empowerment
Chapter 2
CORPORATE GOVERNANCE
PERSPECTIVES
Introduction
Corporate governance is a term that, over the last two decades, has now found its way into popular literature. It has been described by Sir Adrian Cadbury as the way organizations are directed and controlled. This simple statement contains many profound elements including the performance/conformance argument. An organization’s main task is to achieve the level of performance that it was established for. But at the same time, an organization must adhere to all relevant standards, rules, laws, regulations, policies and expectations that form a framework within which this performance must be assessed, which in turn may cause many difficulties in the real world. Our first reference to corporate governance comes from Ireland: ‘Improved standards of corporate governance, like ‘‘motherhood’’ cannot be argued against. It is critical to a small economy like Ireland, which is seeking to develop business in the more sophisticated sectors, that we are seen to operate to high standards.’1
A widely reported case, involving a large law firm, recounts the pressures placed on the legal teams who were told to charge a set number of fee paying hours each month, which resulted in the routine falsification of timesheets to achieve this target. While the firm’s performance was excellent, as measured in terms of income achieved, it broke many rules in its charging practices and even committed the criminal offence of false accounting. That is, there was little conformance with rules, procedures and so on. The firm’s direction was weak in that it created a culture of abuse and control was lacking in that routine working practices broke many rules. Short-term gains in income were secured, while in the long run a great deal of damage was done to the firm’s reputation when the scandal was uncovered. Likewise the accounts were based on irregular income practices. The firm’s partners, investors, employees and everyone
CORPORATE GOVERNANCE
PERSPECTIVES
Introduction
Corporate governance is a term that, over the last two decades, has now found its way into popular literature. It has been described by Sir Adrian Cadbury as the way organizations are directed and controlled. This simple statement contains many profound elements including the performance/conformance argument. An organization’s main task is to achieve the level of performance that it was established for. But at the same time, an organization must adhere to all relevant standards, rules, laws, regulations, policies and expectations that form a framework within which this performance must be assessed, which in turn may cause many difficulties in the real world. Our first reference to corporate governance comes from Ireland: ‘Improved standards of corporate governance, like ‘‘motherhood’’ cannot be argued against. It is critical to a small economy like Ireland, which is seeking to develop business in the more sophisticated sectors, that we are seen to operate to high standards.’1
A widely reported case, involving a large law firm, recounts the pressures placed on the legal teams who were told to charge a set number of fee paying hours each month, which resulted in the routine falsification of timesheets to achieve this target. While the firm’s performance was excellent, as measured in terms of income achieved, it broke many rules in its charging practices and even committed the criminal offence of false accounting. That is, there was little conformance with rules, procedures and so on. The firm’s direction was weak in that it created a culture of abuse and control was lacking in that routine working practices broke many rules. Short-term gains in income were secured, while in the long run a great deal of damage was done to the firm’s reputation when the scandal was uncovered. Likewise the accounts were based on irregular income practices. The firm’s partners, investors, employees and everyone
References: 1. Sawyer Lawrence B. and Dittenhofer Mortimer A., Assisted by Scheiner James H. (1996) Sawyer’s Internal Auditing, 4th edition, Florida: The Institute of Internal Auditors, p 2. Flesher Dale (1996) Internal Auditing: A One-Semester Course, Florida: The Institute of Internal Auditors, pp. 5–6. 3. Internal Auditing (2002) Distance Learning Module: Institute of Internal Auditors UK&Ireland. 4. Moeller Robert and Witt Herbert (1999) Brink’s Modern Internal Auditing, 5th edition, New York: John Wiley and Sons Inc. 5. Flesher Dale (1996) Internal Auditing: A One-Semester Course, Florida: The Institute of Internal Auditors, p. 5. 6. Flesher Dale (1996) Internal Auditing: A One-Semester Course, Florida: The Institute of Internal Auditors, p. 7. 7. Vinten Gerald (1991) Unpublished material from Masters Degree Programme, City University Business School. 8. Sawyer Lawrence B. and Dittenhofer Mortimer A., Assisted by Scheiner James H. (1996) Sawyer’s Internal Auditing, 4th edition, Florida: The Institute of Internal Auditors, p 9. Sawyer Lawrence B. and Dittenhofer Mortimer A., Assisted by Scheiner James H. (1996) Sawyer’s Internal Auditing, 4th edition, Florida: The Institute of Internal Auditors, p 10. Sawyer Lawrence B. and Dittenhofer Mortimer A., Assisted by Scheiner James H. (1996) Sawyer’s Internal Auditing, 4th edition, Florida: The Institute of Internal Auditors, p