OBJECTIVITY IN CORPORATE GOVERNANCE
WHAT IS OBJECTIVITY?
Basically, all players in the organisation’s corporate governance must be objective. If you are objective, it means you are “not influenced by personal feelings or opinions in considering and presenting facts.”- Concise Oxford English Dictionary. This important corporate governance principle does not just ‘happen’ like a dream. It is achieved through deliberate and consistent steps.
IMPORTANCE OF OBJECTIVITY
Objectivity can be very difficult in an ever subjective and changing environment. It never the less is key to the success of corporate governance. This is because subjective behaviour may bring misunderstandings with stakeholders.
Let us explore the importance of objectivity in relation to one field- accounting. Have you ever heard of the misconception by most people (especially those not in the field) that Accountants are thieves? Because of lack of objectiveness (and other factors), fraudulent acts by some accountants as players in the corporate governance chain have in the recent past put the entire profession in disrepute. One famous example is that of Enron. “The public reputation of the accounting and auditing profession was seriously damaged by the major corporate failures such as Enron and Worldcom. The role of accountants operating within these entities as directors, or associated with them as auditors has raised questions about the integrity of the profession. Globally, ethics in organisations have been subject to increased scrutiny and criticism from the media, regulators and public interest groups.”- ACCA.
WHO SPECIFICALLY SHOULD BE OBJECTIVE IN CORPORATE GOVERNANCE?
There are many groups of people who are involved directly and indirectly in the governance of a corporation. Each group has to exercise objectivity in the role(s) they play in the direction and control of the companies. For hostile acquirers, analysts, credit rating agencies, accounting firms and outside lenders, access to and exercise of objectivity may mean the difference between success and failure.
As a result of high profile fraud cases (such as the ones highlighted above) and the massive number of people depending on financial information, the accounting profession has introduced a number of regulations and codes of best proactive to enhance objectivity. For instance, objectivity is one of the fundamental principles of the International Federation of Accountants (IFAC) code of ethics. It is usually used synonymously with the word independence.
HOW IS OBJECTIVITY EXERCISED IN CORPORATE GOVERNANCE?
Answering this question completely can lead to a large volume of information as for each field that exists; accounting, marketing, economics, finance, engineering etc, various ways are used to enhance objectivity. However some few ways stand out as necessary in all these fields. For instance; the presence of the audit committee and internal and external auditors in the governance structure are needed everywhere. Controls to enhance the independence of the aforesaid are also necessary in any type of firm in order for the accounting functions to be carried out objectively. To enhance independence, various controls are used to prevent threats to objectivity such as self review, self interest, advocacy, familiarity and intimidation threats. Some of the controls include; what are known as Chinese walls, quarantines, declaration of interest (s) – financial or otherwise, rotation of manpower and so on.
CONCLUSION
As a result of it’s importance, Objectivity/independence must be exercised at every level; organisational, departmental and individual levels. Diagnosis of Impairments to independence and implementation of appropriate mitigation/prevention methods have to be undertaken frequently.
REFERENCES
ACCA “Corporate Reporting-Course notes” ACP2CN07 (INT)
Concise Oxford English Dictionary
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