asks, did Hofstadter and his colleagues take such a ‘uniformly and
exaggeratedly bleak view of the Populists’ reducing them to ‘a horde of xenophobic, antiSemitic, delusional cranks’? As Hogeland notes, it is relatively easy to view the populism of
the late 19th century US in quite the opposite way, not as the reactionary force it was made
out to be, but as a progressive movement that sought radical social change, favoured labour
over capital, with a goal of economic and political equality. The populists wanted the
abolition of national banks, a progressive income tax, the eight hour workday and the
nationalisation of railroads and telegraphs. They sought to use state power to regulate
commerce and restrain the abuses they saw as inherent in corporate wealth.
Collins argues that Hofstadter ‘sketched too starkly’ the dark side of the movement, rather
than these progressive inclinations. He depended on a concept of status anxiety that led to
the view that populists were fundamentally ‘psychopathological and irrational’. This
exaggerated the outsider, reactionary and conspiratorial themes underpinning discussion of
the phenomenon.
But, as Kazin has shown more recently, populist ideas – in the US at least - can appear at one
moment to be conservative (in the anti-communism of the 1950s and early 1960s), liberal at
another time (in the New Deal of the 1930s) and thoroughly independent at other times (in
4
the populist campaigns of the late nineteenth century or the Occupying Wall Street
movement). As Taggart notes:
‘Populism serves many masters and mistresses…it has been a force for change, a force
against change, a creature of progressive politics of the left….and a companion of the
extreme right. Populists have been portrayed as dupes, democrats and demons’.
Conspiracy and Populism
Historians of the early 21st century have sought to present a more helpful (though not
necessarily sympathetic) picture. They have returned to the discussion of 19 th century US
populism, not just on its own terms, but in the context of a resurgence (or perhaps
insurgence) of debates around so-called ‘conspiracy theory’. Rogin has contrasted what he
calls the ‘symbolist’ approach to populism, as exemplified by Hofstadter’s notion of ‘political
paranoia’, with a newer ‘realist’ approach to the phenomenon, where the labelling and
creation of fear about conspiratorial demons are deemed to be a purposive, instrumental
tool of power.
Fenster, has argued, in his ambitious book Conspiracy Theories that conspiracy theorising is
not necessarily marginal or pathological, and can suggest often justifiable discontent with
contemporary institutional democracy and governance. A populist movement may, in his
view, correctly (or at least not incorrectly) describe a political order in which power is
concentrated and unaccountable.
Similarly, while overarching conspiracy theories may be wrong or overly simplistic, they may
sometimes be on to something. Specifically, they may well address real structural inequities,
albeit ideologically, and they may well constitute a response, albeit in a simplistic and
unpragmatic form, to an unjust political order, a barren or dysfunctional civil society, and/or
an exploitative economic system. For Pollack, Hofstadter obscured the truly humane
character of the 19th century movement and denied populism ‘its traditional place as a
democratic social force.’ In reality, populism had been a farsighted, forward-looking
response to the ravages of industrial capitalist society.
While conspiracy thinking did saturate much of the 19th populist press, most of it was in fact
neither irrational nor hateful. Nugent concluded that populists – and much the same would
apply to ‘Occupiers’ - were more likely to be ‘bound together not by common neuroses but
by common indebtedness, common price squeezes, common democratic and humanitarian
ideals, and common wrath at the infringement of them’.
Under various banners, the 19th century populists attacked establishment forces and sought
to extend and improve the franchise while limiting and decentralising government. Avoiding
revolution or violence, they were reformers who believed that labour and capital could work
together. The ‘people’ were producers; the unproductive were the enemy; the working class
was replaced by the working classes. They wanted a framework of a more direct democracy,
not hidebound by caucus or machine. Established parties served only, in their view, to
diminish the independence of both their members and their representatives. Alternatives
were needed to act as the conscience of the mainstream parties. What was needed was for
5
the people, and that included women, to have a voice in what happened to them and their
country.
This bears much resemblance to the Occupy movement with its left-oriented ‘ultraegalitarian and scrupulously non-violent’ beliefs in ‘direct, participatory and transparent
democracy; a consensus based decision-making process; valuing people before profits; and
eliminating the exploitation of labor’. In its anti-authoritarianism it, like its 19th century
predecessors, seeks to be a useful corrective to authorities who have lost the confidence of
the citizenry.
Conclusion
We probably, therefore, need first to bring activists out of what McWilliam has called ‘the
dustbin of populism’, which still remains, although more favourably presented, the place to
which people or movements are generally consigned if they do not fit within the political
dichotomy of left and right. Instead, we should look at where populists sit within a more
holistic view of democratic systems. ‘Populism’ and ‘conspiracy’ (and even paranoia) do have
something to say about such activists. But while having utility, they do not capture this full
picture of them. They remain elements of style, rhetoric and persuasion which allow
protestors to represent and articulate their avowedly painful experience of living in a
democratic system that does not deliver or help as expected.
However, more substantively, underpinning much of their activity, though sometimes
masked, are what Canovan calls the ‘democratic pretensions’ of so-called populists, who
actually see themselves as true democrats, wishing ‘to cash in democracy’s promise of
power to the people’ and claiming that they speak for the ’common people’.
Developing Oakeshott’s contrast between ‘the politics of faith’ and ‘the politics of
scepticism’, Canovan seeks to understand ‘populism’ and ‘the people’ (and, by implication,
paranoia) by first looking to, and within, democracy itself in terms of two opposing, but
interdependent, faces; one ‘pragmatic’ and the other ‘redemptive’. Democracy’s pragmatic
face, she says, can be caricatured with the slogan ‘ballots not bullets’. A corresponding
caricature of its redemptive face might be Vox populi Vox dei or ‘government of the people,
by the people, for the people’.
Some degree of redemptive democracy’s promise of salvation is actually necessary to
lubricate the machinery of pragmatic democracy, and if it is not present – cannot clearly be
seen or heard - within the mainstream political system, it may well assert itself in the form
of a populist challenge of some sort. As such, she says, ‘populism accompanies democracy
like a shadow’ rather than existing as something other than democracy. It is not too difficult
to see populists, paranoid as they may be, uncomfortably straddling the redemptive and the
pragmatic sides of democracy, living in, and battling from, that ever-present shadow.
A Parable on Populism
What then can we say about the ongoing battle of the people, of the fight by the 99%? In
1900, as the populist movement lost its momentum, L Frank Baum wrote the book The
Wonderful Wizard of Oz which is, it has been argued, a parable of the populism of that era.
Writing of the book in the 1960s, Henry Littlefield claimed that the Scarecrow was the wise
6
but naïve western farmer and the Tin Woodman, the dehumanised industrial worker. The
Yellow Brick Road (with all its dangers) was the Gold Standard. The Cowardly Lion was the
democratic presidential candidate in 1896, Bryan, behind whom the populists (and their
People’s Party) fatally threw themselves in pursuit of ‘free silver’, as represented by
Dorothy’s shoes which in the book were not ruby (as in the film) but silver. Others have seen
the Emerald City as symbolising the fraudulent world of finance and the Wizard himself as a
scheming politician who uses publicity devices and tricks to fool the people into believing he
is benevolent, wise and powerful when really he is selfish and cruel.
The debate about this has raged on in academic circles for 50 years or more. Some political
analysts have claimed that Oz is a thinly disguised socialist utopia, quoting from a sequel to
The Wonderful Wizard of Oz, The Emerald City of Oz:
‘There were no poor people in the land of Oz, because there was no such thing as
money....Each person was given freely by his neighbors whatever he required for his use,
which is as much as anyone may reasonably desire. Every one worked half the time and
played half the time, and the people enjoyed the work as much as they did the play, because
it is good to be occupied and to have something to do. There were no cruel overseers set to
watch them, and no one to rebuke them or to find fault with them. So each one was proud to
do all he could for his friends and neighbors, and was glad when they would accept the
things he produced’.
This debate has been presented variously as an academic amuse-bouche, a helpful allegory
or parable, a political satire or critique, or as just plain silly. However, it is difficult not to see
the story and aspirations of both the 19th century populists and the 21st century Occupiers –
living as they did, or do, in the shadow of democracy - in the story of Oz as summarised
recently by Quentin Taylor:
‘When Dorothy’s twister-tossed house comes to rest in Oz, it lands squarely on the wicked
Witch of the East, killing her instantly. The startled girl emerges from the abode to find
herself in a strange land of remarkable beauty, whose inhabitants, the diminutive Munchkins
rejoice at the death of the witch. The witch represents eastern financial-industrial interests
and their political allies, the main targets of populist venom. Midwestern farmers often
blamed their woes on the nefarious practices of Wall Street bankers and the captains of
industry whom they believed were engaged in a conspiracy to ‘enslave’ the ‘little people’ just
as the Witch had enslaved the Munchkins. Populists viewed establishment politicians,
including presidents, as helpless pawns or willing accomplices. The death of the Wicked
witch, however, is a just cause for rejoicing – the little people, owing to the destruction of
eastern power, are now free’.
References
Mark Fenster, Conspiracy Theory: Secrecy and Power in American Culture (Minneapolis:
University of Minnesota Press, 2008)
Michael Kazin, The Populist Persuasion: An American History (Ithaca: Cornell University
Press, 1995)
Michael Kazin, A Godly Hero: The Life of William Jennings Bryan, (New York: 2006)
7
Rohan McWilliam, Popular Politics in Nineteenth Century England (London: Routledge, 1998)
Paul Taggart, Populism (Buckingham, Open University Press, 2000)
Richard Hofstadter, ‘The Paranoid Style in American Politics’, Harper’s Magazine, (November
1964), pp. 77-86
Margaret Canovan, ‘Trust the people! Populism and the two faces of democracy’, Political
Studies, 47 (1999), pp. 2-16
William Hogeland, ‘Real Americans’, Boston Review, September/October 2010
Robert Collins, ‘The Originality Trap: Richard Hofstadter on Populism’, The Journal of
American History, 76 (1989), pp.150-167
Ray Pratt, ‘Theorizing conspiracy’, Theory and Society, 32 (2003), pp. 255-71
Francisco Panizza, ‘Populism and the mirror of democracy’, Conference on Democracy and
Diversity, University of Leicester, April 2003
Quentin Taylor, ‘Money and Politics in the Land of Oz’, at www.usagold.com
Figures
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9
From Process Controlling to Controlling Processes: information
technology and business management evolution in a case study
Admir Pancote, Luiz Carlos Duclós and Anderson Luiz Ravanello
Business School at Pontifícia Universidade Católica do Paraná, Brazil
Introduction
This introduction founds the historical environment that helps to understand the
strategic changes in business management in Brazil during the past decades. Post war
economics, having shaped the world geopolitics and economics has also affected the
southern hemisphere country, as seen in (Castro, 1972; Suzigan, 1991; 1996; BresserPereira, 1997; Bonelli, 2005; Suzigan, Furtado, 2006). The company presented in this case
study both profits and suffers from the environmental changes that the market, the
competition and the people underwent during this past half-century.
The 50’s bring to Brazil a increased industrialization effort that confronts its
fundamentally coffee-based agrarian and agro-industrial roots. The crash of 29 and the
World Wars brought to the country the need of, through internalization of industrial
production, substituting the consumer goods that could no longer be provided by the
European based – then devastated – industrial base (Baer, 1996).
This industrialization focused on supplying the internal need of the market positively
lowered the dependency on imports. This strategy, on the long run, proved beneficial
despite the fact that by supplying a yet immature market very little innovation was required
as very little competition was in place. The innovation by which the country is known only
got stronger during the 90’s (De Negri; Kubota, 2008; Suzigan; Furtado, 2006).
The presidential mandate of Juscelino Kubitscheck (1956 – 1960) brought to the
country an economic improvement and industrialization plan. Starting at 1956, subsides and
incentives to installation of industries in national territory were introduced, with special
focus on automobile industries. This government also contemplated, within a broader
national integration project, the construction of a new capital and a highway – somewhat
cheaper to build then railroads – network that aimed to lessen the country’s continental
distances.
The companies that came to put this plan into action also brought the first business
management techniques that were in use it their homelands.
This economic development had its founding coming from external capital,
generating debt without sufficient, sustained, export revenues, Even though the IGP grew a
steady 7% a year, so did inflation. High inflation and interest costs drained the internal
development resources (Baer, 1996).
The 60’s came within these perspectives of inflation and high interest costs and gone
with a military coup, giving no breathing room for the industry to significantly advance.
Already indebted, the industry lacked viable financing for its development and evolution.
Very little innovation within the Brazilian market is reported during this period, still claiming
as an characteristic the necessity of substituting the European products.
Come the 70’s and the country developed a series of protective policies, especially in
the technological field. The idea behind these policies was to bring new technology and to
develop genuine Brazilian ideas, even though there was a severe imbalance between
10
objectives and financing. During this decade, 2 national development plans (PND I and II)
were created to organize the development efforts. These protectionist policies and lacking
of financing have led to a delay on the technological development.
Internal and external debt, rising increased inflationary pressure, technologic delay
and overall lack of external competition has dubbed the 80’s “the lost decade” in Brazil (Lins,
1993; Lodi, 1993; Teixeira, 1998; Bertero, et al.; 2003, p. 51). With the high inflation and high
internal interest costs, the companies have self-financed through monetary peculation,
investing as little as possible on their own modernization. Many companies, during this
period, report increased competition and need for improvement on their own processes.
This article comes as a descriptive case study, with an historical perspective on a midsized Brazilian company, aiming to study the strategic decision bases and the method and
tools employed to acquire strategic data and organize the working team that had the
mission of planning and designing information systems along with an organizational
restructuring. The results may be interpreted as warnings about investment and long-term
vision and attention to techniques, even if not designed with the same goals.
Review
In order to organize the study a broad bibliographic revision has been conducted.
This revision encompasses business management, economics, systems development
methodologies, management appliances and integrated information systems, work division
boards (WDB), investment decision taking, innovation, information systems and business
processes.
Systems development methodologies
During the 80’s, as an alternative to hierarchical, network, Virtual storage access
method (VSAM) and Indexed sequential access method (ISAM), relational models for
systems have begun to increasingly be employed. Structured systems analysis flourished,
proliferating its Data flux diagrams (DFD’s) (GANE; SARSON, 1984, Demarco, 1989) and Data
modeling techniques (Chen, 1976; 1977). Neither of these, though, clarifies how to acquire
the end-users needs.
DeMarco (1989) proposes a standard development life-cycle described as:
requirements discovery, analysis, structured project and hardware analysis. Hardware
analysis would often lead to new hardware acquisition. Structured project suggests a topdown software implementation. Even though the expression top-down is often used to
suggest something that is able to integrate strategy and information systems, it seems that
this integration never happened properly.
These methodologies, by the book, focused in an integrated business-system view,
but, in reality, investment level and short span corporate culture often stimulated the
development of specific, problem-solving systems. During this time, several companies
expended resources and energy on creating information technology master plans (ITMP) and
software development plans (SDP), in accordance to the structured methodology holistic
approach. Nevertheless, most often, systems were created to answer specific, short term
issues.
Thus the systems identified on the SDP’s had their priorities marked. The resulting
patchwork of systems demanded an ever increasing amount of effort. In a given moment,
research was conducted and the results were disheartening: no SME that was interviewed
had an integrated information system (Beraldi; Escrivão-Filho, 2000). It was only with the
11
application of software engineering that integrated systems became actually viable
(Pressman, 1995).
The emergence of new technologies, internal change resistance, high level
management meddling, inexistent software documentation culture, low financing, poor
technical knowledge, no cost/benefit evaluation were the top causes for turning the
information systems development in a kaleidoscope of poorly attached solutions.
Data acquisition techniques and tools
According to Rezende (2005), data acquisition can be segmented into 4 activities : a)
preparation – objectives, participant definition, localisation, timing, questions and scripts; b)
realization – actually ask, listen, write, observe the body language and the general feel of the
interview; c) interpretation – triage, data comparison; d) conclusion – documentation and
reporting. These activities hint a stronger approach to interview-based research. Even if
these techniques can be applied on Joint Application Design (JAD), focus groups or
brainstorming, we often see these techniques within the context of interviews, in order to
acquire the list of user requirements (Belgamo; Martins, 2008).
The Work Division Board (WDB) as a tool and technique
The WDB is used to examine the work done in a company. According to Cury (2000),
with the understanding provided by WDB’s, it’s possible to spot time sinks within the tasks,
how important they are, professional qualification requirements and how balanced is its
distribution. Rocha (1995) also dictates that, through this tool, it is possible to identify
simplification points, while Oliveira (1998) describes the possibility of a panoramic view over
the organization as well as the time and efficiency comparison between whomever executes
any given task.
While being a textual document, WDB should contain: location identification, name
and position of the worker, date, list of tasks done, time dispensed in each task, task
description, and a management given importance level to each of the tasks. With these
elements it should be possible to, according to Cury (2000), analyse each task and each
executor within the company. A sample of a WDB can be found at
www.acnl.com.br/documentos/modelos.
Investment policy decision making
Information technology has been known to be a highly investment demanding area in
the organizations. The decisions about investing or not must not be taken lightly and must
be done in accordance to strategic objectives. The return that these investments are able to
bring must be measured in terms of its direct and indirect results. Objective analysis over the
return of the investment (ROI) can measure the objective quality of each expenditure; the
bigger the ROI, the better. Stakeholder satisfaction, sustained competitive advantage and
positioning amongst the competitors are sources of indirect measuring of proper
investments (Graeml, 1998a).
In order to properly gauge these investment its necessary to justify the investments
made in information technology. Information technology has been presented, since the 80’s,
as a productivity paradox (Brynjolfsson, 1993) with several investment assessment
methodologies; the most prominent being, at that time, purely monetary methodologies.
Even currently, the justification of information technology investments is complex and
12
frequently neglected by the managers. One of the value evaluation methodologies accepted
currently is the multi-criteria analysis model (Betencourt; Borenstein, 2002).
Innovation
Innovation is the capability of creating new processes and products. Replacement
industry demands very little creativity and innovative activities, even on cases of the
creation of subsidiary firms; subsidiary firms will copy over the methods and products
created by the head company. For Lastres and others (1998, p. 8) “innovation will occur
preferably on the home country of any given company according to policies and strategies
there defined”.
The lasting crisis that Brazil endured has left the state disorganised and with crippling
structural debilities. The country had no competitive status in products with high added
value and embedded technology, being able to compete only on commodities level
(Coutinho, 1996a, 1996b).
The first interest on innovation only showed up during the 90’s. Baumann (1996),
Coutinho (1996a; 1996b), Lastres and others (1998), Lima e Teixeira (2001) and several
others only started to provide revisions on innovation on this decade. During these years,
the infrastructural investments made during the 70’s finally matured to a point where it
wasn’t any longer needed to invest into constructing new companies, but it was possible, for
the first time, to invest into people and technology. For Cavalcanti and Gomes (2001) “…it’s
the time to create adequate financing lines, developing a marketing vision creating an
environment and culture that foment innovation and entrepreneurship”.
Information systems and business processes
Information systems occur at the intersection of three vertices: people, the
organization and technology. Whenever there is need for a solution for any information
problem, these three dimensions must be weighted accordingly on developing it.
Technology itself cannot be the single source of viable solutions because it is only part of a
much broader equation that contains: the organized group of people and their mental
images that form the organization, the hardware, the software, the networking utilities and
the database applications that people employ to collect, disseminate, transform and create
information within the organization (Duclós; Santana, 2009). Using this triple axis approach
to the information systems, it is possible to properly gauge both the technical, technological
and socio-humanistic challenges that arise from implementing integrated information
systems.
When a company opts to engage into integrated information systems, it is often
opting to automatize business processes. As processes, we consider “a structurationcoordination-timeline disposition- of resources, and effort that aim to create products or
services” (Santos; et al., 2002, p. 40). A business processes may also be described as a
relevant, value-adding procedure, linked to the company’s chain of value (Scheer; Nüttgens,
2000; Porter; Millar, 1985).
Methodology
There are several ways of studying the historical evolution of a company. One of
these ways, as proposed by Yin (2005) is the case study, given that this approach aims to
analyse specific, contemporary events with the application of a broad range of data
acquisition techniques with the aim of discovering data that regard one or more entities.
13
This research method also allows the exploratory, non-experimental nor manipulative
research. Additionally this case study, as an historical relate, fits the definition of descriptive.
Ergo, this research is presented by a descriptive exploratory case study that, by documental
analysis and interviews, describes the evolution and convolutions that existed during the
implementation of integrated information systems in a mid-sized Brazilian company, during
the decades of 1970-2000. (Pozzebon; Freitas, 1998, Selltiz et al, 1975).
The interviews were conducted with two objectives: a) reconstruct the facts in the
timeline do complement the documental data and b) validate the documental analysis and
the documents themselves. The interviews were, in this case, only complementary to the
documental analysis. This complementation comes with the interviewed person’s speech,
thus demonstrating the events of HOW and WHEN were both the individual and the
documents present (Ichikawa; Santos, 2006, Creswell, 2007).
Within the research objectives were: How the information systems development
techniques can positively influence organizational change? In order to answer this question,
data from 1989 to 1997, as well interviews with staff that ranged from analysts to managers
were conducted. The whole process was analysed, from its start during the decade of 1970
to the delivery of an integrated information system and a new organisational view on the
late 90’s.
Data Analysis
This section will contemplate the structure and corporate history, the analysis of the
IT team, the development methodology, and the development process in itself.
Organizational story and structure
The studied company, called Battistella, a southern Brazilian company had its first
enterprise created in 1949 as a lumber mill. Its operations evolved vertically, into logistics,
forestation, large sized vehicles, auto parts and power generators. Later the company
evolved into horizontal, unrelated fields (Galbraith, 1973; 1974; 2001). The company, while
having around 5000 employees, had growth perspectives but increasingly management
challenges during the 70’s, leading to the informatization decision that fomented this study.
This necessity arose in the same moment as the protectionist laws took effect in
Brazil, resulting in lacking it-related workforce availability as well as inappropriate and
insufficient national technology (Tigre, 1995). The escalating costs, the low level of
telecommunication technologies and the consultancy approach to IT problems directs the
company to the contracting of a development bureau. This initiative delivered accounting,
payroll and stocking systems within the subsidiary (heavy vehicles concessionaries)
companies. These systems, while having a strong control bias, were considered the most
important systems in the company at that time.
In the same period, a holding is created that projects the need for complete
informatization on the companies of the group. People started being trained in order to
create a project team.
“In 1975 I spent 6 months at a COBOL [most commonly used
development language at that time]. I didn’t learn how to program
but could understand how hard it would be to build and operate all
the systems that were required. Sales force, services, accounting,
accounts payable and receivable, finances... that, only on the
14
subsidiary firms. There were still the logistics company, the lumber
mill, and the other subsidiary companies like the power generation
and the auto parts firm didn’t even exist at that time.” (Oldemar
Moura da Silva, accounting associate at the time and business analyst
for the information process)
Until the 80’s, the company focused on disseminating the information technology
culture based on the three systems already put in place by the contractors by using
punctual, technical training that aimed to prepare the people to use the new technologies.
In 1981, an Organization and Methods (O&M) team started working, with the objective of
organizing and documenting the processes in the companies in order to prepare them for
the coming information technology investments.
Team building
The team that was created for the newly founded systems department was
constituted by the managers of each of the other departments. The manager of this new
department was the supplies manager, the financing was taken over by an experienced
accountant and the production manager was in charge of the industrial area. Even though
these tasks had much to do with O&M, they were all dubbed “business analysts”, thus
demonstrating their deep knowledge on their original fields of expertise.
Development methodology
“One of the members of the board heard, in a conference, the term
‘source document’. We then analysed the subject and came to the
conclusion that there are, in the sales area, two documents that
originate all other processes in the organization: the acquisition
facture and the sales facture. All other processes are a consequence
of these two documents. With this in mind, we designed all the
systems that we had to deliver.” (Antonio Carlos Timmermann,
systems manager from 1981 to 2000).
The terminology regarding source documents has, on the bibliographical review, only
been found on DMS’s, document management systems. The only reference found on system
development references that included the expression “source document” was that, upon
describing the entities and relationships of a system, we often base that on the
organizational source documents (Chen, 1976; 1977).
The manager quoted display a systemic process vision. He characterizes that control
is needed between inputs and outputs mainly due to the necessity of answering to
regulatory needs and to management characteristics that are inherent to the organisation.
From the source document perspective, three techniques were employed mainly to
achieve the data collection objectives: interviews, process design and application of the
WDB’s. Note that the data collected this way wasn’t just available for system development
but also for organizational change (Pádua, et al., 2004). Each technique was employed
according to what was most convenient.
15
When processes from the expertise areas of the team members were analysed, no
requisites were researched. The professionals themselves would diagrammatize and
describe the processes, suggesting, or not, the changes required for the informatization
process. As COBOL was being used in the systems development, the fluxograms that are part
of this methodology also served as tool for describing the processes, thus preparing them for
their future codification.
The interviews were applied when there was need to confirm the knowledge that the
analysts had over the studied areas. Eventually discussions, regarding suggestions and
expectations of the affected areas would ensue, in an effort to enrich the development
process. The fluxograms would represent the tasks to be completed, the routines to be
followed and the programs that should be developed. When there was need for change, the
current situation and proposed situation were often paired, side by side, in order to decide
which of the options was to be executed.
WDB’s were employed in all cases that called for profound change. This technique
allowed a deeper understanding of the studied field. A model of the WDB, along with other
documents, can be seen at http://www.acnl.com.br/documentos/modelos.
“The WDB’s allow us to understand several aspects of quotidian tasks.
I can obtain from it the idle time, misuse of time resources,
duplicated efforts, all kinds of tasks that can be simplified with
process engineering. ‘Somebody’ ordered people to do, so, the
employer would just follow. Look at this: factures would be emitted in
seven back-to-back ways. What would seven ways be good for? Only
for duplicating efforts in compiling data for the managers and for the
board” (Antonio Carlos Timmermann, op. cit.).
The high managers also determined that the solutions should be homogeneous,
therefore, anything that had to work in one subsidiary, should work in all of them. To
accomplish that, the analyses were conducted over the biggest subsidiary in order to
replicate the solutions found into the other units. The only acceptable exception to this was
in business specific characteristics that could arise in specific units, usually due to regulatory
or Market specific conditions.
System development
Data acquisition procedures directed the company into reworking some of its
business processes. Whenever it was possible to implement change without the need for
information systems, the changes were done without delay. What needed informatization as
well as process engineering, had to wait till 1987. The company maturated the process
engineering for six years, before investing in technology.
In 1987, supported by consulting agencies, the company formed a system
development team. The company also contracted a software house with a bounding
agreement that considered the technologic transference between the partners. By 1992, the
sales force system – supporting all heavy vehicles concessionaries – along with the logistics
company, the industrial system – supporting the lumber mill, and the distribution system for
the auto parts subsidiary were all implemented and working. The ball bearing subsidiary
system and adaptations on the commercial system for the power generation subsidiary were
still undergoing development.
16
Sistema
Comercial
Sistema de
Distribuidor
a
Sistema
Industrial
Núcleo de
administraçã
o
Sistema de
Transportes
Sistema de
Consórcio
IMAGE 1: System setup within the organization.
Notice the overlapping circles in the image 1; these are the integration interfaces
between the systems. The consortium system, being regulated by the first Brazilian bank
(Banco do Brasil), was integrated only with accounting and IIS. Commercial, industrial and
distribution systems were very similar, sharing modules like supply-chain, finances and
others. Registration and credit modules were common to all systems.
Characterization of process vision
From the start, the company didn’t have a process orientation. As processes were
described, the vision was also being characterized. In the study, the grouping token seems to
be the source-document studied. Being developed around these two documents, all systems
shared a central core, clearly displaying a preparation to centralized systems management.
The value-adding guideline gets clarified when the concessionaries re-designed their
acquisition routines to follow the ABC frequency curve instead of the ABC demand curve,
right before automatizing the purchasing order process to the main supplier, effectively
deploying the supply chain management, as declared by the CEO of the concessionaries:
“... We had a centralized stock that would last for 6 months, ant it
would rotate in a nocive way, breaking our margin because we had a
too thick stock. We had to use CARDEX at the subsidiaries, and
another CARDEX at the head company. With the system we were able
to cut the extended controls and maintain only the control on the
head company. With the informatization, things indeed began to
improve... we had four stores in the state of Parana and two or three
others in the state of Santa Catarina, and a whole battalion of people
working on controlling parts and tires. Today, we have fourteen
stores, very few people working and the whole stock will rotate seven
or eight times a year. We used to issue purchasing orders once per
month and today, 70% is done automatically. Every day, people are
reposing the stock. In this commercial area, things really improved;
lowered stock levels, lower costs, lower rotating capital, more
17
efficient controls…”
concessionary)
(José Mario Marin, CEO heavy vehicles
Investments and organizational aspects
One definition for informatization process is “A controlled process through which a
company continually broadens the appropriate use of its IT infrastructure, aiming to improve
its efficacy and performance with the objective of maximizing the use of information
technology on the business” (Souza, 2004, p. 103). The control required on the process was
effectuated by building a core of people responsible for conducting the process through the
time. It was within their responsibility the objective of integrating systems for the different
corporate needs (Rezende, 2005).
“Back on the day, in 1981, it was truly a single man army, we got it to
grow through the time and, by 1991/92, we had telecom experts,
system analysts, programmers, typers, business analysts, diagramers,
documentators, project managers, around one hundred people
working on the Project. That was the highest amount of people we
had. After that, we started to lower” (Antonio Carlos Timmermann,
op. Cit.)
The company also relates that several budgets were estimated by consultancy firms
but, for real, not one of the managers is able to recall how big was the expected cost and
how much was actually invested. No records were found to contain these estimations:
“I esteem that we invested around tem million dollars on the
informatization of the group. Today we can’t recall how much we
actually spent. I believe that these resources could have been better
spent. It is certain that there was waste.” (HJB, council member and
director of one of the companies in 1997)
“I don’t think so. Everyone had a feeling about what was going to
happen in the close future. Everyone sort of knew that, in the future,
the diminution of workforce, cost reduction, better organization,
better controls would be real. But, a precise accounting, with a ROI
calculation? No, certainly we didn’t had. This estimation was done
more on the feeling... we would travel, check what other people were
doing and just copy around what was being effective in other places.
It is kind of hard to agree that we didn’t have enough investment
control, what we know is that currently we spend less, the systems
are up to date, fast and secure. Now… how much we spent in that,
what are the errors that we committed, when we wasted money that
no one knows. I am pretty sure that we did a lot of mistakes, like
buying stuff we didn’t need and all that. What we know is that the
systems generally work, they are effective, sure there is a lot to be
improved and modernized but we don’t know how much we spent. I
think that we wouldn’t be able to work today if we didn’t have done
it, though.” (Jose Mario Marin, op. cit.)
18
In one of the companies of the group, in the transport industry, the initial budget was
within the market average. In 1997, it was invested 2.5% of the total revenue of the
company, tending to increase (Graeml, 1998b). It is believed that during the 80’s, the
investment ranged from 1.5 to 3%.
“When we started doing the company’s systems, it costed roughly 3%
of the company’s revenue. A complete absurd, but we had a goal to
lower it to 1.5%. But the investment was very high. Currently I don’t
know how much it is costing. As the country was closed to imports,
we were lagging behind in technology; many things that were
available outside could not be implemented here, the foreigners had
more advanced technology, and Brazil had lost a long time with this
blocade that was done during the military government. (José Mario
Marin, Company manager in 1988)
We can see that, from the beginning, the investment and dispenses that were made
were accredited to cost centers of the hierarchical structure. Accounting these values is now
impossible. Even after the IT team was built, these costs could not be attributed to the
development of the systems. As the team was responsible for both redesigning corporate
processes as well as actual systems development, many of the tasks done for one initiative
certainly were beneficial to the other, thus meddling the subjects in the company. The
organizational change also changed the information technology approach.
Closing Considerations
It is not possible to, from a single case, offer generalizations that may or may not
work in other different cases. It is possible, nevertheless, to discover interesting issues and
characteristics that may be employed as valuable lessons from this case study.
It was observable a bottom-up approach to the problem, that started from two basic
documents and redesigned the organization and its systems (Pressman, 1995).
The project would have benefited if accountability of investments in human
resources, process modernization and technology upgrade were properly catalogued. With
that, it would be possible to evaluate a cause-effect parallel, either in comparison with
corporate performance. The company studied will forever doubt the investment quality.
The source document idea seems to be interesting. It seems to be highly attached to
the chain of value (Porter, Millar, 1985), regarding the end user demands. Whatever wasn’t
covered by the source-document, or, at least related to it, was promptly left out and later
abolished. This idea seems to suffice in both reducing costs and providing sustained
advantage: if it isn’t going to add value, isn’t even going to be considered.
Initially there was poor process-oriented vision, but as time went by, the company
learned to do that. Information technology also increases the comprehensibility of their own
automated processes (Zuboff, 1994). Currently, the companies that are part of the holding
either are process based or are becoming.
The WDB is an almost unknown tool that proved to be very efficient in the preautomatization project phase. Presents the possibility of understanding each task as well as
the time required for doing it (Cury, 2000). The grouping of tasks leads to a broader view: it
is possible to see what can be automatized, what can be improved, were there is process
duplication, where the tasks and the positions required don’t match. It allows the
rationalization of process analysis, by enhancing the company’s ability to understand itself.
19
Between the first action towards informatization and its accomplishment, there were
20 years. It is very hard to make predictions for 20 years in an information technology
scenario. Brazilian economy, during these 20 years, suffered its worse IGP measures and
technology skyrocketed.
Its recommendable to further study techniques or tools that, like the WDB, could
measure the impact of informatization in companies, most notably, the automatization of
necessary tasks and the scrapping of unnecessary ones. If it is possible to measure the costs
before and after the informatization, immeasurable benefits will become just an additional
benefit, facilitating the process of project approbation.
All in all, one question remains: Does productivity paradigm for information
technology investments is true? This study never found evidence that there is any answer for
this. The studies accounting for performance should be done in a shorter, more controlled
environment with less economic and technological change in order to properly gauge the
performance of system development.
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22
Here is one I prepared earlier! Considering Queensland asset sales
in historical context
Linda Colley
University of Queensland
This paper reflects on a contemporary decision within its historical context, to demonstrate
the value that history can add to political analysis.
The subject of the paper is the 2009 decision by the Queensland government to privatise
certain assets. In 2009, just days after the announcement of a major budget deficit and the
downgrading of its AAA credit rating, the Queensland Labor government called an early
election, to give Queenslanders a choice in the economic direction of the state. While the
Opposition campaigned on major cuts to public service spending and staffing, Labor Premier
Anna Bligh campaigned on job creation and infrastructure development as the means to
economic recovery. The Premier won another term but was then under pressure to fund
these election promises. Within ten weeks of the election, the Premier announced a plan to
sell several state assets. This was greeted with shock and horror as, up until that time,
Queensland had largely resisted the neo-liberal reforms that occurred in many other states.
On the surface, the decision was motivated by economic circumstances brought about by
the global financial crisis. However, my paper aims to paint a very different picture by
putting the decision in the broader context of public management.
It begins with a brief account of the election campaign and announcement, which caused
such surprise. It proceeds with contextual information about asset sales in recent decades.
Then it considers theoretical explanations for the change. It draws on a number of concepts
from the policy analysis literature, including Kingdon’s framework for policy change, and
Cohen, March and Olsen’s concept of garbage can solutions. This literature suggests that
new challenges require new paradigms, and the uptake of novel and sometimes contentious
proposals may be simpler under crisis conditions. However, the research suggests that
privatisation was a longstanding bureaucratic preference, repeatedly rejected as a policy
option in Queensland at a time when it was being embraced by many Australian states.
Arguably, the global financial crisis simply provided an opportunity to revitalise a
contentious political proposal that had been around for several decades, but had never
gained momentum and been placed in the bottom drawer pending more propitious
circumstances. Perhaps the previous stability was more remarkable than the recent policy
change.
23
Change and Control: 300 Years in the Making of Magazines
Howard Cox
University of Worcester, UK
Three broad-based controlling mechanisms have shaped the process of change within
Britain’s magazine industry. Government actions, big business and organised labour each
helped to determine the method of production, form of delivery and the type of product
that was offered to readers of popular magazines from the 1690s to the 1980s. By the mid
1970s, Britain’s magazine publishing industry had fallen largely under the sway of a single
dominant producer, namely IPC. This paper provides a very broad-brush survey of the
mechanisms of control that helped to create a quasi-monopoly firm structure in Britain’s
magazine industry; a structure which was eventually undermined by the twin forces of
globalisation and the digital revolution.
24
The relevance of Scientific Management in the 21st Century Labour
Process
Samuel Lake
Waikato University
The face of the modern labour process has undoubtedly experienced drastic change over the
course of the last 100 years. This change has occurred on such a scale as has never been
witnessed before the 20th century (Roth, 1993). Peter Drucker, widely described as one of
the great management thinkers of the last 100 years (Beatty, 1998), purports the most
important contribution of management in the 20th century as “the fifty-fold increase in
manual worker productivity” (Drucker, 1999, p.135). Continuing, he unequivocally states
that all of the economic gains of the last 100 years are the direct result of the ability to
maximise the productivity of the manual worker. This increased productivity of the manual
worker could thus be seen as the foundation of the growth of modern economies and the
impetus which changed the way in which we, as a society today, view the modern labour
process. The question however remains: If the increased productivity of the manual worker
was the foundation of developed economies up until the end of the 20th century, in today’s
modern, global organisational environment do the foundation principles of manual worker
productivity still have any relevance?
This essay will endeavour to shed light on this question. Initially, it will outline a brief history
of one of the foundation theories of manual worker productivity, in the form of Scientific
Management; it will then provide an analysis of the relevance of Scientific Management in
the 21st century. There is no doubt that Scientific Management, and by default its “founding
father” Frederick Winslow Taylor, has had an impact on the process of management over
the course of the last 100 years, akin to that of Freud in psychology and Marx in the social
sciences (Kanigel, 1997). To again reference Drucker (1999) he describes the influence of
Taylor thus:
No other American, not even Henry Ford (1863-1967), has had anything like Taylor‟s impact.
“Scientific Management” (and its successor, “Industrial Engineering”) is the one American
philosophy that has swept the world… in the last century there has been only one worldwide
philosophy that could compete with Taylor‟s: Marxism. (p. 139)
To extend Drucker‟s, and many other scholars (eg: Kanigel, 1997; Roth, 1993; Weisbrod,
2010) position, it is easy to state that the principles of Scientific Management have become
so widespread, and its reach so vast, that it can rightly be called one of, if not the, founding
theory of modern labour management. In such a well-developed field, however, there is the
necessity to initially define the subject area. Use of the term labour is widespread in a
multitude of academic disciplines, including the social sciences (eg: Marx, 1970) and
management (eg: Roth, 1993, Thompson, 1989; Kanigel, 1997). Thompson (1989) describes
work as a necessity to satisfy the variety of social needs that exist in our society. Further to
this Marx (1970) describes human labour as an activity between man and various
components of nature, consisting of three distinct elements independent of social
formations. Firstly it is the purposeful activity of man, directed to work. Secondly the object
on which the work is performed, in the form of natural or raw materials, and the third
condition the instruments of that work, most often tools or more complex technology (as
cited in Thompson, 1989, p.39.
25
Expanding upon this, Braverman (1974) describes work, and thus manual labour, as an
activity that alters raw materials from their natural state to improve their usefulness, with
the directing mechanism of the power of conceptual thought. The idea of conceptual
thought and imagination, as opposed to simply instinct, is described (eg: Marx, 1970) as one
of the defining features that separate humans and animals today. In this author‟s opinion
however a more accessible definition would describe labour as the process through which
people change the form of raw materials to better suit their own needs and conform to the
social conditions of the time.
The social conditions of the late 1800‟s and early 1900‟s were one of the primary driving
forces behind the creation of the Scientific Management movement (Kanigel, 1997). Initially
described as Task Analysis or Task Management, Scientific Management endeavours to
create order and efficiency from the change process, and through that efficiency, create
what modern management scholarship have defined as profit (Drucker, 1999). This body of
scholarship has developed over time, alongside the actual name of the methodology itself.
The moniker Scientific Management has however been the principle avenue through which
scholarship (eg: Braverman, 1974; Roth, 1993) has developed, and as such will be the
description used for this essay.
The creation of Scientific Management was the direct result of an attempt to placate the
needs of one man for order in his factory, and meet the changing demands of society at the
time. Frederick Winslow Taylor, in the creation of a system to ensure the efficiency of his
own production process, created what has today become one of the foundational theories
of labour management. In the founding text, entitled The Principles of Scientific
Management (Taylor, 1911/1967), Taylor elucidates as to one of the core motivations
behind the theory “maximum prosperity can exist only as a result of maximum productivity”
(Taylor, 1911/1967, p. 12). As a result, it is fair to describe increased productivity as the
intention of the entire Scientific Management movement, thus, it seems the increased
profitability of industry is the driving force behind its creation.
Early in his career, Taylor noticed distinct differences in productivity between workers
completing similar, if not identical, processes (Kanigel, 1997). In response to this, Taylor
attempted to systematically analyse process improvement and management as a scientific
problem. By breaking a task down and understanding why and how particular differences
existed within a process, that process could be analysed and synthesised. Hence, that
synthesis then propagated to the workforce in the form of a series of simple, standardised
and prescribed steps aimed at completing the process in the most efficient manner possible.
In its initial formation, however, Scientific Management did not take into account a core
ingredient: the emotional side of the human species and this has been one of the defining
statements in any argument against the Scientific Management movement. In fact, this
argument resulted in Taylor being brought before an American House of Representatives
Committee to answer questions regarding his intentions for the working classes impacted by
Scientific Management (Kanigel, 1997).
By necessity, during this time labour was human, and as such had personal needs and
interpersonal friction. This fact was somewhat ignored in the early iterations of Scientific
Management. In later years, scholars such as Braverman (1974) have described the up swell
of the human relations school of thought as a complementary, rather than an antagonistic
mechanism, whereby Scientific Management determined the actual organisation of the work
process, and human relations adapted workers to the new processes and ensured their
relative wellbeing during the process. This recognition that the human species has needs
26
other than fiscal reward is a direct result of the human relations school, initially purported
by Elton Mayo (1880-1949). His research at the Hawthorne electrical components factory in
the early 1930‟s revealed the nature of work to be highly social and based on group
dynamics. His conclusions were ground-breaking, in that he described the performance of
work being dependent on two factors: job content and social issues. The very concept of
social issues contributing to the production process provided somewhat of an antithesis to
the growing trend of Scientific Management (Bruce & Nyland, 2011). The iteration of the
idea that workers may in fact perform better when their social needs are met, as opposed to
being treated as parts of the machine to increase productivity, provided weight to many of
the arguments against the process of Scientific Management.
However there are other, perhaps more unorthodox approaches used to develop an
understanding of Scientific Management. Bruce and Nyland (2011) demonstrate the
diversity which exists in the contemporary scholarship surrounding human relations.
Through a study of historical data, they argue, that rather than creating an alternative to
Scientific Management, Mayo instead created an innovation to ensure that workers played
an active part in management decision making, and in the long term, may have created what
we see today as collective bargaining and the employee engagement movements of modern
industry. This supports the notion that modern human relations, rather than creating
tension with Scientific Management, more simply provides the avenue through which
Scientific Management is perceived by the employees, and thus control is exerted by
management.
This development of control in management is a further avenue of discourse in both the
academic literature and industry practise. Scientific Management describes control as
essential in the creation of efficiency. By its very nature, the breaking down of common tasks
into highly specialised step by step processes is a method of control exerted by
management. In direct contrast, management concepts such as self-managed teams and
autonomous decision making units allow employees a large amount of control over the
process. Furthermore, the rapid increases in the popularity of this approach in the modern
workplace provides some support to the idea that in the case of control, less may in fact
sometimes be more.
Modern academic scholarship, industry practise and broader society have criticised (eg:
Crowley, Tope, Chamberlain & Hodson, 2010) and praised (eg: Weisbrod, 2011) Scientific
Management as a theory of both efficiency and tragedy. On the one hand there is no doubt
that Scientific Management has shaped the way in which modern industry, and in particular,
mass production operates. Moreover, Scientific Management was one of the principle
components of the development of modern society as we know it today. On the other hand,
however, it is widely recognised that Taylor brought about the destruction of what was
formerly considered skill. He suggested that in manual labour there is no such thing as skill;
rather, there is only a series of simple and repetitive motions. Continuing, he suggested that
it is in fact the knowledge of how each of these unskilled and simple motions are put
together, arranged and executed, that constitutes them as productive. Thus, he realised the
anathema of every skilled craftsman, labour union and romantic of the time. In degrading
the value of labour, Taylor, arguably and unwittingly, shaped the labour process as we view
it today (Drucker, 1999).
One of the most well-known examples of Scientific Management in action is the McDonalds
Corporation. A truly global organisation, the McDonalds Corporation is organised with highly
scientific principles. It is widely described1 how McDonald’s employee manuals tell
27
operators… “precise cooking times for all products and temperature settings for all
equipment…It specified that French fries be cut…Grill men…were instructed to put
hamburgers down on the grill moving left to right, creating six rows of six patties each”
(Ritzer, 2000, p. 38). In many ways McDonalds is the archetypical example of an organization
employing Scientific Management in the production of a good. Instructions are created by
management at the top of the hierarchy and filtered down to very specific and uniform
tasks. This uniformity is global and as close to complete as a process could get; no matter
what country you are in, every branch of McDonalds is at its essence, the same. As are the
methods used to prepare food, promote staff, clean floors, and change menus. It is this
ability to efficiently supply highly standardised food and service, the result of the creation of
a scientific process by management, and the literal separation of conception (the brain) and
execution (the hands) throughout the world, that has allowed McDonalds to become the
biggest restaurant chain on the planet (Peters and Waterman, 1982; McDonalds, 2010). This
shining example of the success of Scientific Management is, however, tempered by the
plentiful counter arguments describing the negative results of Scientific Management,
particularly on employees.
1 For a more in depth perspective see George Ritzer‟s The McDonaldization of Society, 2000.
Arguably, it is a fair assumption that in the 21st century the intelligence of employees has
increased. Employees in developed countries are far more aware of their value as human
beings. Hence, the concept and practise of purely fiscal reward is no longer seen as an
accepted mechanism in these developed markets, and as such employers have had to
endeavour to create emotional engagement and psychological contracts with their
employees. This was recognised by Burawoy, (as cited in Thompson, 1989), in his description
of the cash nexus which provides incentive to turn up to work, but holds no role in the
labour process, or the process of work. Scientific Management views workers as solely
tasked with gaining economic reward. This is in direct contrast to modern industry, where it
is recognised productivity, and through productivity, profit, is not simply obtained by
controlling the work place through fiscal rewards. Rather modern organisations have
realised that productivity can be created by also contributing to the social well-being and
development of the individual employee. This increased recognition that employees have
greater needs than simply fiscal reward, also provides a distinct contrast to the piece rate
pay systems advocated by Taylor in his early work on the principles of Scientific
Management (Taylor, 1911/1967).
The early principles of Scientific Management are unquestionably authoritarian. It is
inherently assumed that decision-making is best kept at the top of the organisation, as by
nature there is a distinct lack of trust in the competence of the employees. Taylor believed
productivity and efficiency would both see a marked increase if there were a division
between workers and experts, a theory further advanced in later years by Braverman (1974).
Braverman described Taylor‟s belief that management be the brain and labour the hands, a
direct correlation to the perceived necessity of structural separation between management
and the workers, or between conception and execution. In the contemporary context it is
recognised that this style of management can result in the creation of dissatisfied and unmotivated employees. In a similar vein, a piece rate remuneration system based on output
may result in employees at all levels removing concentration from quality in the search for
quantity, thus a higher piece rate.
The increased pace of technological change in modern industry, alongside the highly flexible
and innovative nature of many modern workplaces, is a further indicator of the drastic
28
change in the nature of work in the 21st century. During the „boom‟ of Scientific
Management and its core principles in the mid 1900‟s it was common and even widely
accepted, that employees had a specific task in the production line with little or no real
explanation of the wider meaning of their position in the greater scope of the organisation.
In the 21st century, however, it is rare to find an employee in the developed world who is
not aware of what his or her organization stands for, or what their job means to the
company as a whole (Weisbrod, 2011). Alongside this, the „knowledge economy‟ again
provides well-reasoned arguments against the application of Scientific Management: the
sheer volume of inputs and processing which occurs in a modern global organisation is such
that despite potentially being highly specialised in their task, many employees are so skilled
at such a range of these specialised tasks they are in fact performing at a much higher level
than would be possible without specialisation (Drucker, 1999). Furthermore, the rapid pace
of modern business is such that it is widely recognised that organisations which are not
flexible and innovative have no chance of competing in the global marketplace, a theory that
is at direct odds to the regimented processes prescribed by Scientific Management. This
contextual change, sometimes argued as „de-skilling‟ and „un-educating‟ society, could, in
this light, also be seen as the increased specialisation of the individual to achieve individual
tasks in the most efficient manner. Ultimately, it is simply the context of these tasks which
has changed over time.
Scientific Management, despite its obvious criticism, has been widely and variously applied
throughout modern industry. Despite its obvious changes over time, the common elements
of the last 100 years of industrial development create somewhat of a taxonomy of the
principles of Scientific Management. Alongside the advancement of other distinct fields of
academe, the principles of Scientific Management have been widely applied. Becoming
quality control in the 1920‟s and 1930‟s, the breaking down of a process to improve quality
was of distinct importance. Through the 1940‟s and 1950‟s what became known as
management cybernetics developed to combat the problems of resource dependence, and
as such, applied the principles of increased efficiency through task analysis. Edward
Demmings „total quality management‟ applied the same concepts of task specialisation
through the 1980‟s, and into the 1990‟s process engineering endeavoured to create what
we see today as a lean manufacturing process. These developments, aimed at productivity
and efficiency, created what we may see today as just in time inventory processes, and
kaizen production systems. The principles of Scientific Management are still easily apparent
in these examples; it is simply the context of the task which has changed.
In the 21st century, these core principles can be regarded as clearly evident. The processes
of automation and globalisation of the workforce, where complex tasks are broken into
easily achievable, discrete and unambiguous pieces of action, so as to be completed by
unskilled workers and computers following algorithms, directly match the core principles of
Scientific Management as initially stated by Taylor in the 1900‟s. Thus, we have reached the
core thesis of this essay. In the early 1900‟s, when efficiency was king and human labour
was treated as a cog in the wheel of production, Frederick Taylor created efficiency through
the breaking down of tasks into almost automated steps. Today modern manufacture has
broken tasks into steps so simple as to be achieved by machines arranged in highly complex
formations. However, only the knowledge of each individual step in its execution can create
productivity. Furthermore, in the modern global marketplace the conception and execution
of tasks are increasingly separated, in particular in the production of goods and services.
Arguably, there is no doubt that the foundation principles of Scientific Management have
29
shaped the way in which contemporary society treats labour. The never ending quest for
efficiency, through the modern wonders of technology, at their essence, do one thing:
enable the completion of a specified process in a specified time, in the most efficient
manner possible. The influence of Taylor is evident everywhere. Stepping away from the
factory, his quest for efficiency crossed both international and industry borders. In The
Principles (1911/1967) Taylor states that his methods can be applied in almost any context of
human interaction, be they hospitals, schools or iron ore factories, and anything in between.
In attempting to create order from the complexity of the human experience, Taylor changed
the experiences of the generations after him. This is not to say his is the „one best way‟, or
that nothing else exists. Theories of human interaction and experience are plentiful. It is,
however, easy to view the impact of the principles of Scientific Management throughout our
everyday livelihoods. The quest to get more out of every day, our slavish compulsion to
create efficiency, through technology or otherwise, all link hark back to the foundations of a
movement created over 100 years ago, when the scale and scope of organisations of today
would have shocked and astounded.
Scientific Management has shaped the modern human experience. There is no doubt that it
has drastically changed in both its form and its function. However, when viewed as a
methodology for the interaction of the human experience it is a theory with few equals. The
modern process of production, be it a financial services firm with prescribed steps to
complete a financial audit, or a production line of robotic mechanisms functioning on very
simple step by step processes, or the busy office worker ordering the phones, keyboard and
screen of his or her domain in the most efficient way possible, all have undoubted
relationships to scientific management. There is no doubt in this author‟s mind that
Scientific Management is a theory of the utmost importance and relevance, not so much in
its application, but in its methodology and basic principles moving forward in the 21st
century.
References
Beatty, J. (1998). The world according to Peter Drucker. New York, NY: The Free Press
Braverman, H. (1974). Labor and monopoly capital: The degradation of work in the Twentieth
Century. New York, NY: Monthly Review Press.
Bruce, K., & Nyland, C. (2011). Elton Mayo and the Deification of Human Relations.
Organization Studies, 32(3), 383. Retrieved from ABI/INFORM Global.
Crowley, M., Tope, D., Chamberlain, L., & Hodson, R. (2010). Neo-Taylorism at work:
Occupational change in the Post-Fordist era. Social Problems, 57(3), p. 421-447. Retrieved
from Proquest Academic database.
Drucker, P. (1999). Management challenges for the 21st century. New York, NY:
HarperCollins.
Kanigel, R. (1997). The one best way: Frederick Winslow Taylor and the enigma of efficiency.
New York, NY: VikingPenguin.
Peters, T., & Waterman, R. (1988) In Search Of Excellence. Harper & Row.
Ritzer, G. (2000) The McDonaldization Of Society. New York, NY: Sage Publications Inc.
Roth, W. (1993). The evolution of management theory: Past, present, future. Orefield, PA:
Roth & Associates.
Taylor, F. (1967). The principles of Scientific Management. New York, NY: Harper & Row.
(Original work published 1911).
30
Thompson, P. (1989). The nature of work: An introduction to debates on the labour process.
London, England: Macmillan
Waring, S. (1991). Taylorism transformed: Scientific Management theory since 1945. Chapel
Hill, NC: University of North Carolina Press.
WEISBROD, M. (2011). TAYLOR, MCGREGOR AND ME. JOURNAL OF
MANAGEMENT HISTORY, 17(2), 165-177. RETRIEVED FROM ABI/INFORM
GLOBAL.
31
Motivation by Maslow: What Maslow Really Said
Romie F. Littrell
AUT University Business School
ABSTRACT
Maslow thought of his work as simply pointing the way and hoped that others would take up
the cause and complete what he had begun in a more rigorous fashion. In a significant and
generally ignored comment, Maslow says needs usually rest on prior satisfaction of more
pre-potent needs, not must, as is stated by many authors, Maslow (1943a and 1943b):
“Human needs arrange themselves in hierarchies of pre-potency. That is to say, the
appearance of one need usually rests on the prior satisfaction of another, more pre-potent
need. Man is a perpetually wanting animal. Also no need or drive can be treated as if it were
isolated or discrete; every drive is related to the state of satisfaction or dissatisfaction of
other drives.”
Keywords: Maslow, Academic Amnesia, Review
In earlier article a colleague and I developed, relating to changes in motivation of
businesspeople, we selected Maslow’s hierarchical theory of needs as being well-suited to
the situation of the study and the interpretation of the results. The theory also folded in well
with work concerning work values by Elizur (Elizur & Tziner, 1977; Elizur, Borg, Hunt & Beck,
1991). Several reviewers rejected that article out of hand1, stating their rejection was due to
the use of Maslow’s discredited theory. Rather appalling ignorance of the continuing stream
of publications concerning the theory was demonstrated in some cases on the part of some
reviewers. I question the arrogance and ethics of academics accepting the significant
responsibility of reviewing for journals and not informing themselves of the literature
concerning the topics of articles reviewed. This behaviour brings to mind Kuhn (1962), who
commented that normal scientific herding instincts, or pressures to conform to the latest
orthodoxy, can be so strong that evidence falsifying the ruling paradigm or supporting outof-favour paradigms may be routinely ignored or discounted (also see Carey, 1981). For
example, similar problems beset thinking about leadership theory (Blunt and Jones, 1997)2.
We see evidence of this scientific herding instinct in the suspiciously identical, yet un-quoted
1
The article eventually won a Highly Commended annual award from the journal in which it was
published.
2
Blunt and Jones (1997) point out that leadership has been the subject of essay and debate for
thousands of years, but it is only in the twentieth century that it has become a topic for sustained
formal analysis by scholars and researchers. Many theories of leadership have been developed,
however, like most other theories of human behaviour, ways of testing these theories and, hence, of
establishing their scientific credentials have remained elusive. The result is that such theories can be
assessed only in terms of the intuitive appeal of the explanations they offer, rather than by their ability
to withstand repeated attempts to falsify predictions drawn from them following conventional norms of
scientific testing (see e.g. Blunt, 1981; Popper, 1959). Theories of leadership that have fallen from
favour are therefore more likely to have been victims of changes in fashion in the broad field of
management than of anything else. The death of the leading theorist frequently leads to the death of
the theory.
32
or un-referenced, comments in the criticisms of Maslow in publications over the past 20 or
30 years.
Historical Background
Maslow thought of his work as simply pointing the way and hoped that others would
take up the cause and complete what he had begun in a more rigorous fashion (Boeree,
2006). Though considered the “father” of American humanist psychology, Maslow began his
career as a Behaviorist with a strong physiological psychology background. At the University
of Wisconsin he worked with Harry Harlow in the primate lab studies.
He often grounded his ideas in biology. His basic thrust was to broaden psychology to
include the study of well-adjusted human beings. He proposed one of the most discussed
explanations for motivation as being need-driven. This approach has fallen somewhat out of
style, in part due to failure to consolidate studies of its empirical validity. The first attempt to
classify needs was by Murray (1938), who listed 20 needs that explained the behaviour of an
individual in work situations. However, scholars soon realized that one could develop an
infinite number of needs as explanations for behaviours. In response to this problem,
Maslow (1954) defined a hierarchical categorization of needs that guided individual
behaviour.
Hierarchical Social Theory in Economic Theory
Thorough reading of many “classical” economists” such as Maynard Keynes and
Alfred Marshall, indicate that they published considerable work concerned with
behavioural economics or social economics. Alfred Marshall (1890, 1920), proposed a
hierarchy of human needs.
1. Biological Needs: Food, Clothing, Shelter
2. Health, Education, Freedom
3. Friendship, Affection, Belonging
4. Esteem, Distinction
5. Activities, Excellence, Self Mastery
6. Morality, Religion
Maslow makes no mention of ever having read Marshall. The hierarchies are similar.
What Maslow Wrote (1943a and 1943b)
One of Maslow’s major shortcomings might have been the belief that academics
would read the entire body of his work before focussing upon and commenting on an
artificially isolated segment. The following are some important statements by Maslow from
his original writings (1943a and 1943b):

Significant and generally ignored: Maslow says needs usually rest on prior satisfaction of
more pre-potent needs, not must, as is stated by many authors, e.g. Heylighen (1992)
and Fey (1997). According to Maslow: “Human needs arrange themselves in hierarchies
of pre-potency. That is to say, the appearance of one need usually rests on the prior
satisfaction of another, more pre-potent need. Man is a perpetually wanting animal. Also
33
no need or drive can be treated as if it were isolated or discrete; every drive is related to
the state of satisfaction or dissatisfaction of other drives.”

The hunger drive (or any other physiological drive) was rejected as a centring point or
model for a definitive theory of motivation. Any drive that is somatically based and
localisable was shown to be atypical rather than typical in human motivation.

Such a theory should stress and centre itself upon ultimate or basic goals rather than
partial or superficial ones, upon ends rather than means to these ends. Such a stress
would imply a more central place for unconscious than for conscious motivations.

There are usually available various cultural paths to the same goal. Therefore, conscious,
specific, local-cultural desires are not as fundamental in motivation theory as the more
basic, unconscious goals.

Any motivated behaviour, either preparatory or consummatory, must be understood to
be a channel through which many basic needs may be simultaneously expressed or
satisfied. Typically, an act has more than one motivation.

The situation or the field (ecology) in which the organism reacts must be taken into
account but the field alone can rarely serve as an exclusive explanation for behaviour.
Furthermore, the field itself must be interpreted in terms of the organism. Field theory
cannot be a substitute for motivation theory.

Motivation theory is not synonymous with behaviour theory. Motivations are only one
class of determinants of behaviour. While behaviour is almost always motivated, it is also
almost always biologically, culturally and situationally determined as well.
The physiological needs are high priority. When they are not fulfilled to a sufficient level,
almost all effort goes to filling these basic needs. Once these are nearing complete
satisfaction, effort is allocated to the next level of the hierarchy, e.g., safety. Once safety is
nearing satisfaction, effort is allocated to the next level, and so on for each of the higher
needs. “The chief principle of organization in human motivational life is the arrangement of
basic needs in a hierarchy of lesser or greater priority” (Maslow, 1970, p. 59). This process is
depicted for a hypothetical individual in Figure 1 (from Hagerty, 1999).
34
The “Harvard Law of Behavior” or “Harvard Law of Animal Behavior” (anon.) states if
a rat is placed in a Skinner box (operant conditioning box) and all the relevant conditions are
diligently controlled, the rat will do whatever it pleases. Considering this truism in light of
Maslow’s hierarchy, we can describe such behaviour in terms of varying salience of needs. A
hungry rat being put in a situation, if hungry enough and previously trained, might
immediately start the behaviour leading to food. If sensory traces of another rat are in the
box then investigation of the inside of the box might occur, motivated by curiosity or safety
concerns. We can develop a parallel of a very hungry middle-class male in a city in a country
who is in a situation where he must have cash to eat. Seeing an Automatic Teller Machine
(ATM) in a dangerous looking street will not necessarily lead to proceeding directly to the
ATM, but the higher order Safety need will more than likely become salient until satisfied by
inspection of the environment.
In a meta-analysis of studies of immigrants, Adler (1977) pointed out that a need may
have multiple motivations. For example, he notes that acquisition of housing for immigrants
is motivated by both Security needs and Esteem needs.
EIGHT LEVELS, NOT FIVE
Maslow’s Self-actualisation concept was developed from interactions with Kurt
Goldstein, who had originated the idea of self-actualization in his book, The Organism
(Goldstein, 1934). Also of some concern to me is the prevalence in the literature of
discussion of Maslow’s “Five-Level Hierarchy”. Maslow expanded his theory to eight levels,
specifically naming two lower-level growth needs prior to the general level of selfactualization (Maslow & Lowery, 1998) and one beyond that level (Maslow, 1971). They are:
5) Cognitive: to know, to understand, and explore;
6) Aesthetic: symmetry, order, and beauty;
7) Self-actualization: to find self-fulfilment and realize one's potential; and
8) Self-transcendence: to connect to something beyond the ego or to help others find selffulfilment and realize their potential.
Selmer & Littrell (2010) in their review of Maslow’s work find his actual set of needs as
depicted in Figure 2.
35
SelfTranscendence
Self-Actualisation
Aesthetic Needs
Need to Know & Understand
Esteem Needs
Belongingness & Love Needs
Safety Needs
Physiological Needs
Figure 2. Maslow’ Hierarchy of Needs
“ACADEMIC AMNESIA” AND “DÉJÀ VU ALL OVER AGAIN”
Some academics in the management discipline have written to and commented to
me that they dismiss Maslow’s work based upon Wahba and Bridwell’s 1976 publication,
apparently having read nothing concerning Maslow since. It is important to read original
publications, rather than second- or third-hand accounts, say Dye, Mills, and Weatherbee
(2005), and they demonstrate that management theorizing needs to be understood in its
historical context. Hunt and Dodge (2000), in “Leadership déjà vu all over again”, comment
that much business literature neglects its historical-contextual antecedents and as a result
over-emphasizes contemporary zeitgeist, or tenor of the times’ social forces. This neglect
impedes research by encouraging academic amnesia and promoting a strong feeling of
research déjà vu amongst many more-responsible researchers and practitioners.
Maslow proposed his hierarchy of needs theory more than sixty years ago when the
flavours of the decade were Behaviourism and Freudian psychoanalytic approaches. Maslow
indicated the necessity of the study of well-adjusted humans who were motivated by
systems and ecology in addition to stimulus-response and animal instincts. The higher values
in the hierarchy of needs were in sharp contrast to the mechanistic Behaviourism introduced
by Watson (1913, 1919). Behaviourism was strictly observational and based solely on
measurements. The tenets of Freudian psychoanalysis are that man is ruled by an
unconscious mind and motivated primarily by animal instincts. At that time it was a
36
revolutionary proposal for redirection of theoretical development in understanding human
motivation.
We might speculate that one reason Maslow’s motivational theory remains salient in
contemporary marketing, motivation and management literature, especially textbooks, is
that nothing with superior explanatory power has arisen to replace it. And in fact, in 1979,
Nehrbrass was criticising management academics for blindly accepting the philosophical
approaches of Maslow and McGregor.
SUPPORT FROM RESEARCH
Maslow’s theoretical approach has often been criticised as lacking empirical and case
study research support. I question this criticism. Reviewing PsychArticles in the OVID
database from 1977, after Wahba and Bridwell (1976), through 2010 yields 887 results with
Maslow as a keyword. One might hope that rather than continually trumpeting criticism of
“lack of research support”, management researchers might carry out studies that test the
theory.
Maslow carried out case study research in the formulation of the theory, described in
considerable detail in Motivation and Personality (1970), in which he provided concrete
examples and illustrations of self-actualizing behaviour. The study analyses the biographies
of historical and public figures such as Abraham Lincoln, Spinoza, Einstein, and Eleanor
Roosevelt, amongst others, and by observation and interviewing of a few contemporaries,
who were rigorously selected on the basis of absence of any signs of neurotic behaviour,
together with the presence of positive signs of psychological health and well-being. Maslow
found these disparate personalities appeared to have many non-trivial characteristics in
common, which together could be taken to define a particular personality type. The reader is
directed to Maslow (1970) for details. Some criticise picking a small number of people that
he himself declared self-actualizing, then reading about them or talking with them, and
coming to conclusions about what self-actualization is in the first place as not being “good
science”. However, this is the exact process we use to develop case studies in business.
Empirical tests have been undertaken for quite some time, e.g., Shostrom’s (1965)
development of an inventory for the measurement of Self-Actualization.
Maslow’s hierarchy of needs has also met severe criticism from researchers arguing
that it is not in accordance with facts, that the needs exist but not the hierarchy. Such
criticisms are based upon a fallacious, static, “photo snap-shot” interpretation of Maslow’s
theoretical model. It is certainly ludicrous to believe that as we finish breakfast in our safe,
secure home we are driven by our intrinsic motivations to then go and affiliate with others.
Depending upon the contingencies, we are as likely to engage in building self-esteem or
gaining the esteem of others, to engage in study, or to appreciate a beautiful object, or to
eat some more as we are still hungry. Humans are complex, the ecology is complex, and the
interaction of the two is even more complex. As one approaches or achieves level 7, Selfactualization, and finds self-fulfilment and realizes one’s potential, and then level 8, Selftranscendence, then the desire to connect to something beyond the ego or to help others
find self-fulfilment and realize their potential might be expected to enable us to postpone
gratification of lower order needs to pursue higher order needs.
Aggernaes (1989) points out that we are often sticking to a direction in spite of not
getting our needs fulfilled, giving as examples soldiers who are creative in spite of lack of
security or self-transcendent to the point of giving their lives for others, artists who eschew
37
financial gain to remain true to their vision of art, and hungry children still playing, implying
that needs cannot be ordered in such a hierarchy as Maslow’s. Huizinga’s (1970) extensive
study attempting to validate the hierarchy in fact demonstrates that the salience of needs,
and hence the hierarchy varies according to contingencies. Ventegodt, Merrick & Andersen
(2003) argue that we are always striving to actualize ourselves no matter what, but during
hard times we have to modify our motivations, often to such a degree that we could almost
completely loose contact with any purpose in life other than survival. This adaptation
through modification of our personality and worldview seems highly advantageous for
survival, and every child seems to use it as a matter of course. Empirical research studies
endeavouring to demonstrate Maslow’s need hierarchy have employed many and varied
operationalisations, with some questionable as to which need level they actually
operationalise. Virtually all the studies reviewed dealt with needs above the physiological
level. A few of the many research results supporting specific levels or a few of the levels of
the theory include,

Silton (2011) reports needs discussed by Maslow appear to be represented in brain
physiology, suggesting that the needs in Maslow’s hierarchy pertaining to safety,
love, and self-esteem are represented by two related brain function systems. An
additional brain mechanism, which may underlie self-actualisation was also
presented and discussed.

Hagger, Chatzisarantis, and Harris (2006) report a study of tertiary students in the UK
examining psychological need satisfaction in the context of environmental conditions
in which the psychological needs are supported or thwarted, finding that the
variation in conditions moderates the effect of psychological need satisfaction on
motivation and intentions.

DeVaney and Zhan (2003) find support for the hierarchy in a study of job satisfaction
in finance major graduates in a single large university in the Midwest the USA.

Smith (2003) found support for the model of motivation in ancillary staff, with some
confounding of operationalisation of Esteem across diverse industries and job levels
at a single university in the UK.
Maslow’s theories are widely used in development of effective management and
educator training and education programmes. See for example Bailey and Pownell (1998)
who employed five levels of Maslow's hierarchy of needs as a model for developing
technology training and support for teachers, identifying technology-related needs that must
be met before higher levels of technology integration can be achieved.
Personality, Optimism, Pessimism, and Hierarchy
Further evidence of the interactivity of the levels of the needs hierarchy is presented
by Wade (2010), investigated polarising differences between pessimistic versus optimistic
personality paradigms and their influences on the determinants of individuals realizing
higher levels of self-actualization. This situation is illustrated by an interview from Kress,
Aviliés, Taylor & Winchell (2011, p. 142), “Cindy: …For example, when I was a young street
38
musician in Key West, Florida, I experienced tremendous moments of self-actualization. I felt
a great deal of self-esteem. I felt a great deal of love from people around me; however, I was
poor, spent many nights sleeping in a van, reached a point where day-to-day I wasn’t sure if I
would make enough money to eat (once I actually resorted to dumpster diving). I had no
reason to believe I would ever experience any degree of social mobility. Now I have a
doctorate, a good-paying, meaningful career. I own my own house. I have the love of my
family, and yet I have a gnawing fear of “here today; gone tomorrow.” Although my basic
physiological needs, and my need for safety would seem to be met, I never really feel safe—
especially as I see friends and family losing jobs, and some facing foreclosure on their
homes…”
Cindy further comments on the differences in self-esteem and the esteem from others. She
believes it is not possible to experience self-esteem without the esteem of others. This is an
indication of the need for further research concerning the interaction of Need for
Belongingness, Self-Actualisation, and Self-Transcendence, particularly across cultures.
MASLOW, MOTIVATION, AND CULTURE
Apparently the first cross-cultural application of Maslow’s need hierarchy to the
workplace was Haire et al. (1961, discussed in Fey, 2005) and (1966), who found systematic
differences in managerial need strengths across cultures. A number of other studies found
Maslow’s need hierarchy to be similar, although not identical, in different countries such as,





India (Jaggi, 1979),
Peru (Stephens, Kedia, and Ezell, 1979)
Shenkar and Ronen (1987) in an empirical study of value managers in the People’s
Republic of China found a value structure similar to Maslow’s.
Frey & Osterloh (2005) investigated salary level, bonuses, and interesting work, and
work environment in Sweden and Russia and provided support for the
appropriateness of the concept of a need hierarchy such as Maslow’s (1954),
providing support for the theory in two cultures.
DeVos and Mizushima (1973) questioned the appropriateness of achievement
motivation being conceptualized at the individual level in all cultures since a major
aspect of achievement motivation in countries like Japan involves Maslow’s need to
belong.
Conversely, Hofstede (1980, 1984) argued that Maslow’s need hierarchy was
ethnocentric, and was not universally applicable across cultures due to variations in national
culture. Hofstede (1984) found that the ordering of needs in Maslow’s hierarchy represents
a cultural value choice, and hence Maslow’s value choice, based upon Maslow’s mid-20th
century U.S. middle class values. Maslow’s ordering of needs was replicated in the U.S., but
not in other nationalities. Hence, managers working in different counties must be aware that
cultural groups order their needs differently.
Further, other studies, including Blunt and Jones (1992), Kanungo and Mendonca
(1994), and Tayeb (1988), purport to provide evidence that rejects the universality of
Maslow’s need hierarchy across national cultures in different countries. The primary
argument has been with the ranking of the mid-range needs. For example, Jackson and Bak
39
(1998) find that the Belongingness and Love (affiliate with others, be accepted) need in
China is highly related to safety and security, being out of danger, for with no in-group
memberships, life and mental health are precarious in Chinese societies. Similarly, Esteem is
an aspect of maintaining Face, in the sense of the mian aspect of Face, that is, prestige and
reputation achieved through success in life and frequently through ostentatious display of
wealth (automobile brands, conspicuous consumption, wanton waste), or perhaps some
other desirable trait (education or position in an organisation).
Need for Longitudinal Studies
Vallerand & Ratelle (2002) suggest that some bottom-up processes may operate
within hierarchical motivation models such that repeated experiences of behaviours at the
situational level affect psychological need satisfaction at the personal global level. They
suggest future studies adopt a cross-lagged panel design in which the constructs of the
model are measured at different time points. Another avenue for research suggested by
Levesque & Pelletier (2003) would be to combine the recently developed methods for the
automatic activation of higher-level autonomous motives within the contexts of the current
model to try to further identify the conditions under which psychological need satisfaction
automatically influences behaviour and the conditions that result in a more reflective or
deliberative route to specific behaviour.
There are several longitudinal research studies accommodates these suggestions,
providing a cross-lagged panel study in conditions that theoretically could influence salience
of particular needs in the hierarchy level by threatening the satisfaction of lower order
deficiency needs.
Boeree (2006) provides detail discussing the hierarchy:
1. Physiological needs. These include the needs we have for oxygen, water, protein, salt,
sugar, calcium, and other minerals and vitamins. They also include the need to maintain a pH
balance (getting too acidic or base will kill you) and temperature (98.6 degrees F, or near to
it). Also, there is the needs to be active, to rest, to sleep, to get rid of wastes (carbon dioxide,
waste in solution (sweat, urine and faeces), to avoid pain, and to have sex. Maslow believed,
and research supports him, that these are in fact individual needs, and that a lack of, say,
vitamin C, will lead to a very specific hunger for things which have in the past provided that
vitamin C -- e.g. orange juice.
2. Safety and security needs. When the physiological needs are largely taken care of, this
second layer of needs comes into play. Humans will become increasingly interested in
finding safe circumstances, stability, protection, and in terms of personality one might
develop a need for structure, for order, and limits. In the ordinary adult in a developed
country, this set of needs manifest themselves in the form of our urges to have a home in a
safe neighbourhood, job security, financial savings, a good retirement plan, insurance, and
so on.
3. Love and belonging needs (the esteem of others). When physiological needs and safety
needs are, for the most part, taken care of, a third layer begins to show up. Humans begin to
feel the need for friends, a special companion of the opposite sex, children, affectionate
relationships in general, even a sense of community. Looked at negatively, you become
increasing susceptible to loneliness and resulting social anxieties. In day-to-day life, humans
40
exhibit these needs in desires to marry, have a family, be a part of a community, a member
of a church, a brother in the fraternity, a part of a gang or a bowling club. It is also a part of
what we look for in a career.
4. Esteem needs. Next humans seek self-esteem. Self-esteem leads to self–development,
which arises from our needs, and affects our behaviour (Deci and Ryan, 1985).Maslow noted
two versions of esteem needs: the lower one is the need for the respect of others, the need
for status, fame, glory, recognition, attention, reputation, appreciation, dignity, even
dominance; the higher form involves the need for self-respect, including such feelings as
confidence, competence, achievement, mastery, independence, and freedom. Interestingly,
these need describe the lian and mian aspects of Face in Chinese culture. This is the “higher”
form because, unlike the respect of others, once you have self-respect, it is a lot harder to
lose.
The negative version of these needs is low self-esteem and inferiority complexes. Maslow
felt that Alfred Adler was on target when he proposed that these were at the roots of many,
if not most, of our psychological problems. In modern countries, most of us have what we
need in regard to our physiological and safety needs. We, more often than not, have quite a
bit of love and belonging, too. It is sufficient respect from others that often seems hard to
achieve.
These four levels Maslow calls deficit needs, or D-needs. If you do not have enough you have
a deficit; you are consciously aware of the need. If the needs are met one feels nothing at all;
they cease to be motivating.
The higher-order needs consist of:
5) Cognitive: to know, to understand, and explore;
6) Aesthetic: symmetry, order, and beauty;
7) Self-actualization: to find self-fulfilment and realize one's potential; and
8) Self-transcendence: to connect to something beyond the ego or to help others find selffulfilment and realize their potential.
Much is made of “Self-actualization” in discussion of the theory. To study the self-actualizing
personality, Maslow (1970) selected 48 individuals who appeared to be making full use of
their talents and were at the height of humanness. His subjects were students and personal
acquaintances, as well as historical figures. In the final analysis, he described 12 “probable,”
10 “partial,” and 26 “potential or possible” self-actualizers. His analysis of these individuals
identified fifteen traits that he felt were characteristic of the self-actualizing personality.
1. More efficient perception of reality, realistic and objective in their analysis of the
environment, and able to detect that which is dishonest or false.
2. Acceptance of self and others, lack guilt, shame, doubt, and anxiety, capable of
accepting themselves for what they are and know their strengths and weaknesses
without being guilty or defensive.
3. Spontaneity in their overt behaviour, as well as in inner thought; perhaps conforming
to societal standards and roles, some self-actualizing people develop their own value
system; self-actualizers perceive each person, event, or object pragmatically as
unique.
4. Problem centring, direct their energies toward tasks or problems and are likely to
consider their own goals important.
5. Detachment, need more solitude than the societal norm (this reflects the fulfilment
of needs for belongingness and esteem derived from others.)
41
6. Autonomy, independence, propelled by growth motivation more than by deficiency
motivation; self-contained personalities:
Note: the needs for love, safety, and other lower level need gratification come only
from without; the implication is that in the self-actualised, these deficiencies are
satiated and perhaps devalued, and individual development begins, e.g. selfactualization.
7. Continued freshness of appreciation; Self-actualizing people have the capacity to
continually appreciate nature and life and see new pleasures in repeated
experiences.
8. The mystic experience, not necessarily religious in the sense of attendance at formal
worship, but they do have periodic peaks of experience that Maslow describes as
limitless horizons opening up to the vision, the feeling of being simultaneously more
powerful and also more helpless than one ever was before, the feeling of great
ecstasy and wonder and awe, the loss of placing time and space with, finally the
conviction that something extremely important and valuable had happened, so that
the subject is to some extent transformed and strengthened even in his daily life by
such experiences.
9. Gemeinschaftsgefuhl, first coined by Alfred Adler, is used by Maslow to describe the
feelings toward mankind that self-actualizing person’s experience, loosely described
as “the love of an older brother,” is an expression of affection, sympathy, and
identification.
10. Unique interpersonal relations; Self-actualizers have fewer “friends” than others, but
have profound relationships with those friends they do have. Outside of these
friendships, they tend to be kind and patient with all whom they meet. However,
they may be harsh in dealing with hypocritical, pretentious, or pompous people. For
the most part, however, the hostility they exhibit is based not on character but on
situation.
11. Democratic character structure, being tolerant of others with suitable character,
regardless of their social class, race, education, religion, or political belief.
12. Discrimination between means and ends, rather than making decisions based upon
expedience, self-actualizing people have a highly developed (though perhaps
personal) ethical sense. Self-actualizers distinguish means from ends and will not
pursue even a highly desirable end by means that are not morally correct in their
framework.
13. Philosophical, unhostile sense of humour, the humour of self-actualizers is not the
ordinary type. As Maslow (1970) describes it:
They do not consider funny what the average man considers to be
funny. Thus they do not laugh at hostile humor (making people laugh
by hurting someone) or superiority humor (laughing at someone
else's inferiority) or authority-rebellion humor (the unfunny, Oedipal,
or smutty joke). Characteristically what they consider humor is more
closely allied to philosophy than to anything else. It may also be
called the humor of the real because it consists in large part of poking
fun at human beings in general when they are foolish, or forget their
place in the universe, or try to be big when they are actually small.
This can take the form of poking fun at themselves, but this is not
done in any masochistic or clownlike way. Lincoln's humor can serve
42
as a suitable example. Probably Lincoln never made a joke that hurt
anybody else; it is also likely that many or even most of his jokes had
something to say, had a function beyond just producing a laugh. They
often seemed to be education in a more palatable form, akin to
parables or fables.
14. Creativeness, every self-actualizing person identified by Maslow was creative in some
way, not the creativity equated with genius, e.g., Mozart or Einstein, rather “the
naive and universal creativeness of unspoiled children.” He believed that creativity in
this sense is possibly a fundamental characteristic that we are all born with, but lose
as we become educated and enculturated. It is linked to being spontaneous and less
inhibited than others, and it expresses itself in every day activities.
15. Resistance to enculturation, Self-actualizers accept their culture in most ways, but
they resist unthinking enculturation. Many desire social change, are generally
independent of their culture, and exhibit tolerant acceptance of the behaviour
expected within their society. Maslow believes that the self-actualizers he describes
are not revolutionaries, but they very easily could be. He further states that they are
not against fighting for social change; rather, they are very against ineffective
fighting.
The subjects studied by Maslow were for the most part highly intelligent and possessed
several or even many of the characteristics so far presented. This does not mean, however,
that they were perfect. In fact, Maslow noted a number of human failings associated with
self-actualized people. Some can be boring, stubborn, or vain, have thoughtless habits, be
wasteful or falsely proud. They may have enormous emotions of guilt, anxiety or strife, and
may experience inner conflicts. They are also "occasionally capable of an extraordinary and
unexpected ruthlessness." This ruthlessness may be seen when they feel they have been
deceived by a friend or if someone has been dishonest with them. They might, with a
surgical coldness, cut the person verbally or abruptly sever the relationship.
Abraham Maslow came about as close as anyone to articulating universal values
when he wrote of the self-actualized and self-transcendent persons. Self-transcendence is a
common stage of mental health in many cultures. Yip (2004) describes Taoistic concepts of
mental health as stressing the transcendence from self and secularity, the dynamic revertism
of nature, integration with nature and the pursuit of the infinite. Compared with western
concepts of mental health, Taoism advocates self-transcendence, integration with the Law of
Nature, inaction and infinite frame of reference instead of social attainment, selfdevelopment, progressive endeavour and personal interpretation. This description combines
SUMMARY
Despite criticism, Maslow's theory continues to be popular amongst managers,
psychologists, and in the business academic disciplines of human resource management and
organisational theory and behaviour. "Maslow's view is still widely accepted and enormously
influential in managerial practice" (Bolman & Deal, 2008, p. 125). Maslow's model is clear in
concept and sensible in practice. The U.S.-headquartered package delivery company Federal
Express is an example of a highly successful company that framed their business policies
around Maslow's theory (Bolman & Deal, 2008), with Maslow's proposals integrated into the
company's management philosophy and reflected in their Manager's Guide.
43
Popper (2011) offers Maslow’s theory for choosing approaches to analysis of leaders’
influence. Maslow’s theory (1970) was also used by Burns (1978) seminal book for explaining
leaders’ influence. In predicting and explaining leadership, we need to first ask whether the
primary need of a given population is the need for security (one of the most basic needs in
Maslow’s hierarchy of needs), as actually happens in severe crisis situations. If this is the
case, a psychodynamic perspective will provide concepts that are more relevant to the
analysis of followers’ attraction to a particular leader. On the other hand, if the need for
belonging is preeminent in a given population, for example, societies in a process of national
consolidation, or organizations in the course of establishment or change, or formation of
organizational units, or any social psychological perspective that focuses on identity
processes and group variables will provide a good conceptual basis for the choice and
interpretation of patterns of followers’ attraction to leaders. Similarly, if the higher needs in
Maslow’s hierarchy are dominant amongst the followers, as frequently occurs in business
organizations, the psycho-cognitive perspective can offer the appropriate framework for
characterizing the influence of leaders. For example, the concept of Maslow’s theory-based
exchange relations with the leader as inferred from the leader’s specific behaviours will
provide better predictions and explanations (Graen & Uhl-Bien, 1995).
Let us be responsible in our own research and education, which we employ to
educate others, and avoid “Academic Amnesia” and “Déjà vu All Over Again”.
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48
TRANSFORMATIONAL LEADERSHIP AS THEOLOGY
Bernard Mees
Royal Melbourne Institute of Technology, Australia
There has been something rather evangelical going on in the part of management studies
which concentrates on “leadership” in recent years. Since the 1980s, an obsession with
heroes and charisma appears to have become characteristic of the field. If you are not doing
“transformational” leadership study or are not devouring the associated literature, then you
are not up with the cutting edge -- or at least that is the impression that many have of
contemporary leadership studies. The field is unapologetically grounded in Carlyle and
Weber, and is dominated by psychologists, business academics and those ever-present
survey questionnaires. Innovation, entrepreneurship and change are the managerialist
buzzwords most closely associated with the concept. Indeed the transformational approach
to leadership has even been christened a new “paradigm” in leadership studies, an
intellectual movement that represents a pronounced recalibration of the previous “world
view” held by many leadership researchers.
Leadership in the transformational studies field comes in two types: transformational
(good) and transactional (bad to average). Transformational behaviours are those which
foster commitment in staff, giving them something to believe in, making them willing to
sacrifice above and beyond the usual world of incentives and advancement (House 1977,
Bass 1985, House and Aditya 1997). Transactional leaders on the other hand only encourage
normal behaviour -- getting the job done without doing it exceptionally. The main selling
point of transformational leadership is that it (apparently) makes firms more profitable,
gives staff a reason to turn up to work; it energises those who experience it to do their best
for their companies. Transformational leadership focuses on values, vision, belief and trust,
and seems to many to represent a panacea for the ills traditionally associated with industrial
life. But it above all also seems to answer the question posed by students of business
innovation: what are the characteristics most commonly associated with successful
entrepreneurs (and can they be copied)? That this discourse is considered rather bilious by
many other social scientists does not seem to have been understood (or taken seriously) by
the main proponents of the transformational leadership field.
There is a recognition, however, that words such as “leadership” remind many
Europeans of the ills of the “dark decade” of the 1930s (Den Hartog et al. 1999). Both Hitler
and Mussolini styled themselves simply as “leaders” (Führer, Duce) and charisma (and the
active encouragement of cults of personality) are well-documented historical phenomena of
the most retrograde dictatorships of the twentieth century (Tucker 1979, Kershaw 1987,
Leese 2007). The leadership field embraces studies of the charismatic leaders of the past
without evidently displaying much concern for how politically troublesome such hailing of
heroes and heroism in the business field is to those who harbour a broader mistrust in
management studies. Transformational leadership can be seen to represent the
transcendent apogee of the contemporary managerialist movement (Parker 2002). It would
seem to many that this discourse promotes the notion that managers and entrepreneurs are
heroes, that transformational leadership scholars often act like their priests, and that in this
way transformational leadership scholarship can be seen to represent a theology of business
studies.
49
The characterisation theology might seem a harsh or unfair description of the findings
of business scholars who are more used to seeing their work as scientific. Leadership study
does, after all, usually entail of a lot of questionnaire development, reviewing and statistical
modelling. But the features that leadership advocates study most commonly are those
already discerned by Max Weber (1922) -- and Weber’s work on charisma was an extension
of his forays into the sociology of religion (Riesebrodt 1999).
The model of charisma employed by Weber was developed from the religious history
of Rudolf Sohm (1888). It was derived in part and is typical of the romantic stream of
German history of religions epitomised in Weber’s later years in the form of the work on
holiness by Rudolf Otto (1917). This romantic school of history of religions had its American
counterpart in the studies of heroes by Joseph Campbell, particularly his Hero with a
Thousand Faces (1949). Campbell’s work was overtly Jungian and represents an
anthropological foil to the use of Jungian archetype theory most notably (and
controversially) in the business world in the Myer-Briggs (personality) Type Indicator.
The alternate stream in history of religions in Weber’s day was the sociological
tradition founded by Émile Durkheim (1912). Otto’s principal critic was the German
medievalist Walter Baetke (1942) who decried romanticism in religious studies as
unempirical speculation. Baetke (1964) was a noted critic also of the use of charisma in
explanations of medieval phenomena such as sacral kingship -- i.e. the idea that many early
European kings were thought to have divine or charismatic “gifts”. The notion that some
leaders were naturally endowed with (cf. Greek chárisma ‘the gift of grace’) certain
characteristics which made them natural leaders became anathema to those whose
ideological antennae were particularly informed by the experience of National Socialism.
Jung himself was a supporter of Hitler, seeing him as a kind of national messiah (Lewin
2009), and there remains a suspicion among even many business scholars that there is
something very reactionary about the social-science discourses which have grown up about
Jung’s archetype studies. Discourses of heroism and transcendence were so redolent in
Germany in the 1920s and 30s that any discussion of these phenomena can strike a student
of that intellectual past as quite unsavoury. Many European scholars mused about charisma,
leadership and the nature of authority during the pre-war period, their ideas often being
forgotten after the 1940s, their works only scoured by scholars seeking to explain the rise of
the interwar European dictatorships and especially Nazism.
Fascism, particularly in its German expression, was an intellectual as well as political
movement, and many discourses of the “conservative revolution” which accompanied the
rise of the German (and Austrian) far right were directly concerned with leadership. The
Führerprinzip or “leadership principle” of Nazi Germany (which encouraged blind obedience
to Hitler) had been developed as part of the Nietzschean discourse of the reforming
“superman” (Nietzsche 1883) who would usher in the millenarian German “Third Reich”. It
was figures such as Arthur Moeller van den Bruck (1923) who developed much of the
transcendental leadership theorising which seems to have been validated by the Hitlerian
hysteria of the time (cf. Stern 1961). The “leadership principle” was enshrined in National
Socialist legal codes, including the German corporations law, and had been imbued from its
first inception in charismatic, messianic and authoritarian terms. Thus the associated
intellectual studies of charismatic leaders produced in the years immediately before the rise
of Hitler are often seen as ideologically tainted by intellectual historians today and part of a
broader discursive formation (in the Foucauldian sense) which aided, informed and abetted
the crimes of National Socialism.
50
Yet part of the development of industrial societies is an ongoing focus on innovation,
and since the appearance of Daniel Bell’s (1973) study of post-Fordist developments in the
labour process, a rising cult of entrepreunerialism. As the advanced Western economies
moved away from an overt dependency on their manufacturing bases, innovation and
entrepreneurship have become ever broader and louder themes in wider social discourse.
Entrepreneurship studies can be seen to be founded by a seminal 1985 study by Peter
Drucker who emphasised that the productive core of Bell’s new knowledge economy was to
be represented by small business -- new technology and services companies rather than the
pre-existing industrial giants. And as small-scale capitalism has not ever been seen to be well
explained via larger-scale structuralist or economic principles, a focus has returned in
entrepreneurship (and management) scholarship to the individual, the innovating hero of
the new post-industrial, post-Marxist society.
As the contemporary political economy in most Western countries has become evermore entangled by discourses of innovation, it would only seem predictable that leadership
studies would itself move away from the behavioural model typical of the thinking of the
1950s and 60s back to a focus on individuals and symbolic notions such as charisma.
American leadership studies were crucially informed by the work of left-wing social
reformers such as Kurt Lewin (1947) who was himself a refugee of Nazi Germany. Yet as in
Lewin’s (other) field of change-management studies, research in leadership has now become
largely one with the left “written out” (Cooke 1999). Where early followers of Lewin such as
Rensis Likert (1979) were particularly concerned about exploitative and authoritarian
managers, and how these figures contributed to organisational dysfunction, the “new
leadership studies” which began in the 1980s seems to have transcended much of this
earlier concern with matters of political economy.
The charismatic aspect of modern business seems explicable neither in terms of social
structures nor by an economic literature of rational individualism. After all, much social
science has tended to write out the individual to the advantage of the more broadly social.
But taken in a historical perspective, transformational leadership often appears to represent
little more than an attempt to discern traits shared by people who are associated with
change in business practice (both entrepreneurial and organisational) and how this
contributes to symbolically assumed societal ideals. Transformational leadership studies is a
discourse with clear Jungian resonances as well as ideological overtones of a type that were
once thought to be largely discredited. Platonic notions of ideal heroic or leadership types
and the manner in which business people in authority can emulate these seems to be the
main concern of the new leadership study. Where C. Wright Mills (1959) once characterised
scholars as representing either servants to kings or their critics, transformational leadership
scholars seem instead to represent not just proponents, devotees or even hagiographers,
but rather preachers of a charismatic cult of modern economic advancement and hence of
the business leader as a transcendent (as well as transcending) economic hero.
The charismatic political cults of the last century are now broadly associated by
historians with notions of secularisation and political religion (Vogelin 1939, Herz 2004,
Babík 2006). This model explains the transference of features associated with religion (such
as charisma) into the secular field. Religious fervour is seen to be the most obvious parallel
to the ecstatic behaviours typified in the Nazi Nuremberg rallies -- and similar attempts to
“gee up” staff, to inculcate extraordinary devotion in them (along with all the talk of visions
and values) has obvious religious overtones. Passion, devotion and charisma are all originally
religious concepts as is the notion of (personal) transformation. And rather than a political
51
religion, transformational leadership studies often seems tacitly to advocate instead a
managerialist one.
A parallel development in the management field might be thought to be the “positive”
branch of organisation studies associated with figures such as Lex Donaldson. In Donaldson’s
view of corporate governance, chief executives are not agents of capital requiring
monitoring or other forms of “agency costs”, but Maslowian self-actualising individuals
instead -- blokes you (usually) can trust (Davis, Donaldson and Schoorman 1997). Business
ethics should also be “pro-management”, not endlessly carping according to this school
(Donaldson 2008). Someone has to be at the top and elites do not need constantly to be told
that they are avaricious or domineering types who should (instead) be wracked with guilt
and self-doubt. The transformational leader should not be concerned by failure, because
drive and transcendence is what good leadership entails by definition according to the
transformational school. History is for historians, reflection for monks, not for pro-active
business types.
Critiques of transformational scholarship have claimed that the categories promoted in
this tradition often lack critical definition -- the boundaries shift so easily sometimes that the
definition of transformation (i.e. change in a business setting) often seems to have become
the fulcrum about which “variables” such as authoritarianism and participation rotate (Yukl
1999). In many ways transformational theory seems little more than a sophisticated,
charismatised restatement of the notion that management and business is all about Joseph
Schumpeter’s (1942) notion of “creative destruction” -- of initiating and bringing about
(politico-)economic change. Part of the appeal of the transformational model is no doubt
that it seems to explain (and reinforce) so well the emphasis on innovation that Karl Marx
(1867) had so long ago perceived to be an essential part of capitalism. As such,
transformational leadership studies do not represent merely an elaborate glorification of
post-Fordist capitalist innovation, they often seem to constitute its (secular) theology -- a
sophisticated, positivistic and symbolic ideologisation of one of the most messianic features
of the modern managerialist political economy.
Yet transformational leadership studies also represent a kind of social science that
glosses over, confuses and conflates the traditional social boundaries of left and right, of
equality and inequality, of oppression and freedom, in the search for a universal category of
leadership. The business studies equivalent of the historical and political critiques of “cults of
personality” is not constituted pessimistically, though -- i.e. as an analysis which seeks to
interrogate and hence expose the way in which elites attempt to bolster their politicoeconomic power. The famous 1956 “Secret speech” of Nikita Khrushchev which denounced
his Soviet predecessor Stalin represents a turning point in both Western and Eastern
understandings of political charisma -- a realisation that heroic leadership discourses were
anathema to good governance and civil society (Leese 1997). This is the political legacy of
instrumentalised charisma that is implacably opposed to liberal democratic notions as
fundamental as John Locke’s (1690) “liberty” or Karl Popper’s (1945) “open society”.
Charismatic leadership has a particularly ugly history before it was revived by American
business scholars in the profoundly neo-liberal climate of the 1980s and 90s.
One of the key traits proposed, however, in most of the transformational leadership
literature concerns issues such as trust, honestly and openness. In this way (and in a manner
reminiscent of Chester Barnard’s 1934 approach to managerialism), a form of ethical
understanding features at the core of recent transformational study -- and could be taken to
separate it from earlier discourses such as those which arose during the German
52
conservative revolution. But to suggest that Moeller van der Bruck and his contemporaries
were not concerned with ethics would be misrepresentative -- the Third Reich was not
envisaged by these authors as one of immorality or persecution, racial hatred and murder.
Proponents of the new leadership studies often do not seem to be particularly interested in
the broader moral questions which arise in any discussion of authority. It is, perhaps, rather
the Jungian psychological foundations of much recent leadership theory -- a discipline which
is largely distrusted in other areas of social science -- in which some of this concern is surely
anchored. But it seems above all the lack of historical understanding -- of coming to grips
with the very unflattering history that charismatic models of leadership present in terms of
the twentieth-century past which is the major intellectual (and moral) hurdle faced by
proponents of this scholarship, so popular among management scholars and (of course)
managers (and entrepreneurs) themselves so recently.
It might be pleasing for managers and small business owners to think of themselves as
capitalistic heroes and messiahs, but it is not helpful for historical surveys of
transformational leadership studies to gloss over the very mottled past of charismatic theory
-- nor to proclaim the re-emergence of what may simply represent a recent fad of
management studies as “paradigmatic” and a matter of “world view” as has recently been
claimed (Hunt 1999). Thomas Kuhn’s (1962) notion of paradigmatic change is simply
bowdlerised by such guff and a failure to situate the new leadership scholarship in terms of
its broader intellectual past seems equally to constitute a form of disciplinary immaturity.
What disciplinary reminiscing has occurred in the leadership area (e.g. House and Aditya
1997, Hunt 1999) does not represent a developed intellectual history in the usual sense (cf.
Brett 2004), let alone one of the Foucauldian variety (Foucault 1969) which is so prevalent
(otherwise) in contemporary social theory. Indeed the recourse by scholars such as Hunt to
Carlyle’s On Heroes (1840) seems to forget why similar studies of “dead white males” are
largely left to popularisers (rather than academic historians) today. Instead we are left with
the impression of a discourse unengaged with broader issues (and one might say directions)
of social enquiry -- and particularly the “critical” (in the sense of Kant 1781) aspect of the
Western intellectual tradition. A Jungian canon is represented in contemporary
transformational studies, and the model proposed by its leading savants seems very much to
represent social science of the kind that Mills (1959) famously criticised as “grand theory”,
one where its unpleasantries are sometimes cursorily recognised (i.e. in a paragraph or two)
but which do not affect either the tenor or tone of the overarching analysis. If the further
development of transformational leadership studies is to remain intellectually totalising (as
many of its more recent reflections suggest), if it continues to crowd out alternative
perspectives and to lack a considered sense of political reflexivity, then it will remain merely
another of the more conceptually luddite expressions prevalent in contemporary business
studies.
The disquiet that emerges among many who encounter the new leadership canon
hailed as paradigmatic by its supporters is mostly political and ideological. But it should also
be an intellectual and analytic concern -- transformational leadership studies has no critical
base; the field seems irredeemably naive when taken from an ideological perspective. Like
Taylorism before it, transformational study does not answer political questions, but like
scientific management represents instead its own form of ideology in its failure to question
itself critically. Yet rather than being too American, too fuzzy or too Jungian, it is the lack of
political understanding represented in much recent leadership research that seems
particularly concerning to critics of transformational leadership studies.
53
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55
Ignore history and context at your peril? Comparing organisational
reforms across jurisdictions
Julienne Molineaux
AUT University
This paper explores the very different histories of national libraries and official archives in
Canada and New Zealand, and asks to what extent organisational and professional history is
a determinant of success when merging organisations? I compare the 2004 merger of the
Canadian archives and library to form Library and Archives Canada/Bibliothèque et Archives
Canada, with the 2010 merger of Archives New Zealand, the National Library of New Zealand
and the Department of Internal Affairs. If organisational and professional histories across
jurisdictions are dissimilar, what can we learn from a comparative study?
56
How AS Paterson controlled technological change
Simon Mowatt
AUT University
Although now incorporated within the Goodman Fielder group, AS Paterson & Co.
represents a New Zealand conglomerate whose history can be traced back over a century
and a half, and which remained independent until acquisition by the Goodman Fielder group
in the late 1970s. Operated as a collection of interlocking subsidiaries a central part of the
group’s search for competitive advantage from the early 1900s was undertaken by
cooperative alliances with partners within and without New Zealand. This paper focuses on
the subsidiary Modern Plastics which sought knowledge exchange partnerships with firms in
Australia, the UK and the US from its inception and devoted considerable financial,
intellectual and human resources into the development and maintenance of these
arrangements. The firm was early to identify new technologies such as fibre glass being
developed overseas, and build strategies around their acquisition through partnerships.
Drawn from a detailed examination of minute books, annual reports, personal letters and
other materials held in the Turnbull business archives this paper offers a detailed
examination of the processes undertaken to operate complex business networks, and in
particular examines how the company attempted to control technological development
through long-term partnerships. The paper adds rich detail to the operation of business
networks in the 20thC and to the understanding of the operation of network structures of
business.
57
Strategic Change and Control - How Vogue Went Multinational
Howard Cox and Simon Mowatt
University of Worcester, UK and AUT University, NZ
Introduction
During the late 1980s international business theorists proposed a new model of
organisation for firms operating across a range of national borders which sought to integrate
the opposing forces of the need to be locally responsive and the pressure to maximise global
integration in order to achieve maximum economies of scale and scope. Two firms
historically represented different approaches to international organisation despite
competing across largely similar product categories as direct competitors – the Anglo-Dutch
Unilever and the US-based Procter & Gamble (P&G). Unilever adopted a multinational form
of organisation placing considerable local autonomy at the national subsidiary level, whilst
P&G attempted to leverage marketing across a stable of global products (Kapferer, 2001:48).
Firms therefore could choose how strategically to conceptualise their international
operations in order to gain competitive advantage, and Bartlett and Ghoshal (1987a; 1987b;
1988; 1989) proposed the transnational enterprise form to reconcile these opposing
pressures. Firms have found it difficult to adopt this form of organisation, and made various
abortive attempts to achieve its benefits, such as the Ford Motor Co.’s ill-fated world car
programme developed in the mid-1970s (Wells and Rawlinson, 1992). Ohmae (2006) has
noted for example the intensive management processes required to balance local
adaptation against global integration. Against this background it is instructive to examine
how the American publishing magnate Condé Nast arguably developed an early
transnational firm in the first part of the twentieth Century, developing solutions to
managerial and organisational problems still being faced by firms today. Moreover, Nast was
part of a general wave of US internationalisation which included his great publishing rival
William Randolph Hearst, underscoring the relationship between firms ability to adopt
different organisation arrangements relating to conducive international environments. In
this way business history can offer a rich examination of competitive process and
organisation solutions which may draw new insights. This paper first examines the
establishment of Condé Nast’s magazine business and business model before examining the
internationalisation of the firm. The paper then analyses how the company overcome the
problems of achieving group economies of scope whilst being able to adapt content to the
tastes of specific local markets. The paper closes with some final comments.
Condé Nast and the ‘Class Magazine’ business model
Vogue magazine had originally been founded in 1892 as a New York society magazine by a
gentleman proprietor, Arthur Turnure, and edited by the socialite Josephine Redding (Chase
& Chase, 1954, p.23). Initially there was no specific coverage of woman’s fashion, in fact
advice for men’s dress was more prevalent, but by 1898 the emphasis had shifted towards
providing the women of New York’s social elite with advice on how to dress appropriately,
anticipating that those living outside of the urban centre would wish follow these trends
within the pages of the journal (Hill, 2004, p.8). One innovation that Turnure and advertising
58
manager Tom McCready instigated, with a mind to further develop the growing fashion
focus of the magazine, was a shift to block rather than line-based advertising, allowing
advertisers more space to experiment with pictures and the use of empty space rather than
the dense text typical of the time (Chase & Chase, 1954, pp.39-41). Observing these changes
Condé Nast, who as business manager of the popular Collier’s Weekly had built up that
magazine’s advertising revenue from $5,600 to over $1 million in ten years (Seebohm, 1982,
p.30),3 approached Turnure with an unsuccessful offer to buy Vogue in 1905. Nast As a
private venture Nast had also become Vice-President of the Home Pattern Company, which
had franchised dress-patterns from the Philadelphia-based Curtis Publishing Company’s
Ladies Home Journal, and from here he exploited the potential of the woman’s fashion
department by more than doubling the advertising revenue of its Quarterly Style Book in a
period of less than three years to around $400,000 per annum (Chase & Chase, 1954, 54).4
Vogue, which had started to publish dress patterns in 1899, appeared to Nast to have
the potential to serve as the vehicle with which he could develop a new business model for
the magazine industry. Rival American publisher Frank Munsey, who had harnessed the
power of new high-speed printing presses to cut the price of his monthly magazine to ten
cents, had already demonstrated to Nast that with advertising support it was possible to sell
a magazine profitably below production cost (Ohmann, 1996, p.25).5 Nast combined the idea
of advertising-led publications with his knowledge of the fashion market to develop a wellarticulated theory of the ‘class’ fashion magazine as a vehicle for attracting luxury
advertising. Realising that, by being able to effectively discriminate an affluent readership
that would attract the advertisers of luxury goods, a magazine could be supported through
advertising without the need for a large circulation Nast reasoned: ’If you had a tray with
two million needles on it, and only one hundred and fifty thousand of these had gold tips,
which you wanted, it would be an endless and costly process to weed them out. Moreover
the one million, eight hundred and fifty thousand which were not gold-tipped would be of
no use to you, they couldn’t help you. But if you could get a magnet that would draw out
only the gold ones, what a saving!’ (Chase & Chase, 1954, p.37).6 Vogue was to be the
magnet that attracted the gold.
Nast finally acquired Vogue in 1909, and began to implement a further shift towards
fashion coverage and advertising. Over the next twenty years he increased the annual profits
of Condé Nast Inc. from an initial $5,000 to $150,000 in 1915 and $650,000 by 1929.
Moreover, although the circulation had increased from around 14,000, prior to his
acquisition, to 30,000 by 1910, Nast was successful in attracting the quality adverting clients
he sought to develop his class strategy. Seebohm highlights that within the first six months
of 1910 Vogue carried 44 percent more pages of advertising than the Ladies Home Journal
(circulation 1.3 million) and 292 percent more than Harper’s Bazar (Seebohm, 1982, p.72).
The success of this strategy did not go unnoticed by Nast’s great competitor, William
3
During this same period (1897-1907) the circulation of Collier’s increased from 19,159 to 568,073.
On the significance of the dress pattern industry in the United States cf. Walsh (1979).
5
Munsey was one of a group of American publishers who in the early 1890s had hit upon a formula of
elegant simplicity: identify a large audience that is not hereditarily affluent or elite, but that is getting on
well enough, and that has cultural aspirations; give it what it wants; build a huge circulation; sell the
magazine at a price below the cost of production, and make your profit on advertising.
6
Condé Nast’s full manifesto for this strategy was published in the June 1913 edition of The
Merchants and Manufacturers Journal: 12.
4
59
Randolph Hearst, who acquired Harpar’s Bazar in 1913 and repositioned it as a fashion
magazine after the Vogue model (Zuckerman, 1998, p.19).7
The fashion magazine goes international
Having already extended his American-based activities in newspapers and magazines
from New York to Chicago, Boston and Los Angeles, Hearst then also developed an
international market for his magazine titles (Brendon, 1982, p.140). An export trade in
magazines between Britain and the United States had developed around the turn of the
century8 and, in common with US-based businessmen in other consumer industries, Hearst
was prepared to extend his involvement across the Atlantic by means of direct investment.
In 1911, following his purchase of the literary magazine Nash’s, Hearst set up the National
Magazine Company with editorial offices in Fleet Street, as a London-based bridgehead for
his publishing activities in Britain (Ashley, 2006, p.131; Nasaw, 2000, p.349).
With imported copies of Vogue in Britain selling between 3,000 and 4,000 copies per
issue by 1914, Condé Nast recognised an opportunity to follow Hearst’s internationalisation
lead. When the outbreak of the First World War cut off the flow of continental fashion
magazines, sales of Vogue in Britain rose sharply and by 1916 they had quadrupled, making
the printing of a local edition feasible. By this time the disruption of Atlantic shipping had
effectively curtailed exports of the magazine from America, and so Nast took the decision to
produce a British version of Vogue. A management team was put in place led by William
Wood, an Englishman who had been responsible for managing the distribution of the
American version, and included an advertising manager, George W. Kettle, the principal
proprietor of the Dorland Advertising Agency in Britain (which handled Vogue’s advertising
management until Condé Nast set up its own British advertising department in 1922)
(Seebohm, 1982, p.139). In the first issue of British Vogue (known affectionately within the
firm as Brogue), the magazine was able to attract advertising from producers of fashionable
clothing, such as Maison Lewis, Aquascutum, Gooch’s Ltd. and Spunella, Queen of Silks,
cosmetics manufacturers such as Helena Rubenstein, as well as leading London department
stores including Whiteley’s, Waring & Gillow, Peter Robinson’s and Selfridge & Co, who
commented in their advert that Vogue was ‘a beautifully printed journal.’9 In total the
inaugural issue carried 12 full page adverts, two half-page adverts and 58 box adverts.
The entry of Condé Nast represented a new paradigm in UK magazine publishing: the
‘class magazine’ designed to have a small but select affluent readership which would appeal
to the advertisers of luxury manufactures and their retailers. In order to fully develop this
business model, fundamental changes had to be made in the relationships maintained by
the firm. In order to be perceived as authentic leaders within the fashion industry by the
7
Harper’s Bazar had one ‘a’ until 1929 when it launched the UK edition as ‘Bazaar’ and changed the
American title in line with this. Cf. Ashley (2006, p.272). Hearst purchased many of his magazine titles;
both Cosmopolitan (1905) and Good Housekeeping (1911) were existing titles that Hearst acquired.
Cf. Peterson, (1956, pp.200-203). Nast also acquired rather than started his leading magazines.
8
Ayer’s Directory for 1910, for example, shows that both Strand Magazine and Pearson’s Magazine
were selling in New York. Ayer’s Directory (1910, p.1086). The US edition of the Strand Magazine ran
from January 1891 to February 1916. These were completely identical in terms of content to the UK
edition until November 1895. Cf. Ashley (2006, 207). In the 1890s it had been the growing import trade
in American magazines to Britain, such as Harper’s, Scribner’s, the Atlantic Monthly, and the Century,
that had provided the stimulus for George Newnes to launch his monthly Strand Magazine in the first
place. Cf. Pound (1966, 30).
9
British Vogue, September 15, 1916: 17.
60
consumer, Vogue was drawn into more direct participation in the fashion industry, creating
the imperative to engage its own art directors to produce or commission covers and
artwork. The development of connections with artists and designers also became an
international activity, in which the ownership of UK and French subsidiaries was
instrumental to the operation of the business as a whole. The need to be positioned as a
quality leader in the fashion world mandated that print and reproduction quality should be
continually improved through control over the technologies employed, and a strong
management system put in place to effectively supervise production costs. The focus on a
narrow segment also required a closer relationship with, and a reliance on advertising,
especially as the high cost of quality printing could not be fully offset by cover price and
subscription revenues given the comparatively low volume of sales. In dealing with a select
readership, this business model required an understanding of the consumer, driving the
development of market research in order to increase the effectiveness of targeted
advertising.
From commentator to actor: local responsiveness and embeddedness
Although a core component of the fashion magazine had been to report on international
trends, the magazine also had to appeal to local advertisers and readers. In this way the
market represented a classic mulitdomestic one, in which competitors would have to
understand local tastes and trends. In order to preserve adapt content for readers and
advertisers, fashion magazines had to project a quality image and be informed by the latest
developments in both global and local culture and fashion. This meant that fashion
magazines had to be authentically connected to the haute couture world in Paris. Condé
Nast ultimately achieved this authenticity by founding French Vogue in 1921, having earlier
in 1915 formed a working relationship with the highly-regarded French high fashion
magazine Gazette du Bon Ton published by Lucien Vogel. Vogel was also instrumental in
Condé Nast launching Jardin Des Modes, a re-branding of the failing L’Illustration de Modes.
As a result of this relationship the management of Condé Nast were able not only to access
the crème of France’s fashion illustrators, artists and later photographers, but also to directly
influence developments within the industry (Yoxall, 1966, p.111). Although French Vogue
was not profitable (Seebohm, 1982, pp.131-132),10 it provided American Vogue and Brogue
with content and endowed them with cultural authority, particularly with its studio serving
as a breeding ground for new illustrative talent. In this way the company was able to
leverage this local knowledge across its activities in the US and in the UK.
Attempting to forge authentic linkages with the world of haute couture was fraught
with problems and one which made the correct choice of editor crucial, requiring an editor
with a strong focus on developing the advertising market as well as being able to engage
with the art, editorial and fashion world. Initially because of poor choices of editors in the UK
Nast was unable to fully exploit his business ‘formula’ successfully, resulting in low
circulation of only 9,000 in 1924 and the possibility of closing the title by mid- 1920s (Yoxall,
1966, p.124).11 In this initial period Condé Nast had allowed excessive local freedom to the
10
The advertising market, key to Condé Nast’s strategies, was weak in the French fashion industry,
where private shows and exclusive relations with key customers was the dominant form of promotion.
11
Nast’s appointment of the editor Dorothy Todd in 1923 moved British Vogue away from fashion
towards literature, resulting in a decline in circulation, advertising and increasing losses. A new editor,
Alison Settle, was appointed in 1926 and the Editor-in-Chief of the three Vogues, the formidable Edna
Chase, spent time in London to ensure that Settle understood the commercial focus of Vogue. Yoxall
61
British subsidiary because of the difficulties or remote control, especially in a period of
slower communications. However, Nast sought to implement his managerial control and
from 1926 British Vogue was given a new commercial focus and was established firmly as a
fashion magazine, reversing the highest losses of $98,797 in 1923 to profits of $67,474 in
1933.12 The search for an authentic connection with the fashion world continued, and in
1935 Nast acquired the rights to reproduce content and solicit advice from a newer
successful fashion magazine, Votre Beauté.13 A key part of this ability was to be able to
deploy staff between offices as agents of control.
The importance of also hiring staff connected to the fashion world, and being able to
manage them effectively was central to Vogue’s competitive success. Competition between
Condé Nast and Hearst for artists and editorial staff in this market was fierce, and
international. In 1933 Condé Nast circulated a blacklist of 38 key staff members and regular
contributors who had moved to Hearst publications, notably the close rival Harper’s Bazaar.
These included Vogue advertising managers, including the high profile Chester Van Tassel,
artists, photographers and the leading editor Carmel Snow who was poached by Hearst
(Rowlands, 2005, pp.132-133).14 The management of artistic talent was also something
which was beyond the usual scope of formal management: Yoxall bemoaned the difficulties
of managing artists, illustrators, and photographers, noting in relation to the latter that, ’No
form of bitchery is beyond these charming creatures’ (Yoxall, 1966, p.107).15
Relationship management with the fashion industry was highly volatile because
fashion houses were both strategic consumers and key advertisers. The fashion houses used
advertising in Vogue and Harper’s Bazaar as part of their competitive rivalry – an often
passionate rivalry which could be personal and nationalistic as well as purely businessrelated. Seebohm relates incidents where advertisers attempted to influence the editorial
content of the magazine, from the incident when Gabrielle ‘Coco’ Chanel threatened to
withdraw advertising unless her models were shown on whole pages with no competitors on
facing pages, to more serious episodes such as the famous ‘eruption’ of 1938 when Chanel
(again) used the support of the Syndicat de Défence da la Grand Couture Française trade
body to threaten an industry-wide advertising withdrawal due to the perception that Vogue
was privileging non-French designers (Seebohm, 1982, pp.137-139).16 The couturiers
set plans in motion to increase advertising revenue and effectively re-launch the magazine. Nast,
Condé (1933) “British Vogue Formula”, unpublished internal report, Condé Nast Archives Manuscripts
Collections (CNAMC) New York, (Box 14, Folder 7).
12
By way of comparison, the audited profits of Amalgamated Press for the year ending February 1932
was a little over £600,000. Mirror Group Holdings, UK Companies House Archive Records for
Company Number 00218062.
13
A draft agreement specifies a ten-year contract, paying 6 guineas per page not including outside
rights, 8 guineas per page including reproduction rights. The prices applied to a circulation of 30,000;
above this for each additional 15,000 an extra 1 guinea would be paid to a maximum of 12 guineas,
specifying a minimum 1,100 guineas in year 1 and 1,500 guineas in year 2. In addition Nast wanted
photo studio work and editorial criticism. Patcévitch, Iva (1935, May 28). [letter ‘private 102’ to Condé
Nast] CNAMC, (Box 6, Folder 12).
14
[Unknown Author] (1933, Sept) “Staff members or regular contributors to Vogue who went to the
Bazaar”, loose document, CNAMC, (Box 18, Folder 13).
15
Yoxall commented that negotiations with artistic talent were a constant problem, citing Cecil Beaton
in particular. In a variety of correspondence it was clear Yoxall dreaded negotiating with key artists.
Yoxall, Harry (1941, August 29) [Private 278 to Condé Nast] CNAMC, (Box 13, Folder 5).
16
Several of the key Parisian couturiers were not French, such as Schiaparelli (Italian), Mainbocher –
a former editor of French Vogue – (American), Molyneux (English) and Balenciaga (Spanish).
62
correctly perceived that far from being outside of the industry, Vogue was increasingly able
to form and shape as well as report on fashion trends.
The Parisian fashion houses did not forget that the American Vogue’s Edna Chase had
worked to reduce the influence of the French fashion houses following the US media
campaign to promote the American fashion industry at the beginning of the First World War
(Schweitzer, 2008, p.131) and was perceived to have the ability to influence fashions
directly. Chase herself had created the early twentieth-century fashion show, staging the
first recorded example on behalf of French war charities (Yoxall, 1966, p.82), and this was to
become a central feature of competitive rivalry within the fashion industry. LIFE magazine
reported in 1937 that, although designer competition among the couture houses at the Paris
summer ‘Openings’ week was intense, ‘their rivalry is child’s-play to that which exists
between the world’s two leading fashion magazines, Vogue and Harper’s Bazaar,’ and
considered that ’their influence is inestimable. Key people in every branch of the
$300,000,000 women’s apparel industry read them religiously; their names are familiar to
millions of women who never buy a copy.’17
The artists nurtured by the Vogue editorial office were usually influential in the
fashion world after having been developed as new talents. These artists were themselves
able to influence the market directly, for example when they sought to develop their own
fashion styles (Steele, 1998, p.224). The exigencies of the Second World War were to
underline the ability of British Vogue to influence the fashion industry directly when Yoxall
formed the Incorporated Society of British Designers (later the Incorporated Society of
London Fashion Designers) to stimulate the domestic fashion and textile industries (O’Byrne,
2009, p.11; Yoxall, 1966, p.71). By the Second World War Vogue and its rival Harper’s Bazaar
had indisputably become key stakeholders in the fashion industry, able to influence
developments in new styles as well as report on them. In addition they had developed
competencies in developing and maintaining relationships across a spectrum of industries.
Whilst managing and nurturing artistic talent could be difficult, the equally important
quality and costs of printing the magazine could be controlled much more tightly. For Nast
print quality was a vital differentiator over his rivals and in the US during 1921 he had
bought the Arbor Press printing company in Greenwich, Connecticut, in order to have
control over quality (Hill, 2004, pp.11-12). In the UK Condé Nast Publications developed a
long-term relationship with the Sun Engraving Company which ultimately took over full
printing after Vogue’s contract printer, the Arden Press, closed in 1937. Yoxall had been
authorised to award the printing contract to Sun Engraving in spite of the higher bid they
tendered, compared with those of the St. Clement’s Press and William Clowes, because of
the ’supreme importance of quality in printing to publication of Vogue character’, and the
Sun company developed the highest-quality letterpress and photogravure press in the UK in
the inter-war period.18 Cost controls at Condé Nast were sophisticated, with the Art
Department required to produce full costings for every page of the magazine, and a full
profit and loss account for each edition within a month followed up by analysis, something
which was not common practice elsewhere in the magazine publishing industry (Yoxall,
1966, p.78).19
17
LIFE, September 6, 1937: 32-39 (Quote from p.32).
The Arden Press was owned by WH Smith, and closed in 1937 before being bought and refitted by
Lord Camrose as a reserve press for the Daily Telegraph. Correspondence between Yoxall and Nast
in July 1937, CNAMC, (Box 12 Folder 19).
19
The Condé Nast archive materials contain many monthly detailed profit and loss reports on each
edition of the magazine.
18
63
The status of Vogue as a defining influence over matters concerning women’s fashion
is well illustrated by an incident recalled by Harry Yoxall, the Managing Director of Condé
Nast in the UK. During the Second World War the increased participation of women in
factory production led to a sharp rise in workplace accidents. According to the Chief
Inspector of Factories the accident rate in factory work for adult females rose 90 percent
from 1938 to 1941, despite the view that women in general were in less dangerous jobs than
men and were usually more careful workers.20 The fundamental reason for this rise in the
number of accidents involving women was the greater employment of female factory
labour, but one preventable element of the problem was due to the fact that women’s hair,
worn long in the current fashion, was prone to being caught up in the machinery, and
firsthand accounts of women being scalped were not uncommon (Braybon & Summerfield,
1987, pp.224-225). Yoxall related one unorthodox approach taken to improving this situation
by Ernest Bevin, the Minister of Labour and National Service. Bevin wanted the editor of
Vogue to make long hair unfashionable. The prevailing view of the London editorial office
was that the magazine reported on, rather than made, fashion, but in the national interest it
was agreed that the magazine would emphasise the trend towards shorter hair observable
in France and the United States. According to Yoxall, ‘within a few months Absalom-type
accidents had disappeared from our workshops’ (Yoxall, 1966, p.153). It would appear that
the fashion-setting opinions of Vogue did indeed feed through to the workplace.
The spread of US-advertising and marketing systems
According to one informed commentator, ‘In the 1920s and ‘30s, women’s magazines in the
UK continued to develop the use of advertising, but they were still regarded by advertisers
as insignificant by contrast with newspapers and general interest magazines, and could not
command the same volume of advertising and revenue as other periodical literature’
(Ballaster et al, 1991, p.116). Although the traditional description of the inter-war years as
the halcyon era of editorial freedom for British women’s magazines from the influence of
advertising has been questioned, it is clear that American magazines such as Hearst’s
monthly Good Housekeeping gave much greater attention to the advertising material carried
within its pages than their British rivals (Greenfield & Reid, 1998, p.168).21 Due to Vogue’s
initial difficulty in establishing a suitable editorial direction, in the UK it had been Hearst’s
National Magazine Company which initially most successfully utilised advertising as a central
element in its strategy by launching the British version of its Good Housekeeping magazine in
March 1922 (Barrel & Braithwaite, 1988, pp.13-14).22 By the time that Hearst attempted to
build on the success of Good Housekeeping in the fashion market with the launch of a UKedition of Harper’s Bazaar in 1929, Nast had managed to install an effective management
team in London able to implement his advertising strategies.
20
Summary of the Annual Report of the Chief Inspector of Factories 1941 report and the speech made
by Ernest Bevin, Minster for Labour and National Service on 22 July 1942. No Author, International
Labour Review, 467-468.
21
Greenfield and Reid point out, for example, that ‘Good Housekeeping magazine provided an index
of “guaranteed adverts” to help readers’, which was not a feature of comparable British women’s
magazines.
22
Selling at one shilling, Good Housekeeping introduced the new sub-category of the “service”
magazine into the women’s market in Britain, and some issues of the magazine carried over 100
pages of advertising. The path-breaking nature of Good Housekeeping was further demonstrated in
1924 when the magazine opened the Good Housekeeping Institute, providing Britain with its first
experience of consumer advice and protection. Cf. Hilton (2003, p.172).
64
Both Hearst and Nast were following trends in audience research that had been
pioneered in America, notably by the Curtis Publishing Company. This firm had set up a
Commercial Research Division in 1911 with the objective of developing a detailed picture of
its readership, notably of its highly successful women’s publication the Ladies Home Journal
(Blaszczyk, 2009, pp.118-120). During the 1920s, one American-inspired marketing strategy
that Condé Nast transferred to the UK for securing subscriptions, customers, and advertising
was to persuade retailers to buy large numbers of the periodical for in-house distribution
and promotion (Seebohm, 1982, p.120).23 Yoxall then used his close links with higher-end
retailers to get closer to customers by having them distribute an unprecedented 425,000
copies of a circular to their charge-account customers. In a private letter to Nast he added
that 55,000 copies would also be distributed ‘to lists of which I know you would approve –
purchasers of society weeklies and the like.’ This aggressive and targeted strategy was novel
in the UK market, and Yoxall noted that ‘… I can safely say that no mailing of this character,
on such a scale, has ever been done before in England.’24
In 1936 William Davenport was transferred from the US to be Brogue’s advertising
manager in London, and he drew on his experience as the Vogue Eastern advertising
manager to further increase the magazine’s trade business by introducing techniques that
had been used in the US industry but which were still novel in the UK. Davenport arranged
for large retailers, such as Harrod’s in London and the Galleries Lafayette in Paris, to convene
workshops where they asked their suppliers to advertise in Vogue.25 He instigated a
substantial survey entitled ‘What is the attitude of the upper class public toward?’ in the
Spring 1939 Vogue House & Garden Book.26 The results were distributed to 498 carefully
selected fashion retailers,27 who were reminded that, ‘All industries and trades to-day have
need of every scrap of authentic information they can get about their markets – the people
who buy – or do not buy – their goods.’ The survey was able to supply information as to the
habits and preferences of the wealthiest consumers, and pointed out that, ‘Much of the
information derived will be valuable to manufacturers and retailers of household goods of all
kinds.’ Vogue claimed to be ‘glad to share it with our friends in the trade, although the
research was conceived and carried out for editorial purposes only’: a statement that was
almost certainly disingenuous. The final message to the trade was that reaching the well-off
shopper could be best done through advertising and that ,‘40% of readers can ONLY be
23
By the 1930s the New York department store Macy’s alone was buying one hundred copies every
month. The importance of this market, not just for sales, but in influencing fashion and becoming more
important to advertising clients in the process, is emphasised in internal correspondence. Davenport,
William (1936, May 13) [letter ‘Private 129’ to Condé Nast] CNAMC, (Box 1, Folder 3).
24
Yoxall, Harry (1929, September 3) [letter to Condé Nast] CNAMC, (Box 12, Folder 11).
25
Patcévitch, Iva (1933, Feb 16). [letter to Walter Mass] CNAMC, (Box 6, Folder 21). Seebohm notes
that in the US a tacit quid pro quo existed between Vogue and its department stores and manufacturer
advertisers, with editorial space being given to products and information. In 1943, for example,
Seebohm (1982, p.90) cites Saks Fifth Avenue spending $9,180 for 9 pages and receiving 66 ½
pages of editorial space worth $67,830 in return.
26
From 1929 Vogue was publishing ‘double issues’ or ‘double-numbers’, two separate magazines tied
together with string and sold jointly. Originally this was the introduced by Yoxall in response to the idea
of integrating the British Vogue Pattern Book into British Vogue, which he preferred to keep as a
separate editorial entity. Cf. Yoxall, (1966, p.130). This strategy also allowed magazines which could
not sustain their own circulation (such as the UK edition of House & Garden, closed in 1923 but
recreated as a double in the Vogue House & Garden Book) to be appended to Vogue.
27
Davenport, William (1936, May 13) [letter ‘Private 129’ to Condé Nast] CNAMC, (Box 1, Folder 3).
65
reached through the Vogue H&G book.’ To emphasise the point, the booklet ended with
British Vogue’s advertising rates, which at the time stood at £100 for a full 4-colour page.28
Retailers were important sources of advertising revenue in the UK, more so than in
the US, and they were unhappy with increases in mass-market brand advertising that
lowered the exclusive tone.29 The fashion magazines had to convince their potential
advertisers that targeted advertising was worth paying for. They attempted to do this by
demonstrating the magazine’s ability to reach the elite shopper by showing detailed
readership breakdowns of the directorships subscribers held, the clubs they belonged to, the
number and types of automobiles owned, entries into the social registrar and a range other
proxies.30 At the same time they had to convince advertisers that their circulations were
large enough to justify the staggering advertising rates, and both Harper’s Bazaar and Vogue
seriously considered publishing these figures through the Audit Bureau of Circulations.
Vogue’s US-advertising manager cautioned Davenport in this consideration: ‘unfortunately,
there isn’t one advertiser in fifty in the class field who ever sees an A.B.C. statement. Those
who do, don’t know how to interpret it. Agency space buyers pay too little attention to the
circulation methods of class magazines – exactly the magazines where they ought to pay the
most attention.’31
In the inter-war period the low-volume, high quality fashion magazines used direct
relationships rather than circulation figures to impress advertisers. The relationship between
advertising and editorial could be close. Eager to increase UK advertising from quality clients
Davenport instigated a new feature, ‘women at the wheel’, to respond to the lucrative
automotive industries complaint that fashion magazines did not address their markets.32
There was a fine line to tread, and Condé Nast was very aware of the potential to jeopardise
the status of Vogue among elite readers should they think the magazine ‘sold out to its
advertisers’.33 The company’s archives contain ongoing correspondence between Nast and
the firm’s advertising and editorial departments on the importance of keeping editorial
‘pure’ lest readers become wary of legitimate merchandise pages. Such a strategy was very
different to the approach adopted by domestic firms within the UK magazine industry,
whose practices did not consider their advertising clients in such directly relational terms.
Along with the company’s desire to understand the needs of its advertisers, both
Condé Nast and National Magazines were heavily influenced by their parent companies’
attempts to understand the nature of their readerships, which in turn had followed the
pioneering audience research of American publishers such as Curtis. In New York Vogue had
developed a comprehensive and extremely sophisticated system to catalogue readers’
28
Vogue (1936) ‘What is the attitude of the upper class public toward’, survey report distributed to
fashion retailers. CNAMC, (Box 14, Folder 24). The survey covered attitudes towards contemporary
furniture, the regency style, the department store versus the furnishing shop, remodelling old houses
and the Vogue House & Garden Book. It is clear from Davenport’s correspondence with Nast in 1936
that this survey was conceived wholly as bait for the retailers and had no editorial input or connection
whatsoever.
29
The March 1 1936 US Vogue carried 57 pages of manufacturers’ advertisements and 16 pages of
retailers’. The comparable UK edition published 59 pages of manufacturers’ adverts and 47 pages of
retailers’. Davenport, William (1936, March 6) [letter to Condé Nast] CNAMC, (Box 2, Folder 1).
30
Van Tassel, Chester (1937, Nov 11) [letter to Will Davenport] In analysing the Harper’s Bazaar’s
selling strategy a review is given of the efforts undertaken to provide evidence that Vogue is able to
reach its target demographic. CNAMC, (Box 12, Folder 20).
31
Van Tassel, Chester (1937, Nov 17) [letter to Will Davenport] CNAMC, (Box 12, Folder 21).
32
Davenport, William (1938, Jan 19) [letter ‘Private 51’ to Condé Nast] CNAMC, (Box 2, Folder 6).
33
Condé Nast (1942, March 26 and May 11) [Letters to Edna Chase] CNAMC, (Box 1, Folder 21).
66
letters so that they could be analysed and cross-referenced, and this learning was passed on
to other parts of the Condé Nast organisation, although at times there was some debate
over whether similar methods would work in the UK.34 The aim was to be able to understand
readers not only in order to appeal to them, but in order to be able to create readership
profiles that would appeal to advertisers and justify the premium advertising rates. Efforts to
learn about the readership took many forms, including surveys, and Nast even asked all
editorial staff to send him their views on what the typical Vogue reader was like. One
judgement held that the readership was formed by two groups, ‘a few thousand ultrafastidious women to whom it is important to be constantly in touch with the latest style and
fashionable goings-on. The second much larger group is not of the ultra-fashionable but
derives a great deal of pleasure in reading about what the first is doing’, 35 an observation
that tended to confirm Nast’s judgement that he could attract a wider audience whilst
appealing to the elite.
As British Vogue attempted to learn about its customers – both advertisers and
readers – its UK competitors were generally much slower to develop the same
understanding. In competition with the US firms, this lack of knowledge could prove highly
damaging. Clearly there were benefits in the local market to transnationality. For example,
the UK-created magazine that was seen as the most serious competition to Vogue was the
Tatler, a weekly magazine that since its revival by Clement Shorter in 1901 had tracked the
lives of the rich and famous (Ashley, 2006, p.74), because it appealed to the same high
profile demographic as the fashion magazines. In the late 1920s, Nast realised that the
Tatler’s enormous success in generating advertising volume, outstripping other UK and US
magazines (second only in the number of advertisements per issue to Curtis’ Saturday
Evening Post), was due to adverts that were mainly aimed at women (63 per cent of the
adverts carried in 1928 had ‘exclusively feminine appeal’), but that Tatler’s readership was
mostly male. Using this intelligence, both British Vogue and the UK version of Harper’s
Bazaar were able to lure advertisers away from the Tatler towards their own largely female
readership. Thus, whereas in 1929 the Tatler had published 174 per cent more advertising
pages than British Vogue, by 1933 it carried only 30 per cent more.36 Whilst the Tatler seems
to have been largely oblivious of the significance to its advertising clients of knowing the
make-up of its readership, the US fashion magazines were very conscious of the benefits of
understanding and exploiting their demographic.
Conclusion
As an entrepreneur, Nast’s main innovation had been his development of the concept of a
‘class’ magazine. Drawing on the example of other American magazine publishers such as
Curtis which in the 1890s had developed mass circulation titles financed primarily by
advertising revenues, Nast had been the first to recognise that such a strategy could also be
applied to magazines with a narrower target audience, so long as that audience comprised a
well-defined group of consumers. A top quality fashion-centred publication aimed at, but
not limited to, an elite readership, provided the platform through which the purveyors of
high-class and other aspirational-type products could reach their intended customers. This
34
Nast, Condé (1935, March 12) [Letter to Richardson Wright] CNAMC, (Box 12 Folder 2).
Mrs Morton (1942, March 10) [Memo to Condé Nast] CNAMC, (Box 18 Folder 21).
36
Nast, Condé (1933) ‘British Vogue Formula’, unpublished internal report, CNAMC, (Box 14, Folder
7).
35
67
simple strategy of focused differentiation provided Nast with the potential to develop the
highly successful magazine that Vogue was to become between the wars and then to
successfully internationalise this business model.
Devising the strategy was one thing: putting it into effect was another. To gain
credibility within the world of haute couture, it was necessary for Vogue to have direct
engagement with the leading fashion houses in Paris; thus internationalisation was a critical
element in the strategic development of Condé Nast as a publishing enterprise. Even before
the office in London was set up in 1916, Nast had formed a relationship with the leading
Parisian publisher Lucien Vogel. From this presence in the creative heart of the European
fashion industry the Condé Nast organisation was able to exert a genuine influence, not least
by providing the French designers with a crucial link to the wealthy consumers of America
and Britain in the 1920s. By employing their own talented illustrators, designers and
photographers, and by playing a key role in pioneering the use of fashion shows with
professional models, Vogue helped to define the very nature of the twentieth century
fashion business. The authenticity that underpinned Vogue’s credibility in the world of
fashion did not in itself, however, make for a successful publication. Developing an appeal
within the UK required a strong degree of adaptation on behalf of British Vogue. In this
respect, an understanding of its strategic customers – i.e. its advertisers – as well as its
readers is what marks out Vogue from the myriad of British-based women’s magazines.
Advertisers, particularly retailers, were not just seen as a critical source of revenue, as they
were for other commercial magazine titles, but as partners with whom relationships could
usefully be formed. Whilst the link to the Parisian fashion houses was crucial in winning
credibility with its readers, Vogue did not lose sight of the real needs of its actual consumers.
When Alison Settle was appointed as the editor of British Vogue in the mid-1920s, she was
curtly informed of the importance of the local market by Nast that, ‘Reporting the mode of
super-elegance is a fundamental plank in the Vogue platform… [but] it is of lesser
importance than those departments in Vogue given over to what might be termed practical
bread-and-butter fashions and information…’37 Settle understood and adhered to the advice,
introducing the feature ‘Seen in London shops’ in response. Knowing their local readers’
profile was a key to its commercial success.
Nast also exerted struggled to exert control over the management of his operations
in Europe, solving the problem by the transfer of staff. Nast made it a common practice to
bring promising staff from local subsidiaries to the US office either to learn or as permanent
staff as in the case of Dr Agha, the Art Director taken from the abortive German Vogue to
the New York head offices.. The sophisticated approach to market segmentation developed
by Nast was successfully implemented in the UK, providing a competitive advantage over
local competitors. In particular cost and control systems allowed a two way exchange of best
practice information, and with regard to successful UK innovations such as the pattern-book
and double-issues Nast also implored his US staff to learn from success the UK office. The
firm adopted cost accounting and production control systems derived by the America office
which did not become common in the UK in the inter-war period, again offering a local
competitive advantage. Costs could be further controlled by the sharing of content across
the company, and even more significantly new ideas regarding promotional strategies,
editorial sections, layout and design and content sharing for art work. However, the majority
of this consent was adapted for local consumption requiring a high degree of local autonomy
37
Nast, Condé (1933) ‘British Vogue Formula’, unpublished internal report, CNAMC (Box 14, Folder
7).
68
and the trust of the central office. As in the crisis of the pre-1926 British Vogue Condé Nast
preferred to set direction and let his local managers work out implementation, but would
directly intervene if business targets were not eventually being met. In conclusion Condé
Nast represents a firm that grappled with the problems of transnationality and managed to
find managerial solutions to the problems of this organisational form. For contemporary
firms there are clear parallels which provide useful insights into the management of complex
international firms.
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70
Trading Cultures
Adrienne Puckey,
University of Auckland Business School
Two months ago the University of Auckland’s Business School launched my book, Trading
Cultures. It is a long-run socio-economic and political history, centre-staging Māori activities
in New Zealand’s northernmost region. The book covers two-hundred years and ranges
across all the dominant elements of the region’s economy, as well as those that usually
receive less attention – such as social capital and the informal economy.
I focused on Māori activities because there is a gap in economic history, particularly between
1860-1940. The book is a local history, firmly grounded in the everyday events of a particular
region, but it is more than local. Setting local events within their national and international,
political and economic contexts, its findings apply more widely and its differences add to our
knowledge of the national story.
My hope is that the book will give a sound historical basis for businesses going forward.
Starting on this research as a chartered accountant, I took the view that an economy is
essentially a financial system guided by physical laws of supply and demand. However, in the
course of completing my history doctorate I came to see an economy as essentially a social
system, by which people exchange goods and services within communities, and between
communities and the wider world. Consequently, the book gives greater attention to social
aspects of the economy than is usual for economic and business history.
When it comes to a local economy, geography, people and history matter.
Stephen Gudeman gives the best concise explanation I have seen:
 An economy’s base is the social and material space that a community or association
of people make in the world. Comprising shared material interests, it connects
members of a group to one another, and is part of all economies.
 The base of a community changes over time and assumes many forms that vary by
history and context.
 But it is not represented in economic theories, and our ordinary language often does
not bring it to everyday awareness.38
One of the approaches I used was to construct network charts, to show several whakapapa
of business. These are included in the appendix to the book, and can be used as a model for
other researchers or students to investigate their chosen localities.
Going back to that gap in Māori economic history:
Recent publications, about 19th century Māori engagement with the introduced economy,
have tended to add new detail, and otherwise reinforce, notions of early success followed
soon after by failure.
For instance, Hazel Petrie’s Chiefs of Industry concluded that Māori ‘economic success
declined suddenly, from 1856, when the produce market collapsed, sailing ships were
superseded by steam, and Māori ways were overwhelmed by a rapidly increasing and
individualistic Pākehā population;39
38
Stephen Gudeman, ‘Community and Economy: Economy’s base, in James G. Carrier, ed.,
Handbook of Economic Anthropology, Cheltenham, UK and Northampton, Massachusetts, USA, 2005,
p.94
39
Hazel Petrie, Chiefs of Industry: Māori Tribal Enterprise in Early Colonia New Zealand, 2006, back
cover.
71
Paul Monin wrote, in Hauraki Contested (1769-1875), that in the wake of the 1856 market
collapse, debt accumulated and was then exacerbated by new charges against income
deriving from the Native Land Court. Burdened by this debt, Hauraki Māori were poorly
placed to participate in what became a more capital-intensive economy.40
And Ian Hunter’s Age of Enterprise, argued that Māori were not amongst entrepreneurs of
1880-1920 because they lacked the necessary experience and social capital – a point of view
I shall come back to at the end.41
Others attribute diminished success to the NZ wars, land loss, and lack of access to capital.
Economic historian Keith Rankin was so convinced of the early falloff in economic success,
that he completely omitted the Māori population, from his 1992 retrospective calculation of
New Zealand’s GDP, on the basis that, from 1860 to 1940 Māori were not integrated into the
Pākehā economy.
But what if these constraints were less influential?
In my book, I argue that not only were there regional variations, but also our vision has been
blinkered – if we cast our eyes beyond the standard boundaries, we would see a different
history of economic engagement. I maintain that reasons for Māori successes were much
the same as for settler entrepreneurs, and that diminishing success was due to a wider range
of factors than others have mentioned.
For the far north there are some obvious regional differences. Māori did not participate in
the Northern Wars of 1845 & 6, or the New Zealand wars of 1860-72, and were not
overwhelmed by immigrants. While the population grew markedly from 1860, Māori were
not drastically outnumbered in the far north. In the 1896 census, numbers of Māori and
Pākehā were equal. At the lowest, immediately after WWI, Māori comprised 45% of the total
population, recovering again to equalise by the end of WWII.
The region was remote from increasing markets, roading was poor to non-existent and rail
stopped short of the region. However, it had a very large kauri-gum industry. Exports of gum
from the port of Auckland, exceeded gold, and between 1861 and 1915, its value ranked
consistently between first and fourth of all exports from the port. More than 80% of New
Zealand’s gumlands were concentrated in Northland, and 25% of the Northland region’s
6000 square miles was gumlands. That is a very significant regional variation.
Those are some of the regional differences. But there were similarities to other regions. In
the late 18th and early 19th centuries, the far north was exposed to similar European contact
to other regions. Whaling ships called at east coast harbours for provisions, and timber
merchants’ vessels called at east and west coast harbours. During the northern wars,
Mangonui, on the east coast, offered safer anchorage than either the Bay of Islands or
Hokianga Harbour, on the west coast. Like the rest of the country, the area was affected by
the Australian gold slump. And of course any legislation introduced applied to all regions.
Far northern Māori participated in a wide range of the region’s dominant economic
activities. Here I will cover just a few to show some patterns of engagement. Kauri gum is a
rich mine, metaphorically and physically, so I will cover that in more detail.
Whaling and commercial fishing
Far-northern Māori participated in the whaling industry in two phases: first as crew on
foreign ships, and later as owners and operators of whaling boats. Owning sizeable craft was
40
Paul Monin, Hauraki contested, 1769-1875, Wellington, 2006, p.245.
Ian Hunter, Age of Enterprise: rediscovering the New Zealand entrepreneur, 1880-1910 , Auckland,
2007, pp.32-3.
41
72
not uncommon by the 1850s. Following the decline in whaling after 1840, foreigners exited
and Māori came to dominate whaling in the region over the remainder of the century.
The Resident Magistrate reported, in 1885, that ‘whaling is carried on with great enthusiasm
… The equipment of the several boats is very complete, and must entail considerable
expense’.42
A number of land-based processing stations continued to operate into the 1890s. These
whaling activities indicate a desire to secure trade and establish their own businesses.
Owning and operating vessels was one part of a strand of waterborne transport that would
develop over time. In fact, it is useful to see all forms of transport as crucial links within
industry chains. I’ll return to transport later.
In addition to whaling, far northern Māori fished commercially. There were no non-Māori
commercial fishers in the far north before 1840, and Māori continued to dominate for the
remainder of the 19th century. Fishing boats were registered from 1894. Overall, from then
until 1929, Māori and Pākehā registrations were roughly equal. Māori-owned boats were
slightly smaller on average, but the motive power - whether sail, rowing or engine - was the
same, as was the fishing equipment. Māori registrations came to an abrupt halt in 1929,
when the Māori Affairs land schemes were introduced. Participants in these schemes had to
undertake not to continue fishing commercially.
Because of its regional importance, I want to focus mainly on kauri gum.
Kauri Gum
Although initiated by Pākehā merchants and shippers, on the ground, gathering and trading
was entirely dominated by Māori, until the 1860s. Before 1865, gum was gathered from the
land surface. When surface sources were depleted, there was a vast quantity to dig from
below. Mechanical methods of extraction were never as capital intensive, or technologically
sophisticated as for gold, so modest investors could continue to participate.
From the mid-1860s, Māori started to need cash to pay taxes, and to meet Native Land
Court costs of determining land ownership. Māori could obtain money more reliability from
gum than from agriculture. Demand for agricultural products was restricted by the modest
financial means and increasing self-sufficiency of settlers, whereas gum enjoyed an almost
limitless demand from overseas buyers.
The 1860s and 70s were a turbulent time in New Zealand’s history, with land wars erupting
in the mid to lower North Island. These wars didn’t touch the far north, which became a
safe haven and attracted many Europeans to the gumfields, just as demand and prices for
gum rose. The 1870s were followed, first by the Australasian recession, and then by the
globally depressed 1880s and 1890s. Kauri gum alleviated these privations, and even
attracted large numbers of Dalmatians, from the opposite side of the globe.
Although Kauri Gum has featured regularly in New Zealand’s industrial history writing,
beyond the early surface-gathering period, the role of Māori becomes almost invisible
amongst the hustle and bustle of European gumtraders, merchants, coastal and oceanic
shipping, exporters, and the London and American destinations, where the gum was
converted into exotic products of varnish, linoleum and even dentures.
But far-northern Māori did more than surface gather. They adapted their techniques to the
changing conditions, invested in bullock teams for cartage, and machines for washing the
gum in preparation for market, and operated localised trading stores. While they continued
to dig, cart and prepare their own gum, they also hauled and washed gum mechanically for
42
H. W. Bishop to Native Under Secretary, Resident Magistrates' Reports, AJHR, 1885, G-2, p.3.
73
Europeans, sometimes on a contract basis, and acted as trading agents for them. Much of
their capital equipment was communally owned, and gum gathering was a communal
activity.
It was dirty, heavy, demanding work, which women and children of other ethnic groups did
not participate in. But Māori were operating out of a traditional economic paradigm, in
which there was less gender demarcation, and more emphasis on extended family cooperation. At first, gum was gathered near their villages, but as these sources were cleared,
family groups travelled further afield, and set up temporary satellite camps on the
gumfields.
With smallish groups of extended families living in isolation – remote, homogeneous and cooperating – there was strong, long-established, innate social capital in Māori society. Each
hapū (or extended family unit) was largely self-sufficient, but inter-hapū exchanges were
common, and some communal activities were carried on at an almost industrial level. This
socially-based economic system remained prevalent into the 20th century.
Here I refer to social capital as capital that can be captured, built up and drawn down
through social relations or networks, which can be inward or outward focussed – bonding
capital, comprising links within a network; and bridging capital, comprising links between
networks.
Within the pre-contact Māori economy, the associational basis was kin – whanaungatanga,
or bonding capital. But trading relationships established with neighbouring iwi, or those
further afield, involved exchanges of items that were plentiful for one group and scarce for
the other, to the mutual benefit of both. This was achieved by building bridging capital.
When Europeans came on the scene, the same principles applied.
The Māori economic system was social capital based, with high value attached to human
capital, based on the knowledge and skills required to sustain the community.
By contrast, the Pākehā economic system was financial and cultural capital based, with
human and social capital vying for relative importance for enhancing the economic position
of the individual.
So with the arrival of Europeans, we can see change entering and issues of control arising.
Western social capital theorists see individuals engaging in networking in order to produce
profits,43 whereas Tu Williams, of Victoria University, expressed social capital as relationships
that create a capacity to act for mutual benefit or a common purpose.44 This mismatch of
the purpose of networking was exacerbated by other factors. For instance, the knowledge
and skills that enhanced human capital in the Māori economic system did not match those
valued in the Pākehā system, and social capital was based on different social relationship
structures. Although bridging between the two systems, and the two sets of social
networks, could alleviate mismatches, inevitably inequalities existed.
This is where I used network charts to trace how they facilitated transactions, by bridging
between two societies. I’ll go through one quickly that was involved in the gum industry.
From first contact, Māori in the far north, and some other parts of New Zealand, had a
deliberate policy of incorporating European men into their society, by marriage and
childbearing, to create long-term obligations and commitment to the well-being of Māori
society. These Pākehā-Māori performed a variety of functions, such as trader, rangatira (or
leader) and tohunga (or expert), according to their different knowledge, skills and
43
Nan Lin, Social Capital: A Theory of Social Structure and Action, ed., Mark Granovetter, Structural
Analysis in the Social Sciences, Cambridge, 2001, p.19.
44
Williams and Robinson, p.14.
74
personalities.45 They were initially useful adjuncts to Māori society and leadership. In some
way, each role had an economic perspective. For instance, the trader helped with direct
commercial transactions; the rangatira could act as leader, authority figure, negotiator and
spokesperson for a group; and the tohunga’s role included legal, medical and political
functions.
The Eastern Alliance
The network of first traders and sawyers in the far north, established themselves on the east
coast at Mangonui. They, their descendants and networks, became dominant players in the
kauri gum industry.
Mangonui was a Ngāti Kahu tribal area challenged by neighbouring Ngā Puhi. The first of the
settlers arrived in the Mangonui/Whangaroa area in 1831. They married46 Māori women and
were incorporated into the women’s families, in anticipation of mutual and reciprocal
benefit; the men gained protection and access to land and trees, and the Māori economy;47
the hapū gained knowledge and access to the Pākehā economy – at least that was the
principle. Offspring of these early marriages married within their own group; some
strengthened ties with local Māori families, and others bonded with new Pākehā settlers.
Following the commercial activities of those first sawyer/traders and their descendants will
show how the principle worked in actuality. First I charted the tribal incorporations through
marriage; then I mapped the commercial activities of the kin linkages; and finally, I removed
the Pākehā presence, and added into the commercial map, Māori of the same tribal groups
who were involved in commerce, without direct marriage connection.
Of the first Pākehā men, one Thomas Flavell built the Donnybrooke hotel in Mill Bay in
1842.48 By 1848, he was also keeping ‘a sort of grog shop’ in Mangonui, having taken it over
from another, George Thomas.49 Yet another established the Donkey’s Rest hotel in
Onewhero, in the 1850s, and Snowden’s Hotel in Kaeo in the 1860s.50 And a fourth was
operating a store and hotel at Ahipara by the 1860s.51 A later arrival in Mangonui, Samuel
Yates, ran a general store at Mangonui from 1852 to 1863, when he moved his trading north
to Parengarenga harbour.52 This man married the daughter of an earlier marriage between a
Pākehā shipwright, and a woman of Te Rarawa/ Te Aupōuri descent.53
Business activities of the first families expanded, and the networks established by marriage
between descendants of the first settlers, including the Māori families into which they were
incorporated, reinforced their economic activity. One of James Berghan’s sons established
45
In his book Pakeha Maori, Trevor Bentley identified roles of Pakeha in Māori society in categories of
pet, convict, slave, warrior, tohunga (in the sense of priest, medic or expert), renegades, traders,
rangatira, wahine and whaler.
46
The term marriage is used in its broad common-law or customary sense. It includes registered
marriage, tomo, ma wahine, de facto and child-bearing relationships.
47
Three of these men married daughters of the Ngā Puhi chief Ururoa of Whangaroa, the others
married Ngāti Kahu or Te Rarawa women. The men entered into land agreements with Ururoa or
Pororua Wharekauri, (Ngā Puhi and Te Rarawa married to a Ngāti Kahu woman), which specifically
mentioned the trees thereon.
48
Neva Clarke Mckenna, Mangonui: Gateway to the Far North, Kerikeri, 1990, p.67.
49
ibid., p.10.
50
Gwenyth Frear, The Snowden Saga, Whangarei, 1993, pp.10 - 12.
51
Evidence to Kauri Gum Commission, 10 April 1893, IA 104/3, ANZW His son James Work Reid
stated that he had, by then, been buying gum for thirty years; WGP diary of 1870 refers to conducting
services at the hotel at Ototoiti (Ahipara) in a manner suggesting it had been there for some time.
52
Mckenna, p.123.
53
John Boradale, who settled in Pukepoto in the 1840s, and Kataraina (Te Rarawa/ Te Aupōuri)
75
hotels at Ahipara and Kaitaia, as well as a long-running and successful gum-trading business
and store, which was maintained through successive generations until 1986; other
descendants maintained their family’s store, gumtrading and accommodation businesses
into the 1920s.54
Some of these families eventually dominated gumtrading in the North; the strategy of
incorporating Pākehā by marriage into tribal structures achieved its purpose of connecting
tribes with the Pākehā economy. This is even more evident when I remove Pākehā from the
business map, and add businesses run by Māori, with kin connections to those who married
the first Pākehā sawyer/traders. Conceivably, the network’s business activities permeated
tribal structures and stimulated additional businesses, probably because they appealed to
the independent, entrepreneurial Māori spirit.
While there were similar businesses operated by people outside the network, this network is
significant because of the dominance of its families in far northern trading over the gum
extraction period, and its origins in incorporation of European men into the northern Māori
tribal structures.
Another arrangement achieved a level of complexity and scale that would be difficult, or
impossible, to replicate without the social capital basis of Māori society. It had what would
be seen today as a hub and spoke arrangement. At the hub was a two-man European gumtrading partnership – Molesworth and Saies. This partnership appointed Māori agents to buy
gum from diggers on Māori-owned land, and two blocks that the partnership leased – eight
agents were spread over the four northernmost counties. All diggers on the partnership’s
land, whether Pākehā or Māori, were required to sell their gum to the partners’ agents.
Māori had the say on their own land.
The agents were chiefs of their own or a collection of hapū. Members of these extended
families pooled money to buy supplies from the European partners’ trading post. With these
supplies, each agent then set up a co-operative store in his own village. A family’s gum
diggings were brought to the village store, and recorded as gum credits against which
supplies could be drawn. Some Pākehā were also allowed to dig on Māori land and they sold
to the village store, and bought supplies at the same price as the Māori ‘shareholders’, but
were not shareholders themselves.
The gum was onsold to Molesworth and Saies the European merchants, accounts were kept
by the Māori agents, and profits distributed back to members of the Māori community, in
cash or credit, regularly. In this way, leakage of profits from the community was minimised.
Appearance, and then involvement of Pākehā in Māori society, following first contact,
introduced a degree of social complexity. Social ties between Māori and Pākehā were
necessarily different and weaker than genetic bonds.55 But there was enthusiasm on both
sides to enhance their respective well-beings, which motivated attempts at bridging.
I have shown the success of incorporating Pākehā by marriage, and how this stimulated
businesses amongst indirectly- related Māori. In the ‘hub and spoke’ example, it is possible
54
Keith Parker, Kaitaia: Portraits from the Past, 1900 – 1939, Kamo, 1999, p.226.
Corwin Smidt, ed., Religion as Social Capital: Producing the Common Good, Waco, Texas, 2003,
p.5. In communities in which face-to-face interactions predominate, “thick” trust is produced through
intensive, regular, and frequent contact between and among people. These kinds of communities
tend to be ones that are relatively homogeneous socially, and isolated geographically. In more
complex settings, where it is more difficult to generate the thick kind of trust, a less personal “thin”
form of trust results from weaker social ties, but even weak ties can serve as a relatively powerful and
enduring basis for social integration.
55
76
to see the reciprocal relationship developing between Molesworth and Saies, and their
Māori agents – a relationship that through European eyes could be seen as a simple trading
relationship, but which, from a Māori perspective, was a relationship that incorporated the
Europeans in their social network. Conforming to both, the co-operative gum stores emerge
as the nexus between the two economic systems, strengthening the Māori economy, and
engaging Māori with the Pākehā economy on their own terms.
Although the hub and spoke arrangement faded when WWI disrupted the gum industry, the
co-operative store model remained popular in far northern Māori communities. Just as the
co-operative ventures connected Māori to the gum industry, co-operative dairy companies
connected them to the dairy industry that emerged from the beginning of the twentieth
century. Four dairy factories, run by dairy co-operatives, were built in the far north between
1901 and 1910. There were some Māori shareholders in each of them from the start and
they made up a significant proportion of suppliers to the two western factories – 34% at
Herekino and 19% at Hokianga. Even before finance became more readily available to Māori
farmers, at the end of the 1920s, they comprised 51% and 35% of shareholders in these two
companies. As roads improved these two companies amalgamated with factories in town
centres further away from Māori-owned farms and the interests of Māori farmers was
diluted.
With roads we return to transport.
Transport
Bullock teams were used extensively to carry gum from the gumfields and logs from the
forest. Māori owned teams, and these were not the only form of commercial transport
adopted. Once record-keeping started in the mid-1890s, there is more reliable data about
commercial water vessels. Māori-owned river, harbour, and coastal freight and passenger
vessels, were a modest, but still significant proportion of registrations in the north, into the
early 20th century.
Following the demand of dairying for better roads, and wartime technology developments,
motor vehicle use increased. And as the gum fields were deserted, some people who had
run transport businesses on the gumfields, gradually migrated and replaced their bullock
teams with lorries, several Māori owners among them.
Roads also reduced the demand for water-borne transport. To compensate, a number of
local bus businesses were set up to serve otherwise isolated Māori communities. These
enterprises were strongly supported by family networks.
Initiatives in transport were eventually curtailed by regulation, particularly war measures to
consolidate transport in 1940. But interestingly, the two commercial bus companies that
continue scheduled runs today are two that started by serving outlying Māori communities.
Conclusion
I’ve covered only a few industry sectors in this session. And I haven’t covered professions,
which were an important element of control, in the theme of change and control, and were
again supported by family networks. I’ll need to leave you to read the book.
My research shows that far-northern Māori participated in recognised commercial and
industrial sectors, such as whaling, commercial fishing, timber, flax, gum, transport,
hospitality, trading stores, meat, wool and dairy farming. However, this participation has
largely been relegated to the shadows of business history.
77
The extent of involvement clearly indicates that Māori participation was integral, rather than
peripheral, to the northern rural economy between 1860-1940. Successes were based on
adaptability, social capital, comparatively modest capital investment requirements, and a
combination of formal and informal economies.
Interestingly, some of the characteristics Ian Hunter identified among Settler entrepreneurs
were remarkably similar. For instance, he said that social capital mattered: ‘networks,
associations, trusted family members, church connections – these were all assets on which
to base enterprise’.56 He argued that New Zealand’s colonial entrepreneurs were more akin
to shrewd adaptors relying on their own financial resources, than industrial magnates or
innovators.57
Progressively, Māori were marginalised economically in this region, as in other regions. The
timing was different, in large part because of the gum industry. But diminishing success was
due less to lack of experience or social capital than to a range of other factors:
The end of an industry life-cycle was one reason, in the cases of whaling, timber, flax and
gum. The life-cycle could end because resources were exhausted (as for timber and gum). Or
demand could fall because of a change in end-use (such as sail giving way to steam), or
introduction of cheaper or superior substitutes (such as petroleum oil for whale oil, and
petro-chemical substitutes for kauri gum). Government intervention marginalised Māori
participation in commercial fishing and transport. Capital constraints affected timber
contracts, flax-milling, ship ownership and farming. Taxes, the Native Land Court processes,
and exploitive settler gum traders imposed debts. And land loss and geographic isolation had
a large effect on farming.
The far north shows a different type, and longevity, of economic engagement and
entrepreneurship from general descriptions of the 19 th century. Was this example
exceptional, or has our history overlooked other regions that do not conform to what has
hitherto been described as the general pattern?
If an even broader perspective of economic history is taken, than that confined to
commerce, industry and professions - for instance by addressing household and agricultural,
and non-money and market based economic activities, including the participation of women
and children, then the history of Māori engagement with the introduced economy, will be
seen to be much more diversely characterised.
Not to be cited without permission of the author.
56
57
Hunter, p.237.
Hunter, pp.149-51.
78
Introduction to the Fletcher Challenge archive
Dorothy Neilson
Fletcher Challenge Archives
The archive consists of the records of several hundred companies that were acquired or
merged into Fletcher Challenge Limited. Its documents, photographs, films, videos and oral
histories provide an insight into New Zealand business development since the 1840s —
particularly in the building and construction, forestry, pulp and paper, and energy sectors.
Since 1993, Dorothy Neilson has managed this historically significant record of the work of
generations of New Zealanders. She maintains the integrity of the archive and supports
access to it by including historians, academics, students, authors, genealogists, legal
representatives, journalists, museum professionals and the public.
79
Practical men and registration: Regulation of plumbing and building
apprentices in New Zealand
Erling Rasmussen
AUT University
Barry Foster
Massey University
This paper will use a case study of plumbing apprentices in the latter part of the 19th
century and the early part of the 20th century and attempt to draw parallels with poor
plumbing practices of that period and with the ‘leaky building syndrome’ as well as the
future fallout from the Christchurch earthquakes that are currently affecting New Zealand’s
building industry and the implications that these pressures will have on building apprentices.
In 1912 the Plumbing Registration Act was passed as a means to standardise the competency
of plumbers through apprenticeship training as the only means to gaining registration and
the ability to carry out sanitary work. In July 2003 the Inquiry into Weathertightness of
Buildings in New Zealand recommended and the government accepted its recommendation
to licence all building practitioners with apprenticeship as one of the perquisites to obtaining
a licence and the ability to carry out work in the building industry. These problems may have
been averted if the Apprentices Act 1983 had not been repealed and replaced by the
Industry Training Act 1992. While we point to some improvements in vocational training in
the post 2000 period we also conclude that the changes have been insufficient to avoid
further industry bottlenecks.
80
The French Legacy on Professional Development in accounting in
Vietnam
Lisa Nguyen, Keith Hooper and Rowena Sinclair
Faculty of Business, AUT University
Introduction
There are many explanations as to why there is social closure and disparity within the
accounting profession in Vietnam. The paper focuses on externalities to explain such a
disparity. These externalities are a result of overseas systems being applied in a Vietnamese
context. It is acknowledged that explanations by way of externalities may not be sufficient
but they are the contribution of this paper. The Vietnamese case is worthy of examination
because although such disparity may exist in most countries, they are more exaggerated in
Vietnam arguably due to external influences.
To explain social closure and disparity the paper adopts a Bourdieuian framework utilizing
role and capital to create the conditions for social closure and disparity. Many accounting
researchers have used Bourdieu such as Baxter and Chua (2008) who applied Bourdieu’s
practice theory in a field study of a chief financial officer and his ways of constructing his
position and practices.
In Vietnam, according to the president of the Vietnamese Accounting Association (VAA),
there is a vast disparity between bookkeepers and professional accountants. Such disparity
the paper contends is the product of Vietnam’s history with its successive layers of invasive
accounting systems from France, China, Russia and Vietnam. In particular, the French have
left Vietnam with an elitist tradition in the field of accounting with their former diversive
stratifications of status: professional accountants previously known to the French as “experts comptables” and bookkeepers formerly known as “teneurs de livres”. Such a
legacy has left Vietnam with over 2 million bookkeepers, and 2500 professional
accountants. Bourdieu’s theoretical concepts of field, capital and habitus will be used to
examine this phenomenon of social closure and disparity and why there seems to be
acceptance between bookkeepers and professional accountants despite this social closure.
Given such acceptance, the paper seeks to explain in a Bourdieuian context, the question
of how such diversity emerged and became so acceptable.
The paper is organized to first, to consider the historical development of the accounting
profession in Vietnam. Second, Bourdieu’s theory of field, capital and habitus is applied in
this context, then focusing on social closure and professional accounting bodies to explain
this disparity before a final conclusion.
Historical development of the Accounting Profession in Vietnam
In 1863, France colonized Indochina Bopta, Yapa, & Jacobs (2007) describe how the first
Western accounting system was introduced into Indochina in 19th century by the French to
support their colonial rule and the colony’s commercial development. There was initially
little demand for professional accountants and most of the accounting work was undertaken
by French accountants rather than locals. In fact, the French accounting profession made
little effort to educate the Indochinese. Vietnamese just played bookkeeping roles with the
instructions of the French accountants (Bui, Yapa & Cooper, 2011). Thus, there were only a
few Indochinese trained to be professional accountants in French offices and small trading
companies. According to one elderly interviewee, there were a few Vietnamese raised to the
status of “expert-comptable” during the French occupation of Vietnam. In Indochina,
81
accounting systems were entirely an application of existing French laws and practices as no
separate colonial law specifying the accounting and auditing system for private enterprises
had been established under French rule (Bopta et al., 2007).
The French may not have intended to establish an accounting profession as well as
deliberately educate bookkeepers in Vietnam as Bui, et. al. (2011) claimed “the development
of accounting in Vietnam in the colonial and post-colonial was not established by the French
during their domination” (p. 4). However, the French came to Vietnam for the exploitation of
natural resources such as rice, coal, rare minerals and rubber to supply for French industry.
They needed to bring their accounting system to support their purposes. From 1864, the
accounting system in Vietnam became an application of French practices and civil codes.
Subsequently, from the mid twentieth century there arose other historical influences
derived from Chinese, French, Russian and American sources on accounting practices in
Vietnam. These influences have impacted on the structure of the Vietnamese accounting
profession. Nonetheless throughout the period of other foreign influences to the present
day the French influence remained dominant. In particular, the elitist and narrowly based
membership of the French profession became the standard model in Vietnam as Bui et al
(2011) acknowledged “the French accountancy profession did not have a tradition of
becoming involved in colonial outposts as did the UK [United Kingdom] based Association of
Chartered Certified Accountants (ACCA)” (p. 13)
In 1945 after the success of the August Revolution, the revolutionary government the
people's democratic state of Vietnam was established. Unfortunately, after less than a year
of independence, the French returned to Vietnam and the war against France lasted 9 years.
In 1954, North Vietnam gained independence. South Vietnam continued to be dominated by
France and later America. The country's liberation war lasted 20 years until 1975. North
Vietnam was victorious and started the work of economic development, nation building and
supporting the South in the war of national liberation. Soon after in 1954, in the north and
then after 1975 in the South, the accounting system of Vietnam was formed. With limited
knowledge and experience, Vietnam asked for assistance from other socialist countries such
as China (since 1957) and then Soviet Union (from 1970) (Than & Tan, 1993; Tran-Nam &
Pham, 2003). Through experience of a former senior official of the Ministry of Finance
(MOF), Bui et al (2011) shared:
Since North Vietnam was completely liberated [from the French] in 1954, with the
assistance of Chinese and Soviet Union specialists, together with the economic
restoration and development, the Government issued a range of accounting
regulations for each economic sector of the national economy, based on the Chinese
accounting model, including budget accounting, (heavy) industry accounting, capital
construction accounting, supply and consumption accounting, trade accounting etc
(p. 16)
In addition, during 1968-1970, to strengthen Northern Vietnamese officials, the State sent
them to the Soviet Union to study and invited Soviet Union specialists to train officials in
Vietnam (Bui et al, 2011).
According to the Vice President of VAA in Ho Chi Minh City, with the financial support of
Soviet Union, the Soviet Union’s Journal Voucher system was then established in Vietnam.
Bui et al (2011) furthered explained that Soviet Union accounting system used 17 journal
vouchers. Because of the simplicity of the Vietnamese market, there were only 12 journal
vouchers applied in Vietnam.
South Vietnam in 1954 was described by a retired accounting lecturer:
82
Even though the US came into Vietnam but the French accounting system had
profoundly embedded in Vietnam. Vietnamese-owned companies and French-owned
companies were too familiar with the French accounting. There had been some
American-owned companies in Vietnam when the US arrived. Therefore, after 1954,
South Vietnam used the French accounting and the American accounting (Interview
dated 1 July 2011)
How did two systems work in South Vietnam? The retired accounting lecturer further
explained
1954-1975 French accounting system was the main system in South Vietnam.
American-owned companies had used American accounting system since they had to
report back to their head-quarter in the US. In regarding to matter of tax, such
companies had to report to South Vietnam government, so they had to use the French
accounting system. At this time, South Vietnam government was quite flexible
(Interview dated 6 July, 2011)
When North and South Vietnam were unified in 1975, Chinese and/or Soviet accounting
systems were applied throughout Vietnam because Northern Vietnam won over South
Vietnam and the Americans. Experiencing the changeover time, the Vice President of VAA in
Ho Chi Minh City depicted:
It is important to note that when Northern officials came to South Vietnam to take
over companies, French and American enterprises, they should have had some
knowledge of French and US accounting systems so that they could convert the old
system [the French accounting] to Chinese and/or Soviet systems (Interview dated 5
July 2011)
Since the new systems were implemented in South Vietnam, Vietnamese professional
accountants who were using French and/or American accounting systems were sent out to
learn the Chinese/ Soviet accounting systems.
From a former senior official of the MOF, Bui et al (2011) further clarified:
“….those former Vietnamese accounting staff who had been trained and worked for
the French were familiar with the way of handling bookkeeping using the French
chart of accounts. Therefore, retraining them was not an easy task” (p. 25)
After 1986, there began the conversion from an economy of communist central planning to
a market economy. With the help of French experts, Vietnam has built up a Vietnamese
accounting system and selectively absorbed the international accounting standards.
However, the Vietnamese accounting profession still has a strong imprint of the historical
French accounting system with comparatively few professional accountants (expertscomptables) in relation to the total population. By contrast, there are many bookkeepers
(teneurs de livres). When being asked if she would allow her children to follow her career
path, a senior bookkeeper in a State-Own Enterprise replied “I would never let my children to
follow my career path. As an experienced bookkeeper, I earn only $US150 a month. How
could they live with that amount of money?” (Interview dated 4 July 2011).
In summary, the Vietnamese have been strongly influenced by the French model of an
accounting profession. However, the French model that Vietnam inherited was particularly
elitist. Further disruption in the development of the accounting profession came about
because of constant warfare and foreign political influences. The end result is that Vietnam
has reproduced a system which in many ways is reflective of a French colonial past. Next,
Bourdieuian’s Framework will be utilized to explain the disparity in the accounting
profession.
83
Bourdieu’s Framework
Bourdieu’s Framework of fields, habitus and capital is first best to be illustrated as follows in
Figure 1:
Accounting field-Arena of Conflict
Capital
(Positive)
Capital
(Negative)
Habitus(Professio
nal Accountants)
Habitus
(Bookkeepers)
Figure 1: Connection of Field, habitus and Capital (Authors, 2011)
Fields
There are many different fields of practices such as business, health, education. Within each
field, different positions are defined and distinguished relationally and defended with a
position’s history (such as bookkeepers and professional accountants). These positions are
embodied and objectified through practical accomplishment (Bourdieu, 1986). Bourdieu
(2000) describes field as a “form of life” which has their own contextualized patterning of
practices. However, the advancement and distinction of position within a field is not a simple
and straightforward process.
According to Chua and Poullaos (1998), the neo-Weberian school consists of a plurality of
contending group-classes, status groups and parties, whose economic, social and political
interests could differ or overlap. In addition, struggles for domination go on “inside” each of
these fields of social action as well as among them (Chua & Poullaos, 1998). Ramirez (2001)
mobilizes Bourdieu’s notion of field and capital to account for the failure of French
accounting practitioners in achieving social closure before the Second World War. In
particular, he points to the ongoing lobbying of large companies which viewed the creation
of a profession of auditors endowed with public status as a threat to their discretionary
power, not least with respect to the construction of financial statements and accounts.
Ramirez (2001) also shows that the legitimacy attached to a particular position in a
professional field depends on collective actions. Ramirez (2001) further claims that the
notion of field is more flexible because the forms of determination and domination that it
induces are less constraining for individuals. The constitution and evolution of professional
fields are in this way related to their embedding in the broader mechanisms that establish, in
each and every society, hierarchies among bodies of knowledge and practice, and determine
the way capital accumulated in one field is transformed into assets that can be used in
another field (Ramirez, 2001). The concept of “expert-comptable” was in origin borrowed
from other professional fields.
84
Neu, Friesen and Everett (2003) suggest that in comparison with prior work on
professionalization, one of the benefits of Bourdieu’s theorization is to illuminate the
constitution of solidarity within professional fields. Such prior work brings into consideration
the writing of Marx and Engels (1994), Marx (1976, 1978, 1981), and Mao (2007) who were
the original inspiration for the French writers Sartre and Bourdieu. Solidarity is instrumental
in justifying the existence of professional associations in the eyes of their members, but they
also embody knowledge and timeless ideals which remove from visibility, questions
concerning professional privileges and lack of access to the profession for those like the
“teneur de livre” whose “capital” is deemed insufficient to merit professional status.
In summary, the concept of field which is mainly used by Bourdieu (1986), is a social arena
where people in different positions maneuver and struggle to gain capital. Bourdieu
categorizes the capital into four types: economic, cultural, social and symbolic that will be
discussed in the next section.
Capital
Bourdieu’s (1986) framework of capital (economic, cultural, social and symbolic) provides a
mechanism to explain and predict how new knowledge transpires within a field. Economic
capital involves wealth. Bookkeepers who earn a fraction of what professional accountants
earn exemplify the lack of economic capital. Economic capital allows a purchase of social
capital and culture capital. Culture capital embodies knowledge, and academic qualifications.
Social capital involves social relations and inheritance coming from families, schools, and
businesses. Again in Vietnam, the difference between professional accountants and
bookkeepers would be marked by differences in schools and in universities education.
Symbolic capital is a combination of economic, cultural and social capital being a form of
power demanding recognition and reference. Symbolic capital produces changes in the given
hierarchy and facilitates self-awareness among individuals exposed to its form. For example:
the appearance of the Big 4 firms in Vietnam possessing considerable symbolic capital create
a critical self-awareness with a field comprising small accounting firms and bookkeepers
(Shenkin and Coulson, 2007)
Bourdieu has theorized the link between professional closure and social capital (McPhail,
Paisey, & Paisey, 2010). Bourdieu (1990) illustrates such field as being artistic, literary,
scientific or academic. They are social spaces in which individuals possess unequal social
capital which may be subject to change. Bookkeepers and professional accountants in
Vietnam illustrate this difference in the vast gap in social capital. Thus the field is never
stable due to the inequality of capital between bookkeepers and professional accountants in
Vietnam.
Bourdieu (2000, p. 243) points out becoming a member of a recognized profession is not
easy. “…in preparatory suffering or painful test. He must be personally invested in his
investiture, that is, engage his devotion…” After years of suffering “painful” examinations
the trainee accountant may be granted membership and become a professional accountant.
According to Bourdieu (1986), examination plays a part in a reproduction of all three types
of capital. Thus membership of accounting professions may be a product of the middle class
monopoly of capital which allows their offspring to pass examinations and achieve
professional status. Individuals are positioned in a field according to the capital available to
them: bookkeepers would have little capital while Big 4 accounting partners would have
much more capital. Having any of four types of capital would enable individuals to affect the
85
range of possible strategies and actions in a struggle to gain ascendancy in a respected field.
In this way, capital creates identity.
In summary, Bourdieu has identified four types of capital: economic, social, cultural and
symbolic. There is a gap in such capital between Vietnamese bookkeepers and professional
accountants. By going through “painful” tests, professional accountants obtain professional
qualifications together with achieving some types of capital stated above. Capital is what
differentiates bookkeepers from professional accountants. Besides this concept of capital,
there are concepts of habitus. Field and habitus involve social inheritance and habit which
are demonstrated by individuals in a defined field. Following the discussion of the concepts
of capital and field, the next section discusses the concept of habitus that individuals bring
into their professional field.
Habitus
Bourdieu (1977) describes habitus as the predictable way that individuals connect with the
social world. It also provides a set of “operating principles” (p.18) of behaving in different
situations. Bourdieu (1977, 1990, 1998, and 2000) indicates that vocational practice is
facilitated by skilful individuals. Regardless of whether a person is a café waiter, an
accountant, a politician, a nurse or a school teacher, they understand and respond to the
range of possible behaviors that may be involved in their workplace situation. In other
words, they absorb the position and know how to perform it. Bourdieu calls it “practical
knowledge” which can only be understood from a study of action. It has a logic of
ordinariness that is, a combination of principles and convenience (Bourdieu, 1977, p.109). In
addition, daily issues may be dealt with an acceptable or predictable manner which Bourdieu
(1977, p.72-77) calls “disposition”.
There are certain circumstances which are repeated across an individual’s occupational life
that would create a basis for them to deal with such circumstances when they occur. In
general, practices are reproduced through habitus with amalgamation or incarnation of the
logic that facilitates practical functioning in various situations—our bodies have been
appropriated by the social world, and at the same time, are enabled to appropriate the
social world through the mastery of practices (Bourdieu, 1977). Practice and position in a
field mutually inform and sustain each other. Bourdieu’s view is that when practices are
enacted or re-enacted, history of the position is then connected or communicated.
Achievements facilitate communication between habitus and habitat, between disposition
and position, between one’s historical development and the objectified history informing
one’s situation (Bourdieu, 2000). Practices and position tend to inform each other over the
time but they are often taken for granted by individuals. The logic of practices is internalized
as second nature, and could be forgotten as history (Bourdieu, 1990). Bourdieu refers to this
as doxical relationship. Essentially, when dominant practices are naturalized and appear as a
self-evident or basic and common way of organizing various aspects of personal and
professional lives, it is referred to as doxa (Bourdieu, 1977; 1998). For example: the practice
of fair value accounting in accounting is a practice which has been normalized through the
association of the embodied histories of accounting practitioners and the objective
structures of the accounting discipline.
Despite this homogeneity attributed to the habitus of individuals over time, Bourdieu (1977)
also acknowledges the differences in personal styles of individuals occupying a particular
position. For example: One Chief Financial Officer (CFO) may have a different personal life
style from another. Style is considered to be the personal stamp or deviation in relation to
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the habitual practices of a time or class resulting from the different social trajectory or
ordering of life experiences of practitioners (Bourdieu, 1990). For example: accountants who
work in a large, city based company may have a different style when compared with those
who work in a small, rural company. In addition, the life-styles of professional accountants
such as CPAs or CAs may be different from bookkeepers. Such differences in styles result
from differences in capital and habitus within the same field. Furthermore, there is also a
growing gap between individuals as their expectations, capital increase. This facilitates
changes in habitus as they discover new ways of perceiving, recognizing and behaving or
engaging in a reflective communication with a series of past positions that they have
occupied (Bourdieu, 2000). This may result in a growing and conscious re-awareness of the
normalized nature of the doxic experience that has been embedded in the day to day
operation.
Habitus organizes practices and perception of practices within a field. These perceptions are
internalized by the individuals themselves (Bourdieu, 1984). One criticism involves the
extent to which habitus changes because of the experiences individuals can have throughout
their lives (Everett, 2002).
Bourdieu (1990) considered individuals will never know what they are doing because their
practices largely reflect their habitus. Malsch, Gendron, and Grazzini (2011) argue:
Reliance on the concept of habitus would allow, for example, an examination of the
ways in which French accountants’ life experiences and trajectories influence their
dispositions and interpretive schemes which, in turn, shape how they choose and
elaborate their tactics from the repertoires of contention that prevail within their field
and society (p. 218)
According to Neu, Ocampo, and Graham (2006), the notion of field, capital and habitus are
useful in understanding the static and dynamic aspects of the institutional field. Whereas
fields are seen as theoretical spaces constructed by discourse, Bourdieu (1998) refers to
habitus as a real political space constituted by action. The discourse and position gaining
authority in a field determine the boundary conditions for action play out in the habitus
(Bourdieu, 1998). Thus, when professional accountants seize the discourse and gain
authority in the field of accounting, the boundary conditions may be set to exclude
bookkeepers by a process of professional closure.
In summary, Bourdieu analysis of social identity and his efforts to theorize the way
individuals internalize the social world are based on the concept of habitus. Habitus provides
individuals with a disposition to accept their role and position within a field. Such acceptance
enables social closure through power and domination to flourish within a field.
Domination and Conflict: the struggle for social closure
The social world is characterized by individuals holding different positions within the power
structure. Perceptions of the power structure are derived from symbolic power which
promotes an hierarchy as legitimate (Everett, 2002). Symbolic power is embodied in the
habitus and contributes to the reproduction of domination. Such reproduction is assisted by
habitus as individuals are conditioned to expectations which reinforce their domination.
Bourdieu’s (1990) theory recognizes symbolic interaction between habitus and social
structure which connects relations of power with the social and institutional agent of
domination. Neu et al (2006) illustrates how accounting technology materialized in a social
world as it is involved in a process of domination. Bourdieu’s theory involves domination
and uncovers the hidden mechanisms as to how domination is reproduced. Like Foucault,
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Bourdieu is interested in unmasking “taken for granted” power relations and to illustrate
how power is maintained and the new possibilities of power arrangements that can become
possible. Furthermore, Bourdieu considered research has two important roles: to reveal the
hidden mechanism of domination and to publish their research beyond the academic field
(Neu et al 2006). According to Malsch et al (2011), Bourdieu has allowed researchers to gain
a better understanding of accounting as a field that participates in a process of domination,
especially with regard to professionalization and accounting regulation. In respect of
professionalization, many studies refer to the quest for occupational closure. For Bourdieu,
closure theory is focused on how profession seeks market dominance by monopolizing social
and economic opportunities and by restricting membership (Chua and Poullaos, 1998). The
history of accounting in Vietnam has been dominated by the French intellectual idea of
professional closure resulting in a gap between bookkeepers (teneurs de livres) and
professional accountants (experts comptables) - the former being excluded. What is original
in a Vietnamese context is that French elitism once successfully rooted into Vietnamese
society survived the departure of the French and subsequent influences of other foreign
systems in spite of the latter’s communistic ideals. The irony being that while Vietnam
became a communist state elitism in the accounting profession remained in spite of France
relaxing its former elitist model.
How then did the colonial legacy of social closure survive? Bourdieu argues that the
emergent patterning of practices in a field is argued to be mediated by the way in which
individuals mobilize various forms of capital in a bid to impose their definitions on a
situation. In Vietnam, those possessing capital in the accounting field are the professional
accountants occupying positions of power and prestige especially partners in the big
accounting firms and audit firms. Different positions in a field will be distinguished by their
varying access to these forms of capital as exemplified between the bookkeeper and the
professional accountant. Position in a field establishes identity. According to Cooper,
Ezzamel and Willmott (2011), central to Bourdieu’s theory is the idea of domination and the
relationship between the dominator and the dominated. The field is a sign of ongoing
struggle. The guiding principle of Bourdieuian theory is the idea that social communication is
seldom a process of information sharing. Instead information seems to reflect an
asymmetrical relationship between individuals who constantly maneuver and struggle over
limited resources (Shenkin and Coulson, 2007)
According to Bourdieu (1998), fields are characterized by force and struggles where
individuals attempt to create a dominant mode of practice. For Bourdieu (1977), the struggle
is played out between the dominated who wish to challenge doxa and the dominant who
wish to defend it. Practices which survive such challenges become part of the acceptable
discourse of a field: workable sets of practices dominating alternative systems. In Vietnam,
such domination is exercised by social closure taking the form of an accounting profession
with very limited entry.
Xu and Xu (2008) compared traditional bankers and modern bankers when their habitus
become active participants in the project of standardizing bank accounting terminology.
Chinese bankers, familiar with English, were perceived to be modern and not as backward
and archaic as their colleagues who continue to use the old language (Xu and Xu, 2008).
Similarly, bookkeepers in Vietnam operating the legacy of the French/Chinese accounting
may be perceived as archaic by contrast to accountants familiar with international
accounting standards.
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In summary, Bourdieu’s theory is about the idea of power and domination; together with the
relationship between dominator and dominated. Bourdieu explores the attempts and
struggles of individuals to create a dominant mode of practice. Domination and power
provide individuals with capital (e.g. symbolic capital) and enhance their identities.
Domination facilitates the process of professional closure as those with power restrict
membership to create scarcity and disparity between members of the Vietnamese
accounting profession. The following section discusses how professional accounting bodies
can add to social closure.
Professional Accounting Bodies
Lee (1995) argues that the accounting profession is established “to gain market control of an
occupational service by means of monopolistic exclusion of individuals deemed unworthy or
unqualified to provide it” (p. 49). By contrast, Bledstein (1976) observes that organized
professions are the means by which the middle class exercised cultural control and
established its social status. (Richardson, 1987) In the same vein, Johnson (1972) and
Freidson (1986) maintain that the development of a profession is a result of cultural and
historical forces. Earlier Carr-Saunders and Wilson (1933) attributed the development of the
profession to unselfish motives such as a desire to serve the public interest. By contrast,
Larson (1977) argues that professions are organized to gain market control of their
respective service field by establishing monopolies, entry pre-requisites, and examinations.
It would seem that market power and market control are strong motivations for forming
professional bodies. However, because Vietnam emerged from a French colonial background
which imposed an elitist and closed structure on colonial society it would seem that
Bledstein (1976)’s observation are most relevant with regard to middle class control and
establishment of social status.
Professions are social historical constructs according to the neo-Weberian school (Berlant,
1975; Larson, 1977; Macdonald, 1985) developed around strategies of social closure.
According to Macdonald (1985), the followers of Max Weber have utilized the concept of
social closure to explain how social classes and status are established and maintained and
how collective social mobility is attained. Furthermore, Macdonald (1985) considered the
important part of the process of closure is within the professional occupations and
cemented by government registration. Such closure, as formally occurred in France and later
by colonization in Vietnam, is employed to monopolize economic social rewards by the
institutionalization of accounting. However, for Bourdieu (1978, 1989, and 1990) the
concept of professional closure includes intellectual closure and can be seen operational in a
French context within a concept of “expert-comptable”. It is the employment of the French
concept of intellectual elitism to which Bourdieu refers that makes his theories become the
most relevant to explain the external influences on the emergence of the accounting
profession in Vietnam and its social closure and disparity.
In France and its colonies, the institutionalization of profession was decided by the
Government which places itself at the centre of professional closure. In this context of
closed professions, Bourdieu (1978, 1989, and 1990) has developed the notion of fields
which are a network of social and intellectual relations and organisational practises. Society
according to Bourdieu is a series of interrelated and semi-autonomous fields. These fields
are made up of individuals with different positions who struggle and compete for power,
status, and money. Individuals within a field seek a process of closure and a way to
constitute their legitimacy. Such legitimacy according to Bourdieu (1980) is attained by the
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possession of capital specifically, economic, social or cultural capital. In the professional
field, legitimacy is the outcome of collective action that is the product of internal conflict and
by mimicking other professional bodies; such as in France where accountants modelled their
institutions on the legal and engineering professions. It was even suggested that
accountants in France be called accounting engineers, although as Ramirez (2001) points out
such imitations ensure inferiority in a hierarchy of professional fields. The low prestige of
accounting derived in part from it being educationally ignored by the Grande Ecole (Ramirez,
2001). France has dual university system: the Universite’s and Grande Ecoles. Grande Ecoles
is a “great school” whose graduates will be secured to have an elite degree and a piece of
symbolic capital (Bourdieu, 1996).
Between 1880 and 1920, financial accounting experts with high social capital such as top civil
servants, economists, and leading academics became experts in accounting (known as
“experts-comptables”) (Ramirez, 2001). Most of the experts were graduates of prestigious
Grande Ecoles. The experts were careful to distinguish themselves from those involved in
accounting practice, especially from the inferior “teneurs de livres” or door to door
bookkeepers who serve small businesses with basic bookkeeping. French accountants built
their professional fields by constructing the distinction between the “experts-comptables”
and “teneurs de livres” who work in industry (Ramirez, 2001). In 1912 the “expertscomptables” formed a professional association in Paris, they were careful to exclude the
unworthy – those without social capital. In 1914 the membership was still only about 100
members because of the restriction of the membership. However, after the First World War
there was a great demand for accountants who began to form their own small associations.
In 1922, there were no less than 25 associations of practitioners working in industry calling
themselves different types of accountants. In 1920, the practices of the “teneur de livre”
developed due to the increase in tax rules. Eventually the “teneurs de livres” established
their own association called “societe-teneurs de livres” in 1938. Ramirez (2001) comments
that small businesses preferred to use the service of the “teneurs de livres” even though the
work of the “teneurs de livres” was considered superficial by the elite “experts-comptables”.
In summary, France developed and exported into Vietnam these distinctions among
accountants: the elites “experts-comptables” (very few of them worked in Vietnam); the
“teneurs de livres”. During the French colonial era in Vietnam, the French established no
accounting profession or society and tended to use for their large enterprises accountants
from France. During their time in Vietnam, Bui et al (2011) finds:
During the colonial rule, bookkeeping and accounting in a majority of French
businesses in Vietnam was directly handed by the French, using the French accounting
system… To assist them in detailed bookkeeping, the French trained those
Vietnamese who worked for them in the company on how to write numbers neatly
and tidily to be able to do sums easily and accurately (p. 9)
In addition, a Vietnamese bookkeeper who used to do bookkeeping jobs under French
colonization in 1930s claims:
There were very few Vietnamese “experts-comptables” who graduated from
“commerciale” school and this was in contrast with large number of Vietnamese
bookkeepers who were responsible for writing receipts of “mandate” in Indochina
(interview dated 3 July 2011)
Even though the French had left Vietnam, its legacy has been naturally incorporated in
Vietnamese accounting system as well as the society. Such legacy can be found from the
formation of a small “société” similar to the “teneurs de livres” in France and it was called
90
“Câu lạc bộ kế toán trưởng” by Vietnamese bookkeepers (Ho, 2010, paragraph 2). In the
past, such “société” was not a profession in that, similar to the French system, it drafted no
standards as accounting standards were developed by the Government. According to some
senior members VAA, VAA is not fully considered as an accounting profession similar to
those in Western world. It is perceived of as an “association of social occupation” because
there is no clear regulation and direction established for the operation of VAA. Accountants
may join the VAA and pay substantial fees and enjoy the social capital it provides by means
of a fee based membership.
Conclusion
The paper shows how Vietnam’s colonial past has left its legacy strongly entrenched and
how the accounting profession in Vietnam has organized themselves using the French
concept of intellectual elitism of social closure to restrict membership. Unable, until
comparatively recently to develop its own accounting system, various influences were
imported from French, Chinese, Soviet Union and American accounting practices. These
subsequent influences have delayed the development of the profession during a period
when in France membership of the accounting profession widened. But in Vietnam such
professional development was never achieved as the Chinese and then the Soviet Union
imposed their communistic accounting systems. However, when these foreign influences
departed, Vietnam resurrected the old French system of social closure with its elitist
traditions and divisive status of “expert comptable” and “teneurs de livres”. In addition, the
accounting profession in Vietnam like their French counterpart is not an autonomous body.
It is simply a voluntary association. As in France all accounting decisions are made by
Ministry of Finance. Possibly, partly for this reason and the high fees of membership, many
bookkeepers do not see the importance of belonging to the professional accounting body
and hence their apparent contentment with this social closure and disparity. The
Bourdieuian concept of habitus explains such contentment. Moreover, because of the fees
of membership of the VAA, it is confined largely to professional accountants who have in
Bourdieuian terms symbolic capital. But change is coming as the UK based profession body
ACCA and CPA Australia begin to expand their membership in Vietnam. It remains to be
seen if these invasive Western professional bodies will dominate the field of accounting or
whether the local accounting profession will mimic their practices and expand its
membership.
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93
The impact of social thought on the morality of professional
accountants in China
Gina Xu
AUT University
Abstract
Purpose – China is experiencing fast growing economic development. Such rapid economic
expansion brings out many ethical concerns within the Chinese business community and
accounting profession. This paper analyses how three main streams of social thought,
Confucianism, Maoism and laissez-faire -market ethics, impact on the ethics of Chinese
professional accountants. As China adopts many aspects of Western capitalism, including
International Financial Reporting Standards (IFRS), China must also reconcile those aspects
with its traditional culture inculcated over thousands of year.
Design – Interviews with people involved in the field of accounting, including practitioner,
academics and students.
Findings – Professional ethics are likely to be comprised by countervailing market forces.
Findings suggest that Western values clash with traditional values post the open door policy.
The prevailing laissez-faire market ethics approach mixes with traditional customs and
effects professional ethics. The overall conclusion is that the Chinese accounting profession
may have to draw on some traditional Confucian values to develop a stronger sense of its
own ethical foundations.
Research implications – IFRS is developed basis on Western systems and culture ie
individuality. It may not harmonise easily with traditional Chinese values. Whether the
adoption of IFRS can be fully achieved in practice is in question given such a crash of values.
This may have implications for other emerging economics that adopt IFRS.
Classification – Research Paper
Key Words – Confucianism, professional ethics, Guanxi, IFRS, China, social thought
Introduction
Economic reforms in China are changing the national economic structure from central
planning economics to more market-orientated economics. Consequently, the Chinese
accounting system needs to adapt to these changes in the national economic structure. In
addition, more and more companies are seeking opportunities in China and some large
Chinese companies are exploring overseas equity markets. Chinese businesses need to
develop better communication channels with their international counterparts. As part of
this, China is in the process of adopting International Financial Reporting Standards (IFRS).
China started this adoption process in the 1990s. The latest Chinese Accounting Standards
(CAS), which are aligned to IFRS, were issued in 2006 by the Ministry of Finance (MOF). The
adoption of IFRS also creates demand for qualified professional accountants who have the
ability to interpret and apply such new accounting standards.
The Chinese public accounting profession is called the Chinese Institute of Certified Public
Accountants (CICPA), which was re-established in 1988 (Hao, 1998, p. 462). CICPA is
governed by the MOF. The number of Chinese Certified Public Accountants (CPAs) has
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grown rapidly in the last two decades. According to the CICPA official website, as of May
2006, there are 140,000 individual members.
Despite the growth in numbers in the accounting profession, many researchers have
expressed concerns over Chinese professional ethics (K. Z. Lin & Chan, 2000; Z. J. Lin, 1998;
Y. Tang, 2000; Xiang, 1998). For example, Xiang (1998) challenges the desirability of
adopting International Accounting Standards (IAS) in China because of the lack of an
independent auditing profession. Professional independence is a vital concept for
accountants. Accounting professionals need to be free from bias and/or influence from their
supervisors and/or clients when they make professional judgments and deliver true and fair
financial reports. Xiang (1998) acknowledges that there is a new demand for financial
information as result of foreign investments and changes in ownership structures in State
Owned Enterprises (SOEs). However, he argues that the lack of an independent profession
may jeopardise the whole principle of true and fair view. (Dai, Lau, & Yang) (2000) share a
similar view. They argue that most CPA firms are affiliated with government organisations or
universities, and operate within an environment of that features unfair competition and a
lack of professional independence. It is the reputation and power of government
organisations that bring clients to the affiliated accounting firms: “Clients select a certain
accounting firm primarily based on their relationships with the parent (sponsoring)
organisation” ((Dai, et al.), 2000, p.27).
The paper aims to investigate the ethical dilemmas that confront professional accountants in
China. In particular, the paper tries to understand such ethical dilemmas within the Chinese
cultural setting. It attempts to answer whether Chinese culture is a major threat to
accounting professional independence and objectivity. Therefore, this study has implications
for the adoption of IFRS in China and other developing countries that are adapting IFRS
The paper is organised as follows. It begins with a review of research conducted on
evaluating business ethics and professional ethics in China, followed by a description of the
research method used. It then provides a contextual understanding of three main social
philosophies, namely Confucianism, Maoism and laissez-faire market ethics, that have
dominated in China chronologically. Next, the interview data is presented. The paper then
discusses how Confucianism may provide a solution to the current ethical dilemma facing
professional accountants in China. Finally, the paper concludes with the implications of this
study.
A Review on Professional Ethics in China
The role of CICPA includes, amongst other things, to regulate the accounting profession, to
provide service to its members, to monitor the service quality and professional ethics of its
members, and to deal with other administrative matters (CICPA, 2006). A Code of Ethics
(COE) for Chinese professional accountants was issued in 1996 in Mandarin (M. G. Chen,
2009). The most up-to-date version of this COE became effective in July 2010. With regards
to its table of contents, this COE appears to be very similar to Western codes, comprising the
following: (translated literally) overview, integrity, independence, objectivity and fairness,
professional competency, confidentiality and professional behaviour, and appendix.
According to the Chief Secretary of the CICPA council, Chen Yukui, the changes in the COE
further converged with international ethical codes. The International Accounting Standards
Board (IASB) encourages the adoption of universal accounting standards, auditing standards
and accounting independence post the Global financial crisis (M. G. Chen, 2009).
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Despite China’s rapidly growing economy and the introduction of a professional
accountants’ COE, there is unease about the business ethics of Chinese enterprises, including
accounting firms (A. Chan, Ip, & Lam, 2009; Gul, Ng, & Wu Tong, 2003; Shafer, 2008; Snell &
Tseng, 2002). For example, Chong and Vinten (1995) maintain that, “as China moves towards
a market economy, there are increasing concerns about the lack of auditor professional
ethics and independence” (cited in Gul, et al., 2003, p. 379).
The MOF carried out practice reviews of accounting firms from July 1997 to March 1999. As
a result of these reviews, 360 accounting firms lost their practice licences. A further 1,187
accounting firms received warnings of possible suspension of operation. Another 735 firms
were ordered to make improvements within a given period of time, and 342 other firms
faced punishment after further inspection. According to Tang (2000, p. 100), “This accounted
for 42.46% of the total number of accounting firms at [that…]time”. Thousands of CPAs were
also warned about ethical breaches (Tang 1999 cited in Shafer, 2008). Weiguo Zhang, the
former chief accountant of the Chinese Securities Regulatory Commission, states that the
profession “needs senior accountants, not only those with expertise in handling business,
but also with high professional ethics” (Trombly, 2005, p. 15). Xiang (1998) argues that one
of the unique features of the Chinese economy is the interpersonal relationship (guanxi).
Within this relationship-based economy, “auditors may often bend the rules to please their
clients or to pursue their own interests” (Xiang, 1998, p. 115). Many empirical studies
suggest that the Chinese collective culture and a large power distance between ranks in the
workplace appears to threaten Chinese accountants’ independence and judgement (Au &
Wong, 2000; Ge & Thomas, 2008; Gul, et al., 2003; B. K. Hwang & Staley, 2005; Patel,
Harrison, & McKinnon, 2002; Smith & Hume, 2005; Tsui, 1996). Some examples are given
below.
Ge and Thomas (2008) compared ethical reasoning and decision making between Canadian
accounting students and Chinese accounting students. They found that “Canadian
accounting students’ formulation of an intention to act on a particular ethical dilemma was
higher than Mainland Chinese accounting students” (Ge and Thomas, 2008, p. 189). They
concluded that the difference between Canadian accounting students and their Chinese
counterparts appears to be attributed to cultural differences. The lower ethical reasoning of
the Chinese accounting students is ascribed to the high power distance, high collectivism,
and a long-term orientation prevailing in China.
Au and Wong (2000) studied the relationship between guanxi (interpersonal relationships)
and auditors’ professional judgement in Hong Kong. Based on a survey of 70 professional
auditors, they concluded that “auditors’ professional judgement could be affected by the
existence of guanxi“ (Au and Wong, 2000, p.91). By analogy, this suggests that guanxi may
be a challenge for Chinese auditors’ independence. As Hwang and Staley (2005, p. 227)
state, “guanxi has the potential to undermine the high standards of auditor independence,
audit quality, and ethical behaviour to which auditors must adhere”.
According to Smith & Hume (2005, p. 217), “Accountants of collectivistic societies are more
likely to subordinate individual values for those that benefit their organization”. China is a
collectivist country with a communist government. The collectivism, which originates in a
family, also applies at an organisational level. Chinese people are more likely to subordinate
their personal principles to the team and the organisation for which they work.
The above ethics studies clearly highlight the influence of collectivism and large power
distance on Chinese accountants. These studies also indicate the linkages between culture
and professional accountants’ behaviour. Collectivism is represented by the notion of guanxi
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within Chinese society. People are entangled through all sorts of relationships. Relationships
are the keys for doing business in China. Large power distance, arguably derived from ‘the
notion of the five relationships’ stipulates that subordinates need to be obedient to their
superiors. A detailed analysis of Chinese culture is presented later in this paper.
Furthermore, other researchers focus on how transformation of the Chinese economy
changes Chinese social values and, consequently, people’s behaviour. For example, Tang
(1999, p. 27) argues that due to China undergoing a transition period “moral standards are
not well established […] and there may appear a period of moral vacuum like that being
experienced in the Chinese accounting profession”. The following empirical studies have
sought explanations regarding changes in ethical standards coinciding with the
transformation of the Chinese economy.
Economic reforms have brought about great changes within China, not only to the economic
structure and the market, but also to social structure and people’s thought patterns
(Whitcomb et al., 1998). Whitcomb et al. (1998, p. 849) maintain that “the gradual shift […]
from central planning to a market system has affected not just the way in which resources
are allocated, but also Chinese values and the way in which economic decisions are
legitimized”. They surveyed 181 Chinese engineering students and 60 American students on
their responses to five ethical vignettes. Their results show that the Chinese and Americans
students made similar decision choices for three of five vignettes, but the rationales behind
their decision choices were significantly different, even for similar decisions. Rather than
focusing on collectivism or power distance, Whitcomb et al. (1998) analysed the Chinese
students’ responses in the context of three main streams of philosophies that have been, or
still are, dominant in Chinese society, namely Confucianism, Maoism, and the laissez-faire
market ethics introduced during the economic reform period. Whitcomb et al. (1998) found
that a mixture of these potentially contradictory values influenced the Chinese students’
paradoxical responses.
Lan et al. (2009) surveyed 454 accounting practitioners and 126 accounting students in China
on their personal values and value type. Their results revealed that health, family security,
self-respect, and honouring parents and elders, were the top four personal values for both
the accounting students and practitioners. The value type “security” was ranked highest,
whereas “traditions” was ranked lowest, for both groups. Their finding suggests that
“modern China is a country in which the process of institutional transformation has left
cultural values in a state of flux” (p. 62). As Lan et al. (2009, p. 73) conclude:
The personal values and value types of Chinese accounting practitioners and students
are related to the Chinese cultural traditions, the impact of communism and social
reforms, and to the influence of Western values that have penetrated into Chinese
society.
Lan et al (2009) do not explain the differences between values and value type. For example,
the relatively high rankings of the personal values of “family security” and “honouring
parents and elders” very much reflect Chinese traditions. By contrast, the value type of
“traditions” was ranked very low by survey participants. This may be because such traditions
are embedded unconsciously.
Ahmed et al. (2003) investigated business students’ perceptions of ethical business
practices. They collected data from business students from the following six countries:
China, Egypt, Finland, Korea, Russia, and the USA. Ahmed et al. (2003, p. 89) found that all of
these groups have a “basic agreement on what constitutes ethical business practices,
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differences are found in the respondents’ tolerance of damage resulting from unethical
behaviour”. In particular, the Chinese students and Russian students responded similarly,
seeing less harm arising from suspect business ethical scenarios. This suggests that students
from the two emerging economies, China and Russia, have different perceptions of what is
acceptable business behaviour to the students from the other four countries in the study.
Ahmed et al. (2003, p. 99) maintain:
The recent introduction of market-based reforms in these two countries has not been
conditioned by long-term market-based reputational effects and thus, respondents in
these countries appear more accepting of opportunistic product representations.
The study also reveals a difference between Russian and Chinese students. The Chinese
students demonstrated “a relatively strong inclination not to personally act in a potentially
unethical fashion” (Ahmed et al., 2003, p. 99), while Russian students showed “a higher
propensity to pursue the same course of (unethical) practices action” (Ahmed et al., 2003, p.
99), as described in the business ethical scenarios. Ahmed et al. (2003) argue that the
paradoxical responses of the Chinese students may be due to a profit orientated market
economy and “a perhaps residual moralistic tenor in reluctance to personally engage in
potentially unethical business behaviour” (Ahmed et al., 2003, p. 99).
As Ip (2009, p. 214) observes, as a result of introducing a market economy into China,
A culture of profit began to take root and people were pursuing profit for themselves
and very often with socially undesirable consequence. Old values and norms were
either thrown into doubt or perceived to be irrelevant, and abandoned. However, new
norms and values had yet to be established to provide the basic guidance for people’s
behaviours.
The literature on ethics reviewed above shows that Chinese professional ethics is in a state
of flux. It seems that Chinese traditional culture is being mixed with a capitalist profit-driven
culture. The above authors share a common view that due to the Chinese economy’s
transition to a more market orientated economy, the associated culture of pursuing profit by
any means penetrates into Chinese ethics. These studies also illustrate that Chinese people
are being subjected to cultural influences of Western capitalism (Lan, et al., 2009), so that a
mixed culture prevails.
Many studies discuss the collectivist society and the large power distance which are seen as
threats to professional accountants’ ethics. It is very difficult for Chinese professionals to
make judgements free of the influence of relationships and their superiors. On the surface, it
seems that Chinese traditions are to blame. However, little attention has been given to how
the clash between embedded traditions and current capitalist influences could impact on
professional ethics.
Research Methods
The paper was concerned with Chinese accounting professional ethics prevailing under
mixed cultural influences, with the aim of trying to understand the way that Chinese
accountants behave in the context of their social culture. Therefore, evidence was collected
through semi-structured interviews, conducted by the first author (referred to as the
researcher). Interviewees fell into 4 groups: (1) Chinese accounting academics, (2) Chinese
accounting practitioners, (3) Chinese accounting students and (4) Western accountants who
worked in China. Interviews were all framed by a few key open-ended questions. Altogether,
15 interviews were conducted, most lasting 45 minutes to one hour.
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Profile of interviewees
The interviewees cover a broad range of contexts from practitioners to academics to
students. Westerners’ experiences of working in China are also appreciated. Although they
may not understand Chinese culture in depth, they still provide useful insights into cultural
differences. Furthermore, the responses from different groups of people that prove to be
similar or consistent, enhance the credibility of the data collected.
Except for the students in the study, interviewees had at least eight years of working
experience in an accounting environment. The accounting practitioners worked for a range
of entities, including the Big four accounting firms, SOEs, and local small to median size
entities. The expectation was that more senior people would have more experiences to
share. Students, from both undergraduate and postgraduate levels, were also interviewed
because they will be future practitioners or academics. Their views on professional ethics
and cultural impacts are important to this study.
Selecting interviewees
All the interviewees in this study were recruited through “snowball” referral. This is more
effective than cold calling as it is less likely to be rejected. Networks play an important role in
China and is known as Guanxi. Chinese people are more likely to participate if the researcher
is referred to them by someone they know. In addition, there are very few researchers doing
interview-based qualitative research in accounting in China, so that an invitation to
participate in such research is very unfamiliar to Chinese people. Cold calling is thus
impractical in the Chinese context. None of the interviewees were known to the researcher
prior to the research.
The researcher being a native Chinese has many families and friends in China. The
researcher asked her families and friends to refer her to their colleagues or friends who are
accountants. And then the researcher contacted the interviewees directly to arrange
interviews. The researcher also has contacts and networks through accounting practices in
New Zealand. People in the New Zealand accounting community referred the researcher to
contact their colleagues who had working experience in China. The researcher then wrote to
these people requesting an interview. The researcher also has a working relationship with
the CPA Australia office in Auckland, whose staff referred the researcher to their colleagues
in China. The researcher then established contact with Chinese academics through the CPA
Australia offices in Beijing and Shanghai. The Chinese academics then referred the
researchers to their students, colleagues and graduates. Furthermore, the researcher
attended international conferences and interviewed Chinese accounting academics.
The interview process
Interviewees were given information sheets regarding the research and consent forms for
them to sign. At beginning of each interview, the researcher assured interviewees of their
rights and that their private information would be kept strictly confidential. The researcher
explained the purpose of audio recording and obtained consent before recording. The
research also stressed that all questions were of a non-technical nature and that there is no
right or wrong answer. These procedures not only protect interviewees’ privacy, but also
make interviewees feel comfortable and hence more likely to provide genuine answers.
In each interview, the researcher always started with easy to answer questions, such as
“How long you have been working as an accountant?”, “When did you graduate from
school?” Such personal questions warm up interviewees and ease their nervousness or
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uneasiness. This can help establish good rapport with interviewees. Consequently, they are
more likely to share more about their experiences and views on subsequent open-ended
questions. The researcher was also careful not to present interviewees with leading
questions or to forward her personal views during the interviews.
At the end of each interview, the researcher wrote down a summary including her
perceptions and feelings, overall procedure, non-verbal clues and main points that an
interviewee covered. The audio recorded data was subsequently transcribed by the
researcher. Interviews in Mandarin were translated literally into English. Two interviews
were not tape recorded. During those two interviews, the interviewer took notes and wrote
detailed summaries based on those notes as soon as possible after each interview.
The interview transcripts are coded into topics. Topics in a similar fashion are aggregated
into themes. During the process of coding and re-reading transcripts, the researcher
identifies new themes and/or raise follow up questions. The researcher follows up with the
interviewees to consult their opinions further via emails. The themes are then selected and
aggregated into major findings of this paper.
Before presenting the findings of this study, the paper analyses three mainstream
philosophies that dominate in China, in order to provide a contextual understanding of
Chinese culture and its transformation.
Confucianism, Maoism and laissez-faire Market ethics
According to Whitcomb et al. (1998), three main streams of thought or values influence
modern Chinese business values: Confucianism, Maoism and laissez-faire market ethics, as
ordered chronologically.
Confucianism and ancient China
The essence of Chinese culture is primarily shaped by Confucianism, which was developed
from the teachings of the Chinese philosopher, Confucius (551-479 B.C.), over two thousand
years ago (Kirkbride, Tang, & Westwood, 1991; Wang & Mao, 1996). During that period of its
history, China experienced widespread civil warfare and continuous assaults. This
background may be the reason why Confucius’ thinking was centred around establishing a
harmonised society and stable human relationships (Gunde, 2002). His teachings remain
powerful and influential across all Chinese societies (Bush & Qiang, 2002; Wang & Mao,
1996). Confucianism establishes a complex system of moral, social, political, philosophical
and quasi-religious thought that has had a tremendous influence on the culture and history
of East Asia (Yao, 2000). This philosophical tradition forms the basis of the moral, intellectual
and social system in China. For the purpose of this paper, we focus on Confucian ethical
values and collectivist society.
Confucius introduces an ideal of how people should behave in their lives. The ideal of life is
to achieve a status of “gentleman” or “perfect man” through continuously self-cultivation.
The central moral principles of a “perfect man”, or the virtues of a gentleman, are Ren
(compassion, benevolence), Yi (righteousness) and Li (rites which define what is right and
wrong) (Cheung & King, 2004; Ip, 2009; Lam, 2003). Confucius believes that if a man abides
by these principles and is motivated by love or benevolence, stands on righteousness, and
acts in accordance with the rites, he can be called a “perfect man”. In ancient China, all these
virtues were provided to guide people’s behaviour, including that of emperors. They are
desired virtues to have in order to be part of the reputable class in society.
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Confucius places a strong emphasis on benevolence or love, as reflected throughout the
Analects. For example, Analects 4:4 states, “The Master said: A heart set on love will do no
wrong” (Eliot, 1980, p. 13). Confucius’ version of “the Golden rule” is recorded in Analects
12:2 as “… not to do unto others what we would not they should unto us; to breed no
wrongs in the state and breed no wrongs in the home” (Eliot, 1980).
Confucius’ idea of ethics focuses on people’s characteristic traits, on how people should live.
Confucius believed that the emperors should govern the country with benevolence rather
than punishment. Emperors should love and care for their people. In return, the people
would respect and obey their emperors. The country would be stable and harmonised.
To achieve harmony, Confucius advocates hierarchical relationships within family and the
Kingdom. According to Lam (2003, p. 153), “Confucians believe that progressing from the
cultivation of personal lives, families are regulated, then states are governed and then there
is peace all under Heaven”. A harmonised family is the starting point of harmonised society
(Whitcomb, Erdener, & Li, 1998). The notion of the five relationships (Wu Lun) provides a
hierarchical structure within a family and society (Ho & Ho, 2008; Kirkbride, et al., 1991; Yee,
2009). The five relationships are between:
1. Ruler and subject
2. Father and son
3. Husband and wife
4. Elder brother and younger brother
5. Friend and friend
Within each relationship, the superior has power over the subordinate. The superior “owes
the subordinate the duty of benevolence and care, and the subordinate owes the superior
the duty of obedience” (Yee, 2009, p. 79). “Wu Lun” regulates standard behaviour of
people, which creates harmony within a family, and spreads to the whole of society. It is a
virtue for people to serve their parents, to abandon themselves to their king, and to be
faithful and loyal to friends, as prescribed in the Analects 1:7. Tzu-hsia (one of the disciplines
of Confucius) says (as cited in Eliot, 1980, p. ?):
If a man honour worth and forsake lust, serve father and mother with all his strength,
be ready to give his life for the king, and keep faith with his friends; though men may
call him vulgar, I call him learned.
Chinese society is described as a collectivist society. Collectivism is primarily reflected in the
close ties within each family. A family is the most important group to an individual (K.
Hwang, 1987). Here, family is not only limited to the immediately family, parents and
children. The Chinese concept of family is broader than that of the western nuclear family
and includes other relatives and members of the family clan (B. K. Hwang & Staley, 2005). A
family normally embraces multiple functions, including economy, religion, education, and
recreation. Through this multiplicity of functions, most individual needs are met within the
broader family (Chow, Chau, & Gray, 1995; Hsu, 1967; K. Hwang, 1987). These social
interactions within the broader family nurture people’s relationships with one another.
Guanxi (关系，relationships, networks) probably originated from the concept of family clans
and is widened to include others who are within the social network (Chen & Chen, 2004).
People normally trust their own family members; thus, guanxi is built on trust resulting from
a particular relationship. The concept of guanxi in Confucianism is “the moral principles
regarding interactive behaviors of related parties” (Chen & Chen, 2004, p. 308). It is
considered to be affection-driven within the relationships people are involved in.
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Guanxi works on the unspoken social norms of a reciprocal exchange of favours and
empathy. An old Chinese saying that reflects the norm of reciprocity is, “If you have received
a drop of beneficence from other people, you should return to them a fountain of
beneficence” (Hwang, 1987 p954). In other words, a gentleman is supposed to remember
who helped him and should return the favour a hundredfold. For example, if A does B a
favour, B is expected to return A the favour handsomely or at least equally. Failure to meet
the guanxi obligation could damage the relationship between A and B, and also B may be
accused of being untrustworthy (B. K. Hwang & Staley, 2005; Kirkbride, et al., 1991). The
reciprocal obligation of exchange of favours is called “Renqing （ 人情） ”. It means empathy
or “a sympathetic give-and-take compromise should govern the relationship among people”
(Hoivik, 2007). Guanxi has been found to be one of the critical factors that contribute to
business success in China (Yeung & Tung, 1996).
The Confucian principles of Ren, Yi and L （ 仁， 义，礼）i, as well as the notion of Wu Lun
（ 五伦）, constitute the fundamental social values and norms that were shared within society
in ancient China for over two thousand years. As Ip (2009, p. 217) summarises,
“Confucianism entails authoritarianism, paternalism, hierarchism, that perfectly provided
moral legitimacy and enduring stability to the imperial power, society and family”. The
concepts of Confucianism were the key principles used to govern feudal society. According
to Confucius, good government and stable society should be guided by virtues such as
benevolence, righteousness, propriety, wisdom and fidelity. Therefore, Confucius did not
encourage the development of an independent legal system (Jacobs, Gao, & Herbig, 1995). If
the emperor and his officials led by example and governed the people by love, then in return
the people would pay their respect and follow them; an independent legal system would be
redundant. However, this is not to say that China did not have a legal system. Confucianism
has been blamed for hindering the modernisation of China in the early twentieth century
during the republican period (after 1921) and the Cultural Revolution (1966-1976) (Jacobs, et
al., 1995). Although China experienced wars and peasant rebellions, particularly throughout
times of changing dynasties, overall its two thousand years of feudal history were successful.
For two thousand years, China was one of the most civilised countries in the world (Lambert,
2008). Its advancement during this time is reflected in its writing, technology, arts,
architecture and music (T. Watkins, n.d.). Confucius’ principles appear to have contributed to
the overall success of ancient China.
Maoism and Communist society
After the last Dynasty of Qing collapsed in the early nineteenth century, China experienced a
stream of chaotic invasions and wars until the People’s Republic of China (PRC) was founded
in 1949. Mao Zhengdong (1898 – 1976) became the first communist leader (Chairman) of
the country. China became a socialist state with a belief in communism and collective
ownership of property. Mao abandoned the old hierarchical social structure and proclaimed
that the people were the owners of China. Mao advocated equality between males and
females, and between poor and rich. A peasant in the countryside then enjoyed nominal
ownership of the country, the same as an official in Beijing. During the early years of the
foundation of the PRC, people were whole-heartedly in favour of creating a commonwealth
of equality. They believed that a communistic society would be achieved one day under the
leadership of the Communist Party.
Maoism is a Chinese version of Marxism (Whitcomb, et al., 1998). Accordingly, “[i]t exhorted
selfless devotion to the motherland, collectivism, class struggle, anti-capitalism, dictatorship
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of the proletariat, patriotism, loyalty to the communist party, elimination of selfishness, and
suppressing personal egos, and serving the people, among others” (Ip, 2009, p. 218).
Although Mao abandoned all feudalistic traditions to free the people, he still retained some
Confucian principles: “Where Confucianism had instilled loyalty to family, father, and
emperor, Maoism now diverted it to the people, the party and the nation” (Fairbank and
Reishauer cited in Whitcomb, et al., 1998, p. 847). Maoism, like Confucianism, encourages
self-sacrifice for the collective good. It is honourable to die for the country, the party and the
people.
During the 1950’s, China’s economic structure was very similar to that of the Soviet system.
Its accounting system was designed for a centrally planned economy (Winkle, Huss, & Tang,
1992), and was copied from the Soviet material production model, which was based on
measuring physical quantities. The Chinese accounting system was to serve the information
needs of the state, to record the allocation of funds, and to maintain control over physical
production (M. W. Chan & Rotenberg, 1999). The accounting equation was defined as “fund
sources = fund application”, where the fund sources represented funds obtained from the
state or generated through operation activities, and the fund application signified how these
funds were utilised, such as receiving raw materials for an operation (Q. Tang & Lau, 2000).
Due to the not-for-profit nature of the economy, the objective of accounting was
stewardship and accountability (Chow, et al., 1995).
In the late 1950’s, the ‘Great Leap Forward’ (1958-1961) introduced the idea of ‘accounting
without books’ through which accounting journals and records were eliminated. During the
subsequent Cultural Revolution (1966-1976), accounting practices were even condemned
(Chan & Rotenberg, 1999; Winkle et al., 1992). Throughout the devastating ten-year Cultural
Revolution, people experienced fear, xenophobia, and mistrust (Ip, 2009). Economic
activities almost ceased and professional accountants were not needed during that time. In
fact, accountants were in danger of being humiliated and killed as they dealt with money –
an accusation that associated them with capitalism. It deteriorated development of
accounting system in China.
Under the planned economy, Chinese accounting was finely disaggregated into different
industries with highly specific rules and regulations. During this time, “[t]here was little
opportunity or need for [the accountants…] to engage in independent thought, take
initiative, or be economically responsible” (Y. Tang, 1997, p. 219). Therefore, there was not
much room for personal judgement and interpretation, and thus, hardly any cause for
ethical conflict (Islam & Gowing, 2003). Furthermore, under the ideals of collective
ownership, and loyalty to the nation and to the people, accountants were unlikely to try to
pursue their personal interests.
Laissez-faire Market Ethics
The Cultural Revolution ended with Mao’s death. Deng Xiaoping came into power in 1977
(Background Note: China 2010)Deng modified communism into a kind of “socialism with
Chinese characteristics”, although some people would argue it became “capitalism with
Chinese characteristics” (Redfern & Crawford, 2004). Deng introduced the “open door”
policy. China changed to a more market-orientated economy and was opened to economic
liberalisation (Ip, 2009; Snell & Tseng, 2002; Whitcomb, et al., 1998). China officially opens
its door and embraces a new era with Capitalist market systems and values. Following a
period of economic reforms, China’s GPD growth rate has stunned the world and the
people’s living standards have increased significantly, especiall those living in urban areas.
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Deng’s famous slogans, such as “To get rich is glorious”, “Let a few get rich first”, “Never
mind whether the cat is black or white, so long as it catches mice” (cited in Ip, 2009, p. 214),
introduced a new aim in life to the Chinese – the pursuit of personal wealth. The intention to
become rich is now legitimised. However, the primary focus on economic growth seems to
be at the expense of the environment and labour rights. The business ethics of many
producers attracts media attention “There are too many fake Chinese goods. Anything for a
profit. That’s today’s China!” (The Wall Street Journal cited in A. Chan, et al., 2009, p. 1).
Unfortunately, the message behind Deng’s slogan about “black and white cats” appears to
encourage the development of a materialistic values. Due to this seeming encouragement
to increase personal wealth regardless of the means, profit is considered as the primary goal
of business. (Ahmed, Chung, & Eichenseher, 2003; Redfern & Crawford, 2004; Whitcomb, et
al., 1998).
As a result of a culture of profit, which sharply contradicts with Confucianism and Maoism,
there “began to take root a pursuit of profit with very often socially and environmentally
undesirable consequences” (Ip, 2009, p. 214).
The culture of pursuing profit has arguably affected ethical standards of professional
accountants in China. As one BBC News report states, “one in ten Chinese companies have
been reporting fake profits, an annual government survey has found” ("China firms 'fake'
profits," 2001). This finding might suggest that the recent phenomenon of pursing profits
makes it more likely for accountants to comprise their ethical standards in order to serve
their vested interest.
People’s view of China
Overall, the findings of this study suggest that there are threats to professional ethics in
practice due to a flux of cultures. Confucianism laid the cultural foundations of China and its
influence has lasted for over two thousand years. Although during the Cultural Revolution,
Confucianism was said to be overthrown, its embedded tradition can still be traced in China
today. With the more recent economic transformation, some Western influences have also
been absorbed into Chinese social values. As these two potentially contradictory cultures
mix together, they are likely to create conflict in areas such as accounting professional
ethics. The following major themes emerged from the interviews and are now be discussed.
Obedience and Respect
One of the Confucian traditions is respect for seniors and obedience to authority, which are
derived from the notion of the five relationships. The aim is to achieve a harmonized society,
with people being less likely to challenge their superiors and/or seniors. One interviewee
commented that junior auditors lack professional scepticism, which he regarded as a crucial
skill for external auditors: “The healthy scepticism was the issue” (Western practitioner).
Junior auditors often hesitated to question their clients because of their seniority; instead,
tending to believe or take on whatever they were told by their clients without asking further
questions.
A lack of professional scepticism may potentially be a consequence of the Chinese education
system. As one of the Westerners working in China observed, “I get [the] impression … [in
China] lots of schools get lots of rote learning, eh?” This may link to the same tradition of
respect and obedience to authority. Within Chinese culture, the relationship between a
teacher and a student is very much modelled on the father and son relationship – one of the
five relationships (Ho & Ho, 2008; D. A. Watkins, 2002). Teachers owe students a duty of
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benevolence and care, and in return students owe their teachers respect and obedience.
Students are expected to listen to and to learn what their teachers are teaching them; they
do not like to question or challenge their teachers. The influence of this teacher-centred
learning approach can be carried through to adulthood, affecting people’s life and work
behaviour (Liu, 2006). Hence, within Chinese culture, the ability to question others is likely to
be limited. However, without professional scepticism, it is very difficult to detect
fraudulence or errors in financial reports.
Weaknesses in the education system are also reflected in the academic literature. The
Chinese accounting education system has been criticized as being non-practical, with too
much emphasis placed on technical knowledge, and weak on skill developments,
emphasizing rote learning and a lecturer-centred teaching approach (L. Chen, 2009; Z. J. Lin,
Xiong, & Liu, 2005). For example, Chan & Rotenberg (1999) find that,
The weakness in traditional Chinese teaching is that they are quite passive with oneway delivery of lectures and test-paper examinations at the end of each semester.
Such teaching methods are ineffective at fostering the development of judgment in
accounting professionals.
In sum, the tradition of respect and obedience to authority is likely to threaten professional
independence and objectivity and, thus, influence sound professional judgment. This
tradition may be a mismatch for what is required to practice IFRS.
Tendency to please
Chinese practitioners have a tendency to try to please, be it their superiors and/or clients. To
please their superiors, they work really hard and for long hours. This may also reflect the
tradition of respect and obedient to authority mentioned previously, or some other driver.
The majority of the Chinese interviewees believe that accountants have to obey their
superiors because of job retention and career progress. China’s large population means that
competition for jobs is fierce. Accountants have to do what pleases their clients or superiors.
If you are an accountant, to get a job you have to do what your boss asks you to do.
Otherwise, they can hire someone else.” (Chinese academic)
If you are a good accountant, you have to cook the book [to cover up trouble] and you
have to listen to whatever the top person said, and otherwise you lose your
job.”(Chinese practitioner)
According to interviewees’ comments, respect and obedience to authority are likely to be
the cause behind pleasing their superiors. Han and Altman (2009) found that subordinates
need to pretend to respect their superiors in order to make a good impression and to avoid
punitive treatment from their supervisors. Within the Chinese context where there is a large
power distance, there is a need for relationship-orientation and for group harmony. Often
employees are likely to attempt to “falsely underscore loyalty, respect for authority, a strong
work ethic, and concern for the common good” (Han & Altman, 2009, p. 94).
Another interviewee illustrated an example. In a SOE for which she used to work,
accountants have really close relationships with their superiors. They need to be smart and
know the regulations in order to work around them to benefit their superiors (e.g. to
reimburse their personal spending). In return, their superiors will increase their pay or
promote them. A manager at senior management level normally has an accountant with
whom they work closely. If the senior manager gets promoted or leaves the organisation,
the accountant worked closely to them is also promoted or leaves the organisation with
them. This coincides with Walder (1986)’s assertion that employees’ loyalty to their
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superiors is to exchange future advantage. Employees’ loyalty is achieved when “someone
purposely cultivates a relationship with someone in a position” through gifting or performing
favours. Accountants probably cannot make fair judgments when they have to worry about
their job security and/or career perspective.
In order to survive in a highly competitive market and make profits, local accounting firms
also need to please their clients. They can sign off accounts very quickly by not asking too
many questions. They may also help small entities to distort their accounts to reduce their
profits and, therefore, their tax payment. As one practitioner noted, “At end of the day, it is
the clients who pay you. A firm’s survival relies on their clients” (Chinese practitioner). This
observation has also been made more widely than in this study., For example, a Chinese
accountant who runs an accounting firm of 180 people stated in a local newspaper article
that, “limited by fees, accounting firms cannot provide fair and high-quality auditing reports”
(Trombly, 2005, p. 15). It appears that Chinese accounting firms are compromising their
independence and objectivity in order to survive in the market place.
Strong Influence of tax on accounting
Many interviewees, both Western and Chinese practitioners, noted the influence that tax
authorities had on financial reports. China has a very complicated tax system and businesses
are burdened with heavy taxes. Tax bureaus also have the authority to change their
regulations from year to year (to the point where they are inconsistent) in order to meet
their objectives. For example, a practitioner mentioned that according to a tax rule, in one
year costs for production can be accrued, while the following year, the same costs cannot be
accrued. “If we don’t accrue the purchases we made, our profit is too high.” Therefore,
most Chinese businesses have at least two sets of accounts, one with reduced income for tax
purposes, while the other records the correct income for internal use. During the course of
the interviews, many of the Chinese practitioners repeated the saying: “if you can’t cook
books, you are not a good accountant in China.”
Another very experienced practitioner observed that tax rules sometimes hinder the
adoption of IFRS. For example, if a company wants to write off Bad Debts, it needs to get tax
bureau approval. There are number of documents the company need to a supply: legal
document of liquidation of the debtors, and official records of the debtors from the
provincial level Commerce Bureau. This would increase accountants work and time load
significantly and often it involves travel from one province to another. To avoid going
through the process, accountants often do not write off Bad Debts. In the same way, the
provision for Bad Debts needs to be added back for tax purpose.
A majority of interviewees maintain that it is crucial for businesses to maintain a good
relationship with their local tax authorities, especially since the amount of tax businesses
have to pay can be negotiated between them and tax officials.
There are lots of problems all coming back to tax where their views would be to
minimize tax, trying to find the ways that would do that or try to come to an
arrangement with tax bureau on what tax would or wouldn’t get paid. A lot of
discussion went on and lots of again is relationships from what I can see. (Western
practitioner)
Businesses have to give monetary gifts to local tax officials in order to maintain good
relationships with them, as, by doing so, they are able to negotiate a favourable tax payment
with tax officials. In contrast, if a business decides not to please tax officials through gifting,
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the business can end up being reviewed by tax authorities and subsequently fined.
Furthermore, if a business has good relationship with tax authorities, they can get any tax
refund refunded promptly; for example, a Valued Added Tax (VAT) refund may be paid
quickly or it can be held up deliberately. As one Chinese practitioner (pragmatically)
observed,
In China, you cannot afford to displease the tax bureau…If you don’t please tax bureau,
they will come to review your financial information. They normally can find something
and then tell you it breaches their rules. No further explanation will be given and you
will be fined. My boss’s friend did not give gifts to tax officials and they were reviewed 3
times a year by tax officials. We give gifts [to tax officials], they never come to review
our accounts. (Chinese practitioner).
Commercial accountants often need to establish good guanxi with tax officials. They need to
learn the tax rules that are applicable in the current year and to agree on the tax amount
due with tax officials. Having good guanxi with tax officials also means that they can help
practitioners to take advantage of tax systems. One practitioner provides an example of a
foreign software company he is working for. According to tax incentive rules, a foreign
manufacturing entity can enjoy two years income tax free plus two years reduced income
tax. However, the foreign entity he works for only provides services. Due to good guanxi
with tax officials, he prepares a production account (ie raw material, COGS). Tax officials
allow the entity to enjoy the tax incentive rules for foreign manufacture entities by
overlooking the business activities of the company which is in tax bureau’s records because
of the fake production account.
Tax officials also gain benefits from businesses through local accounting firms. In China,
company financial reports need to be audited by external accounting firms. Businesses can
find accounting firms by themselves or the tax bureau often recommends accounting firms
to them. If businesses do not use the recommended accounting firms, the tax bureau may
make their lives more difficult. In order to be recommended by tax bureau, accounting firms
need to give benefits to tax officials. Therefore, local businesses tend to use the
recommended firms for their audit reports, and such accounting firms normally issue clean
audit reports as long as the businesses pay the fees.
This is also reflected in McGee & Guo’s (2007) study. They surveyed law, business and
philosophy students in China and found that “there was widespread approval for tax evasion
on ethical grounds” (p. 299). Their study reveals that the reasons given to justify tax evasion
included corruption, waste and unfairness in the tax systems in China. It seems to be a
common practice for Chinese businesses to avoid tax and this appears to be ethically
justified. Accountants are very capable of avoiding tax, but to do so they need to establish
good relationships with tax officials through gifting. The strong influence of tax obligations
on accounting outlined above is likely to compromise accountants’ ethics.
Guanxi (Relationship or Network)
The findings above highlight three sets of relationships (guanxi) that Chinese practitioners
cultivate:
 between accountants and their superiors,
 between accounting firms/ accountants and their clients,
 between businesses/ accountants and tax authorities
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These sets of relationship are demonstrated in the diagram below, which shows the guanxi
in which accountants in China are entangled,that act as a major threat to accountants’
independence and objectivity.
Figure 1: The sets of relationships influencing accountants in China
Guanxi has attracted the attention of many researchers and “has been recognized as an
important feature of the Chinese business and management practice” (Han & Altman, 2009,
p. 91). Guanxi not only exists within people’s families, but is also developed through social
interactions such as friends, colleagues and other acquaintances. Although there are
relational exchanges in the West, guanxi is about more than just connections. It is an
indigenous trait that influences how people interact with each other in a complex social
setting (Huang, 2009). As one Westerner practitioner noted,
The biggest difference [between China and the West] I suppose would be the
relationships. A lot of things got done over a drink or lunch whatever…. if you got the
right contact, it will get you there. You would fill out all the right forms, but it will be just
sit in pile somewhere been completely ignored. (Western Practitioner)
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The interview data shows that guanxi is even more complex in relation to employment in
SOEs. To start with, an individual needs to have guanxi to enter a good SOE. The individual
then needs to work out his or her guanxi, not only with his or her immediate supervisor but
also with other managers who he or she may see as useful. Take as an example, an
accountant, CC, who is the daughter-in-law of a local government official outside the SOE.
Suppose the official is at senior level in local government, who has close guanxi with the
Operations Manager (OM), and assists CC to gain employment. If the OM asks CC to
reimburse a dinner expenses without the approval of CEO and CFO, CC needs to do it very
carefully without upsetting her immediate supervisor. Furthermore, CC needs to be careful
about her guanxi with other senior management. If CC forms a close relationship with the
OM and he or she is really close to the CEO or has other powerful guanxi, CC may be
promoted or be offered other opportunities. If the OM leaves the SOE, CC is likely to go with
him. This is a relatively simple example. In reality, the guanxi web is far more complicated
than this as each person has guanxi, both externally and internally. All guanxi may affect the
way an individual works in an organisation. It can become a game of guanxi: an individual
may have more powerful guanxi than another one, or the powerful guanxi can be external to
the entity and sometimes unknown. Because of all these various guanxi, being an accountant
in a SOE can be very tricky and complicated:
You need to think carefully and balance all the relationships with different managers
and at same time protect yourself [from the risk of getting caught by rules]. You need to
be able to keep secrets and do not tell anything…sometimes, it is about who has strong
background (guanxi). (Chinese practitioner).
Guanxi can have either a positive or negative impact depending on its purpose. For
example, a close guanxi bond between a supervisor and his or her subordinates may
improve the trust and loyalty of employees and can increase the efficiency and effectiveness
of an organization (Tsui and Farh, 1997; Farh et al., 1998). On the other hand, it may damage
trust within an organisation. For example, guanxi is perceived to influence supervisors’
reward decisions. Such decisions are not viewed favourably by subordinates, who may feel
unfairly treated or even bear resentment (Chen & Chen, 2004; Han & Altman, 2009). Wong
(2010) finds that senior employees have a stronger belief in guanxi. Moreover, Wong found
a positive correlation between the seniority of employees’ positions and their guanxi
leveraging: “The more power one has, the more guanxi one leverages” (Wong , 2010, p.426).
It appears that guanxi could be used as an instrument to achieve one’s goals. According to
Hwang (1987), guanxi often exists in the business field when people exchange resources to
satisfy material needs. Instrumental guanxi with individuals from outside one’s family is “an
goal in itself” (p.950). This type of guanxi normally serves as a means or an instrument to
achieve other goals. It is normally short-term orientated and unstable. Gold (1985) points
out that the “pre-eminent characteristic of personal relations in China today is
instrumentalism” (Gold, 1985, p.659).
Using the simple example given above, the close guanxi tie between CC and the OM may
override relations with other employees and thus cause divisions within the organisation. CC
is likely become bonded to the OM and help him when he requires help, even when such
requests are not authorised. At the same time, her guanxi with other managers could be
weakened. If every accountant attaches to a particular manager at senior management level,
there is likely to be divisions within an organisation. Such relationships also cultivate secrecy.
CC has to be secretive about unauthorised activities that the OM requires to be undertaken.
If CC overhears some information that may be useful for the OM, she is likely to share it with
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the OM. Bozionelos and Wang (2007) found that employees’ guanxi with their bosses, senior
managers or important outsiders could lead to positive performance evaluations, which
resulted in negative perceptions of managerial justice by others. This suggests that guanxi
can produce both positive and negative outcomes within an organisation.
Social values post open door policy
Many interviewees commented that there is a prevailing value of materiality in
contemporary China. After its open door policy, China’s primary focus has been on economic
development. People are encouraged to seek wealth because ‘to get rich is glorious.’ Three
decades of economic development have brought wealth to the country and improved
people’s standard of living . At the same time, materiality appears to have become the
primary social value. Western practitioners who were interviewed regard Chinese as very
entrepreneurial. One of them observed that “Earning money is a big thing for Chinese guys”.
The other comments that “When they see opportunities, they make a dollar out of it”.
Chinese interviewees think that the dominant social values are personal wealth and position
in current China. Money is seen as the way to build a good life and the more money, the
better:
People compare with each other, for example, what kind of car you drive, what kind of
house you bought, and they talk about share trading and how much money they earn.
[…] I feel that all [they talk] about is money. (Chinese practitioner)
This growing materialism also features in BBC news in China. As Gene Wang, a former
financial trader and a polo player, is reported to have said, “For a certain person who has
bought the big house, the fast cars, the designer labels, who has mistresses, there is a point
when you think, what else can I spend my money on?” (as cited in Hogg, 2009). Gene Wang’s
comment demonstrates the fact that the current trend in China is to have status symbols
such as a large houses and expensive cars. Money probably becomes the way of buying the
trappings of success.
Many interviewees believed that the economic reforms have introduced materialistic values
into China, to the extent that materialism has become more dominant than other traditional
values. As two interviewees noted, “Social values are in confusion” and “People are
perplexed [about values]”. People avoid thinking about ethics and morality in China.
Following the economic reforms, money seems to fulfil most of people’s needs and
therefore has become most important in people’s lives. Interviewees also revealed that at
the beginning of the economic reform, the first people to get rich were unemployed or
prisoners, who got rich through unethical means because they had nothing to lose. They
were prepared to produce poor quality or unsafe products in order to make a profit, and
established unethical business practices in China.
People have a tendency to follow what the majority is doing, probably influenced by a
herding instinct. The collectivist society is likely to magnify this herding behaviour.
Therefore, business newcomers tend to follow proven strategies to become wealthy.
The preceding evidence shows that Chinese accounting professionals are influenced by both
traditional customs and western materialistic values. These conflicting cultures compromise
professional independence and objectivity. This means that Chinese accounting
professionals probably feel the need to manipulate accounting records in order to secure
their jobs or to obtain a promotion. Within such an environment, professional independence
and objectivity are unlikely to be appreciated. Unsurprisingly, accounting reports are less
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likely to be “true and fair”. A materialistic culture works hand in hand with guanxi. Today the
pursuit of materiality can be widespread in Chinese society.
Discussion
From a historical perspective, China experienced about 100 years of warfare and instability
from the Opium war of 1840 to the founding of the People’s Republic of China in 1949
(Ralston, Egri, Stewart, Terpstra, & Yu, 1999). During this period, people longed for a
peaceful and stable life. During the subsequent Mao era, people believed that they could
achieve a communist society where everyone could live abundantly. People were
encouraged to selflessly contribute to society. However, for political reasons, the country’s
economy went backwards during the Cultural Revolution. Living standards were lowered.
People felt disappointed. Being selfless did not improve the country’s wealth. The open door
policy of 1978 marked the beginning of an increase in Chinese living standards. People
probably found that, after so many decades of hard work, they were finally earning money
to buy what they wanted. Their world view was changing, and thus there were changing
ethics.
Many studies provide evidence that the concept of guanxi (personal relationships) and large
power distance are threats to professional ethics, as shown above. At first glance, it seems
that the Chinese collectivism tradition is to blame. However, these traditions were never
meant to foster unethical business conduct. Rather, people who adopt the attitude of “get
rich by any means” exploit their guanxi and position to increase their personal wealth.
Because China is a collectivist society, relationship (guanxi) is very important to its people, as
they live within a network of relationships. People build trust and loyalty through guanxi. In
theory, guanxi is supposed to strengthen relationships and to harmonise society. From a
business perspective, guanxi offers a number of benefits if used appropriately. It facilitates
business collaboration and can overcome competitive disadvantages (Han & Altman, 2008).
It increases loyalty and perceived good attitudes. For example, if a manager has good
relationships with his or her subordinates, they are likely to work together more effectively
and more efficiently.
However, through the widespread adoption of materialistic values in China, guanxi can be
used for personal gain. It can foster unethical behaviour, such as corruption and bribery (Han
& Altman, 2008). For example, businesses may use guanxi with certain officials to win
contracts or tenders. Further, businesses give tax people or officials monetary
compensation. This is evidenced in the findings dicussed above. Used in this way, guanxi can
have a very dysfunctional effect on the development of society. In the accounting field, it is
very hard for accountants to be independent and make objective judgements when they are
entangled in the web of guanxi.
Overall the findings of this study are interrelated by the concept of guanxi, which, at the
same time, poses as a major threat to professional ethics in China. “Tendency to please
clients and supervisors” is to build good guanxi with them and in return gain from clients’
businesses and career advancement. “Tax influence on accounting” is also about guanxi.
Good guanxi with tax bureau eases business operations. The current profit-pursuing culture
leads people to apply their guanxi to gain economic benefits. Under this climate of
networking, guanxi is perceived to attribute to corrupt practices (Gold, 1985; Hoivik, 2007).
Fan (2002) argued “guanxi is an inevitable evil under the current political and socioeconomic systems in China” (p. 371). Although there are rules and regulations, guanxi can be
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used to subvert, conceal or hide unethical practices (Hoivik, 2007). This is reflected in a
Chinese saying, “Rule by man rather than rule by law” (Han & Altman, 2009, p. 100).
Revival of Confucianism
The above findings reflect the confusion and dysfunctional consequences of the blending of
traditional cultures with western style capitalist business philosophies in contemporary
China. This prompts the possibility of revisiting the traditional Confucian value system for its
potential relevance and application to professional accounting in China today. The headlong
pursuit of profit in China has fostered corruption, pollution, exploitation of labour rights,
deceptive marketing practices. These unethical business practices have attracted growing
public attention and concerns (Redfern & Crawford, 2004). In response to scandals and
reports about corruption, the Chinese government puts considerable effort into battling
against corruption in order to protect its national reputation (Ip, 2009).
Today, Chinese leaders often seek wisdom from Confucian concepts – such as harmony to
secure stable development and promote morality. According to BBC News “China's leaders
are turning to Confucius to give the country some spiritual guidance. His emphasis on
harmony and self-discipline, without reference to God of course, has been endorsed by the
president” (Adams, 2009). The current President, Hu Jingtao, proposes to “build a
harmonious socialist society” as an objective of social development. This signifies a decisive
shift from unrestrained growth (Kahn, 2006). Hu goes on to emphasise that “without a
common ideological aspiration or high moral standard, a harmonious society would be a
mansion built on sand. Furthermore, with such aspirations honesty, unity, fraternity, and
professional ethics should be widely promoted” (Ip, 2009, p. 218).
It appears that Confucianism could moderate the crisis of belief and values. Some parents
are now sending their children to Confucian schools to learn time-honoured wisdom.
McGivering (2008) has reported in BBC news on a mother of a three-year-old pupil who
studies at a Confucian school saying, “Traditional culture has many advantages that cannot
be learned by modern education”, . Another mother, Wang Ching says (as cited in
McGivering, 2008):
This is a material world [in China], people want a higher standard of living and they
are focused on material things, not spiritual ones. Modern China with its headlong
rush for growth, needs more balance and more of the social order and courtesy
extolled by Confucius.
As Ip (2009, p.217) observes, “many top management officials are openly touting the values
and significance of Confucianism in furnishing China with a desperately needed moral
order”. These show that people are looking for the virtues and wisdom from Confucianism
and believe that Confucianism could be pursued to improve ethics. Confucianism also
provides a way to improve the ethical conduct of the accounting profession in China.
Confucius advocated righteousness over profitableness. Analects 4:5 states:
Wealth and honours are what men desire; but abide not in them by help of wrong.
Poverty and lowliness are what man hate; but forsake them not by help of wrong.
Shorn of love, is a gentleman worthy the name? Not for one moment may a
gentleman sin against love; not in flurry and haste, nor yet in utter overthrow. (Eliot,
1980, p. 13)
Here, Confucius is suggesting that the pursuit of wealth should never be achieved by
unethical means. Gentlemen should practice benevolence at all times. If accountants abide
112
by Confucian principles, meaning they constantly practice benevolence and righteousness,
accounting scandals will be unlikely to occur. We are not arguing that all accountants should
reach sainthood, but that they simply need to consider that profitability should not be at the
expense of righteousness. According to one Confucian general in the Qing Dynasty, the truth
is that “morality is the mother of national salvation” (Cheung & King, 2004, p. 251), not
profit.
Although Confucius does not explicitly specify rules for professional accountants, he does lay
down principles of how should people behave. The principles to become a “perfect man”
can be used to guide professional conduct. Confucian ethics is like virtue ethics. It focuses on
the characteristic of individuals. It believes that if people are good in nature, they are likely
to be good in what they do. If an accountant abides by the principles of Ren (benevolence),
Yi (righteousness) and Li (rites), he or she will perform his or her work with honesty, fidelity
and fairness, and consequently will provide true and fair financial information.
Confucianism holds its paramount, reason and will power and independence. The
“Confucian gentleman” does what is right according to his reasoning in accordance with the
principles lied down by Confucianism. The practice of reason demand self-discipline and
independence. The key feature of such a path of virtue is avoiding being corrupted by
influences other than the essential virtue of benevolence. In the same way, auditors and
accountants need to be independent and not subject to the influences of others. Like the
Confucian gentleman, auditors should practice self-discipline and independence. Also like
the Confucian gentleman, the overriding principle for auditors should be serving the
community.
To achieve harmony, Confucianism advocates a hierarchical structure in society and the
workplace. This hierarchical structure is supposed to be based on respect for superiors and
loving care toward subordinates. The underlying assumption is that superiors would not ask
their subordinates to do anything that violates the Ren, Yi and Li principles. Superiors are
supposed to be the role models for their subordinates, while subordinates are expected to
conform to their superiors’ instructions, and to follow their good example. Hierarchism is a
structure. If people within a large power-distance behave according to Confucian principles,
then this can work toward harmony and a strong society. If the large power-distance is
manipulated for personal interests at the expense of others, it can damage social values and
cover up unethical behaviour.
China has very rich culture which developed over its long history. The traditions and culture
are often very different from western cultures. A simply translated COE may not necessarily
fit into Chinese culture. The codes are deeply rooted in western cultural concepts:
individualism, impartiality, adversalism and judicial independence, which are absent from
Chinese culture (Hoivik, 2007). Within Chinese relationship-orientated collectivist society,
independence and objectivity seems inapplicable. It is maybe more effective for China to
seek wisdom from its own history and philosophies to improve professional ethics.
Confucianism ethics focuses on people’s characteristics. Through self-cultivation, people
could develop virtue and wisdom to work within the relationship-orientated collectivist
environment.
Conclusion
The paper illustrates how the transformation of social values may impact on professional
ethics, particularly in the accounting field. Confucian values, which promote Ren, Yi and Li,
have been gradually eroded. Furthermore, concepts of Maoism have been discarded.
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Becoming rich is the new and overwhelming maxim that penetrates most current social
values. The Chinese economic reforms have not only changed the standard of living for
people, but also altered their social values.
The paper presents evidence gathered from people in accounting field, which shows that
Chinese traditional culture and materialistic values are being mixed together in
contemporary China. Accountants are also affected by these mixed values in their work life.
The practice of guanxi has shifted from the family to being more instrumental in business
relationships. It is at the heart of most forms of corruption in China. Because accountants
must participate in guanxi, they compromise their independence and objectivity.
Professional independence and objectivity are fundamental requirements for practicing IFRS.
Accounting professionals need to abide by their ethical principles in order to deliver sound
judgements and to produce true and fair financial reports. While China is in the process of
adopting IFRS, current social values do not appear to support the professionalism prescribed
by IFRS. This may indicate that the adoption of IFRS may be difficult to achieve in practice.
Although the standards may be issued by MOF, how the standards will be used and applied
by accounting professionals is another question. Professionals cannot escape influences like
guanxi. The negative impact of guanxi may make the adoption of IFRS difficult or superficial.
Because professionals adopt the practices of their culture, the application of IFRS within
China may be very different from the way that was intended.
On the other hand, globalisation requires China to align with the rest of the world. It is
important for Chinese businesses to prepare their financial reports based on IFRS in order to
facilitate communication between Chinese businesses and foreign businesses. IFRS opens
doors for Chinese businesses to attract foreign capital and vice versa. The policy setting
bodies in China need to recognise the impact of current social values on professional
accountants and on the adoption of IFRS in China. They may usefully look at the wisdom
contained within Confucianism to develop a set of professional ethics for the Chinese
context.
China, a country rich in history and culture, has begun to realise the serious consequences of
embracing self-interested capitalism. It is beginning to return to the wisdom of Confucianism
and to promote traditional virtues. While these traditional values may have been neglected
in the immediate past, they are not forgotten from the collective memory. In the future,
they can re-emerge to benefit both the Chinese business community and accounting
profession.
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