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A mission statementis a statement of the purpose of acompany,

organizationorperson,itsreason for existing.

The mission statement should guide the actions of the organization, spell out

its overall goal, provide a path, and guidedecision-making.It provides "theframework or context within which the company's strategies are formulated."

It's like a goal for what the company wants to do for the world.[1]

According to Bart,[2]

the commercial mission statement consists of threeessential components:

1. Key market: Who is your target client or customer (generalize ifneeded)?

2. Contribution: What product or service do you provide to that client?3. Distinction: What makes your product or service unique, so that the

client would choose you?

http://en.wikipedia.org/wiki/Mission_statement

IMPORTANCE OF

WHAT IS VISION The vision sets out what the organization wants to

accomplish It should inspire members, staff and supporters. A visionstatement may describeWhat difference would the activities would do

to the society as a whole How the organization wants to be seen by

society as a wholeIt defines the purpose of existence for a particular

entity/organization

WHAT IS MISSION STATEMENT?Mission typically describes the

manner in which an organization achieves its vision The vision is

described more in an idealistic form A mission statement is described

more in a practical aspects of what the organization would actually bedoing A good mission statement is concise, precise and encompasses

all its stakeholders

WHAT ARE VALUES? Values may be Beliefs Guidelines or rules

Code of conduct Values are be essential to provide guidance for

behaviour to provide direction in decision making, andto provide

guidance in planning strategy and setting direction for the future
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TRICKLE DOWN Who are We - Values Ethic, Principal, Beliefs

Vision Why are we here What do we do or intend to MissiondoStrategic Goals When do we do it Tactics How do we do it

SUMMATION Vision, mission and values are important elements of

any organizations strategic planningFor the smooth functioning of theorganization it should be communicated across the organization and

also to all the stakeholders

VISION STATEMENTGinger is a fresh and warm experience of

unsurpassed value.

MISSION STATEMENTWe provide smart, clean and safe hospitalityofferings by adopting next-practices that constantly enhance value for

our Patrons.We are driven by respect for people and nature and passion

for our Stakeholders.

VALUES1 Customer - driven We anticipate expectations and delightour Patrons with convenient and modern Excellence facilities at an

unsurpassed value.2 Entrepreneurship We strive to take ownership of

the tasks we perform and to create an environment that encourages and

supports initiative and appropriate risk-taking.3 Innovation We believethat making meaningful changes to improve products, services and

processes to create value for all Stakeholders, is an integral part of the

daily work of the organization.4 Valuing Employees, We believe in

nurturing and developing internal and external partnerships, Partners &

balancing the growth of the core business while preserving naturalresources and Communities contributing to society5 Speed and Agility

We deliver on promises with a sense of urgency and short responsetime.6 Fun, Joy and Zing We believe that a Happy employee leads to a

delighted Guest.

MISSION STATEMENTS: IMPORTANCE, CHALLENGE, AND

RECOMMENDATIONS FOR DEVELOPMENT (Abridged)

Source: Business Horizons, May/Jun92, Vol. 35 Issue 3, p34, 9pAuthor(s): Ireland, Duane; Hitt, Michael A


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Mission statements can help focus the organization on what really

matters--to itself as well as to its stakeholders. Mission

statements are important to organizations of all types (public,

private, not-for-profit, for-profit, family-owned, etc.). A keyreason for such importance is the mission statement's guidance of

strategic and day-to-day, operational decisions. Additionally,

mission statements represent the glue that binds organizations

together.

For example, Sears might improve its performance through

decisions guided by a new, more effective mission statement.

Sears' competitors have remodeled their old stores andimplemented strategies for entering new markets while Sears

struggles to "figure out what it wants to be" (Caminiti 1990), and

its buyers and customers remain confused "regarding the products

the company intends to stock" (Kelly and Zinn 1990). Thus, Sears'

current mission statement may not indicate the direction required

for effective strategic and operational decisions.

Grounded in the significance of mission statements, this article

seeks to 1) define and discuss their importance, 2) identify briefly

the significance of environmental challenges confronting many

organizations, 3) note that even in light of their importance,

mission statements have not been developed in many organizations,

4) examine factors that inhibit mission statement development,

and 5) offer recommendations that, if followed, increase the

probability of developing effective mission statements.

WHAT IS A MISSION STATEMENT AND WHY IS IT IMPORTANT?

An effective mission statement describes the firm's fundamental,

unique purpose. An important part of this description indicates


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how a firm is unique in its scope of operations and its product or

service offerings. In simple yet powerful terms, a mission

statement proclaims corporate purpose. This proclamation

indicates what the organization intends to accomplish, identifiesthe market(s) in which the firm intends to operate, and reflects

the philosophical premises that are to guide actions.

Mission statements are also intended to provide motivation,

general direction, an image of the company's character, and a

tone, or set of attitudes, through which actions are guided.

Furthermore, because mission statements embody a company's

soul, they are often inspirational.

Levi Strauss & Company's mission statement is described as

follows:

We seek profitable and responsible commercial success creating

and selling jeans and casual clothing. We seek this while offering

quality products and service -- and by being a leader in what we

do. What we do is important. How we do it is also important.Here's how: By being honest. By being responsible citizens in

communities where we operate and in society in general. By having

a workplace that's safe and productive, where people work

together in teams, where they talk to each other openly, where

they're responsible for their actions, and where they can improve

their skills.

Thus, the firm has described its fundamental, unique purpose.

Additionally, the mission statement indicates what the company

intends to accomplish and describes the philosophical premises


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that guide peoples' actions. Once completed, mission statements

become the foundation on which other intended actions are built.

Only after a mission statement has been developed can objectives

and appropriate strategies be formed properly.

The following part of the mission statement of Anheuser-Busch

Companies, Inc. demonstrates this point: "Anheuser-Busch's

corporate mission statement provides the foundation for strategic

planning for all subsidiaries."

Peter Drucker (1973) perhaps best described the general

relationship and sequence between a mission statement andobjectives. "A business is defined by the business mission. Only a

clear definition of the mission and purpose of the organization

makes possible clear and realistic business objectives."

TODAY'S COMPLEX ENVIRONMENTAL CHALLENGES

Today's challenges suggest the critical nature of effectively

articulated mission statements. Included among the challengesconfronting executives are:

1. complex and ambiguous decision conditions;

2. increasing levels of environmental turbulence and the difficulty

of managing it;

3. increasing intensity in global market battles;

4. increasing numbers of hostile takeovers and the sophistication

of manufacturing technologies; and5. the need to constantly introduce high-quality, innovative

products and services.

These types of conditions clearly suggest the paramount

importance of effective mission statements.


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A key outcome of mission statements is the determination of a

firm's focus when coping with complex environments.

"Setting a clear, realistic mission and then working tirelessly to

make sure everyone--from the chairman to the middle manager to

the hourly employee--understands it" (Henkoff 1990).

Home Depot, America's largest warehouse chain selling do-it-

yourself items, has remained focused. The company's CEO

suggested that although Home Depot may be able to sell many

products (including, for example, toys and food products), it has

avoided the temptation to do so. The reason for retaining HomeDepot's original focus is to prevent the customer from thinking

the company is anything other than what it is--a highly successful

purveyor of do-it-yourself products (Caminiti 1990).

The mission statement of Anheuser-Busch notes that "the

fundamental premise of the mission statement is that beer is and

always will be Anheuser-Busch's core business."

In reference to its mission, the Harley-Davidson company has

stressed that "instead of pandering to trends, we'll stick with

what got us here: remaining faithful to our heritage."

THE FAILURE TO DEVELOP MISSION STATEMENTS

Many organizations, however, have not formed essential direction-

setting statements. One researcher found that 59 percent of theChief Executive Officers of Business Weeks top 1,000 firms run

companies that do not have mission statements (David 1989).

Interestingly, some of these large firms had acquired other

companies to diversify their scope of operations beyond the

company's original core business or product areas.


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Porter discovered that "on average, corporations divested more

than half of their acquisitions in new industries and more than 60

percent of their acquisitions in entirely new fields." As noted

previously, a mission statement is intended to provide a focus forall firms' efforts, including those that have diversified through

acquiring other companies. Thus, it is possible that the lack of an

effective mission statement and the necessity of restructuring

have contributed to the number of divestitures that have

occurred recently in some large diversified firms. For example,

Chrysler Corporation's Lee Iacocca admitted that diversification

was his "big sin." He further suggested that diversification

siphoned management attention and resources from the critical

task of designing and manufacturing new, high-quality vehicles

(Ingrassia and Stertz 1990).

The results of failing to draft mission statements in small firms

mirror those in large companies. Researchers discovered that 20

percent of small firms that did not engage in any type of strategic

planning failed, while failures occurred in only 8 percent of thecompanies engaging in sophisticated strategic planning (Sexton and

Van Auken 1985).

The evidence presented above suggests the following important

question: Why are mission statements not developed in all types of

organizations?

FACTORS INHIBITING THE DEVELOPMENT OF MISSIONSTATEMENTS

Several factors may account for the failure to develop mission

statements. Here, we examine the following:


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1) the number and diversity of organizational stakeholders;

2) the amount of work required to develop an effective mission

statement;

3) the tendency for some stakeholders to become comfortablewith a firm's current position (the status quo is viewed as being

acceptable or preferable);

4) the belief that mission statements may reveal too much

confidential, competitive information;

5) the controversy that can be created through development of a

mission statement;

6) the difficulty that can be encountered when key upper-level

personnel spend too much time on operational rather than

strategic issues;

7) the requirement to think as a "generalist," not as a "specialist,"

when developing a mission statement;

8) some individuals' desire for excessive amounts of organizational

autonomy; and

9) the historical formality of strategic planning processes

A Large and Diverse Set of Stakeholders

Most organizations serve many individuals and groups.

Stakeholders derive value from the firm's outputs; as such, they

want the organization to constantly increase its capabilities of

satisfying stakeholder interests and needs. The outcomes

achieved by today's profit-making corporations must be at least

satisfactory to the following stakeholders: shareholders, capitalmarkets, customers, suppliers, various governmental agencies (at

the national, state, and local levels), and the communities in which

the organization operates (including the host countries in which a

multinational company conducts business).


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Anheuser-Busch's mission statement indicates a clear concern

regarding a commitment to "quality and maintaining the highest

standards of honesty and integrity in its dealings with all

stakeholders."

Many more stakeholders today strongly vocalize their stake in an

organization's future. For example, when Roger Smith announced

his retirement as CEO of General Motors, representatives from

several pension funds (whose companies held GM stock) suggested

they should be active participants in the process to select Mr.

Smith's successor.

The Work Required to Develop an Effective Mission Statement

Preparing an effective mission statement is not accomplished

easily or quickly. Writing a mission statement is time consuming.

Each word must be selected carefully to ensure its consistency

with directions sought by all stakeholders.

Comfort With the Status Quo

Generally speaking, organizational structures are changed only

after a firm's performance declines. Executives (and others who

have a strong interest in the firm's success) may not recognize

the role a new mission statement or a change in the old one could

play in efforts to reverse a firm's performance.

Confidentiality

As indicated previously, a mission statement should describe, at a

minimum, how an organization is unique, what it desires to be. This

information provides valuable insights to various stakeholders. As


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such, a mission statement appropriately reflects general

indicators of an organization's current and intended actions.

Some executives believe this type of information is confidential

and should not be available to many parties. However, detail is the

province of strategies and various types of plans, procedures, and

policies, not mission statements. A mission statement is meant to

be broad and to indicate only the general direction of intended

actions.

Mission Statements Can Be Controversial

Choices must be made in determining answers to the questions of"who we are" and "what we intend to be." Generally speaking, each

possible direction is attractive to one or more stakeholders.

Alternative solutions should be evaluated openly and resolutions

formed. Thus, developing a mission statement yields an

opportunity to identify any stakeholder disagreements that could

exist within groups (among key managerial personnel, for example)

or between groups (between managerial personnel and a board ofdirectors).

Time Spent Dealing With Operational Matters

On occasion, those involved with key strategic organizational roles

can become embroiled in coping successfully with day-to-day,

operational problems. Upper-level managers may spend far more

time with tasks related to "getting the product out the door" thanwith matters pertaining to the organization's long-term direction.

The Generalist Versus the Specialist


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Initially, the skills of most managerial personnel are those of the

specialist. However, mission statement development requires the

primary use of general rather than specific technical skills; the

ability to think simultaneously about the interests of allstakeholders -- those that are both internal and external to the

firm. When preparing a mission statement, managers, regardless

of initial training and type of technical expertise, are challenged

to concentrate on a general, integrative focus rather than the

more narrow view of a specialist.

The Pursuit of Organizational Autonomy

Even in an historical sense, America has been known as an

"entrepreneurial society" (Kaplan 1987). It may be difficult to gain

commitment from those who subscribe to this view of

entrepreneurial activity when attempting to form a mission

statement. The challenge for those responsible for developing

mission statements, then, is to determine and articulate the

legitimate role an entrepreneurial focus can play in forming and

implementing a mission statement.

Formality of Historical Strategic Planning Processes

Traditionally, strategic planning processes have been formal in

nature. The first objectives of the strategic planning process is to

develop an effective mission statement. However, more formal

strategic planning processes often reduce the number of people

associated with this activity. To be successful, many people shouldbe involved with the development of a mission statement.

Managers therefore are challenged to identify processes that will

encourage and facilitate the active involvement of many people

when developing mission statements, strategies, and plans.


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RECOMMENDATIONS FOR DEVELOPING EFFECTIVE MISSION

STATEMENTS

Each organization has unique internal capabilities and external

opportunities. This should be recognized when developing uniquemission statements. The recommendations presented below can be

used effectively across many organizations.

Support from Top-Level Managers

Effective mission statements yield general indicators regarding

what an organization intends to be, whom it intends to serve, and

the philosophies and values that will guide its strategic andoperational decision making processes. Top-level managers must

accept responsibility for articulating a mission in ways that are

meaningful for each stakeholder group. Mission statements should

be formed only when top-level managers have made the

philosophical and operational commitment required to focus the

organization's resources on mission accomplishment.

Mission Statement Complexity

Previously, task complexity was shown to inhibit mission statement

development. As such, those who select the process to form (or

reshape) a mission statement should recognize that it may require

a complex reorientation of the firm.

The Need for Transformational Leadership

Transformational leaders inspire, energize, and intellectually

stimulate and stir employees to look beyond their own self-

interest for the benefit of individual work groups and the

organization as a whole. Typically, such leaders are seen as


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charismatic and capable of providing individualized consideration

to stakeholders in efforts to satisfy their unique interests and

needs. Because of the "generalized" nature of mission statements,

a transformational leader may be necessary to marshal thesupport (from a diverse group of stakeholders) required to

effectively implement a mission statement and to share the vision

it embodies.

The Consistency of Mission Statement Guidance

Andrew Grove, Intel's CEO, believes that a mission statement is

valuable when it is "used as a constant guide for the actions ofmanagers and workers." In Grove's view, the acid test of a

statement's effectiveness is how well it helps individuals

accomplish their jobs (Henkoff 1990).

Intel's current mission of becoming the premier building block

supplier to the computer industry is used constantly as the

foundation for decisions and resource commitments. It is the

responsibility of key individuals to verify that once formed, amission statement is used consistently as a guide for all

organizational decisions and actions.

Listening to Customers

It is generally agreed that organizations exist to satisfy

customers needs. In this sense, customers could be viewed as the

most critical stakeholder group and therefore should play aprominent role in a mission statement's focus.

Conclusion


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We have argued that mission statements provide critical direction

for all types of organizations. Failure to involve a broad range of

stakeholders in processes intended to determine an organization's

reason for being, those the organization intends to serve, and thekey philosophical premises that will guide decisions and actions

may contribute to poor performance. But mission statements have

not been developed in many organizations. We have examined nine

factors that may inhibit their formation. The challenge facing

managers today is to understand the criticality of mission

statements and to learn how to cope successfully with factors or

conditions that may prevent their development and revision. We

have also presented recommendations that, if followed, should

enhance managerial commitments to the development of mission

statements. In turn, developing effective mission statements can

contribute to increases in a firm's overall performance.

Strategic allianceFrom Wikipedia, the free encyclopedia

Jump to:navigation,search

A strategic allianceis an agreement between two or more parties to pursue a set of agreed upon

objectives needed while remaining independent organizations. This form of cooperation liesbetween Mergers & AcquisitionM&Aand organic growth.

Partners may provide the strategic alliance with resources such as products, distributionchannels, manufacturing capability, project funding, capital equipment, knowledge, expertise, or

intellectual property. The alliance is acooperationorcollaborationwhich aims for asynergy

where each partner hopes that the benefits from the alliance will be greater than those from

individual efforts. The alliance often involvestechnology transfer(access to knowledge andexpertise),economic specialization,

[1]shared expenses and shared risk.

Contents

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Terminology[edit]

Various terms have been used to describe forms of strategic partnering. These include

international coalitions (Porter and Fuller, 1986), strategic networks (Jarillo, 1988) and, mostcommonly, strategic alliances. Definitions are equally varied. An alliance may be seen as the

joining of forces and resources, for a specified or indefinite period, to achieve a commonobjective.

There are seven general areas in which profit can be made from building alliances.[2]

Typology[edit]

One typology of strategic alliances conceptualizes them as horizontal, vertical or inter-sectoral:[3]

Horizontal strategic alliance: Strategic alliance characterized by the collaboration between two

or more firms in the same industry, e.g. the partnership betweenSina CorpandYahooin orderto offer online auction services in China;

Vertical strategic alliances: Strategic alliance characterized by the collaboration between two or

more firms along thevertical chain,e.g.Caterpillar's provision of manufacturing services toLand

Rover;

Intersectoral strategic alliances: Strategic alliance characterized by the collaboration between

two or more firms neither in the same industry nor related through the vertical chain, e.g. the

cooperation ofToys "R" UswithMcDonald'sin Japan resulting in Toys "R" Us stores with built-in

McDonald's restaurants.

Another typology distinguishes between four forms of strategic alliances:joint venture,equity

strategic alliance, non-equity strategic alliance, and global strategic alliances:

Joint ventureis a strategic alliance in which two or more firms create a legally independent

company to share some of their resources and capabilities to develop a competitive advantage.

Equity strategic allianceis an alliance in which two or more firms own different percentages of

the company they have formed by combining some of their resources and capabilities to create

a competitive advantage.

Non-equity strategic allianceis an alliance in which two or more firms develop a contractual-

relationship to share some of their unique resources and capabilities to create a competitive

advantage.

Global Strategic Alliancesworking partnerships between companies (often more than two)

across national boundaries and increasingly across industries, sometimes formed between

company and a foreign government, or among companies and governments.

Advantages/Disadvantages[edit]

Advantages[edit]

The advantages of forming a strategic alliance include:
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Allowing each partner to concentrate on their competitive advantage.

Learning from partners and developing competencies that may be more widely exploited

elsewhere.

Adequate suitability of the resources and competencies of an organization for it to survive.

To reduce political risk while entering into a new market.

Disadvantages[edit]

Risk of losing control over proprietary information, especially regarding complex transactions

requiring extensive coordination and intensive information sharing.

Coordination difficulties due to informal cooperation settings and highly costly dispute

resolution.

Agency costs:As the benefit of monitoring the alliance's activities effectively is not fully

captured by any firm, afree rider problemarises (the free rider problem seems to be less

pronounced in settings with multiple strategic alliances due to reputational effects).

Influence costs because of the absence of a formal hierarchy and administration within the

strategic alliance.

Stages of Alliance Formation[edit]

A typical strategic alliance formation process involves these steps:

Strategy Development: Strategy development involves studying the alliances feasibility,

objectives and rationale, focusing on the major issues and challenges and development of

resource strategies for production, technology, and people. It requires aligning alliance

objectives with the overall corporate strategy.

Partner Assessment: Partner assessment involves analyzing a potential partners strengths and

weaknesses, creating strategies for accommodating all partners management styles, preparingappropriate partner selection criteria, understanding a partners motives for joining the alliance

and addressing resource capability gaps that may exist for a partner.

Contract Negotiation: Contract negotiations involves determining whether all parties have

realistic objectives, forming high calibre negotiating teams, defining each partners contributions

and rewards as well as protect any proprietary information, addressing termination clauses,

penalties for poor performance, and highlighting the degree to which arbitration procedures are

clearly stated and understood.

Alliance Operation: Alliance operations involves addressing senior managements commitment,

finding the calibre of resources devoted to the alliance, linking of budgets and resources with

strategic priorities, measuring and rewarding alliance performance, and assessing the

performance and results of the alliance.

Alliance Termination: Alliance termination involves winding down the alliance, for instance

when its objectives have been met or cannot be met, or when a partner adjusts priorities or re-

allocates resources elsewhere.

Strategy Development[edit]

Features common to transactions that are natural candidates for strategic alliances are:
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High impediments to comprehensive contracting resulting in a major degree of contract

incompleteness

High complexity minimizing the auxiliary potential of the body of law for resolving issues not

specified in the contract

Both allies have to invest in relationship-specific assets resulting in potential for mutualhold-ups

Excessive cost for one party to develop the expertise to carry the transaction itself (e.g. due to

experience curve)

Transitory or uncertain character of market opportunity making a merger or vertical integration

unattractive

Need for a local party in a country due to regulatory environment (as is often the case in China)

Business Readings

By Kenneth Rosenzweig, CMA, and Marily Fischer

Reprinted with permission of the Institute of Management Accountants, from Management Accounting,March 1994; permission conveyed

through Copyright Clearance Center, Inc.

Is managing earnings through accounting methods ethically acceptable? Thats the question we recently asked asample group of management accountants. The response to the survey was enlightening.

Our survey was designed as a follow-up and extension of the research done by Bruns and Merchant and published inManagement Accounting in August 1990.

lThey found that managers disagreed considerably on whether earnings

management is ethically acceptable. They also found that in general the respondents thought manipulating earningvia operating decisions was more ethically acceptable than manipulation by accounting methods. Bruns andMerchant were disturbed by these findings. They were concerned that these practices could be misleading to users ofthe information and, over time, reduce the credibility of accounting numbers and thereby damage the reputation of theaccounting profession.

Bruns and Merchant surveyed managers, but accountants as well can influence the level of reported earnings either

directly by means of their impact on the choice of accounting methods or indirectly by monitoring the actions ofmanagers who influence reported earnings. To learn more about accountants attitudes toward earningsmanagement, we surveyed 265 members of a regional organization of accountants (approximately 38% of the totalmembership). Our questionnaire was adapted from the one used by Bruns and Merchant and included 13descriptions of managerial actions. The accountants were asked to rate these actions on a 5-point scale from"ethical" to "totally unethical." (See "Earnings Management Questions," p. 62.)

For the purpose of this study, we define earnings management in terms of the actions of a manager that are intendedto increase (decrease) current reported earnings of the unit for which the manager is responsible without generating acorresponding increase (decrease) in the long-term economic profitability of the unit. Our definition is consistent withthe way Bruns and Merchant used the term, although there is no standard, widely accepted definition of earningsmanagement.

The 13 questions on the survey can be grouped by categories (called "factors") of earnings management actions.Two of these factors involve accounting manipulation, and two involve operating decisions designed to influence

reported earnings. The accounting factors include actions that influence earnings by changing accounting methods.Examples include recording an expense in the wrong year or changing an inventory valuation in order to influenceearnings. Examples of operating decision manipulations are deferring necessary expenditures to a subsequent yearor offering unusually attractive terms to customers at year-end to draw next years sales into the current year.

Accountants Attitudes: Survey Results

Table 1 lists the mean score for the 13 questions, grouped by factors. To calculate factor scores, we averagedaccountants ethical ratings for the managers actions that were included in that factor. The table shows that theaccounting practitioners participating in the survey rated accounting manipulation much less acceptable ethically thanoperating decision manipulation. This finding parallels the attitude Bruns and Merchant found among managers. In
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our survey the accountants gave accounting manipulation an average rating between a moderate and a seriousethical infraction. They saw manipulation of inventory as being just as questionable ethically as other forms ofaccounting manipulation.

Generally, the practitioners had few ethical qualms about operating decision manipulation. For these factors, thepractitioners scores indicated anaverage rating between (fully) ethical and questionable. The practitioners, however,generally felt that operating decisions that influenced expenses were somewhat more suspect than those that

influenced revenues.

We also looked at whether there was a correlation between the accountants answers and their experience and levelof responsibility. Table 2 suggests that accountants with more years of accounting experience are more tolerant ofoperating decision manipulation that affected reported expenses than are their less experienced colleagues.Consistent with this finding, Table 3 shows that accountants with higher levels of organizational responsibility rateoperation decision manipulations of both types as more ethical than do accountants with less responsibility.

Ethically Troubling Results

Like Bruns and Merchant, we are disturbed by these findings. That accountants are more sensitive to accountingmanipulation than operating manipulation is understandable in light of their training and experience. Several of thesituations in the survey dealing with accounting manipulation not only involved ethically questionable practices, butthey also involved violations of accepted accounting practice. For example, in survey question Number 4, the deferralof the recording of supplies received to a future accounting period is clearly a violation of generally accepted

accounting principles. Analogous professional standards do not exist for the situations described in the operatingmanipulation questions.

The fact that the profession does not have explicit standards against operating manipulation does not mean thatoperating manipulation is any more ethical than accounting manipulation. Accountants basic ethical concern hereshould be whether such practices involve distortions that mislead users of financial statements. Both accounting andoperating manipulations can lead stakeholders to make inaccurate assessments of a companys economic health.

Given the kinds of decisions stakeholders make in light of reported earnings, both accounting and operatingmanipulations can be damaging to their interests. Stakeholders rely on financial statements, assuming that currentreported earnings indicate long-term profitability. When earnings are managed so that financial statements do notreflect the economic health of the company accurately, stakeholders may make decisions they otherwise would nothave made. Because of its distorting effects, earnings management is contrary to the "Standards of Ethical Conductfor Management Accountants," which states, "Management accountants have a responsibility. . . to disclose fully allrelevant information that could reasonably be expected to influence an intended users understanding of the reports,comments and recommendations presented."2

Our findings that accountants with more experience and higher positions in the organization are more tolerant ofearnings management also is distressing. It could be that persistent pressure for short-term earnings growth tends todiminish accountants ethical values particularly with regard to manipulation of earnings. Perhaps accountants ethicalsensitivity weakens as they move up in a company, or, in some cases, accountants who already have loosestandards regarding earnings management may be more likely to be promoted.

This finding suggests that it is crucial for accountants with a high level of responsibility in an organization to set aclear example concerning earnings management and truthful reporting. Newly hired accountants look to their moresenior colleagues for guidance concerning ethical behavior. If senior-level accountants engage in considerableearnings management, those at lower levels on the promotion ladder will learn quickly that the route to success in theorganization is not facilitated by truthful reporting.

The Professions Response

Our survey points out the need for individual accountants to become more sensitive to the ethical dimensions ofearnings management. For example, accountants may feel pressured by their organization to engage in earningsmanagement in order to make quarterly reports look more favorable. Also, accountants may be concerned that theirown performance evaluations will be based more on how favorable their prepared statements appear than onaccuracy. Individual accountants need a clear understanding of the distorting effects of earnings management andthe judgment and courage to resist these pressures.

Because decisions by operating managers can distort reported earnings significantly, management accountants needto assume responsibility regarding operating decision manipulation of earnings. Management accountants are held
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responsible by their organizations for the integrity of the financial reporting process. Distorted earnings as a result ofoperating decision manipulation reflect negatively on the performance of management accountants. Thus,management accountants have a stake in the organizations implementing procedures to deter earningsmanagement by means of operating decisions. As management accounting traditionally has been seen as a stafffunction, accountants may think it is not appropriate for them to "meddle" in the decisions of operating managers. Butto the extent that the decisions of operating managers affect their ability to carry out their responsibilities withintegrity, management accountants should be involved.

A number of things can be done to help accountants and managers become more aware of the ethically damagingeffects of earnings management. For example, organizations could institute ethics awareness seminars andworkshops. Ethical analyses of specific earnings management situations could be included as case studies inprofessional publications.

Also, a number of specific measures could be adopted to deter earnings management. Company recruitment policiescould be revised to attract employees who already have ethical sensitivity to issues such as earnings management.Ethical codes that include explicit policies on both accounting and operating manipulation could be adopted.Management accountants and their organizations could adopt specific monitoring procedures regarding operatingmanipulation.

Because of its potential to distort reported earnings and mislead users of financial information, earnings managementis a significant ethical concern. Individual practitioners, their organizations, and professional associations should takesteps to identify and deter this practice.

Discussion Questions

1. What is the definition of earnings management? Give some examples.2. What level of accountants are most tolerant of earnings management? Do you agree that earnings

management is acceptable to achieve business goals?

1. W. J. Bruns and K. A. Merchant, "The Dangerous Morality of Managing Earnings," Management Accounting,August 1990, pp. 2225. back

2. "Standards of Ethical Conduct for Management Accountants," SMA 1C, Institute of ManagementAccountants, Montvale, N.J., 1983. back
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