ACCOUNTING THEORY AND PRACTICE
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ARTICLE 6 – TED BAKER SHARES FALL AFTER IT WARNS OF £25M BALANCE SHEET ERROR
The Guardian, 2 December, 2019
The fashion chain Ted Baker is currently undergoing a lot of struggles. The firm’s troubles kicked off last year following a series of accusations directed towards the firm’s founder Ray Kelvin with regard to issues of ‘forced hugs’ and harassment issues. The allegations brought against the firm’s founder cost the firm 2 million dollars in investigation and legal fees. Furthermore, Ted Baker’s situation has recently taken a worse trajectory as a result of the news that that it overestimated the value of its stock. Despite the fact that that the error of estimation of stokes relates to previous years and will not have any impact on the firm’s financial position, the news has resulted in significant negative impacts on the firm’s shares. The news of Ted Baker’s over estimation of its stock value has come at the worst of times because the business needs to be squeaky clean in order to attract the attention of the next generation of customers.
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Legitimacy theory
Legitimacy theory is essentially a product of the idea of organisationally legitimacy. Basically, organisational legitimacy is defined as a particular state of existence or societal standing that arises when a particular organisation’s core values are consistent with the universally accepted core values of the society in which the organization in question resides (Deegan, 2019). If any form of perceived or actual disparities were to arise between the value system of an organisation and the value system of the society within which the organisation resides, the organisation is most likely to face a real significant threat to its legitimacy. Legitimacy theory is heavily dependent on the idea that somehow, a social contract exists between different commercial entities and the societies in which they conduct their day to day business operations (De Luca and Prather-Kinsey, 2018). From a comprehensive point of view, legitimacy theory dictates that all organisations must progressively and unyieldingly chase after the ability to act or conduct their day to day operations within the behavioural confines dictated by the society in which they operate (Patten, 2019). This basically translates to the fact that all organizations which in one way or another, prescribe to the theory of legitimacy must constantly ensure that they willingly provide reports of all relevant activities that organization’s management perceive as common expectations of the societies in why they conduct their day to day businesses. In a case where the society feels that the organization does not conduct its operations within the boundaries of the perceived ‘social contract’, the organisations survival is most likely to be in jeopardy.
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Analysis
All corporate entities exist and operate as social institutions. Consequently, all corporate entities are slaves to the rules governing the idea of the social contract. This basically means that their ultimate survival is heavily dependent on several social factors key among them being the need to deliver certain socially accepted benefits to the society in which it operates as well as the equitable and sufficient distribution of certain economic, social and political benefits to all members of the society within which it operates in. In simple terms, the social contact whether it is implied or expected is an actual representation of the countless expectations placed upon different commercial entities with regard to the manner in which the commercial entities must carry out their day to day operations. To be more precise, if the society develops a notion that a particular commercial entity has gone against the terms of their ‘social contract’, they are going to retract their support for that particular entity thereby impairing the commercial entity’s ability to operate smoothly and profitably.
In the article ‘ted baker shares fall after it warns of £25m balance sheet error’ it is clearly revealed that Ted Bakers problems stem from the firm’s error regarding the estimation of the value of the stock. Also, the article takes note of the fact that Ted Bakers problems originally began with allegations regarding issues of ‘forced hugging’ and harassment directed towards the firm’s founder. Basically, the allegations against the founder of Ted Baker whether substantiated or not, went against the terms of the firm’s ‘social contract’. Fundamentally speaking, society expects firms like Ted Baker to treat all its employees with the dignity and respect that they deserve. The article also reveals that the situation got worse when news came out that the firm had overestimated the value of its stock. Again, society expects corporations to be truthful at all times. The firm’s new management is attempting to repair the firm’s spoiled reputation through active and open investigations.
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Conclusion
Looking at arguments outlined above, it is quite clear that the article above subscribes to the legitimacy theory
Article 5 – Australia’s top polluter AGL faces push to accelerate coal-fired power exit
Sydney Morning Herald, August 5, 2020
AGL which is fundamentally speaking, Australia’s heaviest emitter of greenhouse cases will face a shareholder push to bring forward the imminent closure –f all of its remaining coal-fired power plants at least 12 years before their scheduled closures. The push by the firm’s shareholders for the closure of the coal-fired plants stems from the need to limit the worst effects of climate change. The push for the closure of the coal-fired power plants was spearheaded by the Australasian centre for corporate responsibility. The Australian centre for corporate responsibility is a shareholder activist group are of the opinion that AGL’s carbon emission was not a matter to be taken lightly. Apart from the pressure from its shareholders, AGL was also receiving a lot of pressure from its climate conscious major investors to take action towards the improvement of its carbon credentials and more so, the reduction of the company’s reliance on coal.
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Public interest theory
Public interest theory offers general insights into the idea that regulations are brought into existence with a goal of protecting and delivering benefits to the general populous (Mintz, 2016). Pasko (2018) describes public interest as the best conceivable allocation of limited resources for the benefit of different individuals in the society as well as for the common good of the society. The regulation aspect in the public interest theory basically refers to the exploitation of certain legal provisions in the enactment of particular socio-economic welfare goals. The public interest theory of regulation is set upon the foundation of two key assumptions. First, it assumes that the government through its regulatory agencies is a neutral participant in the regulation exercise and only seeks to attain the common interest of the society in which it serves. Secondly, the theory assumes that societal imbalances exist as a result of several unchecked actions of various key players in the economy. Due to its ‘helping hand’ stance, the public interest theory of regulation has often been painted as an effective remedy for effective service provision across several democratic governments (Dur and van Lent, 2018). The proponents of the public interest theory of regulation have often argued that there is a strong need to implement certain regulations in order to correct certain inefficient or unequitable practices across various sectors of the economy. Public interest theory of has gained a lot of popularity in the recent past and has often been used to validate several tough regulatory measures across various sectors of the economy across different economies in the world.
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Analysis
In the article Australia’s top polluter AGL faces push to accelerate coal-fired power exit it is clearly brought out that the parties that are pushing for AGL’s reduction of carbon emission include both its shareholders and major investors. Logically, these groups of individuals have a lot to lose in terms of their investment if AGL closes its remaining coal-fired plants. This basically means that the shareholders of AGL alongside some of the company’s major investors are attempting to impose a certain degree of restriction on the activities of AGL all for the benefit of the public. Despite the fact that the article may not present a straight forward case of a public interest theory in practice, an in-depth look at the facts revolving around the public interest theory as well as the key points presented by the article above, it becomes quite clear that the public interest theory is quite applicable in this case. First and foremost, it is important to understand that the driving motive and idea behind the public interest theory of regulation mostly focuses on the social cost versus social benefit aspect of the implementation of regulations across various sectors of the economy. Fundamentally speaking, the idea behind the public interest theory of regulation attempts to select the most efficient choice in spite of the adverse consequences that the choice might present. Despite the fact that the aspect of regulation does not appear clearly, the fact that a particular group of individuals are attempting to instigate certain regulations on a corporate entity for the interest of the public in spite of the possible chance that they may end up losing on their investments places the public interest theory in play.
Conclusion
As clearly illustrated above, the article indicated above is undoubtedly associated to the public interest theory of regulation.
List of references
De Luca, F., and Prather-Kinsey, J. (2018). Legitimacy theory may explain the failure of global adoption of IFRS: the case of Europe and the US. Journal of Management and Governance, 22(3), 501-534.
Deegan, C. M. (2019). Legitimacy theory. Accounting, Auditing & Accountability Journal.
Dur, R., and van Lent, M. (2018). Serving the public interest in several ways: Theory and empirics. Labour Economics, 51, 13-24.
Mintz, S. (2016). ACCOUNTING FOR THE PUBLIC INTEREST. Springer.
Pasko, O. (2018). Theories of Regulation in the Context of Modern Practice of Accounting Regulation. Accounting and Finance, (2), 37-46.
Patten, D. M. (2019). Seeking legitimacy. Sustainability Accounting, Management and Policy Journal.
