Description
The New lnstitutionalism is a recent development in organization theory with great relevance to
accounting research. New institutionalists view accounting practices as one of a larger set of features
that can legitimize organizations through construction of an appearance of rationality and efficiency.
Ceremonial adherance to legitimate norms may have little material impact because formal organizational
structure is decoupled from actual organizational processes
Acwuntfng, OqanfraHomandSode~,Vol. 2O,N0.4,pp. 313-328, 1995
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ACCOUNTING, AMBIGUITY, AND THE NEW INSTITUTIONAI.ISM*
BRUCE G. CARRUTHERS
Department of Sociology, Northwestern University
Abstract
The New lnstitutionalism is a recent development in organization theory with great relevance to
accounting research. New institutionalists view accounting practices as one of a larger set of features
that can legitimize organizations through construction of an appearance of rationality and efficiency.
Ceremonial adherance to legitimate norms may have little material impact because formal organizational
structure is decoupled from actual organizational processes. Whether substantial decoupling undermines
organizational legitimacy, who the key audiences for organizational appearances are, and the relation
between technical and institutional factors, are key issues that remain unsettled in new institutionalist
research.
In the past, accounting has suffered from an
undeserved and misleading reputation as a
“narrow” or “technical” topic. Accounting
gets portrayed as simple technique, as a set of
useful recipes for generating, processing and
evaluating information.’ Literary examples of
bookkeepers and clerks include Scrooge’s
meek and hapless employee Bob Cratchit, as
well as Bartleby the scrivener, a pathetic and
obsessive character conjured up by Herman
Melville. Corporate accountants are dispara-
gingly referred to as “bean-counters” by cap
tains of industry like Lee Iacocca of Chrysler
Corporation.’ Yet, in the face of such unchari-
table imagery, serious social scientific work has
demonstrated the richness and significance of
accounting. Establishing connections between
accounting research and other paradigms has
been an important part of this project. For
example, theories of class conflict inform
Bougen’s (1989) investigation of accounting
and industrial relations. Miller & O’Leary’s
(1987) historical analysis of standard costing
and budgeting employs Michel Foucault’s con-
ception of power, while Baecker’s (1992) dis
cussion of accounting draws upon
mathematical logic and literary criticism. Such
connections serve to outline the relevance of
accounting for a whole variety of issues:
power, conflict, rationality, governance, and
organizational behavior.
Organizations are presently the largest pro-
ducers and consumers of accounts, and the
historical development of accounting was
* Thanks to Ken Dauber, Frank Dobbin, Wendy Espeland and Peter hliller for their helpful comments, and to Kate Wilson
for her research assistance.
r Culinary metaphors are invoked when accountants get “too creative” and fail to follow the appropriate recipes. This is
referred to as “cooking the books”.
r A recent American television advertixment for beer pokes fun at the credulity of “gob from accounting”.
313
314 B. G. CARRUTHERS
closely connected to the spread of large-scale
organizations. It is natural, therefore, to wonder
what the latest developments in organization
theory have to offer to scholars of account-
ing. Recently, a paradigm known as the ‘new
institutionalism” has been used by researchers
such as Roland (1982), Meyer (1986) Weick
(1983) and Covaleskl & Dirsmith (1988),
among others, to understand various account-
ing processes. The recent publication of Walter
Powell and Paul DlMaggio’s edited volume,
i%e New I nstitutionalism in Organizational
Analysfs, provides a good opportunity to
reconsider the core arguments and insights of
this new approach.
Powell and DlMaggio’s book is intended to
be the klnd of introduction and overview that
all those interested in the new lnstitutionalism
will feel they must read. The four chapters in
the first section are reprints of “classics”, the
foundational essays for the new institutional-
ism. In identifyins and republishing these (the
oldest originally came out ln 1977) the book
performs a kind of genealogical labour in
which Intellectual ancestors are named and
family trees are constructed. The second sec-
tion contains five chapters in which various
theoretical extensions, refutations and reflne-
ments are undertaken. The limitations of the
early statements are acknowledged and recti-
fied, even as their accomplishments are cele-
brated. The fmal section contains six chapters
of empirical applications, in which various of
the ideas of the new institutionalism are used
to analyze particular cases or data on organiza-
tions. The 15 chapters are of high quality, and
are brought together and discussed by the edi-
tors in a thorough, thoughtful and wide-ranging
introduction.’ Overall, there is a recursive and
cumulative quality to the text since many of the
papers were written as commentaries or ela-
borations of others in the collection (particu-
larly the four “classics”). All the papers
partake of the new institutional&m, but the
variety among them is a testament to the dlver-
sity of this approach, and to the ways it has
developed since the late 1970s.
My first task in the following essay will be to
outline the central new lnstitutionalist argu-
ments made ln the Iirst section of Powell and
DlMagglo’s book. One of the key distinctions
made by new institutionalists is that between
the technical and the institutional, and so in the
second and third sections of the essay, I con-
sider this distinction, and the related idea of
“decoupling”, as they apply to accounting.
“Formal structure” is another core concept I
address in the fourth section. Finally, I con-
sider the place of power and conflict ln new
institutionallst analyses.
WHAT IS THE NEW INSTITUTIONALISM?
As DiMaggio and Powell point out ln their
introduction, there are today many new institu-
tionallsms, and even a few old ones. Economics,
political science, international relations, and
sociology have all renewed their interest in
institutions. The recent conferral of the Nobel
Prize on two economic historians (Douglass
North and Robert Fogel) marks the growth of
institutionallst perspectives in economics.*
Within sociology, and more particularly within
organization theory, the new institutionalism: “
. . . comprises a rejection of rational-actor mod-
els, an interest ln institutions as Independent
variables, a turn toward cognitive and cultural
explanations, and an interest ln properties of
supraindlvidual units of analysis that cannot be
reduced to aggregations or direct consequences
of individuals’ attributes or motives” (DlMaggio
& Powell, 1991, p. 8). New institutionallsts
believe that institutions matter, and that ln
analyzing how they matter, one must reject
the assumptions of methodological lndlvldual-
’ I will not discuss all of the chapters. For an intelligent overview, readers should consult the Intmduction.
* For a supportive overview of the neoinstimtional economics, see Bggertsson (1990). For an insightfuI critique, see
Knight (1992).
ACCOUNTING,
ism and individual rationality. In so doing, they
embrace the importance of culture, particularly
for how the social world is constituted and cog-
nized by social actors5 Following arguments
tirst posed by Berger & Luckmann (1967)
new institutionalists believe that people live in
a socially constructed world that is filled with
taken-for-granted meanings and rules. Much of
their action is neither intentional nor conscious,
for it is undertaken unconsciously and as a mat-
ter of routine.6
In applying these tenets to the study of orga-
nizations, new institutionalists have been
struck by how much organizational structure
is shaped by the social environment. It is
almost as if environments made organizations
in their own image. Yet this congruence
(“isomorphism” is the preferred new institu-
tionalist term) between the inside and the out-
side of organizations is not dictated by
technical criteria. The process is a cultural
and political one that concerns legitimacy and
power much more than efficiency alone. The
interesting twist is that isomorphism involves
the same organizational features that so interest
rational choice theorists, albeit for very different
reasons.
The issue of congruence was raised and
addressed directly by Meyer and Rowan in
“Institutionalized Organizations: Formal Struc-
ture as Myth and Ceremony”, reprinted as
chapter two. Organizations have frequently
incorporated into their formal structure a vari-
ety of rational procedures, processes, and rules
(including formal accounting systems).’ Meyer
AMBIGUITY, 315
and Rowan deny, however, that the primary
reason for doing so was that it would result
in more efficient organizational decisions, or
that it would make better outcomes. On the
contrary, rationalized elements are incorpo-
rated because they maintain appearances.
They help confer legitimacy upon the organiza-
tion. Modern Western society privileges a par-
ticular form of rationality, and so organizations
operating within that cultural context will
garner more legitimacy if they can emulate or
symbolically reproduce that rationality.
A central claim within Meyer and Rowan’s
argument is that formal organizational struc-
ture, with its highly rationalized appearance,
is decoupled from actual organizational prac-
tice. Formal structure has much more to do
with the presentation of organizational-self
than with how things actually transpire within
the organization. Formal structure is mythical
and ceremonial, a kind of symbolic window-
dressing. Thus, much more effort is expended
in devising official statements of procedure than
in subsequently adhering to them. American
public schools provide many wonderful
examples of decoupling. Generously supplied
with formal structures such as curricula, educa-
tional philosophies, organizational charts, pro-
fessional credentials, and budgets, classroom
activities are nevertheless remarkably detached
from all these. Plans come and go, curricula rise
and fall, budgets are made and broken. But there
is a great degree of stability in the classroom
experiences of both teachers and students.
When decoupling is significant, when there
5 They also sharply distinguish themselves from much recent institutional theory in economics and political science (e.g.
Williamson, Shepsle, Weingast).
6 Given the socialconstructionlst orientation of the new institutionalism, and the explicitly ethnomethodologlcal nature of
the “classic” article by Zucker, one might expect among the empirical chapters more microlevel studies of how formal
structure, or rationalized myth, is enacted in everyday life. But there are few ethnogtaphers among the new institution-
alists, and so most of the empirical work is historical, macro-level, and/or quantitative.
’ See Meyer & Rowan (1991, p. 51) and Meyer (1%). Such features also include things like clear-cut lines of authority,
unambiguous decision-making procedures, explicit personnel policies, techniques (preferably quantitative) for measuring,
monitorlng and controlling organizational performance, statements of organizational mission and goals, use of written
documents to initiate and record organizational actions, econometric forecasts, and so on.
316 B. G. CABBUTHERS
is a substantial discrepancy between formal
structure and organizational practice, Meyer
and Rowan can attribute the spread of rationa-
lized procedures and rules to cultural rather
than technical processes. Rationalized pro-
cedures cannot enhance organizational perfor-
mance if they do not inthtence how things are
actually done.’ They can, however, enhance
organizational appearance. Seen this way, ratio-
nalized procedures create the image of rational
choices rather than the reality; they can ratio-
nalize rather than make rational: “ . . . organi-
zational success depends on factors other than
efficient coordination and control of produc-
tive activities” (Meyer & Rowan, 1991, p. 53).
Thus, the emphasis placed by rational-choice
theorists on formal procedure as a way to pro-
duce more rational decisions is subverted. Yet
Meyer and Rowan do not dispense completely
with technical efficiency. When organizational
output is easily measurable, when productive
technologies are well defined, and when cri-
teria of success are unambiguous, then techni-
cal efficiency matters. It is when outputs,
technologies and criteria are highly uncertain
that the mythical aspect of rationalized struc-
ture matters most.
The relationship between technical and insti-
tutional factors is given further consideration in
the article by W. Richard Scott and John Meyer,
republished as chapter five. They propose the
idea of “societal sectors” to capture the ways
in which organizational environments are spe-
cific and variable rather than general and uni-
form (Scott & Meyer, 1991, p. 1 17).9 They treat
technical and institutional as independent
dimensions rather than the polar ends of a
dichotomy. This is an important step away
from simplistic notions of the relation between
the two, and allows Scott and Meyer to con-
sider how societal sectors are more or less
technical and more or less institutional, at the
same time.” Some organizations are subject
simultaneously to both kinds of pressures
(they offer banks, airline companies, and pub
lit utilities as examples). In response, these
organizations develop relatively elaborate
administrative apparatuses. Restaurants and
health clubs, according to Scott and Meyer,
are subject to weak technical and institutional
pressures. The difference between the techni-
cal and the institutional is an important one,
but sometimes the two are hard to distin-
guish, for: “ . . . those who formulate institu-
tional rules strive to make them appear
technical in nature” (Scott & Meyer, 1991, p.
124)” New institutionalists are skeptical of
claims that some organizational feature or pro-
cedure is necessary for technical reasons.
Highly political and cultural features get hid-
den under a technical surface.
Processes of isomorphism, the ways in
which organizations come to have the same
general form, are the chief topic of chapter
three, DiMaggio and Powell’s reprinted article.
Organizations come to emulate each other
because they are in similar environments.
DiMaggio and Powell distinguish between com-
petitive and institutional types of isomorphism,
and within the latter category, between co-
s On the issue of decoupling Power’s (1992) analysis of the rise of audit sampling points out an Important twist. It is not
simply that the theory of audit sampliq was (or was not) decoupled from the practice of audit sampling. Bather, the
(untheorized) practice preceded the theory, thus, “ tk ri se of a discourse of audit sampling is the rise of attempts to
le@imate, ratIonaIise, reinterpret and improve practices that were al ready in place” (Power, 1992, pp. 58-59, emphasis
In ori@naI).
9 There seems to be a profusion of terminology to this end, as others have proposed organization sets, populations, and
fields.
i” See also Scott (1991, p. 168).
t1 The ways In which a socially constructed, conventionaI and arbitrary organizatiomd procedure comes to be so taken for
granted as to appear natural and technical, are discussed In the fourth “cIassic”, by Lynne Zucker. See also Zucker (1988).
ACCOUNTING, AMBIGUITY, 317
ercive, mimetic and normative isomorphism.
Competitive isomorphism concerns efficiency.
When there is one best, cheapest or most
efficient way to do things, then the forces of
competition will eventually impose upon organ-
izations that one best way. DiMaggio and Powell
devote more attention to institutional isomorph-
ism, and in so doing help spell out some of the
ways that rationalized procedures spread.
being particularly important for how rationa-
lized procedures spread among organizations.
Coercive isomorphism concerns the ways in
which organizations may be subject to external
pressure from organizations upon which they
are dependent, or from more general cultural
expectations. Government regulations, for
example, can coerce organizations into adopt-
ing new procedures; a large manufacturing firm
can force its suppliers to standardize their ship
ping operations. Uncertainty is the moving
force behind mimetic isomorphism. In situa-
tions where they are not sure what to do,
organizations frequently look to a reference
group, to kindred organizations, and emulate
what they do in the same situation. There is
reassurance if not actual safety in numbers,
and in the absence of a compelling reason to
strike out on their own, organizations do what
others are doing. Organizational fads and fash-
ions seem likely to spread through mimetic
isomorphism. Professions play the major role
in the third category, normative isomorph-
km. Organizational personnel who are also
members of a profession are recognized as
possessing specialized training and know-
ledge, and frequently can defme the terms
and conditions of their labour. The experience
of a specialized education, and the involvement
in professional networks, influences how pro-
fessional personnel undertake their activities
within the organization. DiMaggio and
Powell’s analysis of isomorphism thus points
to two actors, the state and professions, as
In general, new institutional&s take excep
tion to rationalchoice interpretations. If there
is convergence among organizations, it is not
necessarily because market competition or
some other quasi-Darwinian process has
forced them to adhere to the optimal form. If,
for example, organizations devote considerable
energy to the development and elaboration of
rationalized rules and procedures, it may not be
because these produce decisions or outcomes
that are “objectively” better. Being technically
efficient is not the only path to organizational
survival. Achieving legitimacy in the eyes of the
world, state, powerful professions, or society at
large, is another effective survival strategy.‘*
THE TECHNICAL AND THE
INSTITUTIONAL IN ACCOUNTING
PRACTICE
The problematic relationship between tech-
nical and institutional factors motivates several
of the new essays in the volume to return to
this issue. If efficiency and a means-ends logic
is at the heart of the technical, legitimacy and a
cultural logic constitute the core of the institu-
tional. Showing how seemingly rational proce-
dures are fundamentally institutional allows new
institutionalists to undercut the rational-choice
perspective and reveal the very particular
cultural underpinnings of Western rationality.
The rational-choice perspective shares with
mainstream accounting theory the belief that
economic actors are purposive and strive to
use the best means to achieve their economic
goals. As a set of procedures for creating and
processing information, accounting is sup
posed to help people make decisions that are
highly rational, i.e. technically superior (Chua,
I2 Brim and Karabel speak of the new institutionalism’s “ shared antagonism to the idea that efficiency and market
competition are the driving forces behind all organizational change, and shared agreement that much organizational
structure and change derives from efforts to create or conform to categories and practices that give classificatory meaning
to the social world” (stint & Karabel, 1991, p. 342).
318 B. G. CARRUTHERS
1986, pp. 608-610; Chambers, 1966, p. 341).
With accounting information, business people
can choose the more profitable course of
action because they possess information that
is: “ . . . useful for making rational decisions”
(Davidson et al., 1988, p. 17; see also Istvan &
Avery, 1979, pp. 58). One can easily imagine a
just-so story starring the CEO of a corporation
that produces widgets. Thanks to a new and
more refined cost-accounting system, she cal-
culates that the widget foundry contributes
more to the costs of production than does the
widget machining room, and so reorganizes the
foundry to cut costs. l3 The happy ending of the
story is that the CEO’s use of better accounting
methods led to greater efficiency. A new insti-
tutionalist version of this story might argue that
because of decoupling, the new accounting
technique had little or no effect on corporate
operations, but that as an embodiment of
rational procedure it made the CEO look
good in the eyes of shareholders. Perhaps
cost accounting was used to rationalize a man-
agement attack on the Foundrymen’s Union.
The modified ending of the story is not so
happy for the shareholders, although it is still
good for the CEO.
The new papers by Powell and by Orru et al .
argue that the distinction between the technical
and the institutional is frequently overdrawn. It
is assumed, for example, that for-profit organi-
zations exist in a more technical environment
than non-profit-seeking organizations. l4 There
is a presumption that in competitive markets,
only the goal of profitability matters (so much
so that even organizations that do not actively
pursue it must act as if they did in order to
survive). Non-profit and less competitive envir-
onments have sufficient slack to allow more
institutional effects to come into play.
Setting aside the issue of how little slack
there really is in competitive markets,15 institu-
tional effects are visible even in technical envir-
onments. Powell points out how, through the
media of the modern state and professions,
institutional pressures affect the organization
and policy of for-profit corporations. He con-
cludes that it can be difficult to separate tech-
nical and institutional factors, but not only
because the latter occasionally masquerade as
the former (Powell, 1991, pp. 185, 188). Simi-
larly, in their analysis of business groups in
Japan, Korea and Taiwan, Or& et al . argue
that institutional arrangements operate at the
core of technically dominated environments.
What happens is that socially acceptable and
culturally legitimate means are used to achieve
a given end. In their analysis, institutional
effects do not compromise the pursuit of tech-
nical ends so much as they enhance it (Orru et
al ., 1991, pp. 362, 387). Economic actors can
pursue several goals simultaneously, and do not
concentrate on profits to the exclusion of all
else.16
New institutionalists wish to keep the tech-
nical and the institutional as analytically separ-
able dimensions, but the real world keeps
confusing the two. In particular, institutional
processes are routinely disguised as technical
ones. Decoupling plays an important role in
this process, for it allows an organization to
maintain its institutionally prescribed appear-
ances (via formal structure) without having to
compromise actual operations. Yet this decoup
I3 The economics of information provides a framework in which to understand how rational-choice theory deals with the
costs and benefits of information. The economic benefits of investing in and using the new accounting technique outweigh
the costs. See Stigler (1968).
I4 Consider the remarks of Kanter & Summers (1987) on the difficulty of measuring the performance of non-profit
organizations.
I5 On this, see DiMaggio &Powell (1991, p. 10).
I6 For a discussion of the variety of social, political, and normative goals that can be pursued through economic action, see
Granovetter (1992).
ACCOUNTING, AMBIGIJITY,
319
ling can also endanger technical appearances
and so must be stage-managed carefully. Criti-
cal audiences are unlikely to bestow legitimacy
on an organization which too obviously violates
its own formal rules and procedures.
Mainstream accounting theory believes that
accounts can help produce better decisions.
Dutifully followed, the application of account-
ing rules will generate information that will
inform organizational decision-makers about
their situation, and help them to select the
optimal strategy. If accounts are being used
more to justify decisions than to generate
them, however, or to make decisions look
good rather than to make them rational, then
we would say that the rationalized form of
accounting is decoupled from actual organiza-
tional decision-making. But to the extent that
financial accounts are obviously manipulable,
or are seen to be politicized symbolic win-
dowdressing, their credibility as “neutral”,
“impartial”, or “objective” measures of organi-
zational performance is undercut. Whatever
accounting manipulations are being per-
formed, they must be done “backstage” in
order to be effective. It is hard to maintain
appearances if the decoupling becomes too
transparent.
When decoupling occurs, who might still be
convinced by rational appearances? Different
audiences may see different things. O’Barr &
Conley’s (1992a) ethnographic study of pen-
sion funds does not explicitly draw on new
institutionalist theory, but it addresses the
issue of decoupling in a related context. Amer-
ican pension funds are subject to numerous
legal rules and government regulations. The
ambiguity and uncertain quality of these rules
is best appreciated by legal experts, the pen-
sion fund attorneys. Other pension fund execu-
” See O’Barr & ConIey (1992a. pp. 102, 119- 120).
tives are wont to believe that the laws are
unambiguous in their import. The experts see
ambiguity where others see precision. The
rational appeance of the law is least convin-
cing to the legal insiders.” Might the same
not be true of financial accounts? It seems
highly likely that trained accountants are the
ones who can best appreciate the malleable,
ambiguous and political nature of accounting
rules. Non-specialist audiences who have had
little experience with accounts are the ones
most likely to be “fooled” into believing that
accounts provide a truly neutral and rational
picture of organizational fmances.18 They are
more easily convinced by the rational appear-
ance, and are less likely to discover the extent
of decoupling.
Although plausible, the O’Barr and Conley
analysis seems at odds with the argument pre-
sented in chapter thirteen by Neil Fligstein.
According to Fligstein, individuals become
“steeped” in a particular perspective by virtue
of their careers and organizational background.
As managers from largely financial backgrounds
began to assume positions as corporate CEOs,
the financial outlook which they had acquired
over the course of their careers came to dom-
inate corporate decision-making. This outlook
entailed seeing the corporation as a financial
portfolio rather than as an organization com-
mitted to a particular product line (Fligstein,
1991, p. 321). The financial outlook views the
firm as an abstract bundle of capitalized future
income streams. The managers who adhere to
this outlook are especially reliant upon fman-
cial measures and accounting concepts as the
conceptual lenses through which they appre-
hend their own organization.” In Fligstein’s
analysis, the financial experts are the ones
most wedded to rational appearances.
Is In the past, audiences which were unfamiliar or unschooled in numerical evidence did not find accounts especially
convincing (see Carruthers & Espeland, 1991, p. 51). Yet extensive practical experience with accounts can enlighten the
unschooled. Bougen (1989, p. 226) shows how over time employees of a manufacturing firm were able to foresee the
impact of accounting rules on a management-run profit-sharing scheme.
320 B. G. CARRUTHERS
O’Barr and Conley also note the abundance
of sophisticated quantitative measures of per-
formance and financial returns for pension
funds. Fund managers are awash in a sea of
financial data, and yet when such managers
consider why they do what they do, they
evince little interest in these financial accounts
(O’Barr & Conley, 1992a, pp. 74, 149, 228).
Instead, they stress issues of responsibility,
the importance of personal relationships, and
the particular history of the fund they manage.
The “bottom line” does not seem to be an
especially compelling constraint on managers’
decision-making.
Decoupling can endanger organizational
appearances. It threatens to reveal to lay audi-
ences that what passes for technical is really
institutional (an insight that debunking new
institutionalists are already privy to). It remains
problematic exactly who is convinced by
rational appearances, and whether profes-
sional knowledge or career paths are likely to
enhance or diminish an audience’s gullibility. It
seems certain, however, that such appearances
do not impress everyone equally. There is
important variation among audiences that calls
for careful analysis. When accounting rules can
be used to manipulate official measures of
income, for example, should a corporation
inflate income to please shareholders, or lower
it to present a more penurious picture to its
unionized workforce? Like other symbol sys-
tems, accounts are indexical and polysemic.
They can mean different things to different
audiences, depending on how they are used.
One response to this has been to downplay
the importance of decoupling, and thus reduce
the discrepancy between “appearance” and
“reality”. Powell, for example, suggests that
the new institutionalism has put too much
stress on decoupling, and takes exception to
the idea that: “ . . . institutionalized organiza-
l9 See F&stein (1990, pp. 15, 226, 239).
tions are relatively passive, inefficient manip-
ulators of symbols rather than substance”
(Powell, 1991, p. 183). He argues that organiza-
tions are truly concerned with task perfor-
mance, and that the difference between
formal structure and actual operations is some-
times small enough that organizations can
simultaneously meet technical and institutional
criteria.
Another response has been to argue, as
Dobbin (1994, p. 135) does, that technical cri-
teria are indeterminate. Utility functions have
multiple maxima and so there is more than one
way to be rational. Which structure emerges,
how organizational processes actually unfold,
is therefore culturally shaped. Technical cri-
teria may constrain organizational structure,
but they cannot determine a unique point of
optimal&y, because no such point exists. They
can only provide a set of viable alternatives.
HOW TO DO THINGS WITH ACCOUNTS
The question of the technical vs the institu-
tional can be posed differently by considering
what exactly formal structure does. Accounts,
for example, are frequently a central compo-
nent of formal structure. How do accounting
procedures matter? What do people do with
accounting information? The mainstream pic-
ture of accounts (Chua, 19s6; Hunt & Hogler,
1993, p. 347) is that they represent or measure
an economic and organizational reality in much
the same way that language was said by the
young Wittgenstein to embody propositions
about the state of the world.” Accounts, like
language, are used to communicate a picture of
the world. This tends to make the study of
accounting a question of how good a picture
the accounts offer. Is it an accurate one? How
can its ability to measure the underlying eco
” As Granof and &II put it in their textbook: “Accounting Information should be reliable. It should IWhfully describe
what it purports to describe. It should be objective; it should be verltiable” (Granof % &II, 1991, p. 5). They also state that
accounts should be neutraI @. 6) and go on to disth@&, In classic logIcal positlvlst fashion, between events and
descriptions of events @. 13).
ACCOUNTING,
nomic reality be improved? Is the improvement
worth the cost?
It is, I think, much better to follow the later
Wittgenstein of Pbilosopbicul I nvestigations
(1958) and recognize that the meaning of
accounting information consists in how it is
used. Attention should be shifted from the
“syntax” and “semantics” of accounting and
focused on its l‘pragmatics”. Accounting has a
more fundamental role than the accounting-as
mirror version suggests, for it constitutes eco-
nomic and organizational realities as much as it
reflects them. Furthermore, Wittgenstein’s con-
cept of “language games” leads directly to the
question of audience raised in the previous
section. Who finds the game compelling? It is
likely that accounting principles are not neces
sarily generally accepted, and that one must
construct a more nuanced picture of the audi-
ence(s) for accounts. Determining who can par-
ticipate in accounting language games involves
a consideration of professional jurisdictions and
occupational monopolies.
The new institutionalists have taken to heart
a chief insight of March & Simon (1958) that
information sets the premises of decisions, and
the premises of decisions determine the out-
come of decisions.‘l How people behave in
organizations depends less on the “objective
world” and more on how they perceive that
objective world. These “subjective” percep-
tions are not, however, individual and idiosyn-
cratic. They are institutionally based, collective
understandings based on shared cognitive cate-
gories. Accounts are consequential when they
shape how information is created, processed,
AMBIGUITY, . 321
and presented both within and between orga-
nizations. New institutionaIists are not, of
course, the only ones to recognize the impor-
tance of cognitive categories. Pal, for example,
speaks of the “actuarial ideology” of Canadian
government officials and how it shaped public
policy (Pal, 1986, pp. 77-85). Accounts share
their importance with other information tech-
nologies that are utilized by organizations (see
Yates, 1989, 1991),22 but also with the more
general cultural categories discussed by the
new institutionalists (see DiMaggio & Powell
1991, pp. 13-14).
The emphasis placed on culture by the new
institutionalism is perhaps too cognitive. Con-
ceptual lenses matter, to be sure, but so do
loyalties and commitmentsz3 The normative
side of culture, the side that involves affect
and emotion, is not given much consideration
by the new institutionalists (although they
acknowledge it; see DiMaggio & Powell,
1991, pp. 14-15). Organizational outlooks
have a surprising amount of inertia in part
because of how people become personally
invested in them. People cannot change their
conceptual lenses as easily as they would their
own glasses.
What can accounts be used to do? They
quantify and commensurate (Meyer, 1986, p.
347; Espeland, 1992, Chaps 1, 6). They take
qualities as inputs and produce quantities as
outputs. They help to render parts of the social
and organizational world calculable and pre-
dictable (Miller, 1992). They serve to create
order out of an “organized anarchy” (March
& Olsen, 1976). They measure, quantify, con-
&’ See also Hogarth’s (1993) summary of behavioral decision theory.
a* Yates’ fascinating studies recount the organiaational consequences of such mundane innovations in the processing of
information as typewriters, standardized forms, manuab, fding cabinets, carbon paper and duplicating machines.
a3 There are numerous examples ilhtstrating the importance of cognitive and normative dimensions. The McDonald’s of
hamburger fame has a strong corporate culture, and is a leader in the measurement, calculation and routinization of service
work within the fast food industry. It’s corporate train@ program, during which McDonald’s culture is in&led into the
minds of wouldbe restaurant managers and franchisees, includes the teaching of company procedures, a largely cognitive
matter. Yet, the traioing program also focuses heavily on normative issues like commitment and motivation (IAdner, 193,
p. 55). It tries to cultivate among managers an emotional investment in general corporate principles like “QSC’ (quality,
service and cleanliness). as weU as in more concrete mattets Iike predictabIe Big Mats.
322 B. G. CARRUTHERS
dense and decontextualize information. They
can abstract and reduce enormous social and
organizational complexity down to a single bot-
tom line. In March and Simon’s terminology,
they absorb uncertainty.
What can accounts be used for? To record
and monitor events, transactions and indivi-
dual behavior, to evaluate and control organiza-
tional processes and outcomes, and to
rationalize and centralize decision-making.
Accounts are ways to create and manage infor-
mation, and as such are part of a broader set of
informational practices. Economic complexity
gives rise to accounts, for how else can one
keep track or manage a complicated produc-
tion process, or an intricate network of eco
nomic relationships? Accounts can be used to
supplement and even replace individual
memory with an organizational memory
(Yates, 1989, p. 6). They bolster the rather
limited cognitive capacities of boundedly
rational decision-makers. In doing all these
things (quantifying, commensurating, record-
ing, evaluating etc), accounts shape the pre-
mises of decisions. **
who want to shift their own responsibility
somewhere else, accounts can provide any
number of numerical excuses. O’Barr and Con-
ley’s study shows the great concern of pen-
sion fund managers to be able to “pass the
buck”, preferably to noone else in particular
(O’Barr & Conley, 1992a, pp. 85-88, 1992b, p.
23). Through the use of collective decision-
making procedures, various oversight mechan-
isms, and copious amounts of financial data,
individual agency within the fund gets dissi-
pated so as to be almost untraceable. Should
there be any finger-pointing or recrimination,
fund managers are well equipped to evade
responsibility.
If accounts are consequential before and dur-
ing decision-making, they are also useful in the
aftermath. This is when the rationality of deci-
sions turns into the rationale for decisions.
How can completed decisions be justified?
Who is to take the credit or blame? For those
who participate in a decision, how responsibil-
ity is allocated is often more important than the
actual outcome of the decision itself. Indeed,
when the relationship between organizational
means and ends is uncertain, or when out-
comes are ambiguous, then the legitimacy of
a decision may actually be easier to determine
than its outcome.
One of the lessons of attribution theory is
that people tend to ascribe their own actions
to situational factors, and ascribe the actions of
others to that person’s personality, character or
choice (Shaver, 1975, pp. 81, 127). For those
Was a particular decision a good one? Should
the participants be credited or blamed? Some-
times it is hard to know lf the resulting out-
come was positive or negative (and sometimes
hard to determine even if there was an out-
come). With high uncertainty, those charged
with answering questions of responsibility fre-
quently look to the formal procedural features
of the decision. Was all relevant information
dutifully and accurately collected? Did it enter
into the decision? Were all the alternatives con-
sidered? Were potential consequences fore-
seen? As Feldman & March (1988) point out,
formal rationalized structure figures proml-
nently in how these questions get answered.
Formal plans, decision-trees, econometric fore-
casts, specification of contingencies and alter-
natives, quantitative estimates, and the ample
use of accounting information all help to
enhance the post hoc legitimacy of a decision.
New institutionalists claim that these rationa-
lized features usually do not determlne how
the decision was made, for they concern how
the decision gets presented to the outside
world after the fact.25 Once again, however,
there is a danger of overemphasizing the
degree of decoupling. Some audiences, espe-
cially legal and judicial ones, are very sensitive
to the possibility that a decision will be made,
_.
‘* On the cognitive effects of doubleentry bookkeeping, see Camtthers & Espeland (1991, pp. 55-60).
z5 See, for example, Feldman & March (1988, p. 411).
ACCOUNTING, AMBIGUITY, 323
and then wlll be made to look good. Such audi-
ences are mindful of decoupling, especially if it
becomes too extreme.
Several studies have examined the use of
accounting rules to enhance or reduce corpo-
rate income. Bond indentures, the contractual
agreements between corporate debtors and
their bondholders, frequently contain restric-
tive covenants that require the debtor to main-
tain certain financial ratios, and remain above
specified financial thresholds (Smith & Warner,
1979). These covenants are written into the
indenture to protect the bondholders, and
they are constructed out of various accounting
measures of the corporate debtor’s financial
status. If the critical ratios specified in the cove-
nant are exceeded, then certain mechanisms
are triggered that allow the bondholders to
recover their money. By manipulating account-
ing procedures, however, it is possible for man-
agement to alter corporate income so as to avoid
violating one of these covenants (Begley, 1990,
125-126)? Compliance is achieved through
the creative application of accounting rules,
but the more obvious such action becomes,
the less likely people are to view accounts as
“neutral”, and “objective” measures.27
The usefulness of accounts for ex ante deci-
sion-making, ex post rationalization, or com-
pliance with formal rules and restrictions,
goes well beyond for-profit corporations, or
even organizations in a capitalist economy.
Non-profit organizations frequently devise
accounting systems to measure their own per-
formance (Ranter & Summers, 1987, p. 156).
Consider as well the Soviet fascination with
quantitative accounting information and its
role in a command-style economy (Nave,
1983, pp. 34, 73-79, 1989, 34-35). The legiti-
macy of rationalized structures is upheld across
economic sectors and economies.
THE SOURCES OF FORMAL STRUCTURE
Whatever the effect of rationalized proce-
dures, however large or small the extent of
decoupling, it is important to understand the
sources of formal structure. Early formulations
were perhaps too simplistic in their answer to
this question, for the sources were invariably
external. Organizations imported their formal
structure from outside. They emulated and
reproduced the procedures, rules and struc-
tures that enjoyed external legltimacy.28 Formal
structure came from the state, from professions,
or from other “successful” organizations. In
general, rationalized myths were the creation
of Western culture. The legitimacy of account-
ing over time and across nations gave credence
to this idea, but a more subtle approach seems
necessary.
In chapter seven, Scott argues that: “ . . .
organizations are not passive actors being
imprinted by cultural templates” (Scott, 1991,
p. 170). He points out that organizational envir-
onments are differentiated, as are the sources
of formal structure. Culture is not homoge-
neous, and its plurality provides the basis for
a more active and discretionary appropriation
of formal structure by organizations. As Scott
puts it: ‘I . . most types of organizations con-
front multiple sources and types of symbolic or
cultural systems and . . . they exercise some
choice in selecting the systems with which to
connect” (Scott, 1991, p. 181). Multiple, and
a6 Press & Weintrop (1990, p. 82) specify some of the incomeenhancing accounting techniques: accelerated depreciation,
LIFO, amortization of past pension service costs in less than 30 years, and the deferral of Investment credit.
27 The possibility of such legerdemain is a reflection of the fundamentally ambiguous and open-ended nature of a8 rules,
even ones which arc supposed to be specific and certain. Again, this would not surprise the later Wittgenstein.
*s This simple story is not always wrong. Accordii to Callahan’s account (1%2), Progressive-Era American public schools
happily embraced business techniques in order to participate in the general celebration of efficiency. The use of account-
ing was one way for school officials to document the “scientific” nature of their administrative structures (Callahan, 1%2,
pp. 158169).
324 B. G. CARRUTHERS
even contradictory, cultural systems allow
organizations to play them off against one
another, rather than reproduce internally a
monolithic and unitary “Western culture”.
The multiplicity of cultural sources grants to
organizations a measure of cultural autonomy.
They can choose from among a set of legitimat-
ing cultural “scripts” or “templates”. Consider,
for example, the situation of Progressive Era
women’s political organizations. They could
model their formal structure after business
organizations (thus emphasizing their efficiency
and rationality), political parties, unions, clubs,
or fraternal organizations, or combine elements
from several of the alternatives.29 There was no
single model with which womens’ organiza-
tions were compelled to comply. Their legiti-
macy was more creatively constructed than
externally Imposed.
Scott’s line of argument redresses the picture
of organizations as acquiescent receptacles for
rationalized myths. In the case of accounting,
for example, organizations have been very
active in shaping rationalized myths to get the
ones they want. Mezias’ study (1990) of how
investment tax credits were reported (deferral
method vs flow-through method) on the
income statements of Fortune 200 Iirms pro-
vides ample evidence that organizations aggres-
sively shaped their Institutional environment.
Big Eight accounting firms actively lobbied
the SEC to prevent enforcement of a rule pro-
mulgated by the Committee on Accounting
Procedure (Mezias, 1990, p. 436). Generally
accepted accounting principles are an example
of a rationalized myth, but one that is shaped by
the very organizations which must comply with
it to be legitimized.
If we return to the example of how creative
accounting is used to comply with restrictive
covenants, the possibility that organizations
actively shape their own institutionalized envir-
onment is very real. The purpose of Fogelson’s
article (1978) for example, was to warn corps
rate debtors about the implications of changes
in accounting rules for compliance with debt
covenants, and to suggest that they might want
to lobby the .approprlate regulatory bodies
(the FASB and SEC). It was an invitation for
corporations to shape their environment.
How rationalized myths get applied ln parti-
cular situations is also subject to organizational
influence. For example, as the number of
asbestos-related lawsuits grew during the late
1970s and into the 198Os, Johns Manville’s
accounting firm (Coopers and Lybrand) quali-
fied the corporation’s 1981 annual report with
a footnote that recognized the potential liability
arising from these lawsuits, but stated that their
financial magnitude could not be accurately
estimated. In order to file for a chapter 11 bank-
ruptcy, Manville needed to put a dollar value
on these potential liabilities, and so it switched
accounting Iirms. Overnight, an inestimable
magnitude became worth an exact dollar sum
(around $2 billion; see Delaney, 1992, pp.
66-69). Manville obtained a more compliant
accounting firm to get the accounting results
it wanted.
The newest of the new institutionalism
recognizes that rationalized myths, and formal
structure, are not always imposed on an orga-
nization by its external environment. Fre-
quently, organizations play an active role in
constructing rationalized myths, playing them
off against each other, or shaping how they are
applied in particular instances.30 Organlzatlons
are not only granted legitimacy; sometimes
they go out and get it.
POWER AND POLITICS
Many of the new papers in this collection call
for greater attention to issues of politics, power
29 See Clemens (1994) for a theoreticaIly sophisticated discussion of women’s political organbtiofls. I eIahorate the
analysis of cultural autonomy elsewhere In Carruthers (1994).
3o See Dihbggio (1991, p. 287).
ACCOUNTING,
and conflict (e.g. the chapters by DiMaggio,
Galaskiewicz, Fligstein, Friedland and Alford).
They worry that the new institutionalism is too
concerned with culture and taken-for-granted
meanings to be able to discern the conflicts
that abound in organizational life, and that to
focus on myth and ceremony is to overlook
power and control. Yet this redirection poses
something of a dilemma, for to the extent that
new institutionalists want to address these
issues, they seem compelled to pick up some
of the scattered remains of homo economi cus,
i n particular, interests and intentions3’ At their
simplest, analyses of conflict usually pose one
group, acting in accordance with its interests,
against another group, acting in accordance
with a contrary set of interests. Who “wins”
is a function of who has more power. Thus,
however much some of the new institutional-
ists want to defeat rational choice theory,
others are more than happy to coopt it.
Galaskiewicz is perhaps most explicit in mak-
ing use of some rational choice concepts. His
paper shows how: “ . . . leaders can act purpo-
sively (albeit under conditions of bounded
rationality) to construct and create institutions
which in turn control and govern organiza-
tions’ actions” (Galaskiewicz, 1991, p. 293).
In the case he examines, corporations in Min-
neapolis-St. Paul intentionally created institu-
tions that encouraged corporate phiianthropy.
It is an argument that resembles, in some
respects, classical social contract theories of
government.
Studies of accounting frequently emphasize
power and conflict. Covaleski & Dirsmith
(1988) follow a university budget category
through periods of ascent, transformation,
and decline. Self-interest is foremost in the
minds of the various parties who propose,
oppose, coopt and contest the budget cate-
AMBIGUITY,
325
gory. They show how disparate and even con-
flicting interests get couched in a common and
legitimate language of budgeting (Coveleski &
Dirsmith, 1988, p. 585).32 Furthermore, Tinker
(1980) is able to outline how a Iirm’s income is
embedded in particular social and political con-
texts, and why it is a fallacy to equate profit
with the marginal productivity of capital.
The politics and conflict need not be at the
organizational level. Sometimes it is at the pro-
fessional level, as DiMaggio’s study (1991) of
U.S. art museums shows. Professional politics
also played a role in the development of
accountancy: who can play the language game
of accounting is not merely a philosophical
question. Andrew Abbott (1988) explains how
in the early twentieth century, U.S. engineers
battled accountants for professional jurisdiction
over the growing volume of quantitative work
associated with corporations. Cost accounting
might have been cost engineering but for the
fact that the accountants won control and estab-
lished a professional monopoly (Abbott, 1988,
pp. 226-235).
Conflicts between employers and employees
over the use of accounts are frequent enough.
Some authors stress the role played by account-
ing in management attempts to exert more con-
trol over the workforce. Developments in cost
accounting went hand-m-hand with greater
worker discipline (Hopper & Armstrong,
1991, pp. 413-417). At a more general level,
Miller & O’Leary (1987) argue that cost
accounting was only one of several “disciplin-
ary” practices used in the early part of this
century to constitute a “governable person”.
Others view accounts as a relatively neutral
resource that need not privilege capital.
McBamet et al. (1993) for instance, propose
the term “adversary accounting” to denote
how accounts can be used to contest the finan-
3’ There are, of course, other ways to analyze power and control that do not depend on rational choice theory. Foucauk’s
work is one example.
32 The use of public, common and legitimate discourse to convey “private” meatigs and pursue divergent political
interests is analyzed by Scott (1990).
326 B. G. CARRIJTHERS
cial or corporate status quo. According to
them, accounting does not necessarily favour
capital, and accounts can be used by labour
in their conflict with management (McBamet
et al., 1993, pp. 82, 85, 87). Bougen’s study
(1989) also shows how workers were able to
contest management manipulations of com-
pany accounts. There is a battle of the bottom
lines as labour and management debate the
true financial status of the firm.
The conflict is not always between labour
and capital, however. In chapter 11 bankrupt-
cies, to give another example, accountants
representing creditors typically battle those
representing the debtor over the valuation of
assets (Delaney, 1992, pp. 165-166). Senior
creditors contest the valuations of junior
creditors. In conflicts among capitalists over
a limited pool of debtor assets, interested
actors can make strategic use
information.
of accounting
CONCLUSION
The new institutional&m is scarcely a com-
pleted intellectual project. If the Powell and
DiMaggio volume shows anything, it is that
the new institutionalism is still “under con-
struction”. Their book offers a fine overview
of the research project, covering both the
past and the present, and including both thee
retical statements and empirical applications. It
provides as complete a statement of the new
institutionalism as one can obtain, from classic
articles and core ideas to the cutting edges of
the enterprise. Even as it moves in new direc-
tions, the new institutionalism clearly has
much to offer those interested in accounting.
Mainstream accountancy will not appreciate
the new institutionalism’s willingness to un-
ravel rationalized myths, or to take exception
to rationality itself. But those who believe that
accounts are more than just a passive mirror,
that they are part of a set of rationalized prac-
tices that help to construct organizational
reality, will find kindred spirits among the
new institutionalists. Along with the new insti-
tutionalism, students of accountancy recognize
the importance of the state and the accounting
profession. The core issues of power, legiti-
macy, and rationality run through both litera-
tures. The affinity goes both ways, however,
for if the new institutionalism has something
to offer the readers of this journal, the reverse
is also true. Accounts are the quintessential
rationalized myth, and it is surprising that
new institutionalists have not devoted more
time to studying them.
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T& New I nsti tuti onal i sm i n Organfzatfonal Anal ysi s (Chicago: University of Chicago Press, 1991).
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Accounti ng, Organfzati ons and Soci ety (1992) pp. 37-62.
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J ournal of Accounti ng and Economi cs (1990) pp. 65-95.
Scott, J. C., Domfnatfon and the Arts of Resi stance (New Haven: Yale University Press, 1990).
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I nsti tuti onal i sm i n Organi zati onal Anal ysi s (Chicago: University of Chicago Press, 1991).
Scott, W. R. & Meyer, J. W., The Organization of Societal Sectors: Propositions and Early Evidence, in
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1958).
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doc_359963441.pdf
The New lnstitutionalism is a recent development in organization theory with great relevance to
accounting research. New institutionalists view accounting practices as one of a larger set of features
that can legitimize organizations through construction of an appearance of rationality and efficiency.
Ceremonial adherance to legitimate norms may have little material impact because formal organizational
structure is decoupled from actual organizational processes
Acwuntfng, OqanfraHomandSode~,Vol. 2O,N0.4,pp. 313-328, 1995
Fkviersciencc Ltd
Printed in Great Britain
0361~3682/95 $9.50+0.00
03613682(94)00224
ACCOUNTING, AMBIGUITY, AND THE NEW INSTITUTIONAI.ISM*
BRUCE G. CARRUTHERS
Department of Sociology, Northwestern University
Abstract
The New lnstitutionalism is a recent development in organization theory with great relevance to
accounting research. New institutionalists view accounting practices as one of a larger set of features
that can legitimize organizations through construction of an appearance of rationality and efficiency.
Ceremonial adherance to legitimate norms may have little material impact because formal organizational
structure is decoupled from actual organizational processes. Whether substantial decoupling undermines
organizational legitimacy, who the key audiences for organizational appearances are, and the relation
between technical and institutional factors, are key issues that remain unsettled in new institutionalist
research.
In the past, accounting has suffered from an
undeserved and misleading reputation as a
“narrow” or “technical” topic. Accounting
gets portrayed as simple technique, as a set of
useful recipes for generating, processing and
evaluating information.’ Literary examples of
bookkeepers and clerks include Scrooge’s
meek and hapless employee Bob Cratchit, as
well as Bartleby the scrivener, a pathetic and
obsessive character conjured up by Herman
Melville. Corporate accountants are dispara-
gingly referred to as “bean-counters” by cap
tains of industry like Lee Iacocca of Chrysler
Corporation.’ Yet, in the face of such unchari-
table imagery, serious social scientific work has
demonstrated the richness and significance of
accounting. Establishing connections between
accounting research and other paradigms has
been an important part of this project. For
example, theories of class conflict inform
Bougen’s (1989) investigation of accounting
and industrial relations. Miller & O’Leary’s
(1987) historical analysis of standard costing
and budgeting employs Michel Foucault’s con-
ception of power, while Baecker’s (1992) dis
cussion of accounting draws upon
mathematical logic and literary criticism. Such
connections serve to outline the relevance of
accounting for a whole variety of issues:
power, conflict, rationality, governance, and
organizational behavior.
Organizations are presently the largest pro-
ducers and consumers of accounts, and the
historical development of accounting was
* Thanks to Ken Dauber, Frank Dobbin, Wendy Espeland and Peter hliller for their helpful comments, and to Kate Wilson
for her research assistance.
r Culinary metaphors are invoked when accountants get “too creative” and fail to follow the appropriate recipes. This is
referred to as “cooking the books”.
r A recent American television advertixment for beer pokes fun at the credulity of “gob from accounting”.
313
314 B. G. CARRUTHERS
closely connected to the spread of large-scale
organizations. It is natural, therefore, to wonder
what the latest developments in organization
theory have to offer to scholars of account-
ing. Recently, a paradigm known as the ‘new
institutionalism” has been used by researchers
such as Roland (1982), Meyer (1986) Weick
(1983) and Covaleskl & Dirsmith (1988),
among others, to understand various account-
ing processes. The recent publication of Walter
Powell and Paul DlMaggio’s edited volume,
i%e New I nstitutionalism in Organizational
Analysfs, provides a good opportunity to
reconsider the core arguments and insights of
this new approach.
Powell and DlMaggio’s book is intended to
be the klnd of introduction and overview that
all those interested in the new lnstitutionalism
will feel they must read. The four chapters in
the first section are reprints of “classics”, the
foundational essays for the new institutional-
ism. In identifyins and republishing these (the
oldest originally came out ln 1977) the book
performs a kind of genealogical labour in
which Intellectual ancestors are named and
family trees are constructed. The second sec-
tion contains five chapters in which various
theoretical extensions, refutations and reflne-
ments are undertaken. The limitations of the
early statements are acknowledged and recti-
fied, even as their accomplishments are cele-
brated. The fmal section contains six chapters
of empirical applications, in which various of
the ideas of the new institutionalism are used
to analyze particular cases or data on organiza-
tions. The 15 chapters are of high quality, and
are brought together and discussed by the edi-
tors in a thorough, thoughtful and wide-ranging
introduction.’ Overall, there is a recursive and
cumulative quality to the text since many of the
papers were written as commentaries or ela-
borations of others in the collection (particu-
larly the four “classics”). All the papers
partake of the new institutional&m, but the
variety among them is a testament to the dlver-
sity of this approach, and to the ways it has
developed since the late 1970s.
My first task in the following essay will be to
outline the central new lnstitutionalist argu-
ments made ln the Iirst section of Powell and
DlMagglo’s book. One of the key distinctions
made by new institutionalists is that between
the technical and the institutional, and so in the
second and third sections of the essay, I con-
sider this distinction, and the related idea of
“decoupling”, as they apply to accounting.
“Formal structure” is another core concept I
address in the fourth section. Finally, I con-
sider the place of power and conflict ln new
institutionallst analyses.
WHAT IS THE NEW INSTITUTIONALISM?
As DiMaggio and Powell point out ln their
introduction, there are today many new institu-
tionallsms, and even a few old ones. Economics,
political science, international relations, and
sociology have all renewed their interest in
institutions. The recent conferral of the Nobel
Prize on two economic historians (Douglass
North and Robert Fogel) marks the growth of
institutionallst perspectives in economics.*
Within sociology, and more particularly within
organization theory, the new institutionalism: “
. . . comprises a rejection of rational-actor mod-
els, an interest ln institutions as Independent
variables, a turn toward cognitive and cultural
explanations, and an interest ln properties of
supraindlvidual units of analysis that cannot be
reduced to aggregations or direct consequences
of individuals’ attributes or motives” (DlMaggio
& Powell, 1991, p. 8). New institutionallsts
believe that institutions matter, and that ln
analyzing how they matter, one must reject
the assumptions of methodological lndlvldual-
’ I will not discuss all of the chapters. For an intelligent overview, readers should consult the Intmduction.
* For a supportive overview of the neoinstimtional economics, see Bggertsson (1990). For an insightfuI critique, see
Knight (1992).
ACCOUNTING,
ism and individual rationality. In so doing, they
embrace the importance of culture, particularly
for how the social world is constituted and cog-
nized by social actors5 Following arguments
tirst posed by Berger & Luckmann (1967)
new institutionalists believe that people live in
a socially constructed world that is filled with
taken-for-granted meanings and rules. Much of
their action is neither intentional nor conscious,
for it is undertaken unconsciously and as a mat-
ter of routine.6
In applying these tenets to the study of orga-
nizations, new institutionalists have been
struck by how much organizational structure
is shaped by the social environment. It is
almost as if environments made organizations
in their own image. Yet this congruence
(“isomorphism” is the preferred new institu-
tionalist term) between the inside and the out-
side of organizations is not dictated by
technical criteria. The process is a cultural
and political one that concerns legitimacy and
power much more than efficiency alone. The
interesting twist is that isomorphism involves
the same organizational features that so interest
rational choice theorists, albeit for very different
reasons.
The issue of congruence was raised and
addressed directly by Meyer and Rowan in
“Institutionalized Organizations: Formal Struc-
ture as Myth and Ceremony”, reprinted as
chapter two. Organizations have frequently
incorporated into their formal structure a vari-
ety of rational procedures, processes, and rules
(including formal accounting systems).’ Meyer
AMBIGUITY, 315
and Rowan deny, however, that the primary
reason for doing so was that it would result
in more efficient organizational decisions, or
that it would make better outcomes. On the
contrary, rationalized elements are incorpo-
rated because they maintain appearances.
They help confer legitimacy upon the organiza-
tion. Modern Western society privileges a par-
ticular form of rationality, and so organizations
operating within that cultural context will
garner more legitimacy if they can emulate or
symbolically reproduce that rationality.
A central claim within Meyer and Rowan’s
argument is that formal organizational struc-
ture, with its highly rationalized appearance,
is decoupled from actual organizational prac-
tice. Formal structure has much more to do
with the presentation of organizational-self
than with how things actually transpire within
the organization. Formal structure is mythical
and ceremonial, a kind of symbolic window-
dressing. Thus, much more effort is expended
in devising official statements of procedure than
in subsequently adhering to them. American
public schools provide many wonderful
examples of decoupling. Generously supplied
with formal structures such as curricula, educa-
tional philosophies, organizational charts, pro-
fessional credentials, and budgets, classroom
activities are nevertheless remarkably detached
from all these. Plans come and go, curricula rise
and fall, budgets are made and broken. But there
is a great degree of stability in the classroom
experiences of both teachers and students.
When decoupling is significant, when there
5 They also sharply distinguish themselves from much recent institutional theory in economics and political science (e.g.
Williamson, Shepsle, Weingast).
6 Given the socialconstructionlst orientation of the new institutionalism, and the explicitly ethnomethodologlcal nature of
the “classic” article by Zucker, one might expect among the empirical chapters more microlevel studies of how formal
structure, or rationalized myth, is enacted in everyday life. But there are few ethnogtaphers among the new institution-
alists, and so most of the empirical work is historical, macro-level, and/or quantitative.
’ See Meyer & Rowan (1991, p. 51) and Meyer (1%). Such features also include things like clear-cut lines of authority,
unambiguous decision-making procedures, explicit personnel policies, techniques (preferably quantitative) for measuring,
monitorlng and controlling organizational performance, statements of organizational mission and goals, use of written
documents to initiate and record organizational actions, econometric forecasts, and so on.
316 B. G. CABBUTHERS
is a substantial discrepancy between formal
structure and organizational practice, Meyer
and Rowan can attribute the spread of rationa-
lized procedures and rules to cultural rather
than technical processes. Rationalized pro-
cedures cannot enhance organizational perfor-
mance if they do not inthtence how things are
actually done.’ They can, however, enhance
organizational appearance. Seen this way, ratio-
nalized procedures create the image of rational
choices rather than the reality; they can ratio-
nalize rather than make rational: “ . . . organi-
zational success depends on factors other than
efficient coordination and control of produc-
tive activities” (Meyer & Rowan, 1991, p. 53).
Thus, the emphasis placed by rational-choice
theorists on formal procedure as a way to pro-
duce more rational decisions is subverted. Yet
Meyer and Rowan do not dispense completely
with technical efficiency. When organizational
output is easily measurable, when productive
technologies are well defined, and when cri-
teria of success are unambiguous, then techni-
cal efficiency matters. It is when outputs,
technologies and criteria are highly uncertain
that the mythical aspect of rationalized struc-
ture matters most.
The relationship between technical and insti-
tutional factors is given further consideration in
the article by W. Richard Scott and John Meyer,
republished as chapter five. They propose the
idea of “societal sectors” to capture the ways
in which organizational environments are spe-
cific and variable rather than general and uni-
form (Scott & Meyer, 1991, p. 1 17).9 They treat
technical and institutional as independent
dimensions rather than the polar ends of a
dichotomy. This is an important step away
from simplistic notions of the relation between
the two, and allows Scott and Meyer to con-
sider how societal sectors are more or less
technical and more or less institutional, at the
same time.” Some organizations are subject
simultaneously to both kinds of pressures
(they offer banks, airline companies, and pub
lit utilities as examples). In response, these
organizations develop relatively elaborate
administrative apparatuses. Restaurants and
health clubs, according to Scott and Meyer,
are subject to weak technical and institutional
pressures. The difference between the techni-
cal and the institutional is an important one,
but sometimes the two are hard to distin-
guish, for: “ . . . those who formulate institu-
tional rules strive to make them appear
technical in nature” (Scott & Meyer, 1991, p.
124)” New institutionalists are skeptical of
claims that some organizational feature or pro-
cedure is necessary for technical reasons.
Highly political and cultural features get hid-
den under a technical surface.
Processes of isomorphism, the ways in
which organizations come to have the same
general form, are the chief topic of chapter
three, DiMaggio and Powell’s reprinted article.
Organizations come to emulate each other
because they are in similar environments.
DiMaggio and Powell distinguish between com-
petitive and institutional types of isomorphism,
and within the latter category, between co-
s On the issue of decoupling Power’s (1992) analysis of the rise of audit sampling points out an Important twist. It is not
simply that the theory of audit sampliq was (or was not) decoupled from the practice of audit sampling. Bather, the
(untheorized) practice preceded the theory, thus, “ tk ri se of a discourse of audit sampling is the rise of attempts to
le@imate, ratIonaIise, reinterpret and improve practices that were al ready in place” (Power, 1992, pp. 58-59, emphasis
In ori@naI).
9 There seems to be a profusion of terminology to this end, as others have proposed organization sets, populations, and
fields.
i” See also Scott (1991, p. 168).
t1 The ways In which a socially constructed, conventionaI and arbitrary organizatiomd procedure comes to be so taken for
granted as to appear natural and technical, are discussed In the fourth “cIassic”, by Lynne Zucker. See also Zucker (1988).
ACCOUNTING, AMBIGUITY, 317
ercive, mimetic and normative isomorphism.
Competitive isomorphism concerns efficiency.
When there is one best, cheapest or most
efficient way to do things, then the forces of
competition will eventually impose upon organ-
izations that one best way. DiMaggio and Powell
devote more attention to institutional isomorph-
ism, and in so doing help spell out some of the
ways that rationalized procedures spread.
being particularly important for how rationa-
lized procedures spread among organizations.
Coercive isomorphism concerns the ways in
which organizations may be subject to external
pressure from organizations upon which they
are dependent, or from more general cultural
expectations. Government regulations, for
example, can coerce organizations into adopt-
ing new procedures; a large manufacturing firm
can force its suppliers to standardize their ship
ping operations. Uncertainty is the moving
force behind mimetic isomorphism. In situa-
tions where they are not sure what to do,
organizations frequently look to a reference
group, to kindred organizations, and emulate
what they do in the same situation. There is
reassurance if not actual safety in numbers,
and in the absence of a compelling reason to
strike out on their own, organizations do what
others are doing. Organizational fads and fash-
ions seem likely to spread through mimetic
isomorphism. Professions play the major role
in the third category, normative isomorph-
km. Organizational personnel who are also
members of a profession are recognized as
possessing specialized training and know-
ledge, and frequently can defme the terms
and conditions of their labour. The experience
of a specialized education, and the involvement
in professional networks, influences how pro-
fessional personnel undertake their activities
within the organization. DiMaggio and
Powell’s analysis of isomorphism thus points
to two actors, the state and professions, as
In general, new institutional&s take excep
tion to rationalchoice interpretations. If there
is convergence among organizations, it is not
necessarily because market competition or
some other quasi-Darwinian process has
forced them to adhere to the optimal form. If,
for example, organizations devote considerable
energy to the development and elaboration of
rationalized rules and procedures, it may not be
because these produce decisions or outcomes
that are “objectively” better. Being technically
efficient is not the only path to organizational
survival. Achieving legitimacy in the eyes of the
world, state, powerful professions, or society at
large, is another effective survival strategy.‘*
THE TECHNICAL AND THE
INSTITUTIONAL IN ACCOUNTING
PRACTICE
The problematic relationship between tech-
nical and institutional factors motivates several
of the new essays in the volume to return to
this issue. If efficiency and a means-ends logic
is at the heart of the technical, legitimacy and a
cultural logic constitute the core of the institu-
tional. Showing how seemingly rational proce-
dures are fundamentally institutional allows new
institutionalists to undercut the rational-choice
perspective and reveal the very particular
cultural underpinnings of Western rationality.
The rational-choice perspective shares with
mainstream accounting theory the belief that
economic actors are purposive and strive to
use the best means to achieve their economic
goals. As a set of procedures for creating and
processing information, accounting is sup
posed to help people make decisions that are
highly rational, i.e. technically superior (Chua,
I2 Brim and Karabel speak of the new institutionalism’s “ shared antagonism to the idea that efficiency and market
competition are the driving forces behind all organizational change, and shared agreement that much organizational
structure and change derives from efforts to create or conform to categories and practices that give classificatory meaning
to the social world” (stint & Karabel, 1991, p. 342).
318 B. G. CARRUTHERS
1986, pp. 608-610; Chambers, 1966, p. 341).
With accounting information, business people
can choose the more profitable course of
action because they possess information that
is: “ . . . useful for making rational decisions”
(Davidson et al., 1988, p. 17; see also Istvan &
Avery, 1979, pp. 58). One can easily imagine a
just-so story starring the CEO of a corporation
that produces widgets. Thanks to a new and
more refined cost-accounting system, she cal-
culates that the widget foundry contributes
more to the costs of production than does the
widget machining room, and so reorganizes the
foundry to cut costs. l3 The happy ending of the
story is that the CEO’s use of better accounting
methods led to greater efficiency. A new insti-
tutionalist version of this story might argue that
because of decoupling, the new accounting
technique had little or no effect on corporate
operations, but that as an embodiment of
rational procedure it made the CEO look
good in the eyes of shareholders. Perhaps
cost accounting was used to rationalize a man-
agement attack on the Foundrymen’s Union.
The modified ending of the story is not so
happy for the shareholders, although it is still
good for the CEO.
The new papers by Powell and by Orru et al .
argue that the distinction between the technical
and the institutional is frequently overdrawn. It
is assumed, for example, that for-profit organi-
zations exist in a more technical environment
than non-profit-seeking organizations. l4 There
is a presumption that in competitive markets,
only the goal of profitability matters (so much
so that even organizations that do not actively
pursue it must act as if they did in order to
survive). Non-profit and less competitive envir-
onments have sufficient slack to allow more
institutional effects to come into play.
Setting aside the issue of how little slack
there really is in competitive markets,15 institu-
tional effects are visible even in technical envir-
onments. Powell points out how, through the
media of the modern state and professions,
institutional pressures affect the organization
and policy of for-profit corporations. He con-
cludes that it can be difficult to separate tech-
nical and institutional factors, but not only
because the latter occasionally masquerade as
the former (Powell, 1991, pp. 185, 188). Simi-
larly, in their analysis of business groups in
Japan, Korea and Taiwan, Or& et al . argue
that institutional arrangements operate at the
core of technically dominated environments.
What happens is that socially acceptable and
culturally legitimate means are used to achieve
a given end. In their analysis, institutional
effects do not compromise the pursuit of tech-
nical ends so much as they enhance it (Orru et
al ., 1991, pp. 362, 387). Economic actors can
pursue several goals simultaneously, and do not
concentrate on profits to the exclusion of all
else.16
New institutionalists wish to keep the tech-
nical and the institutional as analytically separ-
able dimensions, but the real world keeps
confusing the two. In particular, institutional
processes are routinely disguised as technical
ones. Decoupling plays an important role in
this process, for it allows an organization to
maintain its institutionally prescribed appear-
ances (via formal structure) without having to
compromise actual operations. Yet this decoup
I3 The economics of information provides a framework in which to understand how rational-choice theory deals with the
costs and benefits of information. The economic benefits of investing in and using the new accounting technique outweigh
the costs. See Stigler (1968).
I4 Consider the remarks of Kanter & Summers (1987) on the difficulty of measuring the performance of non-profit
organizations.
I5 On this, see DiMaggio &Powell (1991, p. 10).
I6 For a discussion of the variety of social, political, and normative goals that can be pursued through economic action, see
Granovetter (1992).
ACCOUNTING, AMBIGIJITY,
319
ling can also endanger technical appearances
and so must be stage-managed carefully. Criti-
cal audiences are unlikely to bestow legitimacy
on an organization which too obviously violates
its own formal rules and procedures.
Mainstream accounting theory believes that
accounts can help produce better decisions.
Dutifully followed, the application of account-
ing rules will generate information that will
inform organizational decision-makers about
their situation, and help them to select the
optimal strategy. If accounts are being used
more to justify decisions than to generate
them, however, or to make decisions look
good rather than to make them rational, then
we would say that the rationalized form of
accounting is decoupled from actual organiza-
tional decision-making. But to the extent that
financial accounts are obviously manipulable,
or are seen to be politicized symbolic win-
dowdressing, their credibility as “neutral”,
“impartial”, or “objective” measures of organi-
zational performance is undercut. Whatever
accounting manipulations are being per-
formed, they must be done “backstage” in
order to be effective. It is hard to maintain
appearances if the decoupling becomes too
transparent.
When decoupling occurs, who might still be
convinced by rational appearances? Different
audiences may see different things. O’Barr &
Conley’s (1992a) ethnographic study of pen-
sion funds does not explicitly draw on new
institutionalist theory, but it addresses the
issue of decoupling in a related context. Amer-
ican pension funds are subject to numerous
legal rules and government regulations. The
ambiguity and uncertain quality of these rules
is best appreciated by legal experts, the pen-
sion fund attorneys. Other pension fund execu-
” See O’Barr & ConIey (1992a. pp. 102, 119- 120).
tives are wont to believe that the laws are
unambiguous in their import. The experts see
ambiguity where others see precision. The
rational appeance of the law is least convin-
cing to the legal insiders.” Might the same
not be true of financial accounts? It seems
highly likely that trained accountants are the
ones who can best appreciate the malleable,
ambiguous and political nature of accounting
rules. Non-specialist audiences who have had
little experience with accounts are the ones
most likely to be “fooled” into believing that
accounts provide a truly neutral and rational
picture of organizational fmances.18 They are
more easily convinced by the rational appear-
ance, and are less likely to discover the extent
of decoupling.
Although plausible, the O’Barr and Conley
analysis seems at odds with the argument pre-
sented in chapter thirteen by Neil Fligstein.
According to Fligstein, individuals become
“steeped” in a particular perspective by virtue
of their careers and organizational background.
As managers from largely financial backgrounds
began to assume positions as corporate CEOs,
the financial outlook which they had acquired
over the course of their careers came to dom-
inate corporate decision-making. This outlook
entailed seeing the corporation as a financial
portfolio rather than as an organization com-
mitted to a particular product line (Fligstein,
1991, p. 321). The financial outlook views the
firm as an abstract bundle of capitalized future
income streams. The managers who adhere to
this outlook are especially reliant upon fman-
cial measures and accounting concepts as the
conceptual lenses through which they appre-
hend their own organization.” In Fligstein’s
analysis, the financial experts are the ones
most wedded to rational appearances.
Is In the past, audiences which were unfamiliar or unschooled in numerical evidence did not find accounts especially
convincing (see Carruthers & Espeland, 1991, p. 51). Yet extensive practical experience with accounts can enlighten the
unschooled. Bougen (1989, p. 226) shows how over time employees of a manufacturing firm were able to foresee the
impact of accounting rules on a management-run profit-sharing scheme.
320 B. G. CARRUTHERS
O’Barr and Conley also note the abundance
of sophisticated quantitative measures of per-
formance and financial returns for pension
funds. Fund managers are awash in a sea of
financial data, and yet when such managers
consider why they do what they do, they
evince little interest in these financial accounts
(O’Barr & Conley, 1992a, pp. 74, 149, 228).
Instead, they stress issues of responsibility,
the importance of personal relationships, and
the particular history of the fund they manage.
The “bottom line” does not seem to be an
especially compelling constraint on managers’
decision-making.
Decoupling can endanger organizational
appearances. It threatens to reveal to lay audi-
ences that what passes for technical is really
institutional (an insight that debunking new
institutionalists are already privy to). It remains
problematic exactly who is convinced by
rational appearances, and whether profes-
sional knowledge or career paths are likely to
enhance or diminish an audience’s gullibility. It
seems certain, however, that such appearances
do not impress everyone equally. There is
important variation among audiences that calls
for careful analysis. When accounting rules can
be used to manipulate official measures of
income, for example, should a corporation
inflate income to please shareholders, or lower
it to present a more penurious picture to its
unionized workforce? Like other symbol sys-
tems, accounts are indexical and polysemic.
They can mean different things to different
audiences, depending on how they are used.
One response to this has been to downplay
the importance of decoupling, and thus reduce
the discrepancy between “appearance” and
“reality”. Powell, for example, suggests that
the new institutionalism has put too much
stress on decoupling, and takes exception to
the idea that: “ . . . institutionalized organiza-
l9 See F&stein (1990, pp. 15, 226, 239).
tions are relatively passive, inefficient manip-
ulators of symbols rather than substance”
(Powell, 1991, p. 183). He argues that organiza-
tions are truly concerned with task perfor-
mance, and that the difference between
formal structure and actual operations is some-
times small enough that organizations can
simultaneously meet technical and institutional
criteria.
Another response has been to argue, as
Dobbin (1994, p. 135) does, that technical cri-
teria are indeterminate. Utility functions have
multiple maxima and so there is more than one
way to be rational. Which structure emerges,
how organizational processes actually unfold,
is therefore culturally shaped. Technical cri-
teria may constrain organizational structure,
but they cannot determine a unique point of
optimal&y, because no such point exists. They
can only provide a set of viable alternatives.
HOW TO DO THINGS WITH ACCOUNTS
The question of the technical vs the institu-
tional can be posed differently by considering
what exactly formal structure does. Accounts,
for example, are frequently a central compo-
nent of formal structure. How do accounting
procedures matter? What do people do with
accounting information? The mainstream pic-
ture of accounts (Chua, 19s6; Hunt & Hogler,
1993, p. 347) is that they represent or measure
an economic and organizational reality in much
the same way that language was said by the
young Wittgenstein to embody propositions
about the state of the world.” Accounts, like
language, are used to communicate a picture of
the world. This tends to make the study of
accounting a question of how good a picture
the accounts offer. Is it an accurate one? How
can its ability to measure the underlying eco
” As Granof and &II put it in their textbook: “Accounting Information should be reliable. It should IWhfully describe
what it purports to describe. It should be objective; it should be verltiable” (Granof % &II, 1991, p. 5). They also state that
accounts should be neutraI @. 6) and go on to disth@&, In classic logIcal positlvlst fashion, between events and
descriptions of events @. 13).
ACCOUNTING,
nomic reality be improved? Is the improvement
worth the cost?
It is, I think, much better to follow the later
Wittgenstein of Pbilosopbicul I nvestigations
(1958) and recognize that the meaning of
accounting information consists in how it is
used. Attention should be shifted from the
“syntax” and “semantics” of accounting and
focused on its l‘pragmatics”. Accounting has a
more fundamental role than the accounting-as
mirror version suggests, for it constitutes eco-
nomic and organizational realities as much as it
reflects them. Furthermore, Wittgenstein’s con-
cept of “language games” leads directly to the
question of audience raised in the previous
section. Who finds the game compelling? It is
likely that accounting principles are not neces
sarily generally accepted, and that one must
construct a more nuanced picture of the audi-
ence(s) for accounts. Determining who can par-
ticipate in accounting language games involves
a consideration of professional jurisdictions and
occupational monopolies.
The new institutionalists have taken to heart
a chief insight of March & Simon (1958) that
information sets the premises of decisions, and
the premises of decisions determine the out-
come of decisions.‘l How people behave in
organizations depends less on the “objective
world” and more on how they perceive that
objective world. These “subjective” percep-
tions are not, however, individual and idiosyn-
cratic. They are institutionally based, collective
understandings based on shared cognitive cate-
gories. Accounts are consequential when they
shape how information is created, processed,
AMBIGUITY, . 321
and presented both within and between orga-
nizations. New institutionaIists are not, of
course, the only ones to recognize the impor-
tance of cognitive categories. Pal, for example,
speaks of the “actuarial ideology” of Canadian
government officials and how it shaped public
policy (Pal, 1986, pp. 77-85). Accounts share
their importance with other information tech-
nologies that are utilized by organizations (see
Yates, 1989, 1991),22 but also with the more
general cultural categories discussed by the
new institutionalists (see DiMaggio & Powell
1991, pp. 13-14).
The emphasis placed on culture by the new
institutionalism is perhaps too cognitive. Con-
ceptual lenses matter, to be sure, but so do
loyalties and commitmentsz3 The normative
side of culture, the side that involves affect
and emotion, is not given much consideration
by the new institutionalists (although they
acknowledge it; see DiMaggio & Powell,
1991, pp. 14-15). Organizational outlooks
have a surprising amount of inertia in part
because of how people become personally
invested in them. People cannot change their
conceptual lenses as easily as they would their
own glasses.
What can accounts be used to do? They
quantify and commensurate (Meyer, 1986, p.
347; Espeland, 1992, Chaps 1, 6). They take
qualities as inputs and produce quantities as
outputs. They help to render parts of the social
and organizational world calculable and pre-
dictable (Miller, 1992). They serve to create
order out of an “organized anarchy” (March
& Olsen, 1976). They measure, quantify, con-
&’ See also Hogarth’s (1993) summary of behavioral decision theory.
a* Yates’ fascinating studies recount the organiaational consequences of such mundane innovations in the processing of
information as typewriters, standardized forms, manuab, fding cabinets, carbon paper and duplicating machines.
a3 There are numerous examples ilhtstrating the importance of cognitive and normative dimensions. The McDonald’s of
hamburger fame has a strong corporate culture, and is a leader in the measurement, calculation and routinization of service
work within the fast food industry. It’s corporate train@ program, during which McDonald’s culture is in&led into the
minds of wouldbe restaurant managers and franchisees, includes the teaching of company procedures, a largely cognitive
matter. Yet, the traioing program also focuses heavily on normative issues like commitment and motivation (IAdner, 193,
p. 55). It tries to cultivate among managers an emotional investment in general corporate principles like “QSC’ (quality,
service and cleanliness). as weU as in more concrete mattets Iike predictabIe Big Mats.
322 B. G. CARRUTHERS
dense and decontextualize information. They
can abstract and reduce enormous social and
organizational complexity down to a single bot-
tom line. In March and Simon’s terminology,
they absorb uncertainty.
What can accounts be used for? To record
and monitor events, transactions and indivi-
dual behavior, to evaluate and control organiza-
tional processes and outcomes, and to
rationalize and centralize decision-making.
Accounts are ways to create and manage infor-
mation, and as such are part of a broader set of
informational practices. Economic complexity
gives rise to accounts, for how else can one
keep track or manage a complicated produc-
tion process, or an intricate network of eco
nomic relationships? Accounts can be used to
supplement and even replace individual
memory with an organizational memory
(Yates, 1989, p. 6). They bolster the rather
limited cognitive capacities of boundedly
rational decision-makers. In doing all these
things (quantifying, commensurating, record-
ing, evaluating etc), accounts shape the pre-
mises of decisions. **
who want to shift their own responsibility
somewhere else, accounts can provide any
number of numerical excuses. O’Barr and Con-
ley’s study shows the great concern of pen-
sion fund managers to be able to “pass the
buck”, preferably to noone else in particular
(O’Barr & Conley, 1992a, pp. 85-88, 1992b, p.
23). Through the use of collective decision-
making procedures, various oversight mechan-
isms, and copious amounts of financial data,
individual agency within the fund gets dissi-
pated so as to be almost untraceable. Should
there be any finger-pointing or recrimination,
fund managers are well equipped to evade
responsibility.
If accounts are consequential before and dur-
ing decision-making, they are also useful in the
aftermath. This is when the rationality of deci-
sions turns into the rationale for decisions.
How can completed decisions be justified?
Who is to take the credit or blame? For those
who participate in a decision, how responsibil-
ity is allocated is often more important than the
actual outcome of the decision itself. Indeed,
when the relationship between organizational
means and ends is uncertain, or when out-
comes are ambiguous, then the legitimacy of
a decision may actually be easier to determine
than its outcome.
One of the lessons of attribution theory is
that people tend to ascribe their own actions
to situational factors, and ascribe the actions of
others to that person’s personality, character or
choice (Shaver, 1975, pp. 81, 127). For those
Was a particular decision a good one? Should
the participants be credited or blamed? Some-
times it is hard to know lf the resulting out-
come was positive or negative (and sometimes
hard to determine even if there was an out-
come). With high uncertainty, those charged
with answering questions of responsibility fre-
quently look to the formal procedural features
of the decision. Was all relevant information
dutifully and accurately collected? Did it enter
into the decision? Were all the alternatives con-
sidered? Were potential consequences fore-
seen? As Feldman & March (1988) point out,
formal rationalized structure figures proml-
nently in how these questions get answered.
Formal plans, decision-trees, econometric fore-
casts, specification of contingencies and alter-
natives, quantitative estimates, and the ample
use of accounting information all help to
enhance the post hoc legitimacy of a decision.
New institutionalists claim that these rationa-
lized features usually do not determlne how
the decision was made, for they concern how
the decision gets presented to the outside
world after the fact.25 Once again, however,
there is a danger of overemphasizing the
degree of decoupling. Some audiences, espe-
cially legal and judicial ones, are very sensitive
to the possibility that a decision will be made,
_.
‘* On the cognitive effects of doubleentry bookkeeping, see Camtthers & Espeland (1991, pp. 55-60).
z5 See, for example, Feldman & March (1988, p. 411).
ACCOUNTING, AMBIGUITY, 323
and then wlll be made to look good. Such audi-
ences are mindful of decoupling, especially if it
becomes too extreme.
Several studies have examined the use of
accounting rules to enhance or reduce corpo-
rate income. Bond indentures, the contractual
agreements between corporate debtors and
their bondholders, frequently contain restric-
tive covenants that require the debtor to main-
tain certain financial ratios, and remain above
specified financial thresholds (Smith & Warner,
1979). These covenants are written into the
indenture to protect the bondholders, and
they are constructed out of various accounting
measures of the corporate debtor’s financial
status. If the critical ratios specified in the cove-
nant are exceeded, then certain mechanisms
are triggered that allow the bondholders to
recover their money. By manipulating account-
ing procedures, however, it is possible for man-
agement to alter corporate income so as to avoid
violating one of these covenants (Begley, 1990,
125-126)? Compliance is achieved through
the creative application of accounting rules,
but the more obvious such action becomes,
the less likely people are to view accounts as
“neutral”, and “objective” measures.27
The usefulness of accounts for ex ante deci-
sion-making, ex post rationalization, or com-
pliance with formal rules and restrictions,
goes well beyond for-profit corporations, or
even organizations in a capitalist economy.
Non-profit organizations frequently devise
accounting systems to measure their own per-
formance (Ranter & Summers, 1987, p. 156).
Consider as well the Soviet fascination with
quantitative accounting information and its
role in a command-style economy (Nave,
1983, pp. 34, 73-79, 1989, 34-35). The legiti-
macy of rationalized structures is upheld across
economic sectors and economies.
THE SOURCES OF FORMAL STRUCTURE
Whatever the effect of rationalized proce-
dures, however large or small the extent of
decoupling, it is important to understand the
sources of formal structure. Early formulations
were perhaps too simplistic in their answer to
this question, for the sources were invariably
external. Organizations imported their formal
structure from outside. They emulated and
reproduced the procedures, rules and struc-
tures that enjoyed external legltimacy.28 Formal
structure came from the state, from professions,
or from other “successful” organizations. In
general, rationalized myths were the creation
of Western culture. The legitimacy of account-
ing over time and across nations gave credence
to this idea, but a more subtle approach seems
necessary.
In chapter seven, Scott argues that: “ . . .
organizations are not passive actors being
imprinted by cultural templates” (Scott, 1991,
p. 170). He points out that organizational envir-
onments are differentiated, as are the sources
of formal structure. Culture is not homoge-
neous, and its plurality provides the basis for
a more active and discretionary appropriation
of formal structure by organizations. As Scott
puts it: ‘I . . most types of organizations con-
front multiple sources and types of symbolic or
cultural systems and . . . they exercise some
choice in selecting the systems with which to
connect” (Scott, 1991, p. 181). Multiple, and
a6 Press & Weintrop (1990, p. 82) specify some of the incomeenhancing accounting techniques: accelerated depreciation,
LIFO, amortization of past pension service costs in less than 30 years, and the deferral of Investment credit.
27 The possibility of such legerdemain is a reflection of the fundamentally ambiguous and open-ended nature of a8 rules,
even ones which arc supposed to be specific and certain. Again, this would not surprise the later Wittgenstein.
*s This simple story is not always wrong. Accordii to Callahan’s account (1%2), Progressive-Era American public schools
happily embraced business techniques in order to participate in the general celebration of efficiency. The use of account-
ing was one way for school officials to document the “scientific” nature of their administrative structures (Callahan, 1%2,
pp. 158169).
324 B. G. CARRUTHERS
even contradictory, cultural systems allow
organizations to play them off against one
another, rather than reproduce internally a
monolithic and unitary “Western culture”.
The multiplicity of cultural sources grants to
organizations a measure of cultural autonomy.
They can choose from among a set of legitimat-
ing cultural “scripts” or “templates”. Consider,
for example, the situation of Progressive Era
women’s political organizations. They could
model their formal structure after business
organizations (thus emphasizing their efficiency
and rationality), political parties, unions, clubs,
or fraternal organizations, or combine elements
from several of the alternatives.29 There was no
single model with which womens’ organiza-
tions were compelled to comply. Their legiti-
macy was more creatively constructed than
externally Imposed.
Scott’s line of argument redresses the picture
of organizations as acquiescent receptacles for
rationalized myths. In the case of accounting,
for example, organizations have been very
active in shaping rationalized myths to get the
ones they want. Mezias’ study (1990) of how
investment tax credits were reported (deferral
method vs flow-through method) on the
income statements of Fortune 200 Iirms pro-
vides ample evidence that organizations aggres-
sively shaped their Institutional environment.
Big Eight accounting firms actively lobbied
the SEC to prevent enforcement of a rule pro-
mulgated by the Committee on Accounting
Procedure (Mezias, 1990, p. 436). Generally
accepted accounting principles are an example
of a rationalized myth, but one that is shaped by
the very organizations which must comply with
it to be legitimized.
If we return to the example of how creative
accounting is used to comply with restrictive
covenants, the possibility that organizations
actively shape their own institutionalized envir-
onment is very real. The purpose of Fogelson’s
article (1978) for example, was to warn corps
rate debtors about the implications of changes
in accounting rules for compliance with debt
covenants, and to suggest that they might want
to lobby the .approprlate regulatory bodies
(the FASB and SEC). It was an invitation for
corporations to shape their environment.
How rationalized myths get applied ln parti-
cular situations is also subject to organizational
influence. For example, as the number of
asbestos-related lawsuits grew during the late
1970s and into the 198Os, Johns Manville’s
accounting firm (Coopers and Lybrand) quali-
fied the corporation’s 1981 annual report with
a footnote that recognized the potential liability
arising from these lawsuits, but stated that their
financial magnitude could not be accurately
estimated. In order to file for a chapter 11 bank-
ruptcy, Manville needed to put a dollar value
on these potential liabilities, and so it switched
accounting Iirms. Overnight, an inestimable
magnitude became worth an exact dollar sum
(around $2 billion; see Delaney, 1992, pp.
66-69). Manville obtained a more compliant
accounting firm to get the accounting results
it wanted.
The newest of the new institutionalism
recognizes that rationalized myths, and formal
structure, are not always imposed on an orga-
nization by its external environment. Fre-
quently, organizations play an active role in
constructing rationalized myths, playing them
off against each other, or shaping how they are
applied in particular instances.30 Organlzatlons
are not only granted legitimacy; sometimes
they go out and get it.
POWER AND POLITICS
Many of the new papers in this collection call
for greater attention to issues of politics, power
29 See Clemens (1994) for a theoreticaIly sophisticated discussion of women’s political organbtiofls. I eIahorate the
analysis of cultural autonomy elsewhere In Carruthers (1994).
3o See Dihbggio (1991, p. 287).
ACCOUNTING,
and conflict (e.g. the chapters by DiMaggio,
Galaskiewicz, Fligstein, Friedland and Alford).
They worry that the new institutionalism is too
concerned with culture and taken-for-granted
meanings to be able to discern the conflicts
that abound in organizational life, and that to
focus on myth and ceremony is to overlook
power and control. Yet this redirection poses
something of a dilemma, for to the extent that
new institutionalists want to address these
issues, they seem compelled to pick up some
of the scattered remains of homo economi cus,
i n particular, interests and intentions3’ At their
simplest, analyses of conflict usually pose one
group, acting in accordance with its interests,
against another group, acting in accordance
with a contrary set of interests. Who “wins”
is a function of who has more power. Thus,
however much some of the new institutional-
ists want to defeat rational choice theory,
others are more than happy to coopt it.
Galaskiewicz is perhaps most explicit in mak-
ing use of some rational choice concepts. His
paper shows how: “ . . . leaders can act purpo-
sively (albeit under conditions of bounded
rationality) to construct and create institutions
which in turn control and govern organiza-
tions’ actions” (Galaskiewicz, 1991, p. 293).
In the case he examines, corporations in Min-
neapolis-St. Paul intentionally created institu-
tions that encouraged corporate phiianthropy.
It is an argument that resembles, in some
respects, classical social contract theories of
government.
Studies of accounting frequently emphasize
power and conflict. Covaleski & Dirsmith
(1988) follow a university budget category
through periods of ascent, transformation,
and decline. Self-interest is foremost in the
minds of the various parties who propose,
oppose, coopt and contest the budget cate-
AMBIGUITY,
325
gory. They show how disparate and even con-
flicting interests get couched in a common and
legitimate language of budgeting (Coveleski &
Dirsmith, 1988, p. 585).32 Furthermore, Tinker
(1980) is able to outline how a Iirm’s income is
embedded in particular social and political con-
texts, and why it is a fallacy to equate profit
with the marginal productivity of capital.
The politics and conflict need not be at the
organizational level. Sometimes it is at the pro-
fessional level, as DiMaggio’s study (1991) of
U.S. art museums shows. Professional politics
also played a role in the development of
accountancy: who can play the language game
of accounting is not merely a philosophical
question. Andrew Abbott (1988) explains how
in the early twentieth century, U.S. engineers
battled accountants for professional jurisdiction
over the growing volume of quantitative work
associated with corporations. Cost accounting
might have been cost engineering but for the
fact that the accountants won control and estab-
lished a professional monopoly (Abbott, 1988,
pp. 226-235).
Conflicts between employers and employees
over the use of accounts are frequent enough.
Some authors stress the role played by account-
ing in management attempts to exert more con-
trol over the workforce. Developments in cost
accounting went hand-m-hand with greater
worker discipline (Hopper & Armstrong,
1991, pp. 413-417). At a more general level,
Miller & O’Leary (1987) argue that cost
accounting was only one of several “disciplin-
ary” practices used in the early part of this
century to constitute a “governable person”.
Others view accounts as a relatively neutral
resource that need not privilege capital.
McBamet et al. (1993) for instance, propose
the term “adversary accounting” to denote
how accounts can be used to contest the finan-
3’ There are, of course, other ways to analyze power and control that do not depend on rational choice theory. Foucauk’s
work is one example.
32 The use of public, common and legitimate discourse to convey “private” meatigs and pursue divergent political
interests is analyzed by Scott (1990).
326 B. G. CARRIJTHERS
cial or corporate status quo. According to
them, accounting does not necessarily favour
capital, and accounts can be used by labour
in their conflict with management (McBamet
et al., 1993, pp. 82, 85, 87). Bougen’s study
(1989) also shows how workers were able to
contest management manipulations of com-
pany accounts. There is a battle of the bottom
lines as labour and management debate the
true financial status of the firm.
The conflict is not always between labour
and capital, however. In chapter 11 bankrupt-
cies, to give another example, accountants
representing creditors typically battle those
representing the debtor over the valuation of
assets (Delaney, 1992, pp. 165-166). Senior
creditors contest the valuations of junior
creditors. In conflicts among capitalists over
a limited pool of debtor assets, interested
actors can make strategic use
information.
of accounting
CONCLUSION
The new institutional&m is scarcely a com-
pleted intellectual project. If the Powell and
DiMaggio volume shows anything, it is that
the new institutionalism is still “under con-
struction”. Their book offers a fine overview
of the research project, covering both the
past and the present, and including both thee
retical statements and empirical applications. It
provides as complete a statement of the new
institutionalism as one can obtain, from classic
articles and core ideas to the cutting edges of
the enterprise. Even as it moves in new direc-
tions, the new institutionalism clearly has
much to offer those interested in accounting.
Mainstream accountancy will not appreciate
the new institutionalism’s willingness to un-
ravel rationalized myths, or to take exception
to rationality itself. But those who believe that
accounts are more than just a passive mirror,
that they are part of a set of rationalized prac-
tices that help to construct organizational
reality, will find kindred spirits among the
new institutionalists. Along with the new insti-
tutionalism, students of accountancy recognize
the importance of the state and the accounting
profession. The core issues of power, legiti-
macy, and rationality run through both litera-
tures. The affinity goes both ways, however,
for if the new institutionalism has something
to offer the readers of this journal, the reverse
is also true. Accounts are the quintessential
rationalized myth, and it is surprising that
new institutionalists have not devoted more
time to studying them.
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