The recent scandals at Enron, Worldcom, and A.I.G. marred the business world in a way particularly damaging to accountants. While many people might be surprised that conservative, rule-following accountants could have been involved in playing with the books, Ron King, the Myron Northrop Professor of Accounting in the Olin School of Business, says we shouldn’t be surprised.
“Accounting is the process of providing information to decision-makers — and to understand accounting, one needs to understand how people use information,” King says. “It used to be that accountants were ridiculed because they were perceived to be primarily bookkeepers. The bookkeeping part is simple; it’s just following rules. The interesting part is when people’s judgment comes into the picture.”
Accountants are just as vulnerable to human foibles as anyone else, and a great deal of King’s research has focused how that human behavior is controlled and influenced.
The accounting scandals of the past few years prompted Congress to pass the Sarbanes-Oxley Act of 2002, which attempts to prevent future accounting fraudulence. The act provided King fresh fodder for contemplating how accountants’ behavior will be influenced.
Sarbanes-Oxley includes requirements that businesses expand the scope of reports that must be filed with the Securities and Exchange Commission. However, the act isn’t as riddled with new rules as some would expect. Instead, King says, it requires accountants to do something much more difficult; follow principles.
“Fewer rules, more principles,” King says. “When you have ‘bright-line’ rules, lawyers can engineer around them. Then Wall Street may be misled by the form of the report rather than the underlying economic reality. However, if accountants have to address principles to guide the implementation of rules, then it makes it more difficult to circumvent the rules.”
To explain the distinction, King uses the analogy of a guy driving on the highway at 55 mph who gets into an accident. An example of a principle-based system would have the officer at the scene issue a ticket because even though Joe wasn’t violating the rule of driving more than 55 mph, he was violating the principle of driving safely.
Asking accountants to judge situations based on principles, however, creates a lot of ambiguity. So King is running experiments in the Taylor Experimental Lab to figure out how people make decisions in the face of ambiguity.
However, King says, the matter of following principles is further complicated by the fact that accountants tend to have personal connections with the managers and therefore are more inclined to view the situation in a manner favorable to the managers, rather than having the numbers reflect a less-positive reality.
“The basic assumptions in economics are clear — people are rational and self-interested. These assumptions add discipline to our thinking and they provide a parsimonious framework,” King says. “However, the challenge now is to understand how business and markets perform when people are more altruistic and less rational than traditional economics assumes.”
It’s that tension between the assumptions in basic economics and the reality of complex and seemingly irrational human behavior that continues to drive King’s research.
The assumption of rationality can be a good first approximation. In fact, it was a rational act of self-preservation that drew King to accounting. He studied science as an undergraduate student at the University of Wisconsin-LaCrosse and took a job as a medical researcher after he graduated. He found the work interesting work until one day the ether used in the lab made one of his co-workers faint.
“As I tended to him, I saw the office crowd going off to lunch and I thought, ‘Well, maybe I should get an M.B.A. — then I won’t be around so much ether,'” King says.
The M.B.A. led to a Ph.D. from the University of Arizona, where King had another dizzying experience — but nothing as damaging as ether.
King met Vernon Smith, whose groundbreaking work using laboratory experiments as a tool in empirical economic analysis fascinated King. Eventually, Smith became King’s Ph.D. adviser.
That relationship has led to a lifelong friendship and continual intellectual inspiration for King. Of course, King had no way of knowing that Smith would one day win the Nobel Prize for his experimental economics. So, when Smith’s prize was announced on Oct. 9, 2002, King was a bit worried since he had invited Smith to speak at Washington University on Oct. 10.
“We thought he might not show up because he had just won the award,” King recalls. “But he did and the timing turned out to be perfect for us. It was a great honor to have him here. He’s an impressive fellow, with a down-home disposition and with endless curiosity.”
After 19 years teaching at the Olin School of Business, many of King’s colleagues and students feel the same way about him — perhaps despite — or because of — his proclivity for heavy metal music.
“He’s a rocker,” says second-year M.B.A. student Brian Anton, who became close to King from working as King’s accounting teaching assistant the past two years. “His son Bracken, who graduated from Washington University last year, was in a heavy metal band here. I got to know one of the band members by coincidence and that guy gave me a CD they’d recorded. I listened to it and I said to Ron, ‘This is terrible.’ And Ron goes, ‘It’s actually a little bit light for my taste.'”
King’s taste in heavy metal runs more in the “music that drives parents crazy” vein, he says, citing such groups as Static-X, Disturbed, and Soulfly as examples. King frequently goes to hear his favorite bands in concert with his son Tyler, a sophomore at Washington University.
“The people at the concerts are very polite to me,” King says. “They let me pass right through the crowds. At my age, they think I must be an undercover ‘narc’ — there would be no other explanation for someone my age to be at the concert.”
In all respects, M.B.A. student Anton says, King does not fit the mold of an accounting professor.
“Accounting professors are supposed to be geeky, not somebody who’s as laid back and funny and Ron is,” Anton says. “His students really like him because you get the feeling when you’re in class that he does care and he’s really trying to impart his wisdom. Ron isn’t there to show you what he knows; he’s there to help you figure out what you don’t know and help you do better. That’s refreshing.”
It’s not just his students that appreciate King’s attributes. King was instrumental in hiring Nicole Thorne Jenkins to be an assistant professor of accounting at the business school.
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Ron King Wife: Monica Matheney — former economist, full-time mom and self-employed helping people archive family photographs. Children: Bracken — a 1999 WUSTL grad; pursuing a Ph.D. in biological engineering at Massachusetts Institute of Technology. Tyler — a sophomore at WUSTL studying engineering. “The family joke is that Bracken was a big kid and Tyler was small. At one point, Bracken was bigger than 95 percent of the kids his age, and Tyler was smaller than 95 percent of the kids his age. So I said we could reject them as human beings — using an alpha-level of .05 — meaning statistically, neither were human beings. My younger son then argued for two-tailed testing.” |
She has since become friendly with King and his family and has grown to appreciate his mellow, yet supportive attitude. She says King always seems willing to set aside what he’s working to talk with students and colleagues.
“He’s very willing to spend time to talk about my research stream or he’ll counsel me on teaching choices and how to maximize the synergies between teaching and research,” Jenkins says. “Anytime you knock on his door, he’ll say ‘Oh, come on in,’ or ‘Let’s go for lunch.’ He’s very generous with his time.”
Jenkins also points out that King’s interest in music goes beyond heavy metal. She says King pretty much enjoys any kind of live music. But music is just a small portion of the many interests that King sustains.
He travels as much as he can, Jenkins says. He enjoys beer — both drinking it and making it. (King’s favorite home-brew is “Yellow Dog Ale.”)
She points out that King has an attachment to a 1967 Volvo 122 that, by his own admission, he never tinkers with; he just enjoys driving and owning it.
It’s the mix of King’s professional and personal qualities that people come to respect, Jenkins says.
“I appreciate how much he values his family and values the time that he spends with them. It’s most admirable, especially considering how hard he works,” Jenkins says. “He’s taken over a lot of administrative responsibilities in the accounting area, he is working on his research, yet he still makes time to travel with his family. It’s good to work in an area where the senior faculty value those things.”