Michael Power is professor of Accounting and Research director of the ESRC centre for Analysis of risk and regulation at the London School of Economics and Political Science. The recent publications of Michael Power includes The Audit Society (Oxford, 1997), The Risk Management of Everything (Demos, 2004) and Organized Uncertainty (Oxford, 2007). He is also co-editor of Organizational Encounters with Risk (Cambridge, 2005). From all the great books mentioned above, this essay will focus on the review of Organized Uncertainty published by Oxford University Press in 2007.
At the start of the book, Power mentioned that his main purpose of writing this book was to continue and extend the study of the changing role of internal auditors and internal control that was started in The Audit Society (Oxford, 1997). Afterwards, it is suddenly became evident that the internal control story could only be told in contradiction of the background of a number of other related changes. As a result, the scope of the investigation expanded, directed by perceptions about the interrelated nature of changes in the field of risk management since the middle of year 1990. Therefore, I feel that the main idea of this book is to extend the audit society suggestions by challenging the concept of risk management and interrogating whether uncertainty can ever be controlled.
There are many things mentioned in the book that are quite interesting to read. However, I have chosen the quotes and facts that I think are true and agree to them. The quotes and facts that I like most from this book are as mentioned following:
“The concept of risk in its raw form has acquired social, political and organizational significance as never before, and this needs explanation even if, as seems likely, risk itself is an essentially contested concept” {Power (2007, pg. 3)}.
“Failure and Crisis in large organisations have been diagnosed under the motif of the ‘man-made disaster’, a concept which focuses attention on organizational and managerial processes which ‘incubate’ disaster or crisis” {Turner and Pidgeon (1997) cited by Power (2007, pg. 9)}.
“Organizations adopt rationalized approaches to show that they have done everything that is reasonable because of fear of institutional sanction” {Power (2007, pg. 11)}.
“……risk management and organization are almost the same thing; managing and uncertainty are two sides of the same coin” {Smith and Tombs (2000) cited by Power (2007, pg. 11)}.
“ERM signifies a basis for a new way of talking about control in organizations, one which appeals to enterprise rather than discipline. It is a discourse which envisages the integration of control and organizational strategy” {Power (2007, pg. 68)}.
“Corporate brand reputation outranks financial performance as the most important measure of corporate success” {Power (2007, pg. 129)}.
The work done by Power in this book is worth reading it. There are a lot of important things that I have learned from reading this book. The conversion of internal controls into risk management gives accountants in common and internal auditors in specific a professional potential as carriers of a new kind of risk knowledge in the world of risk management. Internal auditors can be seen as a significant organizational and regulatory performer which plays a vital role as a risk officer. Internal Auditors as risk officer focus on where key risks exist and on how they are controlled and diminished in these systems. In addition, Enterprise Risk Management (ERM) and risk mapping have become highly regulated practices which identify the ability of organisations to recognise the risks they face. Furthermore, the senior management have become accountable and concern for risk which lead to the creation of the new role called Chief Risk Officer. Moreover, Reputation risk is one of the biggest risk face by every organisation. It has become important because now it is considerable, able to be seen and auditable, and also added as intangible asset in the balance sheet of an organisation. This is why organisations are now trying their very best to manage these reputational risks whereas in the past they ignored them. Moreover, in businesses and organizations, risk management has become a progressively important phenomenon now a days.
As mentioned above, there are a lot of important things that I have learned from this book. On the other hand, there are some things in the book with what I disagree or consider irrelevant. The ideas mentioned in the book by Power are solid and but not too easy to seen through and understand them. Like all the other books of Power, Organized Uncertainty is also radical and helpful but more generous with academic jargon. The use of the words like “managerialization”, “scientificity”, “scientization” etc. make it harder for readers to understand what the author really wants to say. The language of the book is too opaque for the general reader, even business persons and academic readers would find it hard to understand it after one read. In addition, continuous explanations of detailed studies and risk models become complex and boring for the readers. I disagree with the usage of this kind of language in this book. I think it is irrelevant to use “managerialization”, “scientificity”, “scientization” kind of heavy words in the book. Rather than using these words, Power should have used some simple words which would have made it easier to convey his message and also easier for everyone to understand it.
As the internal controls have changed into risk management, this gives a duty of carriers of new kind of risk knowledge to accountants in general and internal auditors in particular. This means that both accountants and internal auditors have some kind of role to play in the world of risk management. Reputational Risk is seen as one of the main risk face by all organisations. To overcome this risk, instead of focusing on only conventional accounting have to focus on non-conventional accounting. This means instead of issuing only financial statements, organisations should issue reports basis on the non-financial data which helps to mitigate and control the reputational and other risks. The organisation can issue reports like Corporate Social Reporting (CSR) and Triple Bottom Line (TBL) reporting to issue information on the economic as well as social and environmental issues of an organisation. Power (2007) also supports this idea by saying that aspects of CSR have been reconstructed as a basis for managing organizational reputation. Therefore, accounting profession should focus on making these reports as well. By issuing these reports, organisations can sort a lot of issues like child labour, supply chain issues that can harm their reputation. Furthermore, to control the legal risk, accounting profession should use checklist to ensure that they have met all the regulations and requirements while preparing company accounts. A checklist can also prove defensive for accountants even if company face any legal risks. The accounting profession can use Cost Benefit analysis to mitigate and control risks to see if it would be worthwhile or not for a company to accept a contract/project. The profession can also consider risk by using Probability distributions and Cost-Volume-Profit analysis. To measure the price risk, accountants can use historical data for comparison purposes and also can use this data to make future decisions. In accounting field, it has to ensure that all the required training is done and up-to-date information about standards is available for accountants to use while making decisions and preparing the statements.
After reading this book, my perspective towards accounting has changed a bit. I always used to think that Accountants are only responsible to prepare financial statements and to provide financial information to an organisation. Internal Auditors are responsible to work with the management to ensure them that whatever they are doing is right or wrong. I used to think that internal auditors can be seen only as operating in the shadow of the external auditors and one of the motive to appoint them in an organisation is to help provide information to external auditors. But now, I think that the role of accountants and internal auditors is not only limited to whatever is mentioned earlier. Accountants and internal auditors both play an important role in the risk management as transporter of risk knowledge. Accountants can help an organisation to control some of their risks like Reputational Risk. In addition, Internal Auditors as risk managers play an essential role in the risk management. Internal Auditors help the management to identify the risks that the organisation will face and how they can control and mitigate those risks. Internal Auditors have a major role in analysing, reporting and monitoring risk.
Overall, Organized Uncertainty is one from those books that are worth reading. In the book, Power has identified the central issue quite well. While the language of the book is the only concern that need attention. Despite this issue, Organized Uncertainty is highly recommended to understand the risk management. The good thing about this book is that it is not focused on one field of study. It includes a lot of important things that are beneficial to learn.