Accounting Can Change Lives; UVA Darden Professor Shane Dikolli Will Convince You Why

By Jen A. Miller

On any given day, you can find University of Virginia Darden School of Business Professor Shane Dikolli walking through Charlottesville, climbing up and down the city’s rolling hills. It’s a habit he picked up during the pandemic. “I set a goal of 30 minutes of walking, at least. Sometimes I walk five to six miles a day.”

He’s thinking about almost anything: his kids, his students, the weather, what he wants to eat that day. But sometimes while he’s out there on those famous hills, he’s thinking about accounting, which he insists is not a dull topic. In fact, it’s vital “because it can change people’s lives. It can change people’s decisions, and those different decisions can change the path of a company and change the path of the people affected by them.”

Crossing Continents to Darden

Dikolli is originally from Perth, the largest city in Western Australia. He was an academic lecturer at Curtin University in Australia when he had the opportunity to do a teaching exchange in Canada. He jumped at the chance, in part to spend time with cousins he hadn’t seen in 20 years. While there, he met the women who would become his wife.

“We’re from opposite sides of the world. We settled in the U.S. because we felt like that was a compromise between the two,” he said.

His U.S. path took him through the  University of Texas at Austin and Duke University before landing at Darden in 2018. He came here in part because he wanted to do less administrative work and more teaching and research, and because Darden’s philosophy matched his academic style.

For teaching, he likes the case method approach.

In one case he uses in class, a hospital is buying supplies from both distributors and manufacturers, which adds both cost and time to the supply chain. Students figure out how to make a more profitable and efficient buying process for all three groups and present their findings to their fellow students.

“When they get to class, they’re ready to discuss the issues in the case and what the company could do to address those issues,” he said. “I’m facilitating rather than me just telling them things. It’s a way to get students engaged and involved, and they feel it more than what they would if I was just lecturing them.”

Studying CEOs: ‘We’re Not a Fly on their Shoulders’

Dikolli’s research has focused on CEOs and CEO behavior because of the massive influence they have on not just their shareholders and employees but the fabric of American life.

“CEOs have a lot of power, but we can’t observe directly what they do. We’re not a fly on their shoulders,” he said, “but we can infer things from what we see in financial data and shareholder letters and what they do in terms of working with CFOs. We can observe from a distance because it’s really important to understand what CEOs do with the power they’re given.”

In a 2020 paper published in The Accounting Review, Dikolli and his fellow researchers created the Integrity Index, which used computational linguistics to measure the integrity of CEOs, and then tied what a lack of integrity costs a company.

The model looked at more than 30,000 CEO letters to shareholders, analyzing the number of causation-related words and other phrases associated with explanations — words like “because,” “hence” and “therefore.”

“We figured that any CEO who has to over-explain things is being defensive, potentially because they are lacking credibility,” Dikolli said.

They found that CEOs who tend to overexplain also lead their companies to pay higher audit fees, thus costing tangible money. “Part of what auditors do is check to see what they think of the integrity of top management,” he said. “Auditors will do more work if they consider the CEO to have low integrity.”

Measuring CEO Influence on CFOs and American Life

In a paper published in Management Science, Dikolli also looked at the relationship between CFOs and CEO compensation. Sixty percent of organizations hire a new CFO soon after hiring a CEO, which researchers found is a good deal for that CEO but expensive for the enterprise.

They found that when CFOs were hired after the CEO, CEO compensation was 10 percent higher. “Our conjecture is that the CEO pressures the CFO to do what he or she wants them to do, and that might mean manage earnings in a way that the CEO personally benefits,” he said.

However, the team also found that the 10 percent effect goes away after three years. “The CFO pushes back against the CEO because once they’ve been there that long, they get some courage.”

This kind of research through an accounting lens can lead to real change, he said. “More and more companies are starting to care about things that are not financial, like employee welfare and taking a customer centric focus, so if accounting can help inform decisions that benefit people other than shareholders, I think it’s far from boring,” he said.

Read more from Dikolli on Darden Ideas to Action and listen to a recent interview on the Coffee & Banter podcast.

About the University of Virginia Darden School of Business

The University of Virginia Darden School of Business delivers the world’s best business education experience to prepare entrepreneurial, global and responsible leaders through its MBA, Ph.D., MSBA and Executive Education programs. Darden’s top-ranked faculty is renowned for teaching excellence and advances practical business knowledge through research. Darden was established in 1955 at the University of Virginia, a top public university founded by Thomas Jefferson in 1819 in Charlottesville, Virginia.


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