Clyde Stickney
On Transparency in Accounting
"People avoid accounting at all costs," says Clyde Stickney. "Even entrepreneurs who handle everything else themselves will outsource it partly because of the steep learning curve and partly because of the intimidation factor."
Even in large corporations, many CEOs don't want to know how the numbers are calculated. But as the number and scope of accounting abuses illustrate, not paying strict attention can lead to dire consequences. As someone who understands the human side of numbers, he says fear as well as greed are the major causes of reporting abuse.
Stickney sees a number of reasons the system has broken down. First, CEO compensation is too closely pegged to stock prices. "Without abandoning the concept of accountability, there has to be a better barometer for measuring performance and compensating executives."
The second reason goes back to a time when corporate management began questioning the fees charged by independent auditors. Instead of justifying the value of their services, the auditing industry sought to create value by offering an adjunct product'additional consulting services. With no systems in place to prevent any conflict of interest, accounting firms became hostage to their own revenue streams, calling into question the independence of audits.
Third, security analysts need the freedom to operate more independently. One of the root causes of the current problems is that analysts are under too much outside pressure. They're beholden to the fees generated by their investment banking arms, yet at the same time they're being pressured by company management to maintain optimistic outlooks, even when those outlooks may not have a factual basis.
And finally, the way corporate boards are selected and compensated needs to be revisited. "Paying board members in stock options invites abuse, and the composition of these boards has become too incestuous, leaving no mechanism for oversight."
When discussing accounting and financial statements with program participants, Stickney tries to build confidence, giving them the tools to understand the process and ask the right questions. Giving corporate executives the knowledge they need to take a more active role in their own companies' financial reporting can lead to the kind of transparent accountability that will help prevent financial abuses.
Clyde Stickney is the Signal Companies' Professor of Management at the Tuck School of Business.
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