Lars Östman towards a general theory of financial control

Control of controlling organisations 

As in pay-driven organisations, all controlling subjects partly focus on separate and 

professional interests. All controlling organisations do, including authorities and the mass 

media. Often, control bodies are parts of a complicated vertical and horizontal structure, and 

this is the case even more when problems and organisations extend across national borders. 

Operative, standard setting and supervisory authorities within the public sphere are not 

exempted from general mechanisms that any organisation meets. Operational regulations, 

surveillance and financial support are handled in function-driven organisations that are 

exposed to many of the same forces as most tax-financed units. Thus, also for the design and 

evolution of control and surveillance systems as such, target-oriented driving forces are 

essential and processes go on that have many similarities with any user-oriented process, 

whether commercial or not. Everybody tends to focus on the articulate vertical and 

horizontal interests around them, often, but not necessarily, to be in conformity with the 

surrounding actors. 

One important question is the extent to which control bodies pronounce standards that are 

based on their own broad basis, and to what extent their position reflects the views of outside 

actors. For example, accounting standard setters may have the view that financial reporting 

should be useful for a certain group like analysts, and they may try to capture analysts´ 

views. This is only one way of reproducing one type of separate views at one point in time, 

rather than trying to identify what would be functional for the economic system in a broader 

and longer perspective. It is not necessarily a good idea to let a standard setter construct 

accounting rules with the needs of “decision-makers” as the main guide line. If this ambition 

is fulfilled, the current views of such decision-makers will be built into the control system, 

which does not mean that the system will be appropriate for future situations of a very 

different character. Application problems are obvious for systems that are not very robust, 

which is the case with many rules based on predictions. Implied effects may also appear in 

the long run, such as the distribution of power among owners, boards and central executives.  

Each control subject has a distance to its control objects. Professional story-telling occurs 

at a distance for a public at an even greater distance. Promises are emphasized and examined. 

High vertical levels have been emphasized more and more. Top representatives who are at 

some distance from fundamental horizontal processes communicate with media that are also 

at a distance, which in turn communicate with recipients that are at an even greater distance. 

Of course, there is information beyond the rhetorical value but these phenomena limit the 

possibility of transparency in any deep sense. Distance is also significant for formal 

supervisory processes and media reporting about them. Supervisory bodies observe at a 

distance – often then these boards have to evaluate techniques for judging future events, 

rather than any series of actual real-world events. They have to communicate through mass 

media. What they report may be distorted by superficial story-telling structures that are more 

appropriate for intermediaries and media recipients than other more specific and complicated 

pictures. General terms like “risks” with ambiguous meanings are pivotal.  

Professional story-telling has led, perhaps implicitly, to certain views on the vertical 

relations of organisations. Concerning the private sector, the responsibilities of the board are 

often focused and widened downwards, which has repercussions on working conditions at 

lower levels. Processes at different vertical levels are interrelated and the bases for actions 

are different. Yet, controllability issues are not addressed. Often, laws and rules are 

determined after public processes that require immediate action based on vague grounds. The 

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focus is on the highest organisational levels, without any deep insight into other internal 

processes. Monitoring is at a distance. With this starting point, public rules are modified, 

concentrating on high-level responsibilities without taking total internal processes into 

account. From a systems point of view, sanctions are primarily symbolic. Organisations and 

systems become questionably equipped to meet future disturbances.  

Any formal controlling body, public or private, tends to represent a local and time-bound 

perspective and supports such actions of every object organisation. Designing a control 

system in a technical sense means partitioning. Areas of significance from a broader 

system´s point of view are not considered. This may be natural from a professional point of 

view, but the effects of norms can be far-reaching and may include aspects that norm setters 

would regard as irrelevant for them. Rules and procedures for determining the rules may 

cause inconveniences for greater systems of an uncertain and less well-defined nature. This 

may occur without any loud and visible signs appearing immediately, or without being in 

immediate conflict with many interests, perhaps not even represented in the body. Systems 

complexity means that part-driven and far-going norm setting, on the conditions of a few 

professions, makes residual effects probable sooner or later.