An employee, Fred, working in the accounts office of a medium-sized company listed on the Nairobi Stock Exchange, was working late one evening during the week. He realized he had left his pen in the boardroom at an earlier meeting and, given its value, went upstairs to look for it. As he approached the door he heard the following discussion: ‘Chief Executive: I am deeply concerned that if this fall in profit figures is disclosed in the next annual report, there will be sorts of problems with the shareholders. We may even lose a number of big investors. Non-executive director (also the cousin of the Chief Executive): (large sign) well, I suppose we could always find a way of making them look better. Chief Executive: How? I can’t see it at all. Non-executive director: Well, we could make them just slightly higher than last year’s figures by including the proceeds of sales of our toothbrush division. Chief Executive: But the sale doesn’t go through until October. Non executive director: No, but it will…….and it doesn’t make much difference we need the money on the books now. Chief Executive: But when the accounts are signed off, won’t that be fraudulent? Non-Executive director: Not really ……. I don’t see why ….. It’s just a manipulation of timing rather than numbers. Chief Executive: Ok. That sounds good to me. Let’s sort it out now.’ Fred heard one of them move towards the door, and quickly slipped back to the stairs. He left work and spent the evening worrying about what he should do, if anything. He decided he would anonymously ask the Company Secretary how he could deal with this situation, and bring the issue out into the open.
An employee, Fred, working in the accounts office of a medium-sized company listed on the Nairobi Stock Exchange, was working late one evening during the week. He realized he had left his pen in the boardroom at an earlier meeting and, given its value, went upstairs to look for it. As he approached the door he heard the following discussion:
‘Chief Executive: I am deeply concerned that if this fall in profit figures is disclosed in the next annual report, there will be sorts of problems with the shareholders. We may even lose a number of big investors.
Non-executive director (also the cousin of the Chief Executive): (large sign) well, I suppose we could always find a way of making them look better.
Chief Executive: How? I can’t see it at all.
Non-executive director: Well, we could make them just slightly higher than last year’s figures by including the proceeds of sales of our toothbrush division.
Chief Executive: But the sale doesn’t go through until October.
Non executive director: No, but it will…….and it doesn’t make much difference we need the money on the books now.
Chief Executive: But when the accounts are signed off, won’t that be fraudulent?
Non-Executive director: Not really ……. I don’t see why ….. It’s just a manipulation of timing rather than numbers.
Chief Executive: Ok. That sounds good to me. Let’s sort it out now.’
Fred heard one of them move towards the door, and quickly slipped back to the stairs. He left work and spent the evening worrying about what he should do, if anything. He decided he would anonymously ask the Company Secretary how he could deal with this situation, and bring the issue out into the open.
As Company Secretary you receive a report from the employee about the overheard conversation. Write a brief summary for board members of the corporate governance problems raised by this employee, and the weakness in the company’s corporate governance which are evident from the conversation which was overheard.
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