Governance kirisute: boards are better off studying East Asian history than governance checklists.

• Author: Kaback, Hoffer
• Position: Quiddities

PARTNERS IN accounting firms can be divided into two categories: mandarins and samurai. So holds the chairman of the International Accounting Standards Board, Sir David Tweedie, as reported in August by the Australian newspaper The Age.

"The mandarins," Sir David says, "are the professionals who sit back and think: 'This is right, this is not right.' In the boom they were knocked aside by the samurai, who said 'Let's get the jobs in; we're going to get the bonuses, because we re getting the work? The profession is meant to be mandarins and we've got to get that back again."

We explore this dichotomy to see what other judgments we may make about financial reporting and about corporate governance.

We observe initially that Sir David apparently believes that "mandarin" means something like "detached, moral, above-the-fray, wise counselor" and "samurai something like "Rambo-like yahoo." Due care requires that we perform our own investigation. We therefore revisit several major books on East Asian history.

The word samurai means "feudal retainers." These Japanese warriors' distinctive badge was the long and short swords they wore. Samurai had the right to kill, on the spot, any member of the lower classes who showed them disrespect. This was colorfully known as kirisute--"to cut down and leave."

The notions of discipline and duty were paramount to the samurai. They strove to avoid the shame of failing in their obligations to family, lord, and society.

In China, in contrast, there were no feudal lords, military aristocracy, or orders of chivalry. (Chinese society had no counterpart in Western Europe.) Chinese social structure "was dominated by institutionalized public functionaries-bureaucrats--who were set apart from the population by education, prestige, and position. These were the scholar-gentry... Confucianism provided the moral justification for authority in society ... Knowledge, ability, and moral qualities were the prerequisites for the management of public affairs...."

Though this may sound uplifting, Chinese bureaucracy in practice involved a highly paper- and test-intensive existence. Bureaucrats were constantly required to prove their competence in written form." They lived an "examination life." (Too, a portion of the Chinese "landed gentry" were able to purchase their positions.)

Importantly, there were attempts to blend the moral principles of (Chinese) Confucianism with the ideals of the (Japanese) samurai. The seventeenth...