Whistleblowers And Accounting Theories: A Case Study Of Barclays CEO

Who is a whistleblower?

Who is a whistleblower?

A whistleblower can be an employee of the company or of the agency of government who reveals the information to the public or higher authorities about the wrongdoings which can be in the form of corruption or fraud. He comes forward to share his knowledge about any wrongdoing taking place in some department or in the whole organization. He could be  an employee, supplier or contractor who is aware of some unlawful activity taking place. There are two types of whistleblowers viz. internal and external. Internal whistleblowers report the wrongdoings to the senior officials such as Head HR or CEO while the external whistleblower can expose the company outside like the media, police or officials of government (Nielsen, 2013).

Parker has also highlighted the relationship between academic accounting research and   professional practices which can greatly impact the engagement of accounting theories and the society (Parker, Guthrie and   Linacre, 2011)

This essay describes the case of CEO of Barclays who was trying to expose the whistleblower along explaining three accounting theories revealing the various aspects of whistleblowing. These will also be compared and contrasted with discussing the relationship between accounting research and professional practice.

Identifying the facts of the case and discussing the reason why Barclays CEO was trying to expose whistleblower

As per Morris and Glover (2018), the CEO of Barclays Mr. Jes Staley was fined $1.1 million for his attempt to expose a whistleblower in his company. He has breached the standard of care and risked the confidence in the procedures of whistleblowing of the company. Whistleblowers play a crucial role in revealing the practices of poor governance and misconduct in the sector of fiscal services. The imposed fine is the third biggest fine ever enforced on any person by the Financial Conduct Authority (FCA).

The fine is about 15% of the compensation given to him in 2016. As per Prudential Regulation Authority and FCA, the whistleblowing systems of Barclays would be in surveillance of strict monitoring and scrutiny. The case requires the officials to be accountable for their misconduct. It is the failure of CEO to safeguard the interests of whistleblowers of his company.

The controversy was initiated in 2016 when the board received a letter which raised concerns about the recruitment of one of the colleagues of Staley Mr. Tim Main in  JP Morgan. The contact revealed the matter of personal interest of both the persons and their role in dealing with those issues at JP Morgan. After knowing that the matter has been exposed by some whistleblower, Staley tried to track his identity.

Two types of whistleblowers

According to the opinion of Fabrizio (2016), the going concern principle of accounting pertains to the assumption that an organization will continue to operate the business in the long run. It implies that it would not be forced to halt its operations and liquidate its assets at low prices. In this case, the entity shall be assumed to continue its operations and utilizing its assets in the most efficient manner.

With reference to the given case, the CEO should carry out his responsibilities and duties in an honest and ethical manner. The officials, board and CEO should ethically manage the affairs of the company so that it can able to sustain in the long run. They should handle the apparent conflicts of interest between personal and professional relationships.

The CEO was accused of involving personally with his friend and colleague Tim Main when they were together in JP Morgan Chase and again when the latter was hired at Barclays.  He even tried to identify the whistleblower who had launched a complaint against him and his colleague through ordering the security team of the bank to track him. So, it would affect the going concern of the company as the CEO was involved in uneconomical long-term commitments to which the company was subjected (Binham, Arnold and Martin, 2018).

Another accounting theory which is relevant to the case is a conflict of interest. The CEO and board should carry out their responsibilities and duties in an honest and ethical manner. They should avoid those activities which would lead to rising of conflict of interests in the company. They must identify and raise issues before they may result in conflicts.

A conflict of interest occurs when the personal interests of the individual are contrary to the interest of the company. In case of an unanticipated rise in the conflict of interest the chief risk and compliance official and general counsel must take proper steps to eliminate the conflict or to mitigate its impact. Conflict of interest may arise in situations where the officials or CEO may have direct personal interest, with an individual with whom they have a close relationship as in the given case or an indirect interest in a corporation or partnership etc (Brower and Mahajan, 2013).

In the given case the CEO of Barclays had a direct interest in the company with an individual who had a close relationship with him. So upon identifying this matter, the whistleblower had reported the incident to the board. Upon this, Mr. Staley ordered the security team of the bank to track the identity of the whistleblower and tried to expose him. This is in contrary to the theory of conflict of interest which suggests that the chief risk and compliance officials and the other responsible members of the committee should resolve and eliminate the probable conflict of interests in a way which suits to the circumstances in the best manner.

The case of Barclays CEO

The third applicable theory is the stakeholder’s theory. It focuses on the impact of corporate activity on all the stakeholders of the company. It states that the officials and board should consider the interests of each of the stakeholders in its administrative procedures. It comprises of attempts to reduce or eliminate the conflicts between the interest of the stakeholders.  

 The stakeholders include traditional members of the corporation like officers shareholders and officers .  The interest of the third party who have some degree of dependency upon the company would also be addressed in this category. It basically addresses the principle of who or what really matters. With respect to the traditional view of the company i.e. the investor’s view, the owners and shareholders play a significant role in the company and it has a fiduciary responsibility to put their needs on a priority basis. It should increase its value for them (CNBC, 2018).

With reference to the given case, the officials such as CEO should consider the impact of their activities on the stakeholders of the company. The CEO was alleged to be personally interested in some contract along with his friend and colleague which would pose a threat to the long-term sustainability of the company along with being hazardous to the interest of the various stakeholders. His acts were exposed by the whistleblower and he tried to expose him which was unethical.

Compare, contrast and critically evaluate the chosen theories 

Particulars	Going Concern Theory	Conflict of  interest theory	Stakeholder’s theory
Compare	The theory of going concern assumes that the entity will continue to operate in the future.	A conflict of interest arises when the best interests of an individual are not aligned with that of the organization.	As per Baumfield  (2016), the stakeholder theory suggests that the activities of the company should be conducted in such a manner which are beneficial for all its stakeholders.
An entity may not be a going concern when it is discovered that there are non-pecuniary commitments to which the company is subjected to (Yeh, Chi and Lin, 2014).	A conflict of interest arises when the official (CEO in this case) favors one of the individuals instead of the company due to the involvement of some personal interest (Khan et al., 2016).	Since stakeholders are the groups whose interest may affect or is affected by the activities of the company so the executives should consider that group while creating value for the company (Hörisch, Freeman and Schaltegger, 2014).
It is the responsibility of the board that none of the executives is hampering the going concern of the company.	The board should address the problem of conflict of interest by acting in the best interest of the company and its officials.	With the help of this theory, the executives should act in the best interest of the shareholders.
Contrast	The Going concern theory concentrates on if the company would continue to operate in the future (Feldmann and Read, 2013).	On the other hand, the conflict of interest is targeted towards protecting the interests of the company in case there is a clash between the interest of the organization and personal interest of the individuals.	The stakeholders have a major role in affecting the affairs of the company so their interest should be kept in mind while managing its administration (Lui, 2014).
It is only concerned with the long-term sustainability of the company.	It focuses on safeguarding the interests of the company.	This is only targeted to protect the interests of the stakeholders while creating value for the company.
In this case, CEO should not involve in any contract which would affect the long-term sustainability of the company.	This theory should direct the CEO to act in an ethical and honest manner in order to protect the interest of the company.	The CEO should act in the interest of the stakeholders.

Hence to conclude, it can be said that it is the duty of the board and CEO of the company to avoid the conflict of interest and to disclose the details of their pecuniary interest in order to protect the interest of the company. The going concern theory can be applied in a way that the CEO should act in an ethical and honest manner so that it does not pose a threat to the long-term sustainability of the company. In this case, Staley acted unreasonably and he has posed a threat to the stakeholders of the company thus violating the principles of stakeholder theory. He must be heavily penalized  along with strengthening the   implementation of ‘Code Of Ethics’ of the bank.

References

Baumfield , V.S.(2016) Stakeholder theory from a management perspective: Bridging the shareholder/stakeholder divide. Australian Journal of Corporate Law. 31 (1) , 187-207.

Binham, C., Arnold, M. and Martin, K.(2018) Barclays CEO fined in whistleblowing probes. Financial Times . [online] Available from: https://www.ft.com/content/80a541e6-4460-11e8-93cf-67ac3a6482fd [Accessed 12^th September , 2018].

Brower, J. and Mahajan, V.( 2013) Driven to be good: A stakeholder theory perspective on the drivers of corporate social performance. Journal of business ethics.  117(2), pp.313-331.

CNBC(2018) Barclays CEO fined $870,000 for trying to identify whistleblower  [online] Available from: https://www.cnbc.com/2018/05/11/fca-pra-fine-barclays-ceo-jes-staley-for-whistleblowing-probe.html [Accessed 12^th September , 2018]

Fabrizio , L.F.D.(2016) The Pattern Of Fraudulent Accounting: Ethics, External Auditing And Internal whistle-Blowing Process. Journal of Governance and Regulation.5(4),pp.12-25.

Feldmann, D. and Read, W.J.(2013) Going-concern audit opinions for bankrupt companies–impact of credit rating. Managerial Auditing Journal, 28(4), pp.345-363.

Hörisch, J., Freeman, R.E. and Schaltegger, S.( 2014) Applying stakeholder theory in sustainability management: Links, similarities, dissimilarities, and a conceptual framework. Organization & Environment.  27(4),  pp.328-346.

Khan, S.A., Sattar, M.A., Rathore, H.A., Abdulla, M.H., Ud Din Ahmad, F., Ahmad, A., Afzal, S. and Abdullah, N.A.(2016) Conflict of interest. Acta Physiol. 216, pp.262-264.

Lui, A.(2014)  Protecting whistle-blowers in the UK financial industry. International Journal of Disclosure and Governance. 11(3), pp.195-210.

Morris , S. and Glover , J.(2018) Got away lightly’: Barclays CEO fined $1.1m after trying to expose whistleblower. The Sydney Morning Herald  [online] Available from: https://www.smh.com.au/business/banking-and-finance/got-away-lightly-barclays-ceo-fined-1-1m-after-trying-to-expose-whistleblower-20180512-p4zew0.html  [Accessed 11^th September , 2018].

Nielsen, R.P.(2013) Whistle-blowing methods for navigating within and helping reform regulatory institutions. Journal of business ethics.  112(3), pp.385-395.

Parker, L.D., Guthrie, J. and   Linacre, S. (2011) .The relationship between academic accounting research and professional practice. Accounting. Auditing & Accountability Journal. 24 (1), pp.5-14.

Yeh, C.C., Chi, D.J. and Lin, Y.R.( 2014)  Going-concern prediction using hybrid random forests and rough set approach. Information Sciences. 254, pp.98-110.