1. International International accounting accounting regulation
by the United regulation Nations: a power perspective 593 Sheikh F.
Rahman Swinburne Graduate School of Management,Swinburne University
of Submitted July 1993 Revised August 1997 Technology, Hawthorn,
Victoria, Australia Accepted December 1997 Introduction The use of
power perspectives in the political analysis of accounting
regulation is a comparatively recent phenomenon. Nevertheless,
accounting researchers appear to have accepted the notion that
accounting standard setting and regulation reflects a social and
political process (see, as examples, Booth and Cocks, 1990, 1991;
Choi and Bavishi, 1982; Choi and Mueller, 1978, 1984; Gerboth,
1973, 1982; Hope and Briggs, 1982; Hope and Gray, 1982; Horngren,
1972, 1973, 1976; Hussein and Ketz, 1980; Kelly-Newton, 1980; Selto
and Grove, 1983). However, while much of the relevant literature
has been successful in identifying the critical research issues,
establishing the political nature of the process, and identifying
essential actors and lobbyists, they have failed to employ any
rigorous integrated theoretical framework of the political process.
Hussein and Ketz (1980) and Hope and Gray (1982) pose two
noteworthy exceptions. The former used an elitist model of power to
test the hypothesis that the Big Eight (now Big Six) accounting
firms in the USA were the ruling elites of the Financial Accounting
Standards Board (FASB). They discovered that the Big Eight have no
monopoly power over the FASB and therefore concluded that
accounting standard setting process was pluralistic[1]. Hope and
Gray (1982) go further and attempted to apply Dahls pluralist power
framework to analyse the accounting policy making process of the
(UK) Accounting Standards Committee (ASC). Specifically, they
examined the lobbying behaviour of outside pressure groups and the
impact these parties had on the ASCs policy decisions regarding
Research and Development (R&D) expenditures. They concluded
that a substantial shift in the ASCs position on R&D was caused
by the exercise of power by specific pressure groups. A limitation
of Hope and Gray (1982), however, is that the authors did not
analyse the behaviour of actual participants in the decision-making
process whilst the decisions were being made. This is in fact an
explicit requirement of Dahls methodology of power. Moreover, they
questionably assumed that the The author gratefully acknowledges
the helpful comments by Peter Booth, Bob Scapens, James Accounting,
Auditing & Accountability Journal, Guthrie, Tony Hope, Rob
Gray, Jill McKinnon, Stewart Clegg, Stewart Jones and two anonymous
Vol. 11 No. 5, 1998, pp. 593-623, reviewers of the paper. MCB
University Press, 0951-3574
2. AAAJ ASC and its members were value neutral and objective.
For example, they 11,5 assumed that the ASC did not exercise
influence on peers and that pressures on the ASC emanated from
forces outside this organization (Hope and Gray, 1982). Thus,
notwithstanding some significant findings, their research has left
a noticeable gap in the study of power in accounting regulation. It
is also noteworthy that Hussein and Ketz (1980) and Hope and Gray
(1982) 594 have examined the standard setting process at a national
level. At an international level the political process, and the
modelling of power relationships is complicated because of the
involvement of transnational corporations (TNCs). These entities
have caused much controversy on the international stage (Barnett
and Mueller, 1974; Bhagwati, 1967, 1969), particularly in respect
of their financial reporting practices, the conflicting interests
of various nation states (Capithorne, 1971; Kussi, 1979; Mueller
and Morgenstern, 1974), and the sheer number of international
bodies (e.g. the IASC, the OECD, UN) with varying constituency and
diverse objectives, engaged in their regulation (Gray et al.,
1981). While the issue has been largely neglected in the
literature, efforts to regulate standard setting at an
international level have been significant. A number of
international organizations, such as the OECD, the IASC and the UN
Commission for Transnational Corporations have been involved in the
standard-setting process for a significant period of time. The
political character and importance of accounting standard-setting
for TNCs has also been widely acknowledged (Gray et al., 1981;
Stamp, 1978, 1979), but there is little or no available research
which has formally examined the process by employing a rigorous
political methodology. The purpose of the present study is to
develop the existing power literature by examining the political
nature of the standard setting process at an international level
through the use of an explicit model of power. The international
arena for TNC standard setting: background issues Specifically,
this paper examines the efforts and involvement of the United
Nations in TNC accounting regulation since the inception of the
issue in the 1970s. The UN Charter offers equal voting rights to
each member nation. The UN General Assembly (GA) and its principal
organ, e.g. the ECOSOC (Economic and Social Council), operate on
the basis of one-nation one-vote, with decision making by simple
majority (UN Charter, Article 61). The UN Security Council is an
exception to this rule where five large military powers possess
veto rights. In the late 1970s and 1980s, an overwhelming majority
of member nations attempted to persuade the UN to prescribe
financial disclosure rules for TNCs (as a part of the broader UN
Code of Conduct for TNCs). These change seeking nations demanded
that the UN implement binding regulations via national legislation.
The driving force behind increased regulation of TNCs related to a
number of alleged culpable financial and commercial practices
perpetrated by these entities across national borders[2]. Another
major spur for
3. international action on TNCs flowed from the publication of
a US Senate Sub International committee report (in 1971) which
confirmed the alleged involvement of one of accounting the largest
multinationals in destabilising the democratic government of
regulation Salvador Allende of Chile[3]. In the July 1972 meeting
of the ECOSOC[4], the Chilean representative demanded that the UN
should commission a high ranking independent expert group to
conduct a comprehensive investigation of all supranational
corporations. Simultaneous pressures from other developing 595
nations and support from many developed nations (e.g. Canada,
Sweden, USSR) resulted in the ECOSOC convening a Group of Eminent
Persons (GEPs) to study the role of TNCs and their impact on
economic development and international relations, particularly to
developing countries. This event formally demarks the beginning of
efforts by the UN to initiate regulations over the accounting
practices of TNCs. In contrast, a small number of developed nations
have attempted to defend the status quo and provided considerable
support to the corporate anti- disclosure lobbies. These nations
have resisted all attempts to introduce any significant positive
accounting regulation on reporting by the TNCs. It is noteworthy
that despite intensive UN negotiations over an 18-year period, the
change-seeking nations did not succeed in carrying or imposing
their accounting reform agenda. Surprisingly, the heavily
outnumbered minority defenders of the status quo prevailed in the
decision-making process. The apparent failure of an overwhelming
majority of member nations, belonging to an ostensibly
democratically constituted organization (i.e. the UN), to effect a
desired change presents an interesting paradox which deserves
serious examination. Model of power to explain failed UN attempts
to regulate TNCs An attempt is made in this paper to explain the
paradoxical nature of failed UN attempts to regulate TNCs by
invoking a political model of power. Furthermore, the present study
attempts to systematically analyse the behaviour of internal
participants and outside pressure groups in the decision-making
process while the deliberations were in progress. The most
significant problem in applying a model of power, particularly in
accounting investigations, is that the concept of power still
remains elusive and controversial in the political science
literature. There are a number of competing theories and concepts
of power vying for supremacy. Some political theorists (for
example, Dahl, 1957, 1958, 1961, 1966; Polsby, 1960, 1963, 1968;
Wolfinger, 1971) describe power as the winning over opposition, or
a zero-sum game. While others (e.g. Giddens, 1968, 1979, 1981,
1984; Parsons, 1957, 1963) view power as serving collective goals
or a positive-sum game. Some researchers (Dahl, 1966, 1968; Polsby,
1960) emphasise actions and behaviours of persons or groups and
decision outcomes for researching power, while others (Bachrach and
Baratz, 1962, 1963; Clegg, 1989; Giddens, 1968, 1984; Lukes, 1974)
emphasise social and political systems and structures as
appropriate starting points for studying power. The approaches to
the study of power, thus, reflect
4. AAAJ the prevalence of two theoretical and methodological
frameworks: the 11,5 structural theories (Clegg, 1989; Giddens,
1968, 1979, 1981, 1984; Lukes, 1974; Parsons, 1957, 1963) and the
action (or coercion) theories (Bachrach and Baratz, 1962, 1963;
Dahl, 1961, 1966, 1968; Frey, 1971; Merelman, 1968; Polsby, 1960,
1963, 1968; Wolfinger, 1971). Dahls (1957) work is emphasised in
the present study, not only because his 596 work constitutes a
landmark in the analysis of power (Clegg, 1989, p. 11), but because
his decisionist methodology is most appropriate to the events,
objectives and empirical research data examined in this study. Dahl
(1957) defines power as something (some resources, possessions, or
advantage) a person (say A) has over another individual (say B) to
the extent that A can get B to do something (some action or
inaction) that B would not otherwise do (p. 203). It is noteworthy
that Dahl espoused the intellectual position of behaviourism in the
analysis of power. His focus is on observable behaviour the results
of action. Dahls model of power refutes any reference to the
intentions the actors or agents might have. Power is seen to be
exercised by one party (A) when the results of actions, decision,
and actual behaviour show that A was able to get B to do certain
things which B would not otherwise have done. The very notion that
B might not otherwise have done indicates a disagreement and
conflict of interest between A and B. Also, such conflict should be
overt (i.e. observable) about some issues on which some action (or
decision) is taken. According to this action-oriented episodic
concept of power (Clegg, 1989) the focus of interest is the group
decision-making process. Here, attempts are made to win over
conflicts or to overcome oppositions to ensure that ones objectives
are embodied in the decisions made in the organization. An
organization is perceived as an ongoing process of human
interaction producing a stream of outcomes in the pursuit of
certain objectives (Abell, 1975, p. 120). Power can usefully be
studied through an examination of the decision-making process,
focusing upon issues over which there is a manifest conflict of
interest. Dahls emphasis on conflict and decision originates from
his deliberate attempt to distinguish between potential and actual
power or more specifically between its possession and its exercise.
The exercise of power is central to Dahls theory. This should be
contrasted with the litist theory of power (Hunter, 1953; Mills,
1956), which is concerned with identifying who has power or who are
reputedly powerful (Lukes, 1974). According to the litist model,
political power is concentrated in the hands of a few lites, who
almost inevitably succeed in getting their way on all important
issues. Conflicts (if any) are always managed by the lites in such
a way that they produce outcomes favourable to their interests.
Distribution of power, in this model, is static and stable over
time and across space and issues (Whitt, 1979). This postulate of
lite power is emphatically rejected by Dahl (1958) and Polsby
(1960, 1963). They argued that everyone has a certain amount of
potential power and almost an equal chance of influencing decision
making. The study by Hussein and Ketz (1980) corroborates this view
of pluralism.
5. Hence, authors such as Dahl and Polsby have acquired the
title pluralists. To International theorists such as Dahl it is the
actual deployment and exercise of (or lack of) accounting that
potential power in the decision process which makes a difference.
regulation The empirical attention in this pluralist research is on
issues, conflicts and decision outcomes. As power is revealed by
participation in decision making it can be analysed only after
careful examination of a series of concrete decisions (Bachrach and
Baratz, 1970, p.6). This examination of decisions 597 involves a
careful observation and analysis of the behaviour of participants
in the decision-making process. Observable changes in behaviour,
shifts in policy and position with respect to others provide
important empirical evidence. The researchers concerns (Dahl, 1961,
p. 113), therefore, are: (1) to select for study a number of key
decisions[5]; (2) to identify the people or groups who took active
part in the decision- making process; (3) to obtain a full account
of their actual behaviour while the policy conflict was being
resolved; and (4) to analyse and determine the specific outcomes of
the conflict as embodied in the decision(s) taken. The specific
application of Dahls methodology in the context of empirical
evidences of UN efforts to regulate TNCs is explored in greater
detail at a later stage in this paper. UN efforts to regulate TNCs:
structure of regulation and chronology of events This section
briefly explains the composition, powers and jurisdiction of
relevant UN administrative appendages that are usually available
for resolving international economic and social issues. This is
followed by a brief chronology of events leading to attempted
efforts by the UN to regulate TNCs since the 1970s. A discussion of
these issues provides relevant detail necessary for understanding
the political nature of activities within the UN and for applying
Dahls methodology of power. The ECOSOC took the initiative in the
accounting regulation of TNCs because under the UN structure the
ECOSOC is the principal organ which is responsible for handling
issues of economic and social importance. During the 1970s and
1980s the ECOSOC had set up a number of bodies within the UN
structure to handle regulatory matters relating to TNCs. Figure 1
displays the relevant machinery within the UN system that was
directly involved in the area of regulating the TNCs. As displayed
in Figure 1, the establishment of the Commission for Transnational
Corporations in 1975 was central to many subsequent regulatory
developments. The Commission for TNCs had established a number of
consecutive accounting expert groups in order to set reporting and
disclosure standards for TNCs[6]. The recommendations of these
groups could have been
6. AAAJ 11,5 UN General Assembly 159 members (1990) 598
Economic and Social Council (ECOSOC) 54 members UN Commission
Centre for Transnational for Transnational Corporations (CTC) 1975
Corporations The Secretariat of 48 members the Commission for TNCs
Intergovernmental Group on Code of 1977- Conduct for TNCs January
1977-1988 Group of Experts on International 1976-1977 Standards of
Accounting and Reporting (GEISAR) (1976-1977): Report Published:
October 1977 The Ad-hoc Intergovernmental Group of Experts on
International Standards of Accounting and 1979-1982 Reporting (The
Ad-hoc Group) 1979-1982 Report Published: March 1984
Intergovernmental Group of Experts on International 1983-1993
Standards of Accounting and Reporting (ISAR Group) 1983-1993 Figure
1. Report Published annually The ECOSOC and relevant UN bodies
involved in the regulation of accounting UN Commission for
Transnational 1993 Corporations Dissolved and reporting by trans-
national corporations
7. ratified by the Commission and passed on to the ECOSOC for
implementation International by member governments via legislative
or other appropriate measures. But the accounting Commission on
TNCs found it difficult to make a decision and the process had
regulation to be repeated. The chronology, including a brief
account of significant events is presented below. Convening the
group of eminent persons 599 As mentioned earlier, the ECOSOC had
appointed a 20-member group of eminent persons (GEPs) in 1972 to
investigate the matters related to TNCs. The appointment of the
GEPs is considered to be the most significant event instigated by
the UN in the (attempted) regulation of TNCs. While the nations
represented in the group were elected by the ECOSOC, the UN
Secretary General personally selected the members to form the
group[7]. The group consisted of 20 eminent individuals taken from
various geographical areas and diverse professional backgrounds.
Their countries of origin were: Algeria, Argentina, Brazil, Canada,
Chile, France, West Germany, India, Indonesia, Ivory Coast, Japan,
The Netherlands, Sweden, Switzerland, Tanzania, UK, USA, USSR, and
Yugoslavia[8]. The GEPs conducted its own investigations and
deliberations including two public hearings[9] of CEOs of
Multinationals, government and trade union officials, and
academics. The GEPs report confirmed, inter alia, the view that
there was a serious lack of financial and non-financial information
necessary to effectively assess the commercial and operating
affairs of TNCs (UN, 1974, p. 55)[10]. The GEPs emphasised the
pressing need for a uniform and comparable accounting system and
disclosure requirements for TNCs, irrespective of national origin,
which would disclose necessary economic and social information to
interested parties (UN, 1974, p. 95). The GEPs recommended that a
Commission for Transnational Corporations and an Information and
Research Centre on TNCs be established under the ECOSOC. The GEPs
also recommended that an expert group on international accounting
be convened by the Commission for TNCs to formulate an
international system of standardised accounting and reporting for
TNCs (UN, 1974, p. 95). The groups report (UN, 1974) was the source
of many subsequent structural changes within the UN concerning the
regulation of TNCs. For example, The UN Commission on TNCs was
established in 1975 with the status of a standing intergovernmental
body of the ECOSOC. The Commission consisted of 48 members elected
(on a three-yearly rotation basis) by the ECOSOC on the basis of
predetermined geographical and eco-political allocations (that
mirror the UN membership), such as: Africa: 12; Asia: 11; Latin
America: ten; Developed market economy countries of Western Europe,
North America and Oceanic: ten; and Socialist countries of Eastern
Europe: five[11]. The first UN group of accounting experts (the
GEISAR) The Commission on TNCs immediately (1976) convened a group
of experts on international accounting and charged it with the
responsibility of formulating
8. AAAJ international accounting and reporting standards for
TNCs. This expert group 11,5 is known as the UN Group of Experts on
International Standards of Accounting and Reporting (also known as
the GEISAR). This expert group consisted of 14 members of diverse
nationality and profession[12]. The countries represented in the
group were selected by the Commission on TNCs but the members were
selected and appointed personally by the UN Secretary General. 600
The members in the group acted and deliberated in their individual
capacity (as opposed to government nominees of respective
countries)[13].The countries represented were: Algeria, Argentina,
Brazil, France, West Germany, India, Iran, Japan, The Netherlands,
Philippines, Poland, Sweden, Tanzania and the USA[14]. After two
years of deliberations (during 1976-1977) in four sessions, this
group unanimously recommended a list of minimum items of disclosure
for TNCs (UN, 1977), which required, among others, the following
from the TNCs: (1) Consolidated group financial statements for the
enterprise as a whole. Such statements should include all
undertakings (incorporated or not) under the groups control
irrespective of their legal form and ownership. (2) Separate
financial statements for the parent company and for each individual
subsidiary company to be published at each subsidiary level, and
not at the group headquarters level. (3) Disclosure of quantified
data on related party transactions not eliminated in consolidation.
(4) Use of equity method in accounting for associated companies.
(5) Disclosure of segmental data by Line-of-Business and
Geographical regions by all TNCs. (6) Disclosure of the identity of
all subsidiaries and associated companies of transnational group in
the group financial reports and identity of parent company by each
subsidiary. (7) Disclosure of relevant non-financial information in
specified areas such as labour and employment, production,
investment programs, organizational structure and environmental
measures both at the subsidiary and the group level. (8)
Publication of a statement of sources and application of funds,
which should be given the same status as the balance sheet and
income statement. Of special far-reaching significance to the TNCs
was the requirement to include all affiliates in consolidated
reports for the group of entities as a whole and the publication
(of such a report) at each subsidiary level in addition to reports
for the subsidiary itself. The requirements for segmental reporting
and non- financial disclosure were also formidable[15]. These
recommendations were unanimously adopted and were supposed to be
implemented by the ECOSOC after ratification by the Commission on
TNCs.
9. Indeed, the UN Secretary General (Kurt Waldheim) had
envisaged its International implementation through an
intergovernmental agreement and legislative accounting measures and
recommended that the UN should start work in that area. (UN,
regulation 1977, p. 17). The turning point The Commission on TNCs,
considered the report of the GEISAR and the 601 recommendations of
the UN Secretary General at its fourth session (16-27 May, 1978).
However, it failed to endorse the report despite fervent debate on
various issues[16]. The developing nations supported the report and
they had an absolute majority in the Commission. Surprisingly, the
report failed to gain approval from the Commission. Instead, the
Commission on TNCs recommended that the ECOSOC establish a new
intergovernmental group to work towards an international agreement
in the field of standards of accounting and reporting. Unlike the
GEISAR, the new group was to be composed of experts nominated by
the respective governments of the countries selected by the
ECOSOC[17]. The new 34-member Ad hoc Intergovernmental Group of
Experts on International Standards of Accounting and Reporting
(also called the Ad hoc IWGEISAR or simply the Ad hoc Group) was
established in 1979. The following countries were selected by the
ECOSOC: Algeria, Argentina, Brazil, Canada, Cyprus, China,
Dominican Republic, Egypt, France, Federal Republic of Germany,
India, Iran, Italy, Japan, Liberia, Libya, Mexico, Morocco,
Nigeria, Norway, Pakistan, Panama, Peru, Philippines, Poland,
Swaziland, Switzerland, Tunisia, Uganda, UK, Ireland and the
USA[18]. According to the mandate set out in the ECOSOC resolution
1979/44 the terms of reference of the Ad hoc Intergovernmental
Group were to: (1) review the 1977 report of the GEISAR; (2)
consult with other international accountancy bodies (implying the
IASC) and other interest groups (e.g. the ICC/IOE) on matters
relating to development of international standards of accounting
and reporting; (3) formulate priorities of information needs of
home and host countries, particularly those of developing
countries; and (4) submit its report to the Commission on TNCs on
further steps to be taken in the field of international standards
of accounting and reporting. It is significant that the terms of
reference of the new Ad hoc Group placed more emphasis on reviewing
papers and works of other bodies, consulting with interest groups,
and formulating priorities, rather than formulating standards for
accounting and reporting by TNCs which was the focus of the GEISAR
report and indeed the principal objective of the United Nations
involvement in this area. As will be seen later, this change of
policy direction by the UN was a major turning point which shaped
the future outcomes on the TNC issue at the UN.
10. AAAJ In short, it is quite clear that from the time of the
formation of this group, the 11,5 United Nations has been
effectively reduced to a discussion forum rather than an
international accounting standard setting body. Dahls analytical
framework The previous section has presented a brief account of
events and outcomes 602 relevant to the attempts by the UN to
regulate the TNCs. The political nature of the process and outcomes
is obvious. What is not immediately understandable is the apparent
failure of the majority view to prevail in the voting and decision-
making process. A more rigorous political analysis is, therefore,
necessary to understand this paradox. A systematic study of power
is essential in a political analysis because very often political
outcomes cannot be explained via democratic values alone (Hope and
Gray, 1982). Emphasising the study of power in political analysis
Dahl (1968) puts forward an obvious question: In a political system
where nearly every adult may vote but where knowledge, wealth,
social position, access to officials, and other resources are
unequally distributed, who actually govern(s)? (p. 1). As a source
of power, Dahl puts voting strength in a subordinate position to
that of some material possessions. In his study of community power
Dahl (1957) dispels the myth of voting powers and draws attention
to the study of other earthly possessions as more effective sources
of power. Expanding the parameters of Dahls query to include the
international community as a whole and the UN, in particular, the
question may be paraphrased and put as: In an international
community (e.g. the UN) where nearly every independent nation may
vote but where technology (i.e. knowledge), capital (i.e. wealth),
international position (military and diplomatic), access to
international organizations (e.g. the Word Bank, the IMF etc.) and
other resources are unequally distributed, who actually govern(s)?
The UN, being the largest international democratic organization,
presents a unique opportunity to address the above question. In
fact, the case of accounting regulation replicates power struggle
issues which have existed within the UN in its other regulatory
endeavours (such as, the UNCTAD, UNCLOS, Laws Against Corrupt
Business Practices, UN Nutrition Standards for Artificial Baby
Foods etc). The application of Dahls methodology (Dahl, 1961, p.
113), requires the researcher: (1) to select for study a number of
key decisions[19]; (2) to identify the people or groups who took
active part in the decision- making process; (3) to obtain a full
account of their actual behaviour while the policy conflict was
being resolved; and (4) to analyse and determine the specific
outcomes of the conflict as embodied in the decision(s) taken.
11. At an operational level the research methodology starts
with selecting some International key decisions and determining for
each decision, which participant(s) had accounting initiated
alternatives that were finally adopted, which participant(s) had
vetoed regulation alternatives initiated by others, and which
participant(s) had proposed alternatives that were turned down.
These outcomes can then be tabulated as individual (or group)
successes or defeats. The participants with the greatest proportion
of successes out of the total number of successes are then 603
considered to be the most influential (Polsby, 1963, p. 113). In
this action oriented (decisionist) model, power is defined most
crudely and simply as the ability to prevail in conflict situations
to overcome obstacles (Deutsch, 1966). Hence, an attempt is made to
study specific outcomes in order to ascertain who actually prevails
in decision making. The theory entails identifying who prevails in
decision making, which is the best way to determine which
individuals and/or groups are more powerful because direct conflict
between actors presents a situation most closely approximating an
experimental test of their capacities to affect outcomes (Polsby,
1963). The extent and method of exercising power is assessed by
observing and studying behaviour of persons (or groups) in the
decision making. The frequency and the method with which a person
(or group) successfully initiates an important policy over the
opposition of others, or vetoes policies initiated by others, gives
a rough test of the persons (or groups) overt or covert influence
in decision making (Dahl, 1961, p. 66). To analyse power, actual
behaviour of participants may be studied either at first hand or by
restructuring behaviour from records, documents, informants,
bulletins, reports, press releases, and other appropriate sources
(Polsby, 1963, p. 121). The UN power blocs and the structure of the
playing field As far as a political inquiry on accounting policy
making by the UN is concerned the essential empirical variables
under Dahls methodology are the disclosure issues, parties and
groups participating in the deliberations, conflicts, compromises
and/or dominations which took place in the UN international
accounting bodies. Theoretically, each member nation of the UN has
equal voting rights and has complete independence in voting.
However, an essential characteristic of decision making at the
various economic and social committees of the UN has been the
clustering of members around suitable economic and political groups
or caucuses. In a bargaining situation, these caucuses do largely
hold together, argue in the same line and vote en bloc on a
particular issue (Kaufman, 1980). These caucuses are appropriately
called UN power blocs. Figure 2 represents the relationship among
these power blocs within the UN system. As shown in Figure 2, three
such prominent power blocs were active and visible at the time of
the accounting groups work. They were:
12. AAAJ Military, Economic and Political Interaction 11,5 The
Group-B The Group of 77 Developed Market Developing Nations Economy
Nations 604 119 (1990) 33 (1990) Political and Political and
Economic Military Contests Interaction The Group-D Socialist
nations of Eastern Europe 7 (1990) Figure 2. Global cleavages and
UN power blocs (up to 1990) Total UN membership: In 1990 159 In
1993 181 (1) The Group of 77[20] representing all the developing
nations of the UN plus China and (the then) Yugoslavia. In voting
terms this group held roughly about 75 per cent of the votes. (2)
The Group-B representing the developed market economy nations of
Western Europe plus Australia, Canada, Japan, New Zealand and the
USA. This group had about 20 per cent of total membership. (3) The
Group-D representing the socialist bloc nations of Eastern Europe
plus the Soviet Union. This group commanded about 5 per cent of
total votes. This structure of the empirical reality has had
significant influence over the research method employed in this
study. Successive steps taken in conducting the inquiry included:
first, selecting important accounting disclosure issues (i.e.
issues which have been contested or over which conflicts of
interests were visible); second, to identify the member nations and
the contesting clusters of nations participating in the debate. The
actions and reactions of each group were then traced back to
reconstruct the behaviour of the national delegates or group
leaders while the issues were being resolved. These behaviours were
also
13. critically examined to check if they did/did not reflect
the preference positions International of some outside pressure
groups. The reasons and rationales forwarded by each accounting
contesting group are also analysed to ascertain which arguments did
prevail, regulation how and why. The outcomes of the debate were
then tabulated and compared with individual group objectives to
exhibit (Table I) the relative rate of success or failure, which
reflects the relative strength of the groups. In this way, an 605
integration of action and structural methodologies of power is
attempted in this analysis. Signs of visible conflicts of interests
The United Nations attempts to regulate the conduct of TNCs in
general and accounting disclosure in particular, activated a
variety of lobby groups such as the TNCs and their associates, the
international trade unions, environmental groups and many national
governments. Signs of disagreement and dissent were visible within
the (1972) Group of Eminent Persons (GEPs). The GEPs, however, had
followed a majority rule in resolving issues and making decisions.
The comments of the dissenting minority were published in the
appendix of the GEPs report (See, UN, 1974). Sessions of the
subsequently formed GEISAR indicated no serious disagreement or
conflicts within the group. There was a sense of seriousness and
continuity of purpose in the group. The fact that the chairperson
of the GEPs[21] was also the chairperson of the GEISAR may have
helped to maintain the link and focus on set objectives. However,
in the same period that the UN was resolving these issues, other
intergovernmental and professional groups had been active in
forming parallel regulatory regimes to challenge the UNs actions
(see, for example, Benson, 1978). The IASC (International
Accounting Standards Committee) was established in June 1973 as a
caucus of professional accounting bodies and it started challenging
the UNs authority with the rapid production of international
accounting standards (26 standards in the first 13 months). The
United Nations position was further undermined by the OECD, which
reflected the official political position of the industrially
developed OECD nations participating in the UN debates (Rahman,
1991). The OECD had set up a Commission on International Investment
and Multinational Enterprises (CIME) in February 1975 which
produced a set of guidelines in 1976 for the Multinational
Enterprises (MNEs) operating in OECD countries. These OECD
guidelines (OEDC, 1976) were voluntary and were a signal to the UN
of the type of rules the OECD would like to see emerging from the
UN (Levy, 1984). However, the most serious conflict and direct
confrontation with the UN position commenced after the GEISAR
report was published in 1977. The responses of the TNCs and their
lobbying fronts, namely, the ICC (International Chamber of
Commerce) and the IOE (International Organization of Employers)
were sharp and hostile. These interest groups never welcomed the
United Nations involvement in accounting standard setting. Soon
after the GEISAR report was published the ICC and the IOE joined
forces to form a working party
14. AAAJ to coordinate the opposition of all TNCs to the UN
Proposals (Stamp, 1979). The 11,5 joint ICC/IOE Working Party
eventually delivered a lengthy protest against the UN proposals
(ICC, 1978) prior to the fourth session of the Commission on TNCs
(16-26 May 1978)[22]. Furthermore, mounting opposition from the
TNCs and other outside pressure groups had definite bearings on the
attitude and positions taken by 606 many government delegations
participating at various UN committees. The UN Commission on TNCs
had considered the report of the GEISAR against the background
controversies and oppositions discussed above. At the commissions
debate (1978), the delegates from the Western developed Group- B
countries expressed the view that the group of experts placed too
much emphasis on international standards of accounting and paid
inadequate attention to harmonisation of accounting rules and
principles. Delegates from the Group of 77, developing countries,
on the other hand, considered it more practicable to start with the
identification of what was to be reported before consideration of
harmonisation of accounting principles. They argued that
harmonisation was extremely difficult to achieve even in regional
groups although it should continue to be a long-term objective of
the UN. The Group- 77 nations also demanded the GEISAR report be
approved by the Commission[23]. The situation described above
presents a classic case of contrast between the possession and
exercise of power. The Group-77 developing nations possessed the
voting power, which if they decided to exercise properly, would
have resulted in the GEISAR report being endorsed by the
Commission. Subsequent events at the new intergovernmental
accounting group presents even more direct conflicts on all agenda
issues discussed and forced the matter to a turning point.
Conflicts within the Ad hoc Intergovernmental Group The Group D
socialist bloc nations traditionally supported the Group of 77
positions in all UN debates. It was observed, however, that the
Group D nations deliberately abstained from the Ad hoc Groups
debate. Group Ds position was that the UN accounting standards
should apply to Western TNCs only and not on TNCs emerging from
socialist nations. But the Group B insisted on their inclusion into
the rules. The socialist block nations, thus, chose to abstain from
all UN debates (Carty, 1982). As a result, it was a direct two-way
negotiation between the two principal opposing power blocs, namely
the Group of 77 (the developing nations) and the Group B (developed
market economy nations). In general, the discussions within this
group were highly political, with two major power blocs basically
seeking different aims and objectives. The Group- B nations, who
were dubious of the UNs competence in accounting standard setting
matters, took the view that the UN was not the place for setting
accounting standards a task which could better be performed by
other agencies, such as the OECD and the IASC. Hence, Group-B,
nations sought to limit the scope of accounting standards proposed
by the (1977) GEISAR and to
15. ensure that recommendations were relegated to mere
guidelines of best practice International rather than assuming a
mandatory character. Group-77 nations, on the other accounting
hand, attempted to make the proposed UN accounting requirements
mandatory regulation with appropriate governmental backing. The
Group-77 also desired the UN assume a status of permanent standard
setting body (Carty, 1982). The Group- 77 delegations claimed that
given the global network of operations, marketing and financing
strategies of the TNCs, the traditional accounting and reporting
607 systems needed to be significantly improved and modified in
order to ensure adequate levels of accountability (Wang, 1978). It
was clear from the nature of the ensuing debates that there were
serious differences of opinion and conflict of interest between the
two power blocs. The Ad hoc Intergovernmental Group published its
interim report in 1981 and its recommendations reflected a wide
divergence of views on many fundamental accounting issues, such as
segmentation of data, treatment of depreciation, classification of
assets and liabilities, and valuation of assets and foreign
currency[24]. Not surprisingly, therefore, the final report of the
group (UN, 1984) was inconclusive. As previously stated, the report
shows a split between issues which were resolved and issues left
unresolved. Most of the issues raised by the TNCs were resolved in
accordance with their demands. However, issues raised by the host
developing nations were left unresolved. In fact, the Ad hoc Group
abandoned the spirit of the 1977 GEISAR report, significantly
reduced the minimum items of disclosure recommended in 1977 and
thus created a stalemate between the two competing power blocs. The
group suggested, among the issues resolved, that: (1) comparability
of information provided by TNCs was an important issue; (2) any
reporting requirements for the TNCs be equally applicable to
national enterprises; (3) costs of providing information should be
commensurate to the benefits to be derived therefrom; (4)
maintaining business confidentiality in sensitive areas is
important for TNCs; and (5) international harmonisation should be
the long-term objective of the UN. As for the disclosure of
information by the TNCs, the group suggested that the TNCs should
disclose information taking into account the groups discussion in
particular the agreed items of disclosure (UN, 1984, para. 40, p.
9). The controversy over true and fair view versus honest and
accurate reporting was never resolved. Other unresolved issues
included: (1) transfer pricing, royalties, allocation of group
overhead to subsidiaries and other forms of intra-group
transactions; (2) foreign currency transaction;
16. AAAJ (3) contents of general purpose reports versus those
of special purpose 11,5 reports; (4) valuation, classification and
disclosure of movements in certain classes of assets and
liabilities; (5) equity method of accounting for investments; 608
(6) accounting and reporting for government grants and subsidies;
(7) terms to be included in the statement of sources and uses of
funds; and (8) non-financial reporting items recommended by the
GEISAR (1977). Subsequent developments at the UN resulted in the
dissolution of the Ad hoc Group and the creation of another
intergovernmental group to carry on the job (ECOSOC resolution
1982/67 of 27 October 1982). It was mainly due to pressures exerted
from the Group-77 nations that the ECOSOC agreed to establish
another group. The new group also consisted of 34 members elected
by the ECOSOC. But, as mentioned earlier, it had significantly
diluted terms of reference on international accounting issues. This
new group was issuing annual reports containing review of
developments. This new intergovernmental group was dissolved in
1993. As a remarkable turnaround the UN has dissolved the UN
Commission for Transnational Corporations (in 1994) which was the
key organ for the TNC matters. The decision outcomes The political
environment and attitudes of the two opposing groups of nations
participating in the deliberations at the UN Ad hoc
Intergovernmental Group have been presented above. The results of
the negotiations can now be summarised on an issue by issue basis
in order to identify policy preferences of each group and the
decision outcomes. Table I captures the essence of the debate and
presents such a summary. Table I is designed to indicate who
prevailed in the debates. The discussion that follows Table I
attempts to analyse how the minority view managed to prevail. The
following points can be drawn from the information contained in
Table I: (1) In most cases the Group-77 recommended disclosure
alternatives were vetoed by the Group-B nations. The no decision
outcome worked well for the defenders of the status quo. (2) A
fundamental difference in the philosophy of corporate reporting by
TNCs between the Group-77 and Group B delegations is observable.
For the first time in any international forum a contesting
principle of accurate and honest reporting was put forward against
the established principle of true and fair view for presentation of
financial statements. (3) Among the disclosure issues, intra-group
transfer items, such as, intra- group leases, sale-and-lease-back,
receivables, payables, allocation of group overheads, patent
rights, investments, sales and transfers proved to be the most
contested issues.
17. Accounting and reporting issues Group-77 position Group-B
position Decision outcome 1. Quality of disclosure Increased
transparency of accounts Criteria such as, materiality, Appropriate
disclosures be and increased non-financial confidentiality,
feasibility and made to meet the needs of disclosure is required
from TNCs cost-benefit balance be applied users who have a
legitimate to justify disclosure. Non-financial interest in the
affairs of the entity reporting (NFR) is new and controversial.
More suitable for Special Purpose Reports (SPR) 2.Extent of
disclosure Disclose all material items in Such additional
disclosure should Disclose items material enough to addition to
1977 minimum list be limited as necessary to give a affect
valuations or decisions by necessary to make financial true and
fair view of the operations users statements complete, correct and
clear of TNCs 3. True and fairview TNCs should provide accurate and
Financial statements of TNCs No decision honest financial
statements should present a true and fair view of affairs 4.
Auditing the TNCs TNCs be audited by accountancy Competence,
indpendence and No decision firms of the host country having no
integrity, not nationality, were direct or indirect links with
TNCs. appropriate criteria for selection of Audit function cannot
be subcontracted auditors to other firms 5. Structural change in
The expert group should consider Issues raised are complex
accounting No decision disclosure methods issues such as: problems
and cannot be resolved (1) changes to the structure of in a
reasonable period of time financial statements (2) definition of
technical terms (3) valuation of assets (4) classification of
assets and liabilities (5) creation of compensation accounts (6)
foreign currency transactions (7) transfer pricing policies
(Continued) Accounting and Experts on International at the UN Ad
hoc decision outcomes 609 accounting International Reporting
(1979-1982) Working Group of conflicting groups and Summary of
policy regulation Inter-governmental preferences of Table I.
18. 11,5 610 Table I. Accounting and reporting issues Group-77
position Group-B position Decision outcome AAAJ 6. Representation
in Developing countries participation Broad membership is desirable
No decision, status quo the IASC should be on equal footing in all
but the expert group should not international accountancy bodies
indicate any degree of representation engaged in the formulation
and promotion of international standards 7. De facto control
Control over subsidiaries might take Control should be assumed only
if Control be established though and consolidation the form of
management and service ownership of more than 50 per cent ownership
of more than contracts or less than 50 per cent of voting right is
evident 50 per cent voting rights only shareholding but exceeding
any of the widely dispersed minority groups 8. Goodwill patents,
Internally generated patents, trade Such disclosure is not useful
Only purchased goodwill be trademarks and marks, goodwill etc.
should be disclosed other intangibles disclosed 9. Prepaid expenses
Traditional treatments of prepaid Present reporting systems should
Prepaid expense be disclosed expenses as current asset is
erroneous. continue separately but present system Prepaid expenses
must be excluded should continue from current asset and be shown
under the heading of compensation or order account 10. Intra-group
Intra-group receivables and payables Useless information. These
figures No decision receivables and eliminated in consultation be
disclosed could be obtained from subsidiary payable in the notes
balance sheet or from special purpose reports. Information not
hepful for users 11. Disclosure of Information on leasing and lease
back Information not helpful for users Leases not reflected in
fixed lease arrangements arrangement among group or associated
assets in balance sheet and enterprises to be disclosed other
long-term commitment be described and quantified (Continued)
19. Accounting and reporting issues Group-77 position Group-B
position Decision outcome 12. Sales There should be disclosure of
gross Such detailed information was not Sales should be disclosed.
The sales figure and deductions made appropriate for inclusion in a
amount reported should be a net therefrom. Also, sales to third
party minimum list figure, that is, amounts derived customers (both
domestic and exports); from sales of goods and services intra-group
sales and sales to which fall into the general activities
associated enterprises (both domestic of the enterprises, less any
sales and export); revenue from technology rebates, any Goods and
Services licensing should be disclosed separately Tax (Value Added
Tax) or any other tax related directly to turnover 13. Interest
Disclose interest expense in the income Disclose total interest
expenses in expenses statement. Also disclose separately: income
statements (1) other financial charges It is difficult to define No
decision (2) interest expenses on short-term debt Such
classification would cause No decision and longterm debt serious
allocation problem (3) interest expenses according to Inordinate
amount of detail No decision currencies of borrowings (4) interest
expense related to financing Not suitable for disclosure in No
agreement. No decision investment projects separately from interest
expense related to financing current operations (5) breakdown of
interest expense according Unnecessary details No agreement No
decision to sources of capital in terms of home and host nations
14. Government Government subsidies, which can be quanti-Government
subsidies are more No decision subsidy fied be included into usual
charges and appropriate for Special Purpose credits. If cannot be
quantified and may be Reports described as to nature and importance
(Continued) 611 accounting International regulation Table I.
20. 11,5 612 Table I. Accounting and reporting issues Group-77
position Group-B position Decision outcome AAAJ 15. Research and
Disclose total R&D expenditure for the Such disclosure is
appropriate for No decision development period. Also disclose basis
of Special Purpose Reports expenditurea allocation of R&D
expenditure 16. Transaction with Such transactions be disclosed for
Separate disclosure of some items, No decision group enterprises
not each revenue or expense item either e.g. interest is feasible
but general consolidated and in income statement or in notes
disclosure was excessive businesses with associated enterprises 17.
Foreign exchange TNCs should give a clear account The issue is
complicated. It is not No decision gains or losses of foreign
currency gains/losses proper to disclose foreign currency gain or
loss in general purpose reports 18. Transfer pricing TNCs should
disclose intra-group This information is sensitive. It is No
decision policies pricing policies since it would impractical to
disclose pricing assist users to understand price policies in
general purpose reports. fluctuations More suitable for special
purpose reports 19. Leasing activitiesb TNCs should disclose the
nature of Leasing is a subject of considerable No decision leases,
leasing expenses and income controversy. Leasing expenditure from
leases in the general purpose should not be an item of information
reports in the annual report Notes: a The Ad hoc IWGEISAR
recognized that R&D costs were significant items in terms of
their economic effects and fiscal implications. It was also
observed that TNCs allocated total R&D costs to their
subsidiaries in a variety of ways b The group noted that many TNCs
were engaged in sizeable leasing transactions and that the
resulting leasing expense/income is a significant financial item
Source: Compiled from UN (1984)
21. (4) The whole debate indicates that the developing
countries have a clear International idea about the crucial areas
of TNC accounting and reporting which are accounting important for
controlling and monitoring TNCs operations. For regulation example,
the Group-77 emphasised, among others, the following points: the
transparency of published statements, rather than their
comparability and harmonisation; 613 accurate and honest financial
statements as opposed to true and fair view as the reporting
philosophy; need for structural change in financial reporting; the
concept of de facto control for consolidation; classified
disclosure of interest expense according to: currency of borrowing;
sources of borrowing home or host country; interest for financing
investment or for financing current operations; classification of
sales revenue into revenue from natural resources and revenue from
technology licensing; separate disclosure of intra-group leasing,
loans, sales and transfers etc. (5) In almost all these cases the
views of the Group-B nations prevailed. They were able to discard
many disclosure issues simply by arguing that such classification
would cause serious allocation problems. Discussion and analysis
Given the democratic decision-making rule and relative strengths of
the conflicting parties, the outcomes of the negotiation summarised
in Table I would seem unexpected. Each UN member nation has equal
voting rights and the UN Charter provides for decision making by
majority vote. According to this rule the Group-77 (developing
nations), by virtue of their numbers (21 out of 32) should have
been able to carry their proposals through. Moreover, the Ad hoc
Intergovernmental Group was already dealing with a previously
endorsed disclosure package (by the GEISAR, 1977) and most of the
issues and alternatives raised and proposed by the Group-77 were
either already adopted in practice or were under review by other
accounting bodies. However, in a political bargaining situation,
reasons and rationales can often be accepted or rejected depending
on the possession or non-possession and deployment of some social,
economic, and political resources by the respective groups involved
in the negotiation (Lasswell and Kaplan, 1950). Prevailing in a
decision-making process is, therefore, a phenomenon that identifies
the powerful. More importantly, that phenomenon or outcome reveals
the
22. AAAJ possession and use of some economic and political
resources by the winner. 11,5 These are likely to be the resources
which are in short supply to the group defeated. Every actor in a
society (national or international) may be thought of as
controlling, by his/her actions and decisions, some amounts of
values (or resources) in relation to others, so that the
controlling actor can increase or decrease the resource position
(both pecuniary and/or non-pecuniary) of those 614 others by
his/her own actions or decisions. The values, resources or
interests that are desired by other people, but controlled by the
actor, may be called his/her power base or base values (Lasswell
and Kaplan, 1950). Similarly, some of his/her desired values,
resources and interests (called scope values) may be controlled by
one (or more) other actors. In a bargaining situation, other actors
can be induced to give up control over some of those resources in
consideration of, or exchange for, any units of base values over
which the first actor has political influence owing to his/her base
value position. According to this theory, the power base for actor
A (where A could be a person, a country or group of either) is an
amount of value or resource under, As control which is needed by B.
Theoretically, then, A is in a position to increase or decrease Bs
wealth, well- being, or enjoyment of respect (i.e. prestige) by
his/her action. If B values that which A controls, B must try to
convince A to let B have more of these values. The actual method
used in such a convincing process may range from simple negotiation
involving requests and offers to give up some scope values
controlled by B in As favour to the use of military power in
extreme cases. For example, Group-B nations possess surplus food
and superior technology, superior military and above all political
control over multinational corporations (base value of the
developed nations) which the developing nations often desperately
need to resolve their domestic problems. On the other hand Group-77
developing nations possess the opportunities of cheap labour, huge
consumer market, low taxes, and above all, the voting rights at the
UN (Base values to Group-77 and scope values to Group-B nations).
The Group-B nations want Group-77 votes at the UN in order to pass
resolutions favourable to Group-B, simply because UN resolutions
are important in shaping world opinion. UN agenda items and
resolutions are used to form opinions on what is good and what is
evil; what is legal and what is illegal. They can enhance or damage
international image about a nation or a group of nations. Thus, if
the Group-77 developing nations need and want economic aid to
improve their technology and industrial base, or if a hungry nation
needs food in order to drive off famine, and one or more of the
Group-B nations (e.g. USA, UK, Japan) control the supply of these
resources, then the country(ies) possessing the resources will have
a power base (i.e. potential power) for exercising influence over
these more needy countries (Deutsch, 1966). Group-B nations may use
(exercise) these base values (power base) to acquire influence and
power over the behaviour of some or all of the Group-77 nations in
order to gain control over some scope values such as a favourable
vote, an abstention, a non-opposition, acceptance of some
proposals, approval of
23. access into the countries market, allowance of major
concessions to the TNCs International operating in those countries
and so on. The Group-77 nations, on the other accounting hand, may
decide to use (or exercise) whatever potential power they have
(e.g. regulation voting power) to win over a crucial decision.
Dahls pluralist methodology, however, would decline to recognise a
party as powerful if one of the parties fail to exercise such
potential power to prevail at the time of actual decision making.
615 Construction of a right of veto by the Group-B nations Signs of
visible conflict started to emerge at the fourth session of the
Commission on TNCs (May 1978) where the GEISAR report was
explicitly considered. The Commission on TNCs was supposed to
follow the rule of one- nation one-vote and decision making by
simple majority vote as provided by the UN charter. But in this
case the Group-B nations declined to support the implementation of
any UN disclosure recommendations unless they were passed with
absolute unanimity. They had also threatened to withdraw from all
negotiations concerning TNCs if the rule of majority vote was
adopted in the decision making (US Department of State, 1982). This
construction, and use, of a right of veto by the Group-B nations
had a dramatic impact on the outcomes of the negotiation. The
Group-77 nations had the voting majority; but they obviously did
not have much authority over the TNCs. They realised that
resolutions passed in the UN without the explicit endorsement of a
TNCs countries of origin would have little effect in practice.
Moreover, the threatened cuts in financial support to the UN by the
Group-B would endanger the existence of the Commission itself.
Eventually the so called consensus formula of decision making was
adopted at the Commissions 4th session. The GEISAR report failed to
gain a consensus support, and naturally no measures were
recommended for its implementation. However, as a compromise
solution the Commission agreed to set up an Ad hoc
Intergovernmental Group of Experts on Accounting Standards. The
consensus rule of decision making was passed on to the Ad hoc Group
as well. The acceptance of the consensus formula for decision
making essentially stripped the developing nations of their only
source of power. On the surface, the consensus formula presented a
unifying and compromising image. However, in a decision-making
process, a consensus formula tends to suffocate all democratic
values and offers each and every party a de-facto power to veto
over any decision. With such a power each and every party can
destroy a consensus of the rest through unilateral disapproval of a
decision. Such a veto power is instrumental in blocking resolutions
from being passed. The Group-B nations thus successfully eliminated
the possibility of any resolution being passed by majority vote.
The Group-B nations, in this case, successfully used their base
values (economic influence and control over TNCs) to compel the
Group-77 nations to abstain from exercising their base values
(voting power).
24. AAAJ The Group-77 nations were the change-seekers and the
Group-B nations 11,5 were the defenders of status quo. If any
decision was taken, the change seekers would have been victorious.
On the other hand, if no decision is made due to a lack of
consensus, the status quo was effectively preserved. Under the
unanimity rule, the job of the minority Group-B nations thus became
easier. They simply had to disagree with any disclosure proposal
placed by the 616 Group-77, put a counter proposal and communicate
their reservations about the issue. There has been numerous
occasions (as shown in Table I) when Group-B nations have rejected
disclosure proposals presented by the Group- 77 (and indeed
recommended by the GEISAR) simply by arguing that they were of
unnecessary detail; were not suitable for general purpose reports;
would violate business confidentiality; would not accrue enough
benefits to match costs; need further investigations; and so on. It
was also observed that in extreme cases, the USA and Japan alone
have exercised such de-facto veto in order to block many decisions
otherwise agreed upon by all other nations (US Department of State,
1982). It may be recalled here that a similar exercise of pressure
and threat of abandoning all negotiations in international trade by
the developed market economy nations in 1964 resulted in the
acceptance of the so called consensus formula at the Geneva
Conference of UNCTAD-1 (Cordovez, 1967). The net result was a total
stalemate in the negotiations a nil output despite heated debate
and frequent meetings. The negotiations at the UN Commissions on
TNCs, and in the various sessions of the Ad hoc Intergovernmental
Group, evidenced meaningful employment of a similar strategy from
the Group-B nations. Under such a decision-making rule, the
question of what is or what is not on the agenda becomes less
relevant. No matter how serious the issues are, the final outcome
is certain the preservation of the status quo. Conclusions The
commercial activities of transnational corporations are critical
because they cut across national boundaries and are responsible for
the distribution and re-distribution of a significant volume of
wealth and jobs across the globe. Furthermore, this paper supports
the view that international regulation of corporate accounting is a
significant variable in shaping and re-shaping the economic and
political relationship among nations, and can potentially
contribute in easing international tensions and fostering economic
and social harmony among nations. A proper accountability of this
phenomenon is arguably an essential element in modern day
international relations. However, it has been shown that the needs
and aspirations of the developing nations and the developed nations
are quite different on the TNC issue. The developing nations have
little voice in the accounting standard setting process of other
international bodies, such as the IASC, or the OECD (Stamp, 1978;
UN, 1984). There is no other international forum except the UN
where these nations are meaningfully represented on an equal
footing. It is, therefore, not surprising
25. that the UN, as the only international co-ordinating body
with universal International membership, became involved in the
process. accounting The present study attempted to analyse
regulatory developments over TNCs regulation at the UN, to identify
the groups and parties involved at various levels of the
negotiation process, and to capture the underlying tensions,
conflicts and compromises among nations. Empirical evidence
suggests that, despite the UNs outward image of a democratically
constituted organization, the UN 617 decision on (at least) the TNC
issue cannot be explained in terms of democratic rules and values.
The normal democratic rules (as provided by the UN Charter) are
frequently overridden by domination (Clegg, 1979, 1989) of one kind
or another. The present study describes the process as a political
one, and power is the central element in such political analysis.
The pluralist decision-oriented framework of power based on the
works of Dahl (1957, 1961, 1966, 1968) and Polsby (1960, 1963) was
utilised because Dahls methodology proved to be more consistent and
amenable to the objectives and empirical data presented. As
suggested by Dahl, the outcome of a negotiation process was shaped
not by the possession of resources relative to other parties but by
the actual exercise of these resources in the decision- making
arena. Thus, a group which ostensibly lacked power in terms of
voting rights came out as winner owing to the skilful and timely
exercise of the strategic resources they possessed. The results
reinforce the view that all member nations at the UN may well have
voting rights, but whether these rights are exercised or not
depends on their socio-economic and political position at that
time. In the negotiations over accounting standard setting within
the various UN bodies, it was found that the group holding majority
votes was neutralised from exercising these rights by intimidation
and threat of withdrawal from all negotiations by the minority
group. Such political manoeuvring by the minority was successful
because of the prevailing hegemonic domination (Clegg, 1979) and
control over the international economic institutions by the
minority (Gilpin, 1979). A rule of consensus was constructed and
applied in the decision-making processes, which provided the
opportunity to the minority to block all decisions. Dahls pluralist
methodology focuses on the actions, or lack of actions, by each
individual or group in the formal decision-making process. The
framework successfully identifies power wielders and can explain
how power was successfully exercised over others. It attempts to
explain power in a combat situation, and offers a clear focus on
outcomes. However, the methodology fails to present a complete
picture of the underlying process responsible for such action (or
inaction). A more appropriate methodology might be required to
study a further aspect of power as articulated by Bachrach and
Baratz (1962, 1963), which goes on to examine various forms of
agenda controlling; i.e. those actions of political participants
which prevent contentious issues being surfaced in the first
instance. It is also possible to take the investigation one level
further by examining the process by which the social or economic
variables are politically managed and manoeuvred in such a
26. AAAJ manner that many participants become confused or lose
sight of their real 11,5 interests, or fail to realise that they
are being subjected to manipulation. Finally, the ex post facto
nature of the study and resultant gaps which might have been
introduced while reconstructing behaviour of participants from
documents and records rather than from first hand personal
observation is recognised. Such first hand observation for an
archival study was not feasible 618 for understandable reasons.
Notes 1. The pluralist model of power suggests that in a
decision-making situation every participant in the process has
almost an equal chance to influence the decision. That is, no
single person or group holds absolute power. 2. The drive for
accounting regulation of TNCs has been precipitated by a number of
factors. They have been known to fiddle their accounts; avoid or
evade taxes (Bhagwati, 1967); Capithorne, 1971; Winston, 1970): rig
their intra-company transfer prices (Lall, 1973; Vaitsos, 1970,
1974); import foreign labour practices (Morawetz, 1974); compete
unfairly with local firms (Barnett and Mueller, 1974); export jobs
from home countries to host countries (Rubin, 1971); bring obsolete
technologies to the developing world (Barnett and Mueller, 1974;
Robinson, 1979); meddle, bribe and wreck balance of payments
(Muller and Morgenstern, 1974; Nayaar, 1978); overturn local
economic policies (Litvac and Maule, 1969); and play off government
against government (UN, 1974; Kussi, 1979). 3. The Senate
subcommittee report revealed the attempt made by the ITT (of USA)
to overthrow the Chilean Government through a military coup. See,
The Economist (1976, p. 69. 4. Under the UN structure, the ECOSOC
is the principal organ which is responsible for handling issues of
economic and social matters. It is composed of the government
nominees of 54 member nations elected by the General Assembly on
the basis of predetermined regional and political groups to
represent: Africa, 13; Asia, 12; Latin America, 12; Developed
Market Economy Countries of Western Europe, North America and
Oceania, 12; and Socialist Nations of Eastern Europe, five. The
ECOSOC exercises its power under the authority from the General
Assembly. It operates on the basis of one- nation, one-vote and
decision making by majority vote. See Article 61 of the UN Charter.
reprinted in, among other places, Kaufmann (1980, Appendix 1). 5.
Key decisions are decisions on key issues. Key issues are issues
over which a conflict of interest is visible. 6. The UN had
attempted to set disclosure standards only. It made little or no
attempt to set measurement standards. 7. That is, they were not
government nominees of the countries they belonged to. They acted,
deliberated and voted as independent individuals as opposed to
government delegates. 8. For the names and other details of the
members, see the report of the GEPs (UN, 1974). 9. For a complete
list of personalities testified before the GEPs and summary of the
hearings, see, UN (1974). 10. Even if some information was
available the data did not adequately measure the phenomenon of the
TNCs. Neither the sales and earnings figures, nor capital flows and
investment stock could fully measure the impacts of the operations
of the TNCs. The large incidence of inter-affiliate transactions
with attendant transfer-pricing effects and practices involving
capitalisation and de-facto control over local entities and
resources could distort the real picture (UN, 1974). 11. ECOSOC
decision 114 (LIX) 29 July 1975. See UN Doc. E/5655, May 1975.
27. 12. The group included, among others, Mr Joseph Cummings
(the then Chairman of the IASC International and Deputy Senior
Partner in charge of international relations of Peat, Marwick and
Mitchell and Co.), the late Pieter Louwers (Chief Auditor of
Philips Group of The accounting Netherlands), Mr Hans Havermann (a
leading German accountant), Mr Petra regulation Gyllenhammer
(President, Volvo group of Sweden), Mr Washington SyCip
(distinguished Philippino accountant), and Mr Lakshmi K. Jha
(Governor of Jammu and Kashmir, India). 13. The terms of reference
of the expert group was limited to reviewing reporting requirements
in different countries and existing reporting practices of the
TNCs: 619 identifying information gaps in existing corporate
reports; and recommending a list of minimum items that should be
disclosed in the general purpose reports of TNCs and their
affiliates (UN, 1977, p. 1