Description
Widely-publicized breaches of professional norms among accountants in the United States have kindled their interest
in the problem of norms and normative control. This article discusses the current literature on norms. It suggests
that normative control, which is always problematic, is especially so when agents are subject to the control of two
or more principals having divergent interests
The rise and fall of normative control
q
Michael Hechter
*
Arizona State University, School of Global Studies, Post O?ce Box 875102, Tempe, AZ, United States
Abstract
Widely-publicized breaches of professional norms among accountants in the United States have kindled their inter-
est in the problem of norms and normative control. This article discusses the current literature on norms. It suggests
that normative control, which is always problematic, is especially so when agents are subject to the control of two
or more principals having divergent interests. It is argued that the agent’s compliance will tend to ?ow to that principal
upon whom the agent is most dependent. The analysis is illustrated by the case of the rise and fall of the Arthur Ander-
sen accounting ?rm.
Ó 2008 Elsevier Ltd. All rights reserved.
1. Introduction
It is di?cult to overstate the importance of
norms. They do nothing less than make social life
possible. Without norms we would be unable to
decipher the meaning of one another’s behavior.
Beyond their fundamental contribution to mutual
understanding, norms focus and coordinate indi-
vidual expectations, thereby specifying appropriate
behavior in given social situations. This is an
immense contribution to the attainment of social
order.
Norms are rules that prescribe and proscribe
behavior in speci?c social situations. Given the end-
less variety of social situations, this implies that
there must be a plethora of di?erent kinds of norms.
Take, for example, lecture classes, weddings and
funerals. In lecture classes, students know that they
should not read the newspaper, talk out loud, or
persistently focus their attention away from the
instructor. At American weddings, they know that
they should never wear black, ?irt with the bride
or bridegroom, or pipe up in response to the ques-
tion ‘‘if anyone objects to this union, speak now or
forever hold your peace.” At American funerals,
they know that they should wear black and not
speak ill of the dead. Norms such as these are intu-
itive and instrumental: they relate to the manifest
0361-3682/$ - see front matter Ó 2008 Elsevier Ltd. All rights reserved.
doi:10.1016/j.aos.2008.01.005
q
Plenary address presented at the annual meeting of the
American Accounting Association, Chicago, Illinois, August 5–
8, 2007. Thanks to Shyam Sunder for inviting me to present the
paper, and to Debra Friedman and Christine Horne for their
comments on an earlier draft.
*
Tel.: +1 480 727 0735; fax: +1 480 727 8292.
E-mail address: [email protected]
www.elsevier.com/locate/aos
Available online at www.sciencedirect.com
Accounting, Organizations and Society 33 (2008) 663–676
purposes of these gatherings. Thus classroom
norms facilitate learning, wedding norms lend col-
lective support to the newunion, and funeral norms
comfort the family, friends and colleagues of the
deceased. People may not understand the rationale
for norms such as these, but their compliance with
them usually is conscious.
Sometimes compliance to norms is unconscious,
however. Many norms operate, as it were, behind
our backs. Some are sotaken-for-grantedthat people
are often unaware of their very existence, and of the
reasons for their own compliance to them. Consider
the behavior of twofriends engagedinanimatedcon-
versation waiting for an elevator in a crowded store.
On entering the elevator, the friends stop talking and
swivel forward to face the doors. In so doing they are
complying with a norm, but they would be hard
pressed to describe this particular norm. Likewise,
howmany people understandthat theyare observing
a norm when they ask a passing stranger about the
time, but would never enter into conversation with
the stranger about any other topic (Go?man, 1963)?
In the 1960s, ethnomethodologists carried out a
number of breaching experiments aiming to make
explicit a number of taken-for-granted conversa-
tional norms. In one such example,
The subject was telling the experimenter, a mem-
ber of the subject’s car pool, about having had a
?at tire while going to work the previous day.
(S) I had a ?at tire.
(E) What do you mean, you had a ?at tire?
She appeared momentarily stunned. Then she
answered in a hostile way: ‘‘What do you mean,
‘What do you mean?’ A ?at tire is a ?at tire.
That is what I meant. Nothing special. What a
crazy question! (Gar?nkel, 1967).
Violation of these taken-for-granted norms
invariably generates unease.
1
Norms also di?er in their degree of ambiguity.
Whereas the norms for weddings and funerals
are relatively ?xed and unambiguous, others are
anything but. When the French soccer star Zine-
dine Zidane gave a head butt to an Italian defen-
der in the 2006 World Cup ?nal, probably
costing his side the championship, this focused
attention on norms about trash talking in compet-
itive athletics. Whereas verbal jousting is common
in many sports, ‘‘the threshold for what is accept-
able trash talking and what is intolerable vitriol is
nebulous (Diamos, 2006)”. Likewise, the residents
of upscale buildings in New York City are obliged
to tip their doormen at Christmas, but determining
how large a tip to give provides them with an
annual headache (Bearman, 2005). To the degree
that norms are ambiguous, this makes normative
control more of a soft than a hard constraint.
Finally, the particular content of norms varies
across societies; this has been one of the leitmotifs of
sociological theory (Horne, 2001b). Marx and Engels
discussedthe norms of deference infeudal andcapital-
ist societies (Marx&Engels, 1964). Weber sharplydis-
tinguished between patrimonial and bureaucratic
norms (Weber, 1978). Durkheimviewednorms as pre-
conditions for social exchange (Durkheim, 1933), and
then, inSuicide, providedsome of the ?rst quantitative
measures of their variable e?ects on social regulation
and integration (Durkheim, 1951).
One of the major causes of variationinnormative
content is cultural; otherwise, Irish wakes and
Hindu funerals would be identical kinds of events.
Norms about the appropriateness of violent behav-
ior, for example, di?er in the American North and
South; in the South, violence is regarded as an
appropriate response to violations of honor (Cohen
& Nisbett, 1997). Truth-telling is a more salient
norm in the United States than in Iran (Slackman,
2006). And, at least according to some measures,
corrupt behavior is more acceptable in countries
like Kuwait, Egypt, Chad, Sudan and Bulgaria than
it is in Canada, Scandinavia, Ireland and Japan
(Fisman & Miguel, 2006).
The enforcement of norms
Like any other kind of rule, norms can only
a?ect behavior if they are enforced. But wherein
lies the source of this enforcement? Laws are
1
This kind of normative breach is a staple in the typical
routine of stand-up comics; in the comedy club setting it usually
leads to somewhat nervous laughter. A large, if indeterminate,
basis of all humor probably lies in the public breaching of
taken-for-granted norms.
664 M. Hechter / Accounting, Organizations and Society 33 (2008) 663–676
enforced by a specialized agency of the state –
namely, the police. State enforcement of the law
is subsidized by taxation.
2
But how is the enforce-
ment of social norms subsidized?
Norms must either be self-enforced or enforced
by others. We may individually pay a big price for
our self-enforcement of social norms – Freud cer-
tainly believed that we do (Freud, 1961) – but in
the eyes of others our good behavior is attained
costlessly. The feelings of shame or embarrassment
that would be entailed by violating norms moti-
vate us to comply with them.
In addition to being supported by the atti-
tudes of other people, norms are sustained
by the feelings of embarrassment, anxiety,
guilt and shame that a person su?ers at the
prospect of violating them, or at least the
prospect of being caught violating them.
Social norms have a grip on the mind that
is due to the strong emotions their violations
can trigger. I believe that the emotive aspect
of norms is a more fundamental feature than
the more frequently cited cognitive aspects.
If norms can coordinate expectations, it is
only because the violation of norms is known
to trigger strong negative emotions, in the
violator himself and in other people (Elster,
1989).
Two principal mechanisms are responsible for
the internalization of norms.
3
Identi?cation with
an esteemed model can lead one to internalize
the model’s relevant characteristics. Alternatively,
internalization can result from reinforcement
administered by parents, teachers, and other
authorities, including the state (Hechter, 1987;
McAdams, 1997; Scott, 1971; Sunstein, 1996).
Experimental economists studying ultimatum
games have shown that many subjects have inter-
nalized the norm of fairness (Henrich, Samuel,
Robert, & Colin, 2004). The degree of this inter-
nalization, in turn, rests, in part, on the mode of
production of the relevant groups. Because it
requires no societal investment and it can occur
spontaneously in the course of day-to-day activi-
ties like parenting, self-enforcement is the royal
road to social order. The pervasiveness of non-
compliance to norms – that is, deviant behavior
in all its multifarious forms – suggests, however,
that that this royal road is all too frequently
bypassed (Wrong, 1961).
Lacking internalization, norms must be
enforced socially if they are to be e?ective. Here
we must distinguish between two di?erent types
of norm enforcement. Norms that encourage us
to behave in ways that are consistent with our
self-interest are virtually costless to enforce.
4
Take
dress codes as an example: there is an informal rule
among employees of some American ?rms to dress
down on Fridays, and many do so. Even though
this norm is a purely discretionary, it often attains
a high degree of compliance. Behavior that is prin-
cipally mandated by conformity follows the same
logic. When Solomon Asch’s subjects misreport
the lengths of the straight lines he put in front of
them (Asch, 1951), when teenage boys sport hip-
hop fashion, or when girls wear trousers that
reveal bare midri?s they are all responding to
informational cues in their environments that
encourage them to conform to others’ behavior,
without imposing any undue personal cost (Bicchi-
eri, 2006).
5
The norms that inspire the greatest theoretical
attention, however, oblige us to act in ways that
are contrary, or at least orthogonal, to our imme-
diate self-interest (Hechter & Opp, 2001a). These
are sometimes referred to as moral norms, but
for reasons discussed below, this puts too rosy a
face on them. Instead, I will refer to these as oblig-
atory norms. We are obliged to comply with these
norms not because they are in our immediate self-
interest, but because doing so is the right thing to
do. If complying with the latest dress fashions is an
2
For present purposes, I ignore the complication of tax
enforcement. Su?ce it to say that although states regard the
paying of taxes as a normative obligation, in the absence of
enforcement rates of tax compliance plummet.
3
Some writers term internalized norms as values (Hechter
1992), or personal values.
4
These have been described as descriptive norms (Cialdini,
Reno, & Kallgren, 1990).
5
I ignore the (often very real) possibility that conformity to
norms about fashion imposes greater costs than deviating from
them.
M. Hechter / Accounting, Organizations and Society 33 (2008) 663–676 665
archetypal self-interested norm, then the Golden
Rule is an archetypal obligatory one. After all,
when we follow the Golden Rule we cannot engage
in behaviors – like the use of force and fraud – that
might otherwise bene?t us. If we ?nd a wallet with
a thousand dollars in cash, the Golden Rule
obliges us to return it to Lost and Found, rather
than pocket the windfall. Obligatory norms impel
us to sacri?ce our immediate grati?cation for the
sake of the collective good.
Not all norms of obligation promote social
order, however. Some – those dissuading workers
or students from hard work (Roy, 1952; Willis,
1981), or discouraging snitching among criminals
– clearly detract from the attainment of social
order. Typically, these norms oblige individuals
to be loyal to subgroups – corrupt o?cials, terror-
ist cells, religious cults, and illegal youth gangs –
whose ends con?ict with the collective good.
The enforcement of obligatory norms
Since compliance to obligatory norms entails
some personal sacri?ce, these norms must be
enforced by others. The classical sociological theo-
rists’ emphasis on norms was adumbrated in the
1950s by role theory. The fundamental idea behind
role theory is that distinctive positions in society
are de?ned normatively, and that the incumbents
in these positions willingly conform to the expecta-
tions of their roles. In our everyday life, we occupy
a variety of roles, each of which obliges us to
adhere to speci?c sets of norms.
The behaviors mandated in our role as parent
are quite di?erent from those expected of us as
members of competitive basketball teams. Like-
wise, physicians are obliged to care a great deal
more about the welfare of their patients than
used-car salesmen care about their clients. Unlike
the latter, the former are empowered to make deci-
sions that can have life or death consequences for
patients.
What then protects the patient’s welfare? In
Talcott Parsons’s famous account, the answer is
norms. The norms that are associated each per-
son’s social role dictate their relevant behavior.
The physician’s behavior is supposed to be quite
di?erent than the businessman’s. Whereas the
businessman’s role impels him to self-interested
action (presumably, he is motivated to maximize
his own pro?t), the physician’s role requires him
to ‘‘place the welfare of his patient above his
own self-interest, ?nancial or otherwise (Parsons,
1951, p. 472).”
6
Note that this argument implies
nothing about the nature of out-of-role motiva-
tion. Presumably, when she is out of her o?ce,
the physician might behave in a ruthlessly self-
interested manner, and the businessman might be
a major donor to a charity.
Why do we expect physicians to behave di?er-
ently than used-car salesmen? One possibility, of
course, is due to di?erential internalization: per-
haps physicians – unlike used-car salesmen – are
moralists who are self-selected for their altruism.
Parsons – that avatar of normative theory in soci-
ology – wholly discounts this explanation, how-
ever. Instead, he regards sanctions as the
explanation of compliance to professional norms:
For the question arises, would it really be to
the self interest of the normal physician to
ignore the code of his profession and to gar-
ner the ?nancial rewards from advertising,
from increasing his practice by undercutting
the rates of his colleagues, and from exclud-
ing the bad credit risks. In general . . . this
would not be to his interest. For such action
would impinge on the interests and the senti-
ments of others in the situation. The conse-
quences would take the form of a loss of
professional standing which in turn would,
if it went far enough, begin to show in quite
tangible forms. Desirable connections from
?nancial, as well as other points of view,
would become more di?cult to form, or be
6
Norms regulating physicians’ behavior date at least from the
time of Hippocrates’s famous Oath. Of course, compliance with
these norms is problematic, as is revealed by cases as diverse as
those of Nazi medical experimentation (Lifton, 1986), and the
Tuskegee Syphillis Study (Jones & Tuskegee Institute, 1993).
According to Lifton, the Nazi doctors convinced themselves
that they were killing Jews so as to save the Nordic race. This
example suggests that even the most straightforward norms –
such as the physician’s obligation to do no harm – are subject to
multiple interpretations (Hechter & Opp, 2001b).
666 M. Hechter / Accounting, Organizations and Society 33 (2008) 663–676
endangered, such as hospital sta? appoint-
ments or referrals of patients from other phy-
sicians. A sta? appointment might be
terminated or not renewed. In the extreme
case, there might be the threat of disciplinary
action on the part of the medical society. All
along there would be a jeopardizing of the
easy informal ‘‘belongingness” to a group
who understand each other as to proper con-
duct (Parsons, 1951, pp. 472–473).
For Parsons, then, the fear of punishment
makes us comply with norms.
7
We comply because
it is in our ultimate self-interest to do so. We for-
sake our short-term self-interest for our long-term
interest or, as Tocqueville put it, self-interest
rightly understood.
8
This implies that we cease to
comply with obligatory norms when the sanctions
weaken or disappear.
To some analysts, the sanctioning of deviant
behavior is the surest evidence for the existence
of a norm (Ensminger & Knight, 1997, p. 3). Sanc-
tions can take a wide variety of forms depending
on the salience of the violated norm in a given
community. Thus people who eat with their hands
at an American dinner party are met with gestures
of disdain like eye-rolling or sour looks. Scientists
who have been discovered to have falsi?ed their
data are ostracized from their profession. And
accused collaborators with occupation regimes
are often subjected to humiliation, physical injury
(kneecapping in Northern Ireland) or death by
their nationalist opponents.
Fair enough, but this solution raises a deeper
issue. Why do people ever take the trouble to sanc-
tion norm violators? After all, doing so supports a
public good that usually is in no single individual’s
interest to provide. This question has motivated a
great deal of the recent research on social norms.
People may enforce norms willingly because it
costs them nothing to do so. On one view (McAd-
ams, 1997, p. 364) sanctioning costs are minimal
(or zero) because the withholding of esteem – the
fundamental sanction, according to Richard
McAdams – is costless. Likewise, some experimen-
tal evidence suggests that individuals are hard-
wired to experience negative emotions when they
see others free ride. These negative emotions, in
turn, motivate sanctioning (Fehr & Ga¨chter,
2002). Another related possibility is that people
gain psychic income from punishing free riders
(Knutson, 2004).
Were these explanations su?cient then there
would be a great deal less deviant behavior than
we actually observe. Our streets would be litter-
free. People would not talk in movies. The parents
of children who persist in crying on airplanes, and
smokers who light up in no-smoking zones would
all be sanctioned. Deviant behaviors of these sorts
would largely be extinguished. Since such behav-
iors persist, this suggests that the sanctioning of
deviants is far from spontaneous and automatic
(Horne, 2001a). Indeed, sanctioning generally
incurs costs: at the very least, it consumes energy
and attention that could be employed to attain
other ends. The busybody victims of road rage
on our highways can certainly attest to these costs.
Even the promise of large pecuniary rewards pro-
vided by a patchwork of state and federal laws is
often insu?cient to motivate potential whistle-
blowers to come forward with evidence of bureau-
cratic malfeasance.
If sanctioning is not costless, then perhaps its
cost is outweighed by some corresponding bene?t.
Indeed, the most popular current explanation is
that people will sanction deviants because by
doing so they promote the welfare of their group.
This explanation, which smacks of functionalism,
has both collective and individualist variants.
Assume, for instance, that global warming
threatens everyone on the planet and that the
immediate restriction of greenhouse gas emissions
is required to protect the environment for us and
7
Almost a decade later, Gouldner o?ered an elaborated
discussion of the mechanism responsible for the norm of
reciprocity (Gouldner, 1960). A reputational argument similar
to Parsons’s has been often repeated – usually without
acknowledgement – in several more recent explanations of the
motivation to comply with norms (McAdams, 1997; Posner,
2000).
8
The Americans. . . are fond of explaining almost all the
actions of their lives by the principle of interest rightly
understood; they show with complacency how an enlightened
regard for themselves constantly prompts them to assist each
other, and inclines them willingly to sacri?ce a portion of their
time and property to the welfare of the state (Tocqueville,
2000).
M. Hechter / Accounting, Organizations and Society 33 (2008) 663–676 667
future generations (Kolbert, 2006). If norms arise
and are enforced to promote group welfare, then
will a norm against polluting be enforced? Collec-
tivists (Demsetz, 1967; Gibbs, 1968) assume that
this indeed will happen, but much critical analysis
and empirical analysis contests this view (Bendor
& Swistak, 2001; Hempel, 1965; Nagel, 1956).
For individualists, the emergence and enforce-
ment of norms to promote group welfare is prob-
lematic. On their view, people have an interest in
regulating the behavior of other members so as
to minimize negative externalities, such as behav-
ior that contributes to global warming (Coleman,
1990; Hechter, 1987; Heckathorn, 1988,1989). This
collective interest is not su?cient to motivate the
sanctioning of polluters, however.
The decision to sanction depends on its net ben-
e?ts to these individuals (Ostrom, Walker, &
Gardner, 1992). Individuals, therefore, weigh the
cost of sanctioning polluting behavior against the
likely bene?t that the sanction will bring to them
with respect to the reduction of greenhouse gasses
and global warming. Since the individual’s net
bene?t of sanctioning a polluter – say, by boycot-
ting its products or demonstrating against it – is
negative (that is, observing the boycott is person-
ally costly, and it cannot produce a measurable
e?ect on global warming) no sanction will likely
be forthcoming. On this individualist view of
enforcement, the greater the bene?t of sanctioning
deviant behavior to the potential sanctioner, the
more likely it will occur.
One site in which this individualist account
seems to work well is in the establishment of rotat-
ing-credit associations and other types of insur-
ance groups (Hechter, 1987). Insurance groups
create a common pool of members’ resources
and grant individuals access to these pooled
resources under speci?ed conditions (Ostrom,
1990). In a rotating-credit association, individual
members obtain access to the pool according to
their position in the group rotation. In an insur-
ance group, access to the pool is restricted to mem-
bers who have demonstrated a loss due, for
instance, to illness. Evidently, these institutions
can only survive when the integrity of the common
resource pool is maintained. This solution, how-
ever, requires each member to abide by the norms
of the group. Compliance to these norms is
increased by group solidarity. Group solidarity,
in turn, is maximized when individuals are depen-
dent on the bene?ts of membership and have the
capacity to monitor and sanction one another’s
behavior. Since all the members in insurance
groups have already invested funds in the common
pool, each one has a pecuniary incentive to moni-
tor the behavior of the bene?ciaries, and to
strongly sanction those who fail to abide by the
group’s norms. Sanctioning is made feasible by
the relatively small size of these groups, as well
as their members’ roots in the community, which
provides other members with a supply of hostages
in the event that an individual absconds with the
funds. These conditions generally do not hold in
large, socially heterogeneous groups, however.
9
Exogenous shocks – like the availability of new
technology or shifts in the composition of social
groups – can alter the net bene?t of engaging in
the collective action required to support the emer-
gence and sanctioning of new norms. These shocks
may a?ect the supply of norm entrepreneurs, and
the demands of particular groups. The rise of sanc-
tions against smoking in public places o?ers
another example of a norm that emerges on the
basis of mutual advantage (Ellickson, 2001). In
this case, the exogenous shock was the advent of
new scienti?c ?ndings about the health risks asso-
ciated with ?rsthand and secondhand smoke. A
series of norm entrepreneurs – medical researchers
and public health o?cials – arise to champion
opposition to smoking. They are then followed
by a cadre of self-interested leaders, such as non-
smokers su?ering from lung disease. These leaders,
in turn, are rewarded by appreciative medical and
public health experts. Media personalities and
other in?uential actors join the bandwagon, and
after an inde?nite period of time the new norm
emerges as support cascades.
This analysis has its own logical and empirical
limitations, however. Logically, it hinges on
strong, and questionable, assumptions about indi-
vidual beliefs and common interests (Hechter &
9
For extensions of this theory to account for large-scale
social order, see Chai and Hechter (1998).
668 M. Hechter / Accounting, Organizations and Society 33 (2008) 663–676
Opp, 2001b). Empirically, it fails to explain why
antismoking norms have given way to antismoking
laws, suggesting that informal sanctioning was
inadequate to curtail smoking in public places. It
does not explain why new scienti?c information
about the consequences of risky sexual behavior
has not led to comparably strong norms in this
arena. Nor does it explain why norms that clearly
do not contribute to collective welfare – such as
honor killing (Wikan, 2002) – are nonetheless
enforced.
10
Presumably, such norms are imposed
by powerful males on relatively powerless females
in traditional societies, but despite this, females
often enforce them.
11
Establishing new norms – like that against
smoking – occurs gradually in many stages, all of
which are crucial for the norm’s emergence.
Clearly, establishing new norms is problematic.
Recognition of these limitations has led to a
renewed emphasis on the role of interdependence
in the sanctioning of norms. It has long been
thought that the members of highly solidary
groups will be more willing to sanction deviants
than the members of less cohesive groups
(Homans, 1950,1974). Yet, the members of such
groups also may be less likely to sanction deviants
because the costs of o?ending a close friend out-
weigh the bene?ts of the sanction to the potential
sanctioner (Flache & Macy, 1996). To make mat-
ters more complex, there is some empirical evi-
dence for both of these opposing arguments.
Metanorms are another mechanism that has
been proposed for the enforcement of norms
(Axelrod, 1986). Metanorms are second-order
norms that tell people what behaviors they should
or should not sanction in a given situation. To the
degree that metanorms are e?ective, those who
sanction deviants will be rewarded, and those
who fail to do so will themselves be sanctioned.
Hence, metanorms o?er onlookers an incentive
to sanction deviants (Horne, 2001a). Although
there is some evidence supporting this conjecture
(Axelrod, 1986; Bendor & Swistak, 2001), what
then is responsible for the enforcement of meta-
norms? The same arguments that have been mar-
shaled for the enforcement of norms – that is, a
concern for group welfare, and the e?ects of inter-
dependence – have been redeployed to account for
the enforcement of metanorms. Some experimen-
tal research designed to test these alternative
accounts lends greater support to the interdepen-
dence mechanism (Horne, 2007). Despite this,
one is left with the nagging suspicion that the anal-
ysis of the enforcement of metanorms may lead to
an in?nite regress.
The decay of obligatory norms
Is it more di?cult to establish new norms than
to destroy existing ones? On the face of it, the evi-
dence is mixed. Take, for example, the persistence
of norms encouraging poor performance in public
schools (Willis, 1981) and female genital cutting
(Mackie, 1996). Both norms would seem to harm
the welfare of the very people who readily comply
with them. Yet concerted e?orts on the part of
states, schools and non-governmental organiza-
tions to weaken these norms have not been partic-
ularly successful. Both of these welfare-reducing
norms appear to have remarkable staying power.
At the same time, there is widespread concern that
many socially bene?cial norms have recently
begun to decay. A large academic industry has
arisen to document, and debate, the erosion of
civic norms (Putnam, 2000).
To this point, the conditions for the enforce-
ment of obligatory norms has been discussed as
if people are only faced with the choice of compli-
ance or non-compliance with a single norm, or set
of norms. To the degree that people are subject to
con?icting norms, however, the normative land-
scape becomes much more complex. A standard
example is the con?ict between an individual’s
obligations to work and family. To which of these
con?icting norms, if any, will individuals comply?
If this choice is determined on the basis of net ben-
e?t, then the normative obligation which comes
with the greatest sanctions for non-compliance will
10
One recent analysis suggests that the allocation of rival
rewards (as against collective goods) in groups with strong peer
in?uence leads to antisocial norms that diminish members’
welfare (Kitts 2006).
11
Coleman (1990) terms these kinds of norms disjoint, as
distinct from the conjoint norms that are imposed by peers.
M. Hechter / Accounting, Organizations and Society 33 (2008) 663–676 669
assume pride of place. This principle can account
for the decay of professional norms.
Recent widely-publicized failures in medicine
(billing scandals at prominent medical schools)
and accounting (the fall of Enron, Tyco and MCI-
WorldCom, among other ?rms) have also raised
questions about the withering of the professional
norms which Parsons once heralded. Like today’s
American physicians, accountants are the agents
of two principals. Physicians serve their patients,
but are generally paid by insurance companies or
Medicaid. Accountants serve their clients and are
paid by them, but they are also responsible to regu-
lators who represent the investing public. Since
principals and agents have di?erent interests, com-
pliance is problematic in all agency relationships
(Jensen & Meckling, 1976; Kiser, 1999). In general,
the agent’s compliance tothe principal’s directives is
best assured by designing and implementing incen-
tive-compatible contracts.
This solution is unavailable, however, when the
agent is simultaneously responsible to two princi-
pals having divergent interests.
12
In the case of
medicine, many patients want the very best care,
cost be damned, but insurers – who are inevitably
concerned with the bottom line – seek to minimize
these costs. What then are physicians to do? Which
of these two principals will exercise dominant
in?uence on their behavior? If physicians are the
typical rational egoists found in economic models
(Hechter, 1994), the answer lies in their relative
dependence on each. The greater the dependence
of an agent on her principal, the greater the in?u-
ence of that principal. Since insurers pay the bills,
physicians should be most responsive to their
interests. The rise of the 10-minute doctor’s visit
in the United States lends much credibility to this
theory.
The rise and fall of obligatory norms in professional
accounting
The saga of Arthur Andersen, a ?rm founded in
1913 by a young Northwestern University account-
ing professor of notable personal rectitude, illus-
trates the rise and fall of obligatory norms. As
legend has it, Andersen – then a principal of a small
start-up accounting ?rm – noticed an irregularity in
the books of one of his clients, a large railroad com-
pany. The company had not properly accounted
for maintenance charges that should have been
noted as part of the ?rm’s operating expenses.
After pointing out the error, Andersen received
no response. He then threatened the president of
the ?rm that he would be forced to reveal the inap-
propriate accounting in his report. The president
personally came down to Andersen’s o?ce and
demanded that he approve the books or lose the
?rm as a client. Even though Andersen’s ?rm was
in no position to lose such an important client,
Andersen reportedly replied, ‘‘There’s not enough
money in the city of Chicago to induce me to
change that report (To?er & Reingold, 2003)!”
In a 1932 lecture, Andersen stated that
If the con?dence of the public in the integrity
of accounts’ reports is shaken, their value is
gone. To preserve the integrity of his reports,
the accountant must insist upon absolute
independence of judgment and action. The
necessity of preserving this position of inde-
pendence indicates certain standards of con-
duct (To?er & Reingold, 2003).
The ?rm that Andersen and his successors built
spent a great deal of e?ort and resources on recruit-
ing, training and socializing its employees to norms
about integrity, independence and stewardship.
13
12
Merton adverts to this possibility in a neglected discussion
of role-sets: ‘‘The members of a role-set are not apt to be
equally powerful in shaping the behavior of occupants of a
particular status. However, it does not follow that the individ-
ual, group, or stratum in the role-set has an e?ective monopoly
of power, either to the exclusion of all others or outweighing the
combined power of the others (Merton, 1957, p. 372).”
Likewise, a classic study of mental hospitals revealed that the
physician’s custodial role tends to trump her therapeutic role, to
the detriment of patients (Go?man, 1968).
13
That single maxim, ‘Think straight, talk straight’ was the
touchstone of the Firm. Arthur Andersen, partners would say
with pride, was a place where integrity mattered more than fees,
where standing up for what you believed in was a virtue, where
it was better to the right thing than the easy thing. Andersen
and his successor, Leonard Spacek, were portrayed, almost
cartoonlike, as heroes of American capitalism, men who stood
up for the investing public and men who understood that for a
professional services ?rm, reputation was the only thing that
mattered (To?er & Reingold, 2003, p. 12).
670 M. Hechter / Accounting, Organizations and Society 33 (2008) 663–676
Initially these activities took place in a Chicago
hotel, but in 1970 the ?rm bought a defunct college
campus in St. Charles, Illinois. There, in addition to
their training in accountancy, the new recruits
learned to dress alike, how to behave in public,
and to eat lunch at restaurants (where they could
be seen by potential clients). This training not only
created skilled accountants, but it also turned out
reliable Andersen people (known internally as
Androids).
14
This was important because
Andersen, like other professional service
?rms, made its money by using young, low-
paid sta? to do the majority of the work. It
was a risky proposition: if you couldn’t trust
those people to do the right thing, the entire
model would collapse. But if you put them
all into a laboratory and ensured that they
would emerge more similar than di?erent,
you had something special. ‘‘It was our
intent to create a group that was very inter-
changeable,” said former partner Victor Mil-
lar. ‘‘One of our selling points was if we had
a partner who got hit by a truck, we had ten
others who could do the same. . . We under-
stood the problem of groupthink, but on
the other side, it allows you to build a very,
very pro?table model (To?er & Reingold,
2003).”
The culture of Arthur Andersen was extremely
hierarchical; deviance from corporate norms sim-
ply was not tolerated. Compliance to the norms
that were hammered into new recruits at St.
Charles was enforced by a patronage structure.
New hires were instructed to ?nd a mentor to
guide them in their pursuit of corporate advance-
ment. As in any patronage system, the bene?cia-
ries’ dependence on their patrons encouraged
loyalty and a consequent unwillingness to chal-
lenge directives from their patrons. By following
these tenets the ?rm thrived, becoming the largest
accounting ?rm in the world.
However, this exceptionally successful ?rm
came to an abrupt and inglorious end. After the
demise of a number of high-pro?le American ?rms
in 2002 – many of which had hired Arthur Ander-
sen to do their books – the ?rm was forced out of
business. Andersen’s modern-day accountants had
allowed Enron and its other star clients to seri-
ously overestimate their net worth in their public
accounts. This was precisely what the ?rm’s foun-
der had refused to do back in Chicago ninety years
previously.
What was responsible for the erosion of Arthur
Andersen’s norms of integrity and public service?
The principal causes were technological change
and macroeconomic ?uctuations. The digital revo-
lution was one factor. Some visionaries within the
?rm who foresaw the importance of computer
technology initially urged Andersen to invest in
the consulting business. As public corporations
increasingly invested in costly new computer sys-
tems, demand for technological advice soared,
and Andersen Consulting, an early entrant in this
niche, soon became the industry leader.
Consultants’ normative obligations di?er from
those of auditors, however. Consultants only serve
one principal. They are merely obliged to promote
their clients’ welfare. Accountants, however, pro-
vide service to two di?erent principals – their cli-
ents and the investing public, as represented by
government regulatory bodies. Accounting ?rms
must maintain a bright line between internal and
external auditing. In external auditing, an indepen-
dent auditor examines a ?rm’s ?nancial statements
in light of a series of accepted standards (Generally
Accepted Accounting Principles [GAAP], or Inter-
national Financial Reporting Standards [IFRS]).
Internal auditing, often carried out by auditors
employed by the company, serves to provide infor-
mation for the use of managers.
What is likely to happen if the same accoun-
tancy ?rm conducts internal and external audits
for a corporate client? The principal to whom
the auditor is most dependent is likely to have
the greatest in?uence. That is, in a contest
between the hiring ?rm and the investing public,
14
‘‘At St. Charles, everything was predetermined. The rooms
were bare, and there was no phone or TV. They were not
supposed to stay in their rooms, but to mingle with others. Even
the partners stayed in these Spartan quarters, giving the
newbies an opportunity to meet with potential mentors. The
experience was much like boot camp, and at the end it led to a
high sense of solidarity (To?er & Reingold 2003).”
M. Hechter / Accounting, Organizations and Society 33 (2008) 663–676 671
the auditor should be more responsive to the
hiring ?rm (which pays the bill) than to regulators
or the investing public.
15
Andersen’s consulting business grew at a much
faster pace than the auditing business. As Ander-
sen Consulting became the major economic engine
within the ?rm, the norms of consultants begin to
trump those of accountants. Whereas the auditing
part of the ?rm originally subsidized the consul-
tants, soon the consultants came to subsidize the
auditors. They increasingly resented this subsidy
and their persistent under-representation on the
corporate governing board, seeking to secede from
Arthur Andersen.
16
Not surprisingly, the solidar-
ity of the ?rm su?ered apace.
17
After a long period of contention, the two units
of Arthur Andersen submitted their con?ict to
binding arbitration, and on January 1st 2001
Andersen Consulting – under its new name Accen-
ture – seceded on terms that were highly unfavor-
able to the original ?rm. If this analysis is correct,
then the enforcement of accountants’ professional
norms should have rebounded. That this did not
occur owes to a shift in market conditions.
The revenues of the rump ?rm – now minus the
subsidy from Andersen Consulting to which the
accountants had grown accustomed – lagged well
behind its competitors. Worse, the breakup coin-
cided with a downturn in the market for corporate
auditing due to the end of a boom in mergers and
acquisitions. Facing enormous competitive pres-
sure, the ?rm’s principals were highly motivated
to retain their star clients. Thus declining mergers
and acquisitions sharply increased the ?rm’s
dependence on one set of principals – major clients
– at the expense of regulators and the investing
public. The result was that Arthur Andersen col-
luded with the corrupt managers of Enron and
other major clients to overstate their ?nancial
health. This is consistent with the prediction that
agents are most responsive to the principals upon
whom they are most dependent. After the inaccu-
racy of their accounting reports came to light,
the ?rm was forced out of business.
What appears to have been an unshakeable
commitment to professional norms is, in fact,
highly contingent on internal con?icts, competing
norms and macroeconomic conditions. On the
heels of a wave of accounting failures and massive
losses to shareholders and employees, Congress
enacted legislation subjecting the entire accounting
industry to the heightened regulation of the Sar-
banes-Oxley Bill.
18
This serves as a reminder that
norms are not the only means of regulating behav-
ior. The market and law are alternatives.
The market, norms, and the law as sources of social
order
Obligatory norms are fundamental to social
order, but social order can also be produced by
markets and the law (Hechter & Horne, 2003).
The costs of these alternative mechanisms of order
di?er signi?cantly, however. Markets are pre-
sumed to be the least costly mechanism because
they are self-organizing and self-enforcing, once
their preconditions have been established (Hayek,
1973). Norms are second best because they o?er
the promise of decentralized enforcement by peers.
When norms fail – as in the case of Arthur Ander-
sen – the remaining remedy is state-enforced law.
Individual action in markets is guided, if not
wholly determined, by relative prices. And prices
are not limited to pecuniary indices; an individ-
ual’s or ?rm’s reputation for integrity, for exam-
ple, can ?gure into the relative price of the
choice of a service. When the parties to a voluntary
15
This is because state regulators are often captured by the
very industries they are charged to regulate (Peltzman, 1989;
Stigler, 1964).
16
‘‘By the 1990s a former Andersen Consulting partner
complained ‘If you wanted to know what it felt like to be a
black person sitting in the back of the bus, go be a consultant at
Arthur Andersen (To?er & Reingold, 2003, p. 83)).”
17
‘‘The brutally competitive atmosphere within the Firm
made a mockery of its principles and of its culture. . . The air
was so thick with internal tension that it seemed hard, some
days, even to breathe (To?er & Reingold 2003).”
18
The Sarbanes-Oxley bill provides for accounting standard
oversight, bans auditors from supplying other services, and
requires audit committee board members to be independent
company directors. The law also requires corporate chief
executive and ?nancial o?cers to attest personally, with their
signature, to the accuracy of their ?rm’s ?nancial reports.
672 M. Hechter / Accounting, Organizations and Society 33 (2008) 663–676
exchange in the market have full information
about their options, they are capable of looking
out for their self-interest by heeding the maxim,
caveat emptor. Norms have a small role in this
kind of marketplace, and the role of police – that
is, the designated enforcers of the law – is limited
to that of enforcing contracts (Nozick, 1974).
Even in advanced capitalist societies, however,
perfect markets are the exception rather than the
rule. When an exchange is characterized by imper-
fect or asymmetric information, the e?ciency of
markets su?ers (Coase, 1988; Williamson, 1975).
In the well-known example of the market for lem-
ons (Akerlof, 1970), the potential buyer of a used
car cannot ascertain if the owner is motivated to
sell the vehicle because it is a lemon. Only the
owner knows the true condition of the car. Due
to asymmetric information, sellers receive a dimin-
ished price for a product or service even when it
isn’t a lemon, but this is an ine?cient outcome.
When markets fail, obligatory norms can be a
substitute (Arrow, 1971; Ellickson, 1991). Sick peo-
ple cannot optimize their treatment on their own
because they lackthe necessary expertise toappraise
their medical situation; they rely on doctors for
these decisions. Likewise, the investing public has
no means of assessing the relative viability of ?rms;
they rely on accountants to provide the relevant
information. But accountants are not always moti-
vated to provide accurate reports because they can
be dependent on their major clients.
Law is the most costly means of attaining social
order.
19
Laws are explicit, written rules that are
promulgated and enforced by specialized political
authorities. The sanctions called forth by legal vio-
lations are also explicit: murder merits one kind of
sanction, assault another, burglary a third. Polic-
ing, litigation and the administration of a justice
system are among the very great costs of legal
enforcement. In societies that principally rely on
the enforcement of norms rather than the state
for contract enforcement, like Japan, there are rel-
atively few lawyers and lawsuits (Haley, 1991).
E?cient monitoring mechanisms in Japan are also
a key factor in its low crime rate (Hechter &
Kanazawa, 1993).
20
The Andersen case reveals that high profes-
sional solidarity is required for compliance to cor-
porate norms. In Arthur Andersen, solidarity was
initiated by a socializing institution akin to boot
camp, and enforced by the sanctions provided by
a rigid system of patronage. The rise of Andersen
Consulting diminished ?rm solidarity by exempt-
ing consultants from the St. Charles boot camp
experience, and by inspiring intergroup competi-
tion in the ?rm.
21
Professional norms went further
by the wayside when the ?rm faced with sharply
declining resources, for then the temptation to
engage in opportunistic – that is, deviant – behav-
ior escalated. Since the downturn in mergers and
acquisitions at the turn of the century narrowed
the market for other accounting ?rms as well,
many of Andersen’s competitors su?ered similar
normative lapses as well.
Like American medicine, accountancy has been
a largely self-regulating industry.
22
The decay of
professional norms in accounting curtailed
self-regulation. eventually leading to the passage
of the Sarbanes-Oxley Bill.
23
Likewise, when
19
‘‘It is noteworthy how strongly the main reliance for control
is placed on ‘‘informal” mechanisms. The law of the state
includes severe penalties for ‘‘malpractice” and medical asso-
ciations have relatively elaborate disciplinary procedures, but
these quite de?nitely are not the principal mechanisms which
operate to ensure the control of self-orientation tendencies
(Parsons, 1951, pp. 463–464).”
20
Of course, in stateless societies, where there is no law,
markets cannot exist. In these circumstances norms are the
principal source of social order, as is illustrated in the famous
discussion of the institution of the leopard-skin chief among the
Nuers (Evans-Pritchard, 1944).
21
A similar analysis of competition between solidary groups
may account for high levels of corporate corruption in Japan
(Miller & Kanazawa, 2000).
22
Theoretically, American accounting ?rms are regulated by
the Securities and Exchange Commission. However, since they
are also major campaign contributors, prior to the collapse of
Enron, Congress was loath to exert much discipline over them.
23
The costliness of this legal remedy to normative failure has
yet to be fully determined, but the initial signs are not
promising. Ironically, the greater reporting standards required
by this legislation has raised the demand for accounting
services, providing a windfall to the accounting industry. But
this new reporting burden may discourage investment in
American ?rms relative to their counterparts elsewhere. If so,
the ultimate consequence of the decay of norms in the
accounting industry may turn out to have dampened American
economic growth.
M. Hechter / Accounting, Organizations and Society 33 (2008) 663–676 673
anti-smoking norms proved insu?cient to prevent
smoking in public venues, the result has been
increasing anti-smoking legislation.
Conclusion
Whereas some kinds of norms merely ratify our
own sel?sh instincts, obligatory norms urge us to
forego self-interested action for the sake of some
collectivity. That collectivity can be as exclusive
as a family, or as inclusive as the entire world.
These kinds of norms a?ect behavior by altering
the expected consequences of given courses of
action. But behavior will only be altered when
these obligatory norms are enforced. Hence, the
heart of normative analysis rests in enforcement.
In general, obligatory norms can be enforced by
internalization and by sanctioning. Internalization
is by far the most e?cient means of enforcing
norms for it does not depend on the actions of oth-
ers, but it is unreliable when it con?icts with self-
interest. Absent internalization, obligatory norms
must be enforced socially. But why does anyone
willingly bear the cost of sanctioning another’s
deviance? The most robust answer is that in some
circumstances, sanctioning provides people with a
net bene?t. These circumstances are most likely to
arise in highly solidary groups.
When new ?rms attempt to establish a reputa-
tion, the cost of cheating – producing low qual-
ity goods, producing low quality audit reports –
is very high. To succeed, the new ?rm must get
its employees to comply with corporate norms
even when doing so con?icts with their immedi-
ate self-interest. Once that reputation is estab-
lished, however, cheating is somewhat less
costly. Under especially adverse conditions,
norms are not robust. Whereas the content of
professional norms is constant, enforcement –
and, therefore, compliance – is highly sensitive
to economic conditions.
The Andersen case suggests that the simple hier-
archy of markets, norms and law may require
some revision. The Sarbanes-Oxley Bill undoubt-
edly entails many other costs, but by prohibiting
auditing ?rms to engage in consulting, it may also
lead to a resurgence of professional norms among
accountants. In this way, ironically law may
reduce the demand for state enforcement.
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Sunstein, C. R. (1996). Social norms and social roles. Columbia
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Tocqueville, A. de. (2000). Democracy in America. Chicago,
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To?er, B. L., & Reingold, J. (2003). Final accounting: Ambition,
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Weber, M. (1978). Economy and society. Berkeley: University of
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Wikan, U. (2002). Generous betrayal: Politics of culture in the
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Williamson, O. E. (1975). Markets and hierarchies. Analysis and
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183–193.
676 M. Hechter / Accounting, Organizations and Society 33 (2008) 663–676
doc_484781423.pdf
Widely-publicized breaches of professional norms among accountants in the United States have kindled their interest
in the problem of norms and normative control. This article discusses the current literature on norms. It suggests
that normative control, which is always problematic, is especially so when agents are subject to the control of two
or more principals having divergent interests
The rise and fall of normative control
q
Michael Hechter
*
Arizona State University, School of Global Studies, Post O?ce Box 875102, Tempe, AZ, United States
Abstract
Widely-publicized breaches of professional norms among accountants in the United States have kindled their inter-
est in the problem of norms and normative control. This article discusses the current literature on norms. It suggests
that normative control, which is always problematic, is especially so when agents are subject to the control of two
or more principals having divergent interests. It is argued that the agent’s compliance will tend to ?ow to that principal
upon whom the agent is most dependent. The analysis is illustrated by the case of the rise and fall of the Arthur Ander-
sen accounting ?rm.
Ó 2008 Elsevier Ltd. All rights reserved.
1. Introduction
It is di?cult to overstate the importance of
norms. They do nothing less than make social life
possible. Without norms we would be unable to
decipher the meaning of one another’s behavior.
Beyond their fundamental contribution to mutual
understanding, norms focus and coordinate indi-
vidual expectations, thereby specifying appropriate
behavior in given social situations. This is an
immense contribution to the attainment of social
order.
Norms are rules that prescribe and proscribe
behavior in speci?c social situations. Given the end-
less variety of social situations, this implies that
there must be a plethora of di?erent kinds of norms.
Take, for example, lecture classes, weddings and
funerals. In lecture classes, students know that they
should not read the newspaper, talk out loud, or
persistently focus their attention away from the
instructor. At American weddings, they know that
they should never wear black, ?irt with the bride
or bridegroom, or pipe up in response to the ques-
tion ‘‘if anyone objects to this union, speak now or
forever hold your peace.” At American funerals,
they know that they should wear black and not
speak ill of the dead. Norms such as these are intu-
itive and instrumental: they relate to the manifest
0361-3682/$ - see front matter Ó 2008 Elsevier Ltd. All rights reserved.
doi:10.1016/j.aos.2008.01.005
q
Plenary address presented at the annual meeting of the
American Accounting Association, Chicago, Illinois, August 5–
8, 2007. Thanks to Shyam Sunder for inviting me to present the
paper, and to Debra Friedman and Christine Horne for their
comments on an earlier draft.
*
Tel.: +1 480 727 0735; fax: +1 480 727 8292.
E-mail address: [email protected]
www.elsevier.com/locate/aos
Available online at www.sciencedirect.com
Accounting, Organizations and Society 33 (2008) 663–676
purposes of these gatherings. Thus classroom
norms facilitate learning, wedding norms lend col-
lective support to the newunion, and funeral norms
comfort the family, friends and colleagues of the
deceased. People may not understand the rationale
for norms such as these, but their compliance with
them usually is conscious.
Sometimes compliance to norms is unconscious,
however. Many norms operate, as it were, behind
our backs. Some are sotaken-for-grantedthat people
are often unaware of their very existence, and of the
reasons for their own compliance to them. Consider
the behavior of twofriends engagedinanimatedcon-
versation waiting for an elevator in a crowded store.
On entering the elevator, the friends stop talking and
swivel forward to face the doors. In so doing they are
complying with a norm, but they would be hard
pressed to describe this particular norm. Likewise,
howmany people understandthat theyare observing
a norm when they ask a passing stranger about the
time, but would never enter into conversation with
the stranger about any other topic (Go?man, 1963)?
In the 1960s, ethnomethodologists carried out a
number of breaching experiments aiming to make
explicit a number of taken-for-granted conversa-
tional norms. In one such example,
The subject was telling the experimenter, a mem-
ber of the subject’s car pool, about having had a
?at tire while going to work the previous day.
(S) I had a ?at tire.
(E) What do you mean, you had a ?at tire?
She appeared momentarily stunned. Then she
answered in a hostile way: ‘‘What do you mean,
‘What do you mean?’ A ?at tire is a ?at tire.
That is what I meant. Nothing special. What a
crazy question! (Gar?nkel, 1967).
Violation of these taken-for-granted norms
invariably generates unease.
1
Norms also di?er in their degree of ambiguity.
Whereas the norms for weddings and funerals
are relatively ?xed and unambiguous, others are
anything but. When the French soccer star Zine-
dine Zidane gave a head butt to an Italian defen-
der in the 2006 World Cup ?nal, probably
costing his side the championship, this focused
attention on norms about trash talking in compet-
itive athletics. Whereas verbal jousting is common
in many sports, ‘‘the threshold for what is accept-
able trash talking and what is intolerable vitriol is
nebulous (Diamos, 2006)”. Likewise, the residents
of upscale buildings in New York City are obliged
to tip their doormen at Christmas, but determining
how large a tip to give provides them with an
annual headache (Bearman, 2005). To the degree
that norms are ambiguous, this makes normative
control more of a soft than a hard constraint.
Finally, the particular content of norms varies
across societies; this has been one of the leitmotifs of
sociological theory (Horne, 2001b). Marx and Engels
discussedthe norms of deference infeudal andcapital-
ist societies (Marx&Engels, 1964). Weber sharplydis-
tinguished between patrimonial and bureaucratic
norms (Weber, 1978). Durkheimviewednorms as pre-
conditions for social exchange (Durkheim, 1933), and
then, inSuicide, providedsome of the ?rst quantitative
measures of their variable e?ects on social regulation
and integration (Durkheim, 1951).
One of the major causes of variationinnormative
content is cultural; otherwise, Irish wakes and
Hindu funerals would be identical kinds of events.
Norms about the appropriateness of violent behav-
ior, for example, di?er in the American North and
South; in the South, violence is regarded as an
appropriate response to violations of honor (Cohen
& Nisbett, 1997). Truth-telling is a more salient
norm in the United States than in Iran (Slackman,
2006). And, at least according to some measures,
corrupt behavior is more acceptable in countries
like Kuwait, Egypt, Chad, Sudan and Bulgaria than
it is in Canada, Scandinavia, Ireland and Japan
(Fisman & Miguel, 2006).
The enforcement of norms
Like any other kind of rule, norms can only
a?ect behavior if they are enforced. But wherein
lies the source of this enforcement? Laws are
1
This kind of normative breach is a staple in the typical
routine of stand-up comics; in the comedy club setting it usually
leads to somewhat nervous laughter. A large, if indeterminate,
basis of all humor probably lies in the public breaching of
taken-for-granted norms.
664 M. Hechter / Accounting, Organizations and Society 33 (2008) 663–676
enforced by a specialized agency of the state –
namely, the police. State enforcement of the law
is subsidized by taxation.
2
But how is the enforce-
ment of social norms subsidized?
Norms must either be self-enforced or enforced
by others. We may individually pay a big price for
our self-enforcement of social norms – Freud cer-
tainly believed that we do (Freud, 1961) – but in
the eyes of others our good behavior is attained
costlessly. The feelings of shame or embarrassment
that would be entailed by violating norms moti-
vate us to comply with them.
In addition to being supported by the atti-
tudes of other people, norms are sustained
by the feelings of embarrassment, anxiety,
guilt and shame that a person su?ers at the
prospect of violating them, or at least the
prospect of being caught violating them.
Social norms have a grip on the mind that
is due to the strong emotions their violations
can trigger. I believe that the emotive aspect
of norms is a more fundamental feature than
the more frequently cited cognitive aspects.
If norms can coordinate expectations, it is
only because the violation of norms is known
to trigger strong negative emotions, in the
violator himself and in other people (Elster,
1989).
Two principal mechanisms are responsible for
the internalization of norms.
3
Identi?cation with
an esteemed model can lead one to internalize
the model’s relevant characteristics. Alternatively,
internalization can result from reinforcement
administered by parents, teachers, and other
authorities, including the state (Hechter, 1987;
McAdams, 1997; Scott, 1971; Sunstein, 1996).
Experimental economists studying ultimatum
games have shown that many subjects have inter-
nalized the norm of fairness (Henrich, Samuel,
Robert, & Colin, 2004). The degree of this inter-
nalization, in turn, rests, in part, on the mode of
production of the relevant groups. Because it
requires no societal investment and it can occur
spontaneously in the course of day-to-day activi-
ties like parenting, self-enforcement is the royal
road to social order. The pervasiveness of non-
compliance to norms – that is, deviant behavior
in all its multifarious forms – suggests, however,
that that this royal road is all too frequently
bypassed (Wrong, 1961).
Lacking internalization, norms must be
enforced socially if they are to be e?ective. Here
we must distinguish between two di?erent types
of norm enforcement. Norms that encourage us
to behave in ways that are consistent with our
self-interest are virtually costless to enforce.
4
Take
dress codes as an example: there is an informal rule
among employees of some American ?rms to dress
down on Fridays, and many do so. Even though
this norm is a purely discretionary, it often attains
a high degree of compliance. Behavior that is prin-
cipally mandated by conformity follows the same
logic. When Solomon Asch’s subjects misreport
the lengths of the straight lines he put in front of
them (Asch, 1951), when teenage boys sport hip-
hop fashion, or when girls wear trousers that
reveal bare midri?s they are all responding to
informational cues in their environments that
encourage them to conform to others’ behavior,
without imposing any undue personal cost (Bicchi-
eri, 2006).
5
The norms that inspire the greatest theoretical
attention, however, oblige us to act in ways that
are contrary, or at least orthogonal, to our imme-
diate self-interest (Hechter & Opp, 2001a). These
are sometimes referred to as moral norms, but
for reasons discussed below, this puts too rosy a
face on them. Instead, I will refer to these as oblig-
atory norms. We are obliged to comply with these
norms not because they are in our immediate self-
interest, but because doing so is the right thing to
do. If complying with the latest dress fashions is an
2
For present purposes, I ignore the complication of tax
enforcement. Su?ce it to say that although states regard the
paying of taxes as a normative obligation, in the absence of
enforcement rates of tax compliance plummet.
3
Some writers term internalized norms as values (Hechter
1992), or personal values.
4
These have been described as descriptive norms (Cialdini,
Reno, & Kallgren, 1990).
5
I ignore the (often very real) possibility that conformity to
norms about fashion imposes greater costs than deviating from
them.
M. Hechter / Accounting, Organizations and Society 33 (2008) 663–676 665
archetypal self-interested norm, then the Golden
Rule is an archetypal obligatory one. After all,
when we follow the Golden Rule we cannot engage
in behaviors – like the use of force and fraud – that
might otherwise bene?t us. If we ?nd a wallet with
a thousand dollars in cash, the Golden Rule
obliges us to return it to Lost and Found, rather
than pocket the windfall. Obligatory norms impel
us to sacri?ce our immediate grati?cation for the
sake of the collective good.
Not all norms of obligation promote social
order, however. Some – those dissuading workers
or students from hard work (Roy, 1952; Willis,
1981), or discouraging snitching among criminals
– clearly detract from the attainment of social
order. Typically, these norms oblige individuals
to be loyal to subgroups – corrupt o?cials, terror-
ist cells, religious cults, and illegal youth gangs –
whose ends con?ict with the collective good.
The enforcement of obligatory norms
Since compliance to obligatory norms entails
some personal sacri?ce, these norms must be
enforced by others. The classical sociological theo-
rists’ emphasis on norms was adumbrated in the
1950s by role theory. The fundamental idea behind
role theory is that distinctive positions in society
are de?ned normatively, and that the incumbents
in these positions willingly conform to the expecta-
tions of their roles. In our everyday life, we occupy
a variety of roles, each of which obliges us to
adhere to speci?c sets of norms.
The behaviors mandated in our role as parent
are quite di?erent from those expected of us as
members of competitive basketball teams. Like-
wise, physicians are obliged to care a great deal
more about the welfare of their patients than
used-car salesmen care about their clients. Unlike
the latter, the former are empowered to make deci-
sions that can have life or death consequences for
patients.
What then protects the patient’s welfare? In
Talcott Parsons’s famous account, the answer is
norms. The norms that are associated each per-
son’s social role dictate their relevant behavior.
The physician’s behavior is supposed to be quite
di?erent than the businessman’s. Whereas the
businessman’s role impels him to self-interested
action (presumably, he is motivated to maximize
his own pro?t), the physician’s role requires him
to ‘‘place the welfare of his patient above his
own self-interest, ?nancial or otherwise (Parsons,
1951, p. 472).”
6
Note that this argument implies
nothing about the nature of out-of-role motiva-
tion. Presumably, when she is out of her o?ce,
the physician might behave in a ruthlessly self-
interested manner, and the businessman might be
a major donor to a charity.
Why do we expect physicians to behave di?er-
ently than used-car salesmen? One possibility, of
course, is due to di?erential internalization: per-
haps physicians – unlike used-car salesmen – are
moralists who are self-selected for their altruism.
Parsons – that avatar of normative theory in soci-
ology – wholly discounts this explanation, how-
ever. Instead, he regards sanctions as the
explanation of compliance to professional norms:
For the question arises, would it really be to
the self interest of the normal physician to
ignore the code of his profession and to gar-
ner the ?nancial rewards from advertising,
from increasing his practice by undercutting
the rates of his colleagues, and from exclud-
ing the bad credit risks. In general . . . this
would not be to his interest. For such action
would impinge on the interests and the senti-
ments of others in the situation. The conse-
quences would take the form of a loss of
professional standing which in turn would,
if it went far enough, begin to show in quite
tangible forms. Desirable connections from
?nancial, as well as other points of view,
would become more di?cult to form, or be
6
Norms regulating physicians’ behavior date at least from the
time of Hippocrates’s famous Oath. Of course, compliance with
these norms is problematic, as is revealed by cases as diverse as
those of Nazi medical experimentation (Lifton, 1986), and the
Tuskegee Syphillis Study (Jones & Tuskegee Institute, 1993).
According to Lifton, the Nazi doctors convinced themselves
that they were killing Jews so as to save the Nordic race. This
example suggests that even the most straightforward norms –
such as the physician’s obligation to do no harm – are subject to
multiple interpretations (Hechter & Opp, 2001b).
666 M. Hechter / Accounting, Organizations and Society 33 (2008) 663–676
endangered, such as hospital sta? appoint-
ments or referrals of patients from other phy-
sicians. A sta? appointment might be
terminated or not renewed. In the extreme
case, there might be the threat of disciplinary
action on the part of the medical society. All
along there would be a jeopardizing of the
easy informal ‘‘belongingness” to a group
who understand each other as to proper con-
duct (Parsons, 1951, pp. 472–473).
For Parsons, then, the fear of punishment
makes us comply with norms.
7
We comply because
it is in our ultimate self-interest to do so. We for-
sake our short-term self-interest for our long-term
interest or, as Tocqueville put it, self-interest
rightly understood.
8
This implies that we cease to
comply with obligatory norms when the sanctions
weaken or disappear.
To some analysts, the sanctioning of deviant
behavior is the surest evidence for the existence
of a norm (Ensminger & Knight, 1997, p. 3). Sanc-
tions can take a wide variety of forms depending
on the salience of the violated norm in a given
community. Thus people who eat with their hands
at an American dinner party are met with gestures
of disdain like eye-rolling or sour looks. Scientists
who have been discovered to have falsi?ed their
data are ostracized from their profession. And
accused collaborators with occupation regimes
are often subjected to humiliation, physical injury
(kneecapping in Northern Ireland) or death by
their nationalist opponents.
Fair enough, but this solution raises a deeper
issue. Why do people ever take the trouble to sanc-
tion norm violators? After all, doing so supports a
public good that usually is in no single individual’s
interest to provide. This question has motivated a
great deal of the recent research on social norms.
People may enforce norms willingly because it
costs them nothing to do so. On one view (McAd-
ams, 1997, p. 364) sanctioning costs are minimal
(or zero) because the withholding of esteem – the
fundamental sanction, according to Richard
McAdams – is costless. Likewise, some experimen-
tal evidence suggests that individuals are hard-
wired to experience negative emotions when they
see others free ride. These negative emotions, in
turn, motivate sanctioning (Fehr & Ga¨chter,
2002). Another related possibility is that people
gain psychic income from punishing free riders
(Knutson, 2004).
Were these explanations su?cient then there
would be a great deal less deviant behavior than
we actually observe. Our streets would be litter-
free. People would not talk in movies. The parents
of children who persist in crying on airplanes, and
smokers who light up in no-smoking zones would
all be sanctioned. Deviant behaviors of these sorts
would largely be extinguished. Since such behav-
iors persist, this suggests that the sanctioning of
deviants is far from spontaneous and automatic
(Horne, 2001a). Indeed, sanctioning generally
incurs costs: at the very least, it consumes energy
and attention that could be employed to attain
other ends. The busybody victims of road rage
on our highways can certainly attest to these costs.
Even the promise of large pecuniary rewards pro-
vided by a patchwork of state and federal laws is
often insu?cient to motivate potential whistle-
blowers to come forward with evidence of bureau-
cratic malfeasance.
If sanctioning is not costless, then perhaps its
cost is outweighed by some corresponding bene?t.
Indeed, the most popular current explanation is
that people will sanction deviants because by
doing so they promote the welfare of their group.
This explanation, which smacks of functionalism,
has both collective and individualist variants.
Assume, for instance, that global warming
threatens everyone on the planet and that the
immediate restriction of greenhouse gas emissions
is required to protect the environment for us and
7
Almost a decade later, Gouldner o?ered an elaborated
discussion of the mechanism responsible for the norm of
reciprocity (Gouldner, 1960). A reputational argument similar
to Parsons’s has been often repeated – usually without
acknowledgement – in several more recent explanations of the
motivation to comply with norms (McAdams, 1997; Posner,
2000).
8
The Americans. . . are fond of explaining almost all the
actions of their lives by the principle of interest rightly
understood; they show with complacency how an enlightened
regard for themselves constantly prompts them to assist each
other, and inclines them willingly to sacri?ce a portion of their
time and property to the welfare of the state (Tocqueville,
2000).
M. Hechter / Accounting, Organizations and Society 33 (2008) 663–676 667
future generations (Kolbert, 2006). If norms arise
and are enforced to promote group welfare, then
will a norm against polluting be enforced? Collec-
tivists (Demsetz, 1967; Gibbs, 1968) assume that
this indeed will happen, but much critical analysis
and empirical analysis contests this view (Bendor
& Swistak, 2001; Hempel, 1965; Nagel, 1956).
For individualists, the emergence and enforce-
ment of norms to promote group welfare is prob-
lematic. On their view, people have an interest in
regulating the behavior of other members so as
to minimize negative externalities, such as behav-
ior that contributes to global warming (Coleman,
1990; Hechter, 1987; Heckathorn, 1988,1989). This
collective interest is not su?cient to motivate the
sanctioning of polluters, however.
The decision to sanction depends on its net ben-
e?ts to these individuals (Ostrom, Walker, &
Gardner, 1992). Individuals, therefore, weigh the
cost of sanctioning polluting behavior against the
likely bene?t that the sanction will bring to them
with respect to the reduction of greenhouse gasses
and global warming. Since the individual’s net
bene?t of sanctioning a polluter – say, by boycot-
ting its products or demonstrating against it – is
negative (that is, observing the boycott is person-
ally costly, and it cannot produce a measurable
e?ect on global warming) no sanction will likely
be forthcoming. On this individualist view of
enforcement, the greater the bene?t of sanctioning
deviant behavior to the potential sanctioner, the
more likely it will occur.
One site in which this individualist account
seems to work well is in the establishment of rotat-
ing-credit associations and other types of insur-
ance groups (Hechter, 1987). Insurance groups
create a common pool of members’ resources
and grant individuals access to these pooled
resources under speci?ed conditions (Ostrom,
1990). In a rotating-credit association, individual
members obtain access to the pool according to
their position in the group rotation. In an insur-
ance group, access to the pool is restricted to mem-
bers who have demonstrated a loss due, for
instance, to illness. Evidently, these institutions
can only survive when the integrity of the common
resource pool is maintained. This solution, how-
ever, requires each member to abide by the norms
of the group. Compliance to these norms is
increased by group solidarity. Group solidarity,
in turn, is maximized when individuals are depen-
dent on the bene?ts of membership and have the
capacity to monitor and sanction one another’s
behavior. Since all the members in insurance
groups have already invested funds in the common
pool, each one has a pecuniary incentive to moni-
tor the behavior of the bene?ciaries, and to
strongly sanction those who fail to abide by the
group’s norms. Sanctioning is made feasible by
the relatively small size of these groups, as well
as their members’ roots in the community, which
provides other members with a supply of hostages
in the event that an individual absconds with the
funds. These conditions generally do not hold in
large, socially heterogeneous groups, however.
9
Exogenous shocks – like the availability of new
technology or shifts in the composition of social
groups – can alter the net bene?t of engaging in
the collective action required to support the emer-
gence and sanctioning of new norms. These shocks
may a?ect the supply of norm entrepreneurs, and
the demands of particular groups. The rise of sanc-
tions against smoking in public places o?ers
another example of a norm that emerges on the
basis of mutual advantage (Ellickson, 2001). In
this case, the exogenous shock was the advent of
new scienti?c ?ndings about the health risks asso-
ciated with ?rsthand and secondhand smoke. A
series of norm entrepreneurs – medical researchers
and public health o?cials – arise to champion
opposition to smoking. They are then followed
by a cadre of self-interested leaders, such as non-
smokers su?ering from lung disease. These leaders,
in turn, are rewarded by appreciative medical and
public health experts. Media personalities and
other in?uential actors join the bandwagon, and
after an inde?nite period of time the new norm
emerges as support cascades.
This analysis has its own logical and empirical
limitations, however. Logically, it hinges on
strong, and questionable, assumptions about indi-
vidual beliefs and common interests (Hechter &
9
For extensions of this theory to account for large-scale
social order, see Chai and Hechter (1998).
668 M. Hechter / Accounting, Organizations and Society 33 (2008) 663–676
Opp, 2001b). Empirically, it fails to explain why
antismoking norms have given way to antismoking
laws, suggesting that informal sanctioning was
inadequate to curtail smoking in public places. It
does not explain why new scienti?c information
about the consequences of risky sexual behavior
has not led to comparably strong norms in this
arena. Nor does it explain why norms that clearly
do not contribute to collective welfare – such as
honor killing (Wikan, 2002) – are nonetheless
enforced.
10
Presumably, such norms are imposed
by powerful males on relatively powerless females
in traditional societies, but despite this, females
often enforce them.
11
Establishing new norms – like that against
smoking – occurs gradually in many stages, all of
which are crucial for the norm’s emergence.
Clearly, establishing new norms is problematic.
Recognition of these limitations has led to a
renewed emphasis on the role of interdependence
in the sanctioning of norms. It has long been
thought that the members of highly solidary
groups will be more willing to sanction deviants
than the members of less cohesive groups
(Homans, 1950,1974). Yet, the members of such
groups also may be less likely to sanction deviants
because the costs of o?ending a close friend out-
weigh the bene?ts of the sanction to the potential
sanctioner (Flache & Macy, 1996). To make mat-
ters more complex, there is some empirical evi-
dence for both of these opposing arguments.
Metanorms are another mechanism that has
been proposed for the enforcement of norms
(Axelrod, 1986). Metanorms are second-order
norms that tell people what behaviors they should
or should not sanction in a given situation. To the
degree that metanorms are e?ective, those who
sanction deviants will be rewarded, and those
who fail to do so will themselves be sanctioned.
Hence, metanorms o?er onlookers an incentive
to sanction deviants (Horne, 2001a). Although
there is some evidence supporting this conjecture
(Axelrod, 1986; Bendor & Swistak, 2001), what
then is responsible for the enforcement of meta-
norms? The same arguments that have been mar-
shaled for the enforcement of norms – that is, a
concern for group welfare, and the e?ects of inter-
dependence – have been redeployed to account for
the enforcement of metanorms. Some experimen-
tal research designed to test these alternative
accounts lends greater support to the interdepen-
dence mechanism (Horne, 2007). Despite this,
one is left with the nagging suspicion that the anal-
ysis of the enforcement of metanorms may lead to
an in?nite regress.
The decay of obligatory norms
Is it more di?cult to establish new norms than
to destroy existing ones? On the face of it, the evi-
dence is mixed. Take, for example, the persistence
of norms encouraging poor performance in public
schools (Willis, 1981) and female genital cutting
(Mackie, 1996). Both norms would seem to harm
the welfare of the very people who readily comply
with them. Yet concerted e?orts on the part of
states, schools and non-governmental organiza-
tions to weaken these norms have not been partic-
ularly successful. Both of these welfare-reducing
norms appear to have remarkable staying power.
At the same time, there is widespread concern that
many socially bene?cial norms have recently
begun to decay. A large academic industry has
arisen to document, and debate, the erosion of
civic norms (Putnam, 2000).
To this point, the conditions for the enforce-
ment of obligatory norms has been discussed as
if people are only faced with the choice of compli-
ance or non-compliance with a single norm, or set
of norms. To the degree that people are subject to
con?icting norms, however, the normative land-
scape becomes much more complex. A standard
example is the con?ict between an individual’s
obligations to work and family. To which of these
con?icting norms, if any, will individuals comply?
If this choice is determined on the basis of net ben-
e?t, then the normative obligation which comes
with the greatest sanctions for non-compliance will
10
One recent analysis suggests that the allocation of rival
rewards (as against collective goods) in groups with strong peer
in?uence leads to antisocial norms that diminish members’
welfare (Kitts 2006).
11
Coleman (1990) terms these kinds of norms disjoint, as
distinct from the conjoint norms that are imposed by peers.
M. Hechter / Accounting, Organizations and Society 33 (2008) 663–676 669
assume pride of place. This principle can account
for the decay of professional norms.
Recent widely-publicized failures in medicine
(billing scandals at prominent medical schools)
and accounting (the fall of Enron, Tyco and MCI-
WorldCom, among other ?rms) have also raised
questions about the withering of the professional
norms which Parsons once heralded. Like today’s
American physicians, accountants are the agents
of two principals. Physicians serve their patients,
but are generally paid by insurance companies or
Medicaid. Accountants serve their clients and are
paid by them, but they are also responsible to regu-
lators who represent the investing public. Since
principals and agents have di?erent interests, com-
pliance is problematic in all agency relationships
(Jensen & Meckling, 1976; Kiser, 1999). In general,
the agent’s compliance tothe principal’s directives is
best assured by designing and implementing incen-
tive-compatible contracts.
This solution is unavailable, however, when the
agent is simultaneously responsible to two princi-
pals having divergent interests.
12
In the case of
medicine, many patients want the very best care,
cost be damned, but insurers – who are inevitably
concerned with the bottom line – seek to minimize
these costs. What then are physicians to do? Which
of these two principals will exercise dominant
in?uence on their behavior? If physicians are the
typical rational egoists found in economic models
(Hechter, 1994), the answer lies in their relative
dependence on each. The greater the dependence
of an agent on her principal, the greater the in?u-
ence of that principal. Since insurers pay the bills,
physicians should be most responsive to their
interests. The rise of the 10-minute doctor’s visit
in the United States lends much credibility to this
theory.
The rise and fall of obligatory norms in professional
accounting
The saga of Arthur Andersen, a ?rm founded in
1913 by a young Northwestern University account-
ing professor of notable personal rectitude, illus-
trates the rise and fall of obligatory norms. As
legend has it, Andersen – then a principal of a small
start-up accounting ?rm – noticed an irregularity in
the books of one of his clients, a large railroad com-
pany. The company had not properly accounted
for maintenance charges that should have been
noted as part of the ?rm’s operating expenses.
After pointing out the error, Andersen received
no response. He then threatened the president of
the ?rm that he would be forced to reveal the inap-
propriate accounting in his report. The president
personally came down to Andersen’s o?ce and
demanded that he approve the books or lose the
?rm as a client. Even though Andersen’s ?rm was
in no position to lose such an important client,
Andersen reportedly replied, ‘‘There’s not enough
money in the city of Chicago to induce me to
change that report (To?er & Reingold, 2003)!”
In a 1932 lecture, Andersen stated that
If the con?dence of the public in the integrity
of accounts’ reports is shaken, their value is
gone. To preserve the integrity of his reports,
the accountant must insist upon absolute
independence of judgment and action. The
necessity of preserving this position of inde-
pendence indicates certain standards of con-
duct (To?er & Reingold, 2003).
The ?rm that Andersen and his successors built
spent a great deal of e?ort and resources on recruit-
ing, training and socializing its employees to norms
about integrity, independence and stewardship.
13
12
Merton adverts to this possibility in a neglected discussion
of role-sets: ‘‘The members of a role-set are not apt to be
equally powerful in shaping the behavior of occupants of a
particular status. However, it does not follow that the individ-
ual, group, or stratum in the role-set has an e?ective monopoly
of power, either to the exclusion of all others or outweighing the
combined power of the others (Merton, 1957, p. 372).”
Likewise, a classic study of mental hospitals revealed that the
physician’s custodial role tends to trump her therapeutic role, to
the detriment of patients (Go?man, 1968).
13
That single maxim, ‘Think straight, talk straight’ was the
touchstone of the Firm. Arthur Andersen, partners would say
with pride, was a place where integrity mattered more than fees,
where standing up for what you believed in was a virtue, where
it was better to the right thing than the easy thing. Andersen
and his successor, Leonard Spacek, were portrayed, almost
cartoonlike, as heroes of American capitalism, men who stood
up for the investing public and men who understood that for a
professional services ?rm, reputation was the only thing that
mattered (To?er & Reingold, 2003, p. 12).
670 M. Hechter / Accounting, Organizations and Society 33 (2008) 663–676
Initially these activities took place in a Chicago
hotel, but in 1970 the ?rm bought a defunct college
campus in St. Charles, Illinois. There, in addition to
their training in accountancy, the new recruits
learned to dress alike, how to behave in public,
and to eat lunch at restaurants (where they could
be seen by potential clients). This training not only
created skilled accountants, but it also turned out
reliable Andersen people (known internally as
Androids).
14
This was important because
Andersen, like other professional service
?rms, made its money by using young, low-
paid sta? to do the majority of the work. It
was a risky proposition: if you couldn’t trust
those people to do the right thing, the entire
model would collapse. But if you put them
all into a laboratory and ensured that they
would emerge more similar than di?erent,
you had something special. ‘‘It was our
intent to create a group that was very inter-
changeable,” said former partner Victor Mil-
lar. ‘‘One of our selling points was if we had
a partner who got hit by a truck, we had ten
others who could do the same. . . We under-
stood the problem of groupthink, but on
the other side, it allows you to build a very,
very pro?table model (To?er & Reingold,
2003).”
The culture of Arthur Andersen was extremely
hierarchical; deviance from corporate norms sim-
ply was not tolerated. Compliance to the norms
that were hammered into new recruits at St.
Charles was enforced by a patronage structure.
New hires were instructed to ?nd a mentor to
guide them in their pursuit of corporate advance-
ment. As in any patronage system, the bene?cia-
ries’ dependence on their patrons encouraged
loyalty and a consequent unwillingness to chal-
lenge directives from their patrons. By following
these tenets the ?rm thrived, becoming the largest
accounting ?rm in the world.
However, this exceptionally successful ?rm
came to an abrupt and inglorious end. After the
demise of a number of high-pro?le American ?rms
in 2002 – many of which had hired Arthur Ander-
sen to do their books – the ?rm was forced out of
business. Andersen’s modern-day accountants had
allowed Enron and its other star clients to seri-
ously overestimate their net worth in their public
accounts. This was precisely what the ?rm’s foun-
der had refused to do back in Chicago ninety years
previously.
What was responsible for the erosion of Arthur
Andersen’s norms of integrity and public service?
The principal causes were technological change
and macroeconomic ?uctuations. The digital revo-
lution was one factor. Some visionaries within the
?rm who foresaw the importance of computer
technology initially urged Andersen to invest in
the consulting business. As public corporations
increasingly invested in costly new computer sys-
tems, demand for technological advice soared,
and Andersen Consulting, an early entrant in this
niche, soon became the industry leader.
Consultants’ normative obligations di?er from
those of auditors, however. Consultants only serve
one principal. They are merely obliged to promote
their clients’ welfare. Accountants, however, pro-
vide service to two di?erent principals – their cli-
ents and the investing public, as represented by
government regulatory bodies. Accounting ?rms
must maintain a bright line between internal and
external auditing. In external auditing, an indepen-
dent auditor examines a ?rm’s ?nancial statements
in light of a series of accepted standards (Generally
Accepted Accounting Principles [GAAP], or Inter-
national Financial Reporting Standards [IFRS]).
Internal auditing, often carried out by auditors
employed by the company, serves to provide infor-
mation for the use of managers.
What is likely to happen if the same accoun-
tancy ?rm conducts internal and external audits
for a corporate client? The principal to whom
the auditor is most dependent is likely to have
the greatest in?uence. That is, in a contest
between the hiring ?rm and the investing public,
14
‘‘At St. Charles, everything was predetermined. The rooms
were bare, and there was no phone or TV. They were not
supposed to stay in their rooms, but to mingle with others. Even
the partners stayed in these Spartan quarters, giving the
newbies an opportunity to meet with potential mentors. The
experience was much like boot camp, and at the end it led to a
high sense of solidarity (To?er & Reingold 2003).”
M. Hechter / Accounting, Organizations and Society 33 (2008) 663–676 671
the auditor should be more responsive to the
hiring ?rm (which pays the bill) than to regulators
or the investing public.
15
Andersen’s consulting business grew at a much
faster pace than the auditing business. As Ander-
sen Consulting became the major economic engine
within the ?rm, the norms of consultants begin to
trump those of accountants. Whereas the auditing
part of the ?rm originally subsidized the consul-
tants, soon the consultants came to subsidize the
auditors. They increasingly resented this subsidy
and their persistent under-representation on the
corporate governing board, seeking to secede from
Arthur Andersen.
16
Not surprisingly, the solidar-
ity of the ?rm su?ered apace.
17
After a long period of contention, the two units
of Arthur Andersen submitted their con?ict to
binding arbitration, and on January 1st 2001
Andersen Consulting – under its new name Accen-
ture – seceded on terms that were highly unfavor-
able to the original ?rm. If this analysis is correct,
then the enforcement of accountants’ professional
norms should have rebounded. That this did not
occur owes to a shift in market conditions.
The revenues of the rump ?rm – now minus the
subsidy from Andersen Consulting to which the
accountants had grown accustomed – lagged well
behind its competitors. Worse, the breakup coin-
cided with a downturn in the market for corporate
auditing due to the end of a boom in mergers and
acquisitions. Facing enormous competitive pres-
sure, the ?rm’s principals were highly motivated
to retain their star clients. Thus declining mergers
and acquisitions sharply increased the ?rm’s
dependence on one set of principals – major clients
– at the expense of regulators and the investing
public. The result was that Arthur Andersen col-
luded with the corrupt managers of Enron and
other major clients to overstate their ?nancial
health. This is consistent with the prediction that
agents are most responsive to the principals upon
whom they are most dependent. After the inaccu-
racy of their accounting reports came to light,
the ?rm was forced out of business.
What appears to have been an unshakeable
commitment to professional norms is, in fact,
highly contingent on internal con?icts, competing
norms and macroeconomic conditions. On the
heels of a wave of accounting failures and massive
losses to shareholders and employees, Congress
enacted legislation subjecting the entire accounting
industry to the heightened regulation of the Sar-
banes-Oxley Bill.
18
This serves as a reminder that
norms are not the only means of regulating behav-
ior. The market and law are alternatives.
The market, norms, and the law as sources of social
order
Obligatory norms are fundamental to social
order, but social order can also be produced by
markets and the law (Hechter & Horne, 2003).
The costs of these alternative mechanisms of order
di?er signi?cantly, however. Markets are pre-
sumed to be the least costly mechanism because
they are self-organizing and self-enforcing, once
their preconditions have been established (Hayek,
1973). Norms are second best because they o?er
the promise of decentralized enforcement by peers.
When norms fail – as in the case of Arthur Ander-
sen – the remaining remedy is state-enforced law.
Individual action in markets is guided, if not
wholly determined, by relative prices. And prices
are not limited to pecuniary indices; an individ-
ual’s or ?rm’s reputation for integrity, for exam-
ple, can ?gure into the relative price of the
choice of a service. When the parties to a voluntary
15
This is because state regulators are often captured by the
very industries they are charged to regulate (Peltzman, 1989;
Stigler, 1964).
16
‘‘By the 1990s a former Andersen Consulting partner
complained ‘If you wanted to know what it felt like to be a
black person sitting in the back of the bus, go be a consultant at
Arthur Andersen (To?er & Reingold, 2003, p. 83)).”
17
‘‘The brutally competitive atmosphere within the Firm
made a mockery of its principles and of its culture. . . The air
was so thick with internal tension that it seemed hard, some
days, even to breathe (To?er & Reingold 2003).”
18
The Sarbanes-Oxley bill provides for accounting standard
oversight, bans auditors from supplying other services, and
requires audit committee board members to be independent
company directors. The law also requires corporate chief
executive and ?nancial o?cers to attest personally, with their
signature, to the accuracy of their ?rm’s ?nancial reports.
672 M. Hechter / Accounting, Organizations and Society 33 (2008) 663–676
exchange in the market have full information
about their options, they are capable of looking
out for their self-interest by heeding the maxim,
caveat emptor. Norms have a small role in this
kind of marketplace, and the role of police – that
is, the designated enforcers of the law – is limited
to that of enforcing contracts (Nozick, 1974).
Even in advanced capitalist societies, however,
perfect markets are the exception rather than the
rule. When an exchange is characterized by imper-
fect or asymmetric information, the e?ciency of
markets su?ers (Coase, 1988; Williamson, 1975).
In the well-known example of the market for lem-
ons (Akerlof, 1970), the potential buyer of a used
car cannot ascertain if the owner is motivated to
sell the vehicle because it is a lemon. Only the
owner knows the true condition of the car. Due
to asymmetric information, sellers receive a dimin-
ished price for a product or service even when it
isn’t a lemon, but this is an ine?cient outcome.
When markets fail, obligatory norms can be a
substitute (Arrow, 1971; Ellickson, 1991). Sick peo-
ple cannot optimize their treatment on their own
because they lackthe necessary expertise toappraise
their medical situation; they rely on doctors for
these decisions. Likewise, the investing public has
no means of assessing the relative viability of ?rms;
they rely on accountants to provide the relevant
information. But accountants are not always moti-
vated to provide accurate reports because they can
be dependent on their major clients.
Law is the most costly means of attaining social
order.
19
Laws are explicit, written rules that are
promulgated and enforced by specialized political
authorities. The sanctions called forth by legal vio-
lations are also explicit: murder merits one kind of
sanction, assault another, burglary a third. Polic-
ing, litigation and the administration of a justice
system are among the very great costs of legal
enforcement. In societies that principally rely on
the enforcement of norms rather than the state
for contract enforcement, like Japan, there are rel-
atively few lawyers and lawsuits (Haley, 1991).
E?cient monitoring mechanisms in Japan are also
a key factor in its low crime rate (Hechter &
Kanazawa, 1993).
20
The Andersen case reveals that high profes-
sional solidarity is required for compliance to cor-
porate norms. In Arthur Andersen, solidarity was
initiated by a socializing institution akin to boot
camp, and enforced by the sanctions provided by
a rigid system of patronage. The rise of Andersen
Consulting diminished ?rm solidarity by exempt-
ing consultants from the St. Charles boot camp
experience, and by inspiring intergroup competi-
tion in the ?rm.
21
Professional norms went further
by the wayside when the ?rm faced with sharply
declining resources, for then the temptation to
engage in opportunistic – that is, deviant – behav-
ior escalated. Since the downturn in mergers and
acquisitions at the turn of the century narrowed
the market for other accounting ?rms as well,
many of Andersen’s competitors su?ered similar
normative lapses as well.
Like American medicine, accountancy has been
a largely self-regulating industry.
22
The decay of
professional norms in accounting curtailed
self-regulation. eventually leading to the passage
of the Sarbanes-Oxley Bill.
23
Likewise, when
19
‘‘It is noteworthy how strongly the main reliance for control
is placed on ‘‘informal” mechanisms. The law of the state
includes severe penalties for ‘‘malpractice” and medical asso-
ciations have relatively elaborate disciplinary procedures, but
these quite de?nitely are not the principal mechanisms which
operate to ensure the control of self-orientation tendencies
(Parsons, 1951, pp. 463–464).”
20
Of course, in stateless societies, where there is no law,
markets cannot exist. In these circumstances norms are the
principal source of social order, as is illustrated in the famous
discussion of the institution of the leopard-skin chief among the
Nuers (Evans-Pritchard, 1944).
21
A similar analysis of competition between solidary groups
may account for high levels of corporate corruption in Japan
(Miller & Kanazawa, 2000).
22
Theoretically, American accounting ?rms are regulated by
the Securities and Exchange Commission. However, since they
are also major campaign contributors, prior to the collapse of
Enron, Congress was loath to exert much discipline over them.
23
The costliness of this legal remedy to normative failure has
yet to be fully determined, but the initial signs are not
promising. Ironically, the greater reporting standards required
by this legislation has raised the demand for accounting
services, providing a windfall to the accounting industry. But
this new reporting burden may discourage investment in
American ?rms relative to their counterparts elsewhere. If so,
the ultimate consequence of the decay of norms in the
accounting industry may turn out to have dampened American
economic growth.
M. Hechter / Accounting, Organizations and Society 33 (2008) 663–676 673
anti-smoking norms proved insu?cient to prevent
smoking in public venues, the result has been
increasing anti-smoking legislation.
Conclusion
Whereas some kinds of norms merely ratify our
own sel?sh instincts, obligatory norms urge us to
forego self-interested action for the sake of some
collectivity. That collectivity can be as exclusive
as a family, or as inclusive as the entire world.
These kinds of norms a?ect behavior by altering
the expected consequences of given courses of
action. But behavior will only be altered when
these obligatory norms are enforced. Hence, the
heart of normative analysis rests in enforcement.
In general, obligatory norms can be enforced by
internalization and by sanctioning. Internalization
is by far the most e?cient means of enforcing
norms for it does not depend on the actions of oth-
ers, but it is unreliable when it con?icts with self-
interest. Absent internalization, obligatory norms
must be enforced socially. But why does anyone
willingly bear the cost of sanctioning another’s
deviance? The most robust answer is that in some
circumstances, sanctioning provides people with a
net bene?t. These circumstances are most likely to
arise in highly solidary groups.
When new ?rms attempt to establish a reputa-
tion, the cost of cheating – producing low qual-
ity goods, producing low quality audit reports –
is very high. To succeed, the new ?rm must get
its employees to comply with corporate norms
even when doing so con?icts with their immedi-
ate self-interest. Once that reputation is estab-
lished, however, cheating is somewhat less
costly. Under especially adverse conditions,
norms are not robust. Whereas the content of
professional norms is constant, enforcement –
and, therefore, compliance – is highly sensitive
to economic conditions.
The Andersen case suggests that the simple hier-
archy of markets, norms and law may require
some revision. The Sarbanes-Oxley Bill undoubt-
edly entails many other costs, but by prohibiting
auditing ?rms to engage in consulting, it may also
lead to a resurgence of professional norms among
accountants. In this way, ironically law may
reduce the demand for state enforcement.
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