ACCOUNTING PROFESSION ROLE FOR THREE MAIN ISSUES:

MANAGING TECHNOLOGICAL CHALLENGE, GOOD CORPORATE

GOVERNANCE, AND CONSUMER PROTECTION

I.B. Raminra Padma Diputra (2012190647)

I.A. Budhananda Munidewi (2012190648)

Ivan Tri Bramantyo (2012190652)

Faculty of Economy and Business, Brawijaya University, Malang

Abstract

Changes in environmental condition become the important factor in every

businesses consideration. However, companies are required to be ready for facing any

changes if they want to exist in business environment. It is because of requirement of

market that change every time in the line of environmental alteration. With the result

that adaptation of changes become a crucial aspect in developing a company.

Stockholders occupy a position of central importance in the corporation

because they are the company’s legal owner. But the corporation is not always run

solely for their benefit, so they contend with management and the board of directors

for control of company policies.

Giving good services and prices they want are the main social responsibility of

business to their consumers. Many companies recognize that providing customers

with excellent service and product quality is an effective, as well as ethical in business

strategy.

With these three main issues, accounting profession by its discipline is

expected to take a role in managing technological challenging, take an strategy

position in order to support good corporate governance, and doing audit procedures in

government performance for their regulation of consumers protection.

Keywords: Environmental condition, stockholders, consumers, accounting

profession, good corporate governance

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Introduction

Technology is one example of alteration in environmental condition. It can be

denied that technology will change in every minute and every day. Inventions and

innovations are influenced human’s life, not only in developed countries but also in

developing countries like Indonesia. Technological change has raised ethical and

social questions of privacy, security, ownership, health, and safety. Companies now

days are required to fulfill technological standards that occur informally in society.

There are no basic standards about it, but technological developments become a

consideration of society in occupying their needs. Simplicity and quality that offered

by technology successfully become a good point in society.

After all, few question about technology and the impact, especially for

business environment are appeared. Moreover, who is responsible for determining

how much technological change should occur or how fast things should change?

Should technology be controlled, and if so, who should be in charge of managing

technology and the challenges it poses for humans and cultures in our global

community? And what is the correlation between technology and accounting

profession? All of those questions will be answered in another part of this paper.

This paper also explains about stockholders rights and it relation with

corporate governance. Stockholders occupy a position of central importance in the

corporation because they are the company’s legal owner. But the corporation is not

always run solely for their benefit, so they contend with management and the board of

directors for control of company policies. Good corporate governance is a mandatory

requirement in today’s corporate world by every stakeholder groups. Good corporate

governance is a must for today’s complex and dynamic business environment to

ensure long-term sustainability. So, it should be cultivated and practiced regularly

within the current structure of the business. And, undoubtedly, accounting will show

us the way to proceed with corporate governance where bad governance generally

comes from financial dissatisfaction and over exercising of power.

Consumer protection becomes the last issues in this paper. Safeguarding

consumers while continuing to supply them with the goods and services they want, at

the prices they want, is a main social responsibility of business. Many companies

recognize that providing customers with excellent service and product quality is an

effective, as well as ethical, business strategy. Consumers, through their

organizations, have advocated for their rights to safety, to be informed, to choose, to

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be heard, and to privacy. Government agencies serve as watchdogs for consumers,

supplementing the actions taken by consumers to protect themselves and the actions

of socially responsible corporations. The role of accounting profession is to do

performance audit of government act in protecting consumers through its regulation.

Methodology

The paper is completely a conceptual one whose basic foundation comes from various

secondary sources like research articles, published and unpublished scholarly papers,

books, various international and local journals, speeches, newspapers and websites.

1. Managing Technological Challenges

Technology at work is become a common thing and can find in everywhere. By

technology, employers can use new-sophisticated technology to monitor employees’

movements, computer usage, and personal and work interactions. In response to

employees’ complaints that these practices are invasions of their privacy, many

businesses have developed a privacy policy, which explains what use of the

company’s technology is permissible and how the business will monitor employee

activities (Lawrence & Weber, 2008: 298).

Businesses Protecting Privacy

Issues of privacy spill over into business-consumer relationship. According to

a Minnesota Department of Public Safety report, a company could purchase the

personal data information of all Minnesota driver’s license holders for $1,500; by

2006, 800 companies had done exactly that. Recent technological advancements have

increased the number of ways that privacy violations may occur.

Industry and government are effort to manage privacy, especially for

stakeholder privacy. Although some companies have addressed the issue of Internet

privacy, some skeptics believe international government supervision of the Internet is

necessary. However, such international management of technology is difficult to

achieve. International government control of privacy will be difficult to achieve,

especially as it pertains to the Internet. Management privacy may need to come from

the Internet companies themselves.

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The Management of Information Security

Businesses have become acutely aware of the importance of maintaining

information in a secure location and guarding this valuable resource. How best to

manage information security remains a major challenge for businesses (Lawrence &

Weber, 2008: 301).

Information security describes activities that relate to the protection of

information and information infrastructure assets against the risk of loss, misuse,

disclosure or damage. Information security management (ISM) describes controls that

an organization needs to implement to ensure that it is sensibly managing these risks.

The risks to these assets can be calculated by analysis of the following issues:1

Threats to your assets. These are unwanted events that could cause the deliberate

or accidental loss, damage or misuse of the assets.

Vulnerabilities. How susceptible your assets are to attack.

Impact. The magnitude of the potential loss or the seriousness of the event.

Standards that are available to assist organizations implement the appropriate

programs and controls to mitigate these risks are for example BS7799/ISO17799,

Information Technology Infrastructure Library and COBIT (Control Objectives for

Information and Related Technology).

One example that can make business entities realize to manage information

security, in order to protect assets and all that related with their company. In May

2005, Time Warner reported that a cooler-sized container of computer tapes

containing personal information on 600,000 current and former employees had been

lost, apparently during a trip to a storage facility. A month later, Citigroup informed

its customers that computer tapes containing personal information on nearly 3,9

million customers were lost by United Parcel Service while in transit to a credit

reporting bureau. The public’s fears were heightened just 12 days later when

MasterCard International reported that more than 40 million credit card accounts

might have been exposed to fraud through a computer security breach at its payment

processing company. The announcement came after law enforcement officials and

company experts had identified a pattern a fraudulent charges that were traced to an

intrusion at Card Systems Solutions in Arizona, which processes more that $15 billion

1 Wikipedia, ”Information Security Management”, http://en.wikipedia.org/wiki/Information_security_management

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in payments annually for small and midsized retail businesses and financial

institution. (Lawrence & Weber, 2008:301).

According to these examples, placed personal information will appear risks,

and it can categorize as human error. It sometimes will threat to our privacy come

from criminals. The number of reported computer virus infections is increasing,

despite efforts to detect or prevent their disruption. Most viruses are carried in file

attachments and are activated when users click to open them. A new form of the virus,

a computer worm, attacked computers through the Microsoft Windows operating

system.

In order to response invasions of information security, firms began to see the

necessity of investing more resources to protecting their information. The

responsibility of managing technology with its many privacy and security issues for

business organizations is entrusted to the chief information officer (CIO). Many firms

have elevated the role of their data processing managers by giving them the title of

chief information officer. The CIO must set, align, and integrate an information

technology vision with the company’s overall business objectives.

Protecting Intellectual Property

Intellectual property has become more challenging to protect with the

advances in technology. The ideas, concepts, and other symbolic creations of the

human mind are often referred to as intellectual property. In the United States,

intellectual property is protected through a number of special laws and public policies,

including copyrights, patents, and trademark laws. Not all nations have policies

similar to those in the United States. In Australia, some Intellectual property rights are

automatic while others are granted after application and examination against the

relevant criteria by government agencies2:

IP Australia administers patents, trademarks, designs and plant breeder’s

rights with an examination and registration process

The Attorney-General’s Department administers the legislation for copyright

protection and circuit layout rights where there is no registration process.

2 Australian Government, “Intellectual Property Protection in Australia,” http://www.austrade.gov.au/ArticleDocuments/1358/Intellectual-Property-Protection-Guide.pdf.aspx

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Historically and culturally, most Indonesians still hold to Adat norms that do

not recognize private sector, individual ownership in intellectual works or inventions.

This factor contributes to the denial of rationales for protection of intellectual property

rights, acknowledged in many Western countries. Although Adat recognizes

individual possession of material goods, it does not allow individual rights of

possession to override principles of the public interest and the social function of

goods. In Adat norms, the focus of law protection is not on individuals, but on

communities. This helps explain why, before Dutch colonization, the concept of a

monopoly over intellectual works was unknown in Indonesian society, as intellectual

works were important not only for individual owners, but also for the communities to

which they belonged3.

Software Piracy

Software piracy or illegal copying of software becomes a global problem that

must be face by businesses environmental. According to the Business Software

Alliance, global software piracy accounted for more than a third of all packaged

software installed on personal computers and resulted in $34 billion in losses

worldwide in 2005 (Lawrence & Weber, 2008: 306). Software companies predicted

these lost would continue to rise as Third World countries became more involved in

the global marketplace.

In China, where experts estimate that 90 percent of all software in use is

unlicensed, government officials decided in 2006 to against the piracy. The Chinese

government announced that computer markers must ship all their product with

licensed operating systems preinstalled and inspected all government computer

systems for licensed software. Some of their motivation was economic, as China was

poised to develop a massive technology-based communications industry (Lawrence &

Weber, 2008: 306).

Software piracy also attacked our country, Indonesia. Although Indonesia as a

whole has a pretty good understanding of technology, the level of software piracy in

this country is still high according to a study from the Business Software Alliance

Indonesia (BSA), jointly conducted with the International Data Corporation (IDC).

The study asserts that the commercial value of illegal software in the Asia Pacific

3 Afifah Kusumadara. “Problem of Enforcing Intellectual Property Laws in Indonesia” http://ialsnet.org/meetings/business/KusumadaraAfifah-Indonesia.pdf.

6

region reached $18.7 billion. It also claims the global the revenue lost due to software

piracy jumped to $59 billion, nearly double what it was in 2003. For Indonesia, the

study says the commercial value of software without licenses that are installed on

personal computers reached $1.32 billion in 2010. BSA says that it isn’t just personal

users, but many companies still do not realize that they’re using illegal software.4

Since 1988, the Business Software Alliance (BSA) has been an international

representative for the world’s leading software companies before governments and

consumers. BSA sought to educate computer users on software copyright laws, lobby

for public policy that would foster innovation and expand software companies’ trade

opportunities, and aggressively fight against software piracy. Its members include

Apple Computer, Corel, Macromedia (Asia), Microsoft, Symantec, and many other

influential organizations in the software industries.

Figure 1 Top 20 Pirating Nations and Top 20 Lowest Piracy Nations

Source: http://www.techinasia.com/indonesia-pirating-nation/

Pirating Copyrighted Music

4 “Indonesia Ranks as The 11th Worst Pirating Nation”, Tech in Asia, May 15, 2011, http://www.techinasia.com/indonesia-pirating-nation/

7

Technology was going rapidly. It is make people can do everything by

technology, including download music from Internet. In 1990, people can download

music faster than ever before and store the music as their private collection in their

playlist. Individuals downloaded millions of songs and burned them onto CDs, and

listening whenever they wanted. This action denied the copyrighted of the artist who

created the music and to the companies that manufactured or distributed these artists’

CDs.

According to the International Federation of the Phonographic Industry, 20

billion songs were illegally downloaded or swapped in 2005, or one out of every three

musical disks sold in the world, with sales totaling $4.6 billion. Nine out of 10

recordings in China were pirated, and 75 percent of Singaporeans surveyed said that

had no personal objection to using pirate material (Lawrence & Weber, 2008: 307).

In order to protect music industry from pirating, especially in United States,

the Recording Industry Association of America (RIAA) launched a series of lawsuits

aimed at prohibiting illegal copying of music, protecting the legal property of the

authors or publishers, and assuring that profit earned from music sales be distributed

to those holding the copyrights.

Piracy of Movies on CDs and DVDs

Technology, with its advances can make people downloaded movie from the

Internet to CDs or DVDs more easily. Result from The Motion Picture Association of

America for piracy of movies; by their study they found that Hollywood studios lost

$6.1 billion worldwide in 2005. The Federal Communications Commission ordered

that all U.S made digital television receivers, by July 1, 2005, had to have technology

installed meant to block the widespread and illegal redistribution of copyrighted

programming.

The Roles of Accounting Profession in Managing Technological Challenges

Technology is growing so fast and spoiling people because of its easy to

access many thing. E-commerce is part of e-business becoming the latest issue that

related with the advantage of Internet itself. The availability of credit cards, overnight

delivery, mail order catalogs began the shop at home concept. The Internet has

furthered this by changing from an information tool to a shopping alternative.

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Consumer feels satisfied while they shop through Internet, because it desires

convenience, choice, information, and value.

With the growth of e-business, the demand for real time accounting

information is also rising.5 The CPA Journal Deshmukh (2000) in Julie Hicks, discuss

about the impact of business’ accounting software can provide real-time support when

creating web-based storefronts and electronic data interchange. Connecting the web

storefront with the accounting software can improve forecasting, scheduling,

manufacturing, and procurement functions.6

The accounting software can also contain self-service features for vendors.

The software can allow them to access their own information and view purchase

orders. Another necessity of the accounting software is the ability to accept online

submission of expense reports. Once the software has received data, it should be

capable of providing web-ready reports on the site. Various vendors are available that

can help a company choose the correct software for their business and also keep the

information secure.7

Internal auditors also related with the development of e-business. All of the

accounting process in e-business is recording electronically. There are four main

concerns for an internal auditor are the similarity of electronic records and paper

documents, the enforceability of licenses for software, avoidance of customer’s denial

of an order placed, and use of digital signatures. Internal auditors are often the ones

responsible for evaluating the efficiency and effectiveness of the company’s Internet

operations.

2. Stockholder Rights And Corporate Governance

Definition of Stockholders

Stockholders (or shareholders, as they also are called) are the legal owners of

business corporations. There are two types of stockholders own shares of stock in

corporations such as individual and institutional.

5 Julie Hicks, E-commerce and Its Impact on the Accounting Profession (A Literature Review), UNC Greensboro: Journal of Student Research in Accounting Issue 1 (2004), page 6.

6 Idem7 Deshmukh, A. 2002. Accounting Software and E-Business. CPA Journal 72(11),

November 52-54.

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Individual stockholders are people who directly own shares of stock issued by

companies. These shares are usually purchased through a stockbroker and are

held in brokerage accounts. For example, a person might buy 100 shares of Intel

Corporation for his or her portfolio. Such stockholders are sometimes called

“Main Street” investors, because they come from all walks of life.

Institution, such as pensions, mutual funds, insurance companies, and university

endowments, also own stock. For example, mutual funds such as Fidelity

Magellan and pensions such as the California Public Employees Retirement

System (CalPERS) buy stock on behalf of their investors or members. These

institutions are sometimes called “Wall Street” investors. For obvious reasons,

institutions usually have more money to invest and buy more shares than

individual investors.

Objectives of Stock Ownership

Individuals and institutions own corporate stock for a number of reasons.

People buy stock because they believe stocks will produce a return greater than they

could receive from alternative investments. Stockholders make money when the price

of the stock rises (capital appreciation), and when they receive their share of the

company’s earnings (dividends).

Although the primary motivation of most stockholders is to make money from

their investments, some have other motivation as well. Some investors use stock

ownership to achieve social or ethical objectives. Some investors have mixed

objectives. They wish to make a reasonable return on their investment but also to

advance social or ethical goals.

Stockholders’ Legal Rights and Safeguards

In United States and most other countries, stockholders have legal rights that

are often more extensive than those of other stakeholders. To protect their financial

stake in the companies whose stocks they hold, stockholders have specific legal

rights, such as:

They have rights to share in profits of the enterprise if directors declare dividends.

They have rights to receive annual reports of company activities and to inspect the

corporate books, provided they have a legitimate business purpose for doing so and

that it will not be disruptive of business operations.

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They have the right to elect members of the board of directors, usually on a one

share equals one vote basis.

They have the right to hold the directors and officers of the corporation responsible

for their acts, by lawsuit if they want to go that far.

They usually have right to vote on mergers, some acquisitions, and changes in the

charter and by laws, and to bring other business-related proposals before the

stockholders.

They have right to sell their stock.

Corporate Governance

Corporate governance refers to a process by which a company is controlled, or

governed. As a nations that have governments that respond to the needs of citizens

and that establish policy, so do corporations have systems of internal governance that

determine overall strategic direction and balance sometimes divergent interests.

The Board of Directors

The board of directors plays a central role in corporate governance. The board

of directors is an elected group of individuals who have a legal duty to establish

corporate objectives, develop broad policies, and select top-level personnel to carry

out these objectives and policies. The board also reviews management’s performance

to be sure the company is well run and stockholders’ interests are protected.

Corporate boards vary in size, composition, and structure to best serve the

interests of the corporation and the shareholders. A number of patterns do exist,

however. According to a survey of governance practices in leading firms in the

Americas, Europe, and Asia Pacific, corporate boards average 11 members. The

largest boards are in banking, insurance, aerospace, and pharmaceutical companies,

and the smallest are in the small and midsized firms and in the high-tech, retailing,

energy, and health care industries.

Board members are elected by shareholders at the annual meeting, where

absent owners may vote by proxy, as explained earlier. The system is formally

democratic. As a practical matter, shareholders often have little choice in the matter.

Principles of Good Governance

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In the wake of the recent corporate scandals, like Enron and WorldCom, many

sought to define the core principles of good corporate governance. By the mid 2000s,

a broad consensus had emerged about some key features of effective boards. These

included the following:

Select outside directors to fill most positions. No more than two or three members

of the board should be current managers. Moreover, the outside members should

be truly independent, that is, should have no connection to the corporation other

than serving as a director.

Hold open elections for members of the board. Some groups favored a proposal

under which dissident shareholders, under certain conditions, could put their own

candidates for the board on the proxy ballot.

Appoint an independent lead director (chairman of the board) and hold regular

meetings without the CEO present. The independent chairman would then hold

meetings without management present, improving the board’s chances of

receiving completely candid reports about a company’s affairs.

Align director compensation with corporate performance. Like top executives,

directors should be paid based, at least in part, on how well the company does.

Evaluate the board’s own performance on a regular basis. Directors themselves

should be assessed in how competent they were and how diligently they

performed their duties.

The movement to improve corporate governance has been active in other

nations and regions, as well as the United States. For example, in South Korea,

companies in the securities industry launched the Corporate Governance Service in

2002 to promote management transparency and create shareholder value, and began

giving awards to companies that achieved the highest standards in corporate

governance. In South Africa, the stock exchange announced new rules in 2003 that

would require companies to disclose all compensation to directors and what ties, if

any, they had to the company.

Executive Compensation: A Special Issue

Executive compensation is one of the most important functions of the board of

directors. The emergence of the modern, publicly held corporation in the late 1800s

effectively separated ownership and control. That is, owners of the firm no longer

managed it on a day-to-day basis; this task fell to hired professionals. This

development gave rise to what theorists call the agency problem.

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Executive compensation in the United States, by international standards, is

very high. In 2005, the chief executives of the largest corporations in the United

States earned, on average, $8.4 million, including salaries, bonuses, and the present

value of retirement benefits, incentives plans, and stock options.

Shareholder Activism

The Rise of Instititional Investors

As shown earlier, institutional investors-pensions, mutual funds, endowment

fund, and the like have enlarged their stockholdings significantly over the past two

decades and have become more assertive in promoting the interest of their members.

Have large institutions have less flexibility than individual shareholders, because

selling a large bloc of stock could seriously depress its price, and therefore the value

of the institutions holdings. The council of Institutional was formed. Since then the

council has grown to more than 140 members and represents institutions and pension

funds with investments exceeding $3 trillion.

Social Investment

Another movement of growing importance among activist shareholder is social

investment, sometimes also called social responsibility investment.

a. Stock Screening

Shareholders wishing to choose stocks based on social or environmental

criteria often turn to screened funds. A growing number of mutual funds use social

screens to select companies in which to invest, weeding out ones that pollute the

environment, discriminate against employees, make dangerous product like tobacco

or weapons, or do business in countries with poor human right records. In 2005,

according to the Social Investment Forum, $2,3 trillion in the United States was

invested in mutual funds or pensions using social responsibility as an investment

criterion, accounting for nearly 1 in every 10 investment dollars.

Growth has been particularly rapid in the United Kingdom, where

governments rules required pensions funds to disclose the extent to which the use

social, environment, or ethical criteria in selecting investments.

b. Social Responsibility Shareholder Resolutions

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Shareholders have been active is being active is by sponsoring social

responsibility shareholder resolutions, resolutions on issues of corporate social

responsibility placed before stockholders for a vote at the company’s annual meeting.

Shareholder activist sponsored around 600 resolutions dealings with major social

issues. Many of these groups were members of a coalition, the Interfaith Center on

Corporate Responsibility (ICCR), with coordinated the activities of the social

responsibility shareholder movement. Some key issues raised in these resolutions

included executive compensation, environmental responsibility, antibias policies, and

corporate governance.

Stockholder Lawsuits

If owners think that they or their company have been damaged by actions of company

officers or directors, they have the right to bring lawsuits in the court, either on behalf

of themselves or on behalf on the company (the latter is called a derivative lawsuit).

Shareholder lawsuits may be initiated to check many abuses, including insider

trading, an inadequate price obtained for the company’s stock in a buy out (or a good

price rejected), or lush executive pensions benefits. Many companies, especially in

high technology industries, complained that they were targets of frivolous shareholder

lawsuits.

Government Protections of Stockholders Interests

Securities and Exchange Commision

The major government agency protecting stockholder’ interest is the Securities and

Exchange Commision (SEC). Established in 1934 in the wake of the stock market

crash and the Great Depressions, its mission is to protect stockholders rights by

making sure that stock markets are run fairly and that investment informations is fully

disclosed. The agency, unlike most in government, generates revenue to pay for its

own operations.

Information Transparency and Disclosure

Giving stockholders more and better company information is one of the best ways to

safeguard their interests, and this is a primary mission of the SEC. The stockholder

should be as fully informed as possible in order to make sound investments. In recent

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year, management has tented to disclose more information than ever before to

stockholders and other interested people.

Insider Trading

Insider Trading occurs when a person gains access to confidential informations about

a company’s financial condition and then uses that information, before it becomes

public knowledge, to buy or sell the company’s stock.

Insider trading illegal under the Securities and Exchange Act of 1934, which

outlaws “any manipulative or deceptive device”. The courts have generally

interpreted this to mean that it is against the law to :

Misappropriate (steal) nonpublic information and use it to trade a stock

Trade a stoke based on a tip from someone who had an obligation to keep quiet

Pass information to others with an expectation of direct or indirect gain, event if

the individual did not trade the stock for his or her own account.

Accounting and Good Corporate Governance

As Accounting is intentionally referred to as a vehicle for ensuring GCG, it is

believed that the world should adopt a uniform global accounting standard and that

has already been done. The journey started long ago. This move will make it easy to

compare the performance of corporations, in an industry, across countries. Infosys has

demonstrated its investor-friendliness by becoming the first company on NASDAQ to

produce its balance sheet and income statement according to the Generally Accepted

Accounting Principles (GAAP) of eight countries from where they have investors –

India, U.S., Canada, UK, France, Germany, Japan and Australia. These are the basic

hurdles to be passed before ensuring GCG.8

3. Consumer Protection

Companies face challenging and often conflicting demands to produce a high

quality products or services, keep prices down, protect privacy, prevent fraud, and

meet the changing expectations of diverse customers around the world.

8 Shil, N. C. 2008. Accounting for Good Corporate Governance. JOAAG, Vol. 3. No. 1, see: http://joaag.com/uploads/3_ShilFinal.pdf

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Advocacy for Consumer Interests

As long as business has existed, consumers have tried to protect their interest

when they go to the marketplace to buy goods and services. The increasing

complexity of economic life, especially in the more advanced industrial nations, has

led to organized and collective efforts by consumers to safeguard their own rights.

These organized activities are usually called consumerism or consumer movement.

There are some advocacy organizations to protect consumer interest in USA.

For example Consumer Federation of America, Consumers Union, Public Citizens,

The National Consumers League, the Public Interest Research Group, and American

Association of Retired People. In international level, there is Consumers International.

That organization is an international non-governmental organization that represents

more than 250 consumer groups in 115 nations.9

Reason for Customers Movement

Customers’ movement exists because consumers want to be treated fairly and

honestly in the marketplace. Beside that reason, there are some other reason why

customer movement exists. Second reason is complex products have enormously

complicated the choice consumers need to make when they go shopping. Third reason

is service, as well as products, have become more specialized and difficult to judge.

Forth reason is when business tries to sell either products or services through

advertising, claims may be inflated or they may appeal to emotions. The last reason is

some businesses have ignored product safety.10

9 Lawrence, A.T dan Weber, J. 2008. Business and Society: Stakeholders, Ethics and

Public Policy, 12th ed. USA: McGraw Hill.10 idem

The Rights of Consumers

The central purpose of the consumer movement around the world is to protect

the rights of customers in the marketplace. It aims to make consumer power an

effective counter-balance to the power of business firms that sell goods and services.

As business firms grow in size and market power, they increasingly acquire the

ability to dominate marketplace transactions with their customers. Frequently, they

can dictate prices. Typically, their advertisements sway consumers to buy one product

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or services rather than another. The economic influence and power to business firms

may therefore become a problem for consumers unless ways can be found to promote

an equivalent consumer power.

Consumer advocates argue that consumers are entitled to five core consumer

rights. First is rights to be informed. It’s the rights to be given all facts to make and

informed purchasing decision. Second, rights to safety. It’s the rights to be protected

against marketing of goods that are hazardous to health or life. Third, Rights to

choose. It’s the right to be assured access to a variety of products and services at

competitive prices. Forth, Rights to be heard. It’s the rights to be assured that

consumer interest will receive full and sympathetic consideration in the formulation

of government policy and fair treatment in the courts. And the last, fifth, Right to

privacy. It’s the rights to be assured that information disclosed in the course of a

commercial transaction is not shared with others unless authorized.

The reason why consumer advocates address those 5 consumer rights is, as we

know, companies face challenges. The challenges require the company to provide

high quality goods or services, but they have to keep the price low. The companies

want to make high profit and also low cost. It’s not easy to do. So, the companies

intended to sacrifice their consumer. That’s why customer advocates address and

make some efforts to protect the consumer rights.

Goals of Consumer Laws

Consumer laws or we can say consumer protections laws was made to protect

the consumer rights stated before.11

11 Lawrence, A.T dan Weber, J. 2008. Business and Society: Stakeholders, Ethics and

Public Policy, 12th ed. USA: McGraw Hill.

1. To provide consumers with better information when making purchase

Consumers can make more rational choices when they have accurate

information about the products. For example, the laws require health warning on

cigarettes and alcoholic beverages. Another example is manufacturers, retailers,

and importers must specify whether warranties are full or limited, must spell them

out in clear language, and must give consumers the right to sue if warranty are not

honored.

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The laws also require food manufacturers to adopt uniform nutrition label,

specifying the amount of calories, fat, salt, and other nutrients. Labels must list the

amount of trans fat. Strict rules also define what can properly be labeled “organic”.

2. To protect consumers against possible hazards

Required warnings about possible side effects of pharmaceutical drugs, limits

placed n flammable fabrics, restrictions on pesticide residues in fresh and

processed foods, the banning of lead-base paints, and inspections to eliminate

contaminated meats are examples of these safeguards.

3. To promote competitive pricing and consumer choice

When competitors secretly agree to divide up markets among themselves, or

when a single company dominates a market, this artificially raises prices and limits

consumer choice. So, the law was made to protect consumer rights to choose.

4. To protect privacy

For example, the federal trade commission established a “do not call” list to

protect individuals from unwanted telemarketing calls at home and a person’s

mobile phone.

Major Consumer Protection Agencies

There are 6 major consumer protection agencies government has.

1. The Department of Justice and HAM (Departemen Hukum dan HAM)

The civil rights division of this department enforces the provisions of the civil

rights act that prohibit discrimination against consumers.

2. Food and Drug Administration (Badan Pengawas Obat dan Makanan)

FDA’s missions are to assure the safety and effectiveness of a wide range of

consumer products, including pharmaceutical drugs, medical devices, foods, and

also cosmetics.

3. YLKI (Yayasan Perlindungan Konsumen Indonesia)

As its name, YLKI addresses to protect the consumer right. Especially if costumer

got injured or felt disapponted with a goods or services provided by a company.

Consumer Privacy in the Internet Age

In early 21st century, rapidly evolving information technologies have given new

urgency to the broad issue of consumer privacy. Shoppers have always been

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concerned that information they reveal in the course of a sale transaction might be

misused and also unwarranted incursion into personal privacy. This might happen

because there is a technology called cookie, an identifying marker placed on a user’s

computer hard drive during visits to some web sites.

The dilemma of how best to protect consumer privacy had generated a wide-

ranging debate. There are 3 major solutions have been proposed:

1. Consumer self-help

In this view, the best solution is to use technologies that enable users to protect

their own privacy. For example, special software can help manage cookies,

encryption can protect message, and surfing through intermediary sites can provide

user anonymity. Critics of this approach argue that many unsophisticated web

surfers are unaware of these technologies. Moreover, tools for protecting privacy

can always be defeated by more powerful technologies.

2. Industry self-regulation

Many internet-related business have argued that they should be allowed to regulate

themselves. In advantage of the self-regulation approach is that companies might

do the best job of defining technical standards. Critics of this approach are,

however, that industry rules would inevitably too weak.

3. Privacy legislation

Some favor new government regulations protecting consumer privacy online.

Any approach to online privacy would face the challenge of how best to balance

the legitimate interest of consumers and of business.

Privacy in internet is necessary. Especially if it’s about credit card, ID card, etc.

if the privacy is leaked and fall into the wrong hand, it’s a kind of disaster. The

previous section tells about how to protect consumer’ privacy in USA. Let’s move to

Indonesia practices in protecting the privacy. Those three efforts to protect consumer

privacy has been done by Indonesia. But, what should be done next is to make sure

that the regulation is done well.

Product Liability

The product liability refers to the legal responsibility of a firm for injuries

caused by something it made or sold.

Strict Liability

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In USA, the legal system has generally looked favorably on consumer claims.

Under the doctrine of strict liability, courts have held that manufacturers are

responsible for injuries resulting from use of their products, whether or not the

manufacturers were negligent or breach the warranty.

The product liability in USA may be different with other country. In europe,

awards are usually smaller than in USA, and also paid partly because the medical

expenses of victims are already covered under national health insurance.

Indonesia don’t have this strict liability. So, we may not be that familiar with

this liability.

Business Efforts to Reform the Product Liability Laws

Many businesses have argued that the evolution of strict liability has unfairly

burdened them with excess costs. Liability insurance rates have gone up significantly,

especially for small business, as have the costs against liability lawsuits and paying

large settlements to injured parties.

In 2005, congress passed the class action fairness act. The 2 key elements were:

1. Most large class-action lawsuit were moved from state to federal courts.

2. Attorneys in some kinds of cases were paid based on how much plaintiffs actually

received, or on how much time the attorney spent in the case.

Although most businesses welcomed these changes, many called for further

reforms, such as:

1. Set up uniform federal standards for determining liability.

2. Shift the burden of proving liability to consumers.

3. Require the loser to pay the legal costs of the winner.

4. Limit punitive damages.

5. Establish liability shields for certain kinds of products.

A promising approach to resolving product liability conflicts without going to

court is called alternatives dispute resolution (ADR).

Positives Business Response to Consumerism

The consumer movement has demonstrated that business is expected to perform

at high levels of efficiency, reliability, and fairness in order to satisfy the consuming

public. That brings some of the more prominent positive response from the firms.

1. Quality management

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Quality has been defined by international organization standardization (ISO) as a

composite of all the characteristics, including performance, of an item, product, or

service that bear on its ability to satisfy stated or implied needs. Then, we can

conclude that quality management refers to all the measures an organization takes

to assure quality.

Taking steps of the production process to ensure consistently high quality has

many benefits, for example, reduces the risk of lawsuits and builds brand loyalty.

2. Voluntary industry codes of conduct

Businesses in some industries have banded together to agree on voluntary codes of

conduct, spelling out how they will treat their costumer.

3. Consumer affairs department

This department handles consumer inquiries and complaints about a company’s

products and services. Some companies have installed costumer hot line for

dissatisfied customer to place telephone calls directly to the manufacturer.

4. Product recalls

Companies also deal with consumer dissatisfaction by recalling faulty products.

Product recall occurs when a company, either voluntarily or under an agreement

with government agency takes back all items found to be dangerously defective.

One problem with recalls is that the public may not be aware of them, so

dangerous products continue to be used.

Consumerism’s Achievements

Consumers today are better informed about the goods and services they

purchased, are more aware of their rights when something goes wrong, and are better

protected against inflated advertising claims, hazardous or ineffective products, and in

fair pricing. Some businesses have heard the consumer message and have reacted

positively.

All these achievements bring the consuming public closer to realizing the key

consumer rights: to be safe, to be informed, to have choices, to be heard, and to

privacy.

Conclusion

Technology, governance, and the last is consumer protection, from those 3 we

can have a conclusion. Technology is developing fast. This technology is created to

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help and to make work get easier, more efficient, and more effective. not only those

the use of technology, but also help a company to improve the managerial skill. So,

good corporate governance can be done.

The more business gets improvements, the more complex business is. It implies

to consumer, of course. The companies face the challenge to provide high quality

goods or services, but they have to keep the cost low. The company intended to

sacrifice the consumer interest. So that the regulation is needed to protect the

consumer rights.

So, we conclude that those three points of this paper has connection. The

technology brings the companies to be more efficient and effective. It can imply that

the companies can do good corporate governance. Then, if companies can do good

corporate governance, they can also protect their consumer’s rights.

References

Afifah Kusumadara. “Problem of Enforcing Intellectual Property Laws in Indonesia”

http://ialsnet.org/meetings/business/KusumadaraAfifah-Indonesia.pdf.

(Accessed: June 16, 2012).

Australian Government, “Intellectual Property Protection in Australia”,

http://www.austrade.gov.au/ArticleDocuments/1358/Intellectual-Property-

Protection-Guide.pdf.aspx. (Accessed: June 16, 2012).

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Deshmukh, A. 2002. Accounting Software and E-Business. CPA Journal, 72(11). November, 52-54.

Julie Hicks. 2004. E-commerce and Its Impact on the Accounting Profession (A Literature Review). UNC Greensboro Journal of Student Research in Accounting Issue 1 (2004), 1-16.

Lawrence, A.T dan Weber, J. 2008. Business and Society: Stakeholders, Ethics and

Public Policy, 12th ed. USA: McGraw Hill.

Shil, N. C. 2008. Accounting for Good Corporate Governance. JOAAG, Vol. 3. No. 1. http://joaag.com/uploads/3_ShilFinal.pdf. (Accessed July 10, 2012)

Tech in Asia,“Indonesia Ranks as The 11th Worst Pirating Nation,” May 15, 2011, http://www.techinasia.com/indonesia-pirating-nation/. (Accessed: June 18, 2012).

Wikipedia, ”Information Security Management”, http://en.wikipedia.org/wiki/Information_security_management. (Accessed: June 18, 2012).

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