All posts by brooksbutler

Ethics – Fundamental Attribution Error

When we read the stories about Enron, HealthSouth, and other accounting scandals, what is usually mentioned is the malicious intent of the executives to perpetrate a fraud. This is because “bad people do bad things,” right? Although the stories are instructive of how things can go wrong in an organization and how it can affect those involved, it is easy to forget about how we are all susceptible to the same temptations.

The fundamental attribution error is the human tendency to attribute the cause of these wrongdoings to the character of the individual who committed them. It’s called an error because, overwhelmingly, human behavior is determined more by environment than inherent personality traits. This error of perception works both ways, too: when something goes right, we tend to think that it was due to our virtues and/or skills rather than external factors (sheer luck, a good supporting staff who helped along the way, or a stock-market generally on an uptick). This, combined with the fact that people tend to rate their ethical inclinations higher than they actually are, is a troublesome sign for working professionals in just about every field. A fraud can begin with an innocent mistake, and continue because the perpetrator needs to cover it up. Of course, this is because they do not believe themselves to be a bad person.

However, being aware of the problem is an important step toward preventing future unethical behavior. That accountants spend a great deal of time thinking about internal control perhaps serves as a tribute to this way of thinking. We restrict access and separate duties of employees in a manner that reflects the notion that environmental factors are strong determinants of behavior. Surely these companies do not go around hiring bad people all the time so that they feel the need to exercise constant vigilance. These employees go along with it without feeling as though they are distrusted because the company thinks they are bad people and thus likely to steal from them. It is an unfortunate fact of life, but you can put an otherwise good person in a position where they can commit fraud without oversight or control, and you will run the risk of a fraud occurring.Thumbnail_FundamentalAttributionError_01_21_14_Version_01-1024x576

For more about the psychological aspects of ethics, see Ethical Decision Making: More Needed Than Good Intentions and the Ethics Unwrapped Series, both by Robert Prentice, McCombs School of Business.

International Potluck

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Recently, the MPA International Connection hosted a potluck where international students shared foods from their respective home countries. Fortunately, they invited all of us to come and try them out. In good spirit, the domestic students brought some of their own food to share with the international students. Career Consultant Dawn Shaw was there, too, helping promote unity among the varied group of students in the MPA program.

About 25 students brought food from China, Philippines, Korea, Vietnam, Mexico, Hawaii, and elsewhere. My only regret is that I didn’t save more room for the Korean BBQ. A bigger sampling might have given me enough ammo to write about another stop on my “BBQ trail” even though it’s pretty different from Texas BBQ.  There was so much food that I didn’t get to eat a substantial amount of any one dish, but I do not regret1610014_294678857356625_2368457516241372259_ntaking the opportunity to try out each one. My contribution, being a southerner, wassouthern-style sweet tea. I made a regular sweet tea version and another one infused with fruit.

Altogether, it was a great way to branch out and try something new that you would not otherwise be exposed to. I have always enjoyed eating foreign foods, but there’s nothing like home-cooking. That is a truism that transcends national and cultural boundaries. It also provided a venue to better get to know some fellow students who we may not have known at all otherwise.

That there is enough interest in an event like this is a testament to the diversity of the Texas MPA class, which is a quality important to me. I have enjoyed my travels outside the US and look forward to future travels, but experiencing fellowship in this context with others who are outside their home countries is the next best thing.

 

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Bill Powers and the University of Texas

Large_university-of-texas_seal_rgb(199-91-18)Despite having arrived in Texas only one year ago, I have been paying attention to the controversy surrounding the university’s President, Bill Powers, for some time. It has made national news and recently culminated in his announcement of resignation in 2015. The issue has many facets, not least of which is what the fundamental purpose of the university should be. The University of Texas is a world-class research institution and the flagship university of the state of Texas, but some argue that increasing tuition costs are cheating students out of a low-cost education.

Sure, if we could have it both ways we would provide every student with a top education for pennies. The fact is that tuition costs are soaring everywhere, not just UT, and declining state funding is part of the cause for the increase. Another reason commonly cited, again not just at UT, is the increasing administrative burden on university budgets. That said, the idea that college education should be cheaper to make it more accessible to students sounds like a positive notion on its face, but the side-effects could result in consequences antithetical to the stated goals of its proponents.

The Board of Regents has accused UT of wasting too much money on “ivory tower research” that does not result in much benefit to the public or students. The solution? Force professors to teach more classes and do less research so that fewer professors would be required to be on the payroll. Some unfortunate side-effects of that policy would be that the best professors would leave for other universities that do allow for research opportunities, leaving students with fewer professors that have extensive knowledge of current research in their fields. This is not to say that professors who do not engage in research are inferior, but an important part of a college education, particularly in technical fields, is learning about the forefront of progress. Another side effect would be found in rankings, which are dependent in part on the volume and quality of research. UT has numerous highly-ranked programs that would suffer in several ways. This would also result in employers of UT graduates that frequently recruit here because of the prestige of the academic programs becoming less inclined to do so.

Additionally, many of those students who come from out of state (or out of country, for that matter) would cease to come to Texas if not for the prestige and opportunity offered here. These are the students who pay the most in tuition, and whose absence would be well-noticed on UT’s “bottom line.” The brain-gain that Texas enjoys from these students coming from all over the world ripples through the state’s economy as they graduate and become employed in high-tech industries, which are attracted to the state because of its well-educated labor pool.

Further, what about the Texas residents seeking a world-class education? If UT’s education were cheapened, would they remain in-state at a public university? Not likely – top performers will seek their next best opportunity, and if that involves going to another state and paying top tuition rates there, they will do so.

If Texas is in need of more accessible college education for its citizens, why provide it at the expense of another group of its citizens and the economy at-large? Would it not be easier to convert, say, Austin Community College into a 4-year university? Is UT the only university in the state that is capable of providing what these reformers seek? They could also more effectively achieve their goal by attacking the administrative cost of the university, rather than sacrificing academic excellence in order to lower tuition. Of course, this would not necessarily make education at UT more accessible, but definitely less burdensome since colleges typically do not compete on tuition rates due to the fact that many students take on loans.

The bottom line is that UT has spent decades growing through investment to become one of the top universities in the country. That legacy should not be discarded so quickly. I agree with the Regents that we should do what we can to reduce tuition, but they should be more prudent in their actions and make sure that they do not sabotage their own goals by ignoring side effects that could potentially subvert those goals.

Competing With Engineers for a Sustainable World

A couple of months ago, we all received an invitation to compete in BASF’s Team Chemistry challenge. A fellow MPA student decided to formTexas-mascot a group, and so I joined. It seemed like a fun project – come up with ideas to lessen the environmental impact of football gameday. I love football gameday and I have an interest in environmental sustainability, so it was like a match made in heaven. Of course, the incentive of winning a bunch of money didn’t hurt.

So, we set to work coming up with ideas on how to approach the problem.  We easily came up with a host of small solutions that would have some impact, but quickly got bogged down in the details. After spending some more time pondering our work, we decided to focus on a group  of related solutions and hone in on them.  As Joel said in his most recent article about accountants being risk-averse, we learned from our initial mistakes, found the proper balance, and ended up with some pretty cool ideas.

We were invited to a couple of events by BASF and the Athletic Department to learn more about the initiative and the goals of the competition. One event was a sustainability panel sponsored by UT Engineers for a Sustainable World. The panel was entirely made up of engineers and the audience was entirely engineers … except two of us MPA students. It was very intimidating hearing about them discussing various polymers of which we had no clue of their existence much less their properties. Apparently these students have a big advantage over us with their knowledge of chemicals, considering BASF is essentially a chemical company. The next event was a stadium tour, during which our guides told us about their issues with waste management. Their focus seemed to be only on waste management problems, while our solutions did little to address that.

ConcoursePoster_#2_Sec120But, we pressed on, confident in the power of our ideas despite not having the technical knowledge that is certainly common among our competition. What we do have is a business ingenuity that enabled us to come up with feasible solutions that are easily implemented and have a measurable impact. We used the skills we have learned in economics, finance, and accounting to estimate the results of our proposals. We also used our branding and presentation skills to develop a persuasive format through which to deliver our proposal.

We find out Friday if we are invited to the finalist round, where we will present and defend our ideas in a “shark tank” environment. We’ve had fun putting it all together, and we’re proud of our accomplishments, but it would be great to get to write a “Part II” to this article about our preparation for the finalist round!

 

Does Accounting Add Value?

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For many businesses-owners, accounting is perceived as a necessary evil. It is a cost that you have to bear but does not create value the way that other departments do, such as marketing, engineering, or finance. Some may argue about whether the accounting department of a firm is “productive” in the classical sense, but their support role is essential for any successful business. Accountants are derided for not providing as much value (especially by the finance and economics types, even though they are not productive in the classical sense, either) but without the accountants, large businesses could not operate.

Even for a small business, accounting is crucial. When your profit margin is in the thousands, you need to make sure and collect all receipts as soon as possible. Maintaining current books is crucial for this task. It becomes both more difficult and more important to discharge accounting duties as sales climb along with your need for new capital. As you move up the ranks and become a  larger company with many employees, accounting techniques, practices, and procedures enable managers to maintain control over cash flows and company resources. Anyone who has overseen cashiers knows the importance of keeping up with revenues.

Accounting information can also be used to make cost-benefit decisions, like the cost-benefit decision of how much accounting detail should be pursued. To make the cost-benefit decision, you have to use the tools of finance as well, and this is where the artificial distinction between finance and accounting dissipates. Without the building blocks of accounting, finance would have to start from scratch and end up with less reliable results. This is not because finance is not capable, but because there is value in comparative advantage. Financiers can focus their efforts on long-term capital budgeting, marketers can drum up sales, engineers can design, and accountants can precisely tally it all up.

Many companies also need accountants to report financial results to stakeholders, including stockholders, the Board of Directors, the government, and lenders. Although much of reporting for big business is typically seen as a legal requirement, the value of such standard reporting is still great and can be found in the cost of capital. Without assurance that a company’s financial reports are accurate, cost of capital would be higher to accommodate the additional risk. This concept applies to both small businesses that want to grow as well as large public corporations.

Further, our tax system in the US is quite complicated, and many companies do not have enough scale to warrant having in-house tax staff to navigate every complexity. In this way, tax accountants can help companies minimize tax expenses and associated risks. With their specialization and familiarity with tax law, tax accountants can consult with timthumbmanagement about strategies that can help them reduce their tax burden.

CFOs around the world agree that accountants add value not only to their company but to the public in general. We do this by performing critical functions that enable other business departments to do their work more efficiently. Next time you hear accountants being diminished as less important in some way, you can remind them of all these ways that accountants add value.