Every organization has various cadres of staff at different levels of the organization. All members of staff must work harmoniously so as to ensure that the organization achieves its desired outcomes. Indeed, the actions or inaction of each member of the organization has a bearing on the general outcome that the organization attains. However, while all members of the organization contribute to the outcome of the organization, it is the actions or inaction of the top members which can have the most profound effect on the organization. In other words, the effects of the activities undertaken at the top level of the organization are likely to be felt across the entire organization. Such activities will either positively or negatively affect the entire organization. The tone at the top is one of the phrases that has developed from the field of accounting in relation to the matters stated above. In the field of accounting, the phrase ‘tone at the top’ is used to refer to the overall environment or climate of the organization in terms of the organization’s ethics. The ethics which give rise to the organizational climate flow from the activities and decisions of various stakeholders who are primarily based at the apex of the organization. Such stakeholders include the organization’s board of directors, members of the senior management of the organization and the organization’s audit committee. It is these members at the apex of the organization who determine the tone of the organization. Scholars as well as experts in business ethics have advanced the argument a strong tone at the top is a prerequisite for any organization which seeks to avoid the pitfalls that befall organizations that have a weak tone at the top. Such pitfalls include numerous unethical practices and fraud which may inevitably lead to the organization winding up.
Having noted that the tone at the top of the organization affects the entire organization, it would equally be significant to identify ways in which it can be evaluated. Granted, it is not something which one can give outright measurements. This is because its parameters for measurement are multifaceted and multidimensional. However, this is no escape route for organizations which seek to avoid evaluating the tone at the top. Indeed, any organization which fails to put in place mechanisms to monitor and evaluate the tone at the top of the organization will only have itself to blame when things go wrong. The tone at the top of an organization can only be evaluated through indicators. Such indicators may include the levels of fraud in the organization. This argument is premised on the fact that initially, the notion of tone at the top had a narrow construction and interpretation. This was because the phrase tone at the top focused solely on internal financial controls of the organization. It focused on establishing what the attitude of the senior management members of the organization was towards the internal financial controls put in place by the organization. As much as the phrase has now been expanded beyond internal financial controls, a significant indicator of an organization’s tone at the top still remains to be found in the narrow interpretation. This indicator is the level of fraud in an organization. More often than not, there will be a direct correlation between the level of fraud in an organization and the tone at the top. Where the tone at the top is casual and the approach adopted by the senior management towards internal financial controls is more of a laissez faire model, then the level of fraud in such an organization is likely to be high. On the contrary, where the tone at the top of an organization is serious and the members of the top management are keen to ensure that all the internal financial controls of the organization are followed to the letter, then such an organization will have minimal if any incidences of fraud in the organization. The above example is a clear illustration of how the level of fraud in an organization can be used to evaluate the tone at the top.
The tone at the top of an organization can also be evaluated through examining the ethical practices of the organization. This will involve keenly assessing the organization through such parameters as whether it has good or bad ethical practices. It will also entail seeking feedback from other stakeholders who are involved with the organization such as its clients. The prevailing ethical practices in any organization are directly traceable to the tone set at the top of the organization. An organization which has a strong tone at the top is likely to have very good ethical practices across the entire organization. On the other hand, an organization which has a weak tone at the top is likely to have poor ethical practices across the entire organization.
The tone at the top of an organization can have profound effects on the organization. Indeed, there are numerous examples which are illustrative of this fact. On numerous occasions, it is the tone at the top of the organization which has determined whether an organization thrived or ultimately came tumbling down. Many organizations have wound up as a result of setting the wrong tone at the top. Perhaps the most widely known case is that of Enron where unethical practices by members of the top management of the company ultimately led to its collapse. The Enron case was a classic incident of a poor tone at the top. There are other examples of organizations and companies which have faced serious challenges as a result of having a failed tone at the top. They include Arthur Andensen, Xerox and Fannie May. Indeed, failure to have a strong tone at the top can have far reaching implications. This is illustrated by arguments which have been advanced by various scholars and supported by the US Financial Crisis Inquiry Commission. The significant findings of the commission as well as the scholars was that the 2007-2012 global financial crisis was mainly as a result of having a weak tone at the top in many financial firms. Indeed, so profound was this effect that the 2007-2012 global financial crisis was ranked second to the Great Depression as among the worst financial crises that the world has ever experienced.
The primary role of an auditor is to examine the financial statements of a company and ascertain that they are a true reflection of the company’s financial performance for the period under review. If this role is played efficiently, then internal auditors too can make a significant contribution in improving the tone at the top. The internal auditors of the organization must continually assess and examine the internal financial practices of the organization. They must do so with the aim of ensuring strict compliance with the internal financial controls of the company or organization. Where they note any departure, however small, from the internal financial controls of the organization, they must be quick to raise the red flag. Irrespective of whoever is perpetuating the acts which constitute a departure from the internal financial controls of the company or organization, internal auditors must bring this out in the open. It is only through such methods that internal auditors can help in improving the tone at the top. Furthermore, by virtue of the role they play, internal auditors must ensure that their professional conduct is beyond reproach. They must not work in cahoots with members of the top management of the organization or company with intent to defraud the organization or hide particular glaring issues regarding the organization’s financial performance. Having internal auditors who are independent and incorruptible certainly goes a long way in improving the tone at the top.
Like other activities of the top management which affect the entire organization, the tone at the top also affects the internal controls in an organization. The tone at the top may affect the internal controls of the organization either positively or negatively. Where the tone at the top affects internal controls of the organization positively, then the organization stands to benefit. On the contrary, where the tone at the top affects the internal controls of the organization negatively, this will significantly serve to the detriment of the organization. Where there is a strong tone at the top, the organization is likely to have strong internal controls. Furthermore, there is an increased likelihood of compliance with these internal controls by all the members of the organization. In addition, whenever any loopholes are detected in the internal controls of the organization, they will be promptly corrected. In a nutshell, a strong tone at the top serves the purpose of ensuring that the organization has robust internal controls that are dynamic so as to ensure they keep pace with the changing times and nature of fraud. Where there is a failed tone at the top, the organization is likely to have weak internal controls. This problem is further compounded by the fact that almost everyone in the organization will be keen to flagrantly violate the weak internal controls in place. Eventually, the internal controls may be completely done away with or may just exist on paper. This will result in massive fraud in the organization which will put the organization on its knees, firmly on the path towards its deathbed. It is thus incumbent upon the internal auditors of the company to ensure that they always seek to ensure that all persons abide by the internal controls of the organization. If they seek to ensure that the organization continues to thrive, they must immediately raise the red flag whenever there is any violation of the internal controls of the company.
In conclusion, this submission contends that the tone at the top is critical to the proper functioning of any organization. It is therefore incumbent upon all those involved in determining the tone at the top to ensure that they set the right tone so as to ensure the organization’s prosperity.
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