Corporate and Managerial

Behavior
 The Theory of the Firm

The theory of the firm explains why firms come into

existence and the role of accounting in the firm as
a tool to aid rational decision making. Thus, the
role of accounting within a firm cannot be
considered without a consideration of the people
involved in that firm since a firm of course consist
of a collection of people.
 The Theory of the Firm
Williamson (1970) argues that in any large organization
the management of the firm is normally divorced from
its ownership; this is a factor which hinders control
over decision making. This leads to internal
efficiencies within the firm and conflicts of interest,
which mean that organizations do not operate
efficiently as a meant of transaction cost-
minimization and value creating maximization
 The Theory of the Firm
From this analysis Williamson developed what is known as the
Organizational Failure Framework. In its simplest form this framework
can be summarized as follows:
• People are not perfect managers and managers are unlikely to ignore
their own self- interest in pursuing the interest of the owners of the firm.
• Organizations as resource allocation mechanism are not perfect and
inefficiencies arise the size of the firms increase;
• Markets are not perfect and cannot by themselves compensate for the
other inefficiencies inherent in the organizing of productivity activity
into firms.
 Transaction Cost theory
Transaction cost (TCE), and more specifically the version of
TCE that has been developed by Oliver Williamson (1975),
has become an increasingly important anchor for the analysis
of the wide range of strategic and organizational issues of
considerable important firms. Organizations are mere
substitute for structuring efficient transaction when market
fails; they posses unique advantage for governing certain
kinds of economics activities through a logic that is very
different from that of the market.
 Transaction Cost theory
• Accounting as practiced by firms is based upon the product or
service provided by the firm as the basic unit cost. In working
in this manner, accounting has been designed to capture the
cost that is incurred in the provisions of these products or
services and simply to measure the costs that are accumulated
in the production process. These cost accumulation from the
basis of accounting information which is used for the multiple
purpose of the management accounting within the firm. These
uses, of course, will include:
 Transaction Cost theory
• Operation planning and control
• Decision making
• Performance measurement and reporting
• The evaluation and rewarding of the managerial
performance
 Transaction Cost theory
• Transactional cost theory adds to this theory through
an understanding of the transformational process. The
starting point for the theory is that all activities of the
firm are transactions. This is true whether these
activities are carried out by an interaction between the
firm and the part of its external environment.
 Transaction Cost theory
• Minimizing the cost of all transaction will inevitably
achieve the following:
• The maximizing of the efficiency of the operational
activity through optimizing the source of all transactions;
• The maximizing of the profitability of the firm through the
minimizing the cost of the products or service provided;
• Minimizing the cost of the transformation undertaken and
hence maximizing the value created within the firm.
 Transaction Cost theory
If transaction is reduced in the cost through
accommodating them within the firm then they should
be carried out within the firm and this could imply a
firm engaging in vertical integration as a means of
reducing its transaction cost. Another way of reducing
cost of any particular type of transaction is by ensuring
that economies of scale lead to a reduction in unit
transaction cost and this could lead to horizontal
integration.
 Transaction Cost theory
• An observation of the economy of any country will
show that firms are engage in changing the sources of
their transactions through both integration and
divestment at all times. The organizational failure
framework, however, argues that this is not the case
and that communications distortions are bureaucratic
mechanisms prevent this from happening efficiently.
 Transaction Cost theory
Accounting as cost accumulating does not, however,
measure this transaction cost and does not provide a
means of measurement that will facilitate transactional
cost minimization. This therefore reveals one problem
with the use of accounting information to manage the
value creation process of the firm and this accounting
does not even measure this key determinant of
operation performance
 The Problems of Transactional Cost theory

Organizations as resource Allocators

Traditionally organizations base their resource allocation to decisions on the
information available to them from their accounting system. However
accounting information does not provide information necessary to base
decisions concerning the allocation of resources upon the transaction cost
associated with individual transactions in the transformational process. The
behaviors of the managers do not necessarily have inventive to allocate
resources in a way which is optimum for organization itself. The behavior of
manager in an organization is further complicated by the way in which
accounting information is used to motivate managers and reward them for
performance as well as the way as the way in which the accounting
information is shaped in its use by managers of the organization themselves.
 Inefficiencies in the market
• Economic theory focuses upon the market as a means of
exchange between different individuals or organizations, with
the assumption that one party to the exchange offers goods or
services whilst the other offers money in payment. These
exchanges take place in the market. The market therefore is a
shorthand expression for the process by which consumers of
goods and services decide upon their needs and the suppliers
of these goods and service decide upon their needs and the
suppliers of those goods and services decide upon what to
provide.
The motivation of managers
Motivations of manager in terms of psychoanalytic theory
from Freudian and Lacanian perspective to consider the
implications for managerial needs for individualization.
It has been argued that this drive for individuation leads
to managerial motivation for the usurpation of primacy.
The management of the organization is often treated as a
discrete entity but it is important to remember that this
entity actually comprises of a set of individuals with
their own drives, motivation and desire.
Sigmund Freud: Father of
psychoanalysis

Sir. Sigmund Freud

 Sigmund Freud: Father of
psychoanalysis

According to Freud, the personality consists of three

elements: the conscious, the preconscious and the
unconscious. The conscious consist of current
perception whilst the preconscious contains our
memory. The largest, however, consists of the
unconscious which contains repressed memories.
 Sigmund Freud: Father of
psychoanalysis
Freud was one of the most influential people of the
twentieth century and his enduring legacy has
influenced not only psychology, but art, literature and
even the way people bring up their children. Freud’s
lexicon has become embedded within the vocabulary of
western society. Words he introduced through his
theories are now used by everyday people, such as anal
(personality), libido, denial, repression, cathartic,
Freudian slip, and neurotic ( Saul McLeod, 2013).
Carl Jung: Analytical Psychology
Carl Jung: Analytical Psychology
• Jung deviated from this interpretation significantly by focusing
his concentration upon concentration upon understanding
individual behavior through the development of his concept of
collective unconscious. This determines the way in which all
people act and according o Jung, provides a way of acting in
universal in nature and is inherent by all individuals.
• The unconscious motivations driving our behavior are present
in all of us and consequently from one of the underlying
themes of individual existence and behavior.
Alfred Adler: the reassertion of
the individual
 Alfred Adler: the reassertion of
the individual
• Adler argues that each person is endowed with an
individual creative power which combines with innate
potentialities and environmental influence to help that
person overcome the obstacle in the path of life and
self-development. Adler’s individual psychology theory
is built around the fact that, although a person is born
with this free creative power, the interaction of this
power with Heredity and environmental influence leads
to choose a life style.
 Alfred Adler: the reassertion of
the individual
His psychology is built upon the following principles
• Teleology, in which he argues that the final goal
provides sufficient explanatory reason for everything a
person think, feels or does. He therefore rejects
causality and determination.
• The aggressive drive, which Adler believed to be the
main force for self assertion in a person.
The lacanian view: the assertion
of the Individual
• Lacanian theory posits that human subjectivity implicitly
seeks to overlook contradiction, difference and ambiguity
to fulfill aspirations for a harmonious and complete
world. Planning traditionally relies on this “social” desire
for its effectiveness in shaping policy frames, or
ideological perspectives, from which to strategically
orientate urban policy towards the future. This may sit at
odds with the conceptualization of the postmodern city as
constituted by spaces of difference and diversity.
The lacanian view: the assertion
of the Individual
• Lacanian discourse theory will be used to examine how the beliefs of
the planning profession are shaped and then implemented in our
urban environments. The implications of addressing diversity as both
a fundamental planning reality underlying many of our urban
environments and as a major planning ideal, exemplified by
multiculturalism, will be explored in this context and found to be of
concern without revision to established institutional planning
practices and wider societal expectations of urban management
Michael Gunder, Obscuring difference through shaping debate: A
Lacanian view of planning for diversity, international Planning
Studies
 Language and Power
• Swales and Rogers (1995) consider that the language
used in the business affairs important as it provides a
framing context for the communication of decisions in
the history and culture of that organization.
• Hanna and Wilson (1984) argue that language is
inextricably enter wined in power relationship, stating:
Communication is almost always an attempt to control
change, either causing it or preventing it.
 Language and Power
These decisions are limited by the following factor:
• Available in formation and the way in which it is
presented and interprets and accounting information is
crucial in this aspect.
• The organizational rules and rituals which determine the
way decisions are out into effect.
• The need to transfer decisions ownership into the public
domain within the organization.
 Language and Power
• Accounting has often been describe as the language of business and as
such provides the technology by which an organization may be
represented by and to its stakeholder. Belkaoui (1978), who argues that
accounting is not just a language of business but is actual language in its
own right, satisfying grammatical and lexical characteristics of language.
• Accounting is a language, according to the Sapir-Whorf hypothesis, its
lexical characteristics and grammatical rules will effect the linguistic and
nonlinguistic behavior of users. Four propositions derived from the
linguistic relativity paradigm are introduced to conceptually integrate the
research findings on the impact of accounting information on the user's
behavior.
 Accounting and other
measurements
• the objectivistic philosophical assumptions which
underlie contemporary research in accountancy, as
well as economics and elsewhere, are challenged and
an interpretive alternative is proposed. A
“hermeneutical” view of decision-making is
examined, first with regard to science in general, and
then concerning the human sciences in particular, and
finally with regard to economics.
 Accounting and other
measurements
• Human decisions are not seen as objective, mechanical
or behavioristic but as meaningful utterances of minds,
as part of a bidirectional communicative process. That
is, scientific decisions, like everyday decisions, are
mutually interpretive processes of communication in
language. Although it is true that much of mainstream
neoclassical economics is incompatible with this
interpretive approach, the “Austrian” school can be seen
as an interpretive version of neoclassicism.
 Accounting and other
measurements
• This school of economics indicates a way to understand
the communicative function the accounting “language”
itself serves in the economic process. The professional
judgments made by both accounting researchers and
practicing accountants, then, are treated as “matters of
interpretation.
• Don Lavoie, The accounting of interpretations and the
interpretation of accounts: The communicative function of
“the language of business”.
 Green washing

• Green washing is a presentation of activities to look as

though they are socially responsible.
The Seven Sins of Greenwashing

In the course of assessing thousands of products in the

United States and Canada, TerraChoice Environmental
Marketing categorized marketing claims into the
following “seven sins of greenwashing”:
The Seven Sins of Greenwashing

• 1. Sin of the hidden trade-off: committed by suggesting a

product is “green” based on an unreasonably narrow set of
attributes without attention to other important environmental
issues (e.g., paper produced from a sustainably harvested forest
may still yield significant energy and pollution costs).
• 2. Sin of no proof: committed by an environmental claim that
cannot be substantiated by easily accessible supporting
information or by a reliable third-party certification (e.g., paper
products that claim various percentages of postconsumer recycled
content without providing any evidence).
 The Seven Sins of Greenwashing

• 3. Sin of vagueness: committed by every claim that is so

poorly defined or broad that its real meaning is likely to
be misunderstood by the consumer (e.g., “all-natural”).
• 4. Sin of irrelevance: committed by making an
environmental claim that may be truthful but is
unimportant or unhelpful for consumers seeking
environmentally preferable products (e.g., “CFC-free” is
meaningless given that chlorofluorocarbons are already
banned by law).
The Seven Sins of Greenwashing

• 5. Sin of lesser of two evils: committed by claims that

may be true within the product category, but that risk
distracting the consumer from the greater health or
environmental impacts of the category as a whole
(e.g., organic cigarettes).
• 6. Sin of fibbing: committed by making
environmental claims that are simply false (e.g.,
products falsely claiming to be Energy Star certified).
The Seven Sins of Greenwashing

• 7. Sin of false labels: committed by exploiting

consumers’ demand for third-party certification with
fake labels or claims of third- party endorsement (e.g.,
certification-like images with green jargon such as
“eco-preferred”).
Adapted from: The Seven Sins of Greenwashing:
Environmental Claims in Consumer Markets 2 Steve
R. Dininno/Images.com
Conclusion:
• END……………………………………..