BusinessCompany NewsA conflict of interest?

A conflict of interest?

An FD’s role contains an inherent conflict of interest according to a new book Corporate Governance by Kathryn Vagneur.

In most organisations all financial information is designed, collected,
worked through, analysed, interpreted and presented by the FD and his – or her –
department.

It’s Vagneur’s belief that this joint responsibility for recording and
presenting of the numbers can provide an irresistible temptation to ‘spin’ the
data so that it presents the organisation and its management in the best
possible light.

Is the solution really to split the role into two – with one responsible for
the ‘accounting’, recording of transactions and delivery of accounts, and the
other responsible for interpretation and value-added activities? Most FDs I know
would be horrified by the mere suggestion.

To some extent, we have brought this on ourselves. All too many instances of
data manipulation have hit the headlines. The public, and those concerned with
governance, have a right to ask questions.

So, what reassurances can we offer to defend against radical alternatives
like splitting the job?

Those working in treasury, an environment where multi-million pound contracts
are entered into on the telephone or at the click of a mouse, have been dealing
with conflicts of interest and temptations to fraudulent behaviour for many
years. Clarity of policy and authority and segregation of duties are
fundamental, but just as important is the creation of a open culture in which
inappropriate behaviour is not tolerated.

Much has been done to strengthen the governance codes, including the
introduction of senior independent director and broadening the remit of audit
committees. They should provide checks and balances to the FD’s conflicts of
interest.

Of course, if the whole board, including non-executives, gets carried away
with its own hubris, then no amount of segregation of duties or codes of
governance will prevail. This is where the outsiders come in – auditors and
shareholders, who need to be prepared to question and to hold management
clearly to account.

Pat Scott is partner and executive coach at Woodbridge Partners

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