96 ACCOUNTING FOR MANAGERS
Intellectual capital......................................
Edvinsson and Malone (1997) defined intellectual capital as ‘the hidden dynamic
factors that underlie the visible company’ (p. 11). Stewart (1997) defined intellectual
capital as ‘formalized, captured and leveraged knowledge’ (p. 68).
Intellectual capital is of particular interest to accountants in increasingly
knowledge-based economies in which the limitations of traditional financial
statements erode their value as a tool supporting meaningful decision-making
(Guthrie, 2001). Three dimensions of intellectual capital have been identified in the
literature: human (developing and leveraging individual knowledge and skills);
organizational (internal structures, systems and procedures); and customer (loy-
alty, brand, image etc.). The disclosure of information about intellectual capital
as an extension to financial reporting has been proposed by various accounting
academics. The most publicized example is theSkandia Navigator(see Edvinsson
and Malone, 1997).
While most businesses espouse a commitment to employees and the value of
their knowledge, as well as to some form of social or environmental responsibility,
this is often merely rhetoric, a fa ̧cade to appease the interest groups of stakeholders.
Theinstitutionalsetting of organizations provides another perspective from which
to view accounting and reporting.
Institutional theory
Institutional theoryis valuable because it locates the organization within its his-
torical and contextual setting. It is predicated on the need for legitimation and
on isomorphic processes. Scott (1995) describeslegitimationas the result of orga-
nizations being dependent, to a greater or lesser extent, on support from the
environment for their survival and continued operation. Organizations need the
support of governmental institutions where their operations are regulated (and
few organizations are not regulated in some form or other). Organizations are also
dependent on the acquisition of resources (labour, finance, technology etc.) for
their purposes. If an organization is not legitimated, it may incur sanctions of a
legal, economic or social nature.
The second significant aspect of institutional power is the operation ofisomor-
phism, the tendency for different organizations to adopt similar characteristics.
DiMaggio and Powell (1983) identified three forms of isomorphism: coercive, as
a result of political influence and the need to gain legitimacy; mimetic, following
from standard responses to uncertainty; and normative, associated with profes-
sionalization. They held that isomorphic tendencies between organizations were
a result of wider belief systems and cultural frames of reference. Processes of
education, inter-organizational movement of personnel and professionalization
emphasize these belief systems and cultural values at an institutional level, and
facilitate the mimetic processes that result in organizations imitating each other.
Isomorphic tendencies exist because ‘organizations compete not just for resources