Lars Östman towards a general theory of financial control

Linking 

 

Different partial processes within an organisation need to be linked up. In addition, an 

organisation and actors in the surroundings have connections that need to be considered. 

Internal processes that are related to financial control consist of a number of sub-processes 

that involve actors in various combinations. They have no unambiguous relation to a simple 

hierarchy, even if, to some extent, they are based on pure formal delegation. They have 

horizontal and diagonal elements. Some sub-processes are manned on a representative basis. 

Linking sub-processes is often a difficult task, which is crucial for those who have fairly 

strict responsibility in a hierarchy. 

Those who work in an organisation will, through employments and commitments, 

represent a common interest – a “we” that includes “everybody”. The perspectives of this 

“we” can conflict with perspectives of sub-units and of individuals that have their own 

genuine interests. Often, central executives and specialists make great efforts to reach 

vertical linking by creating common values and reinforcing this all-including “we”. Various 

forms of communication, systems and campaigns have been normal tools in an epoch when 

short-term relations and not very lasting affinities are typical. During the past few decades, 

this development has been one of the major changes in governance procedures.    

Incentive systems with variable components provide another tool for congruence between 

the aims of employees and the goals of an organisation and its owners. Many variants are 

possible. Employees get remuneration in proportion to activity outcome in various respects, 

for example some earnings measure. They get shares, options or fund units, and value 

increases, if any, will fall to them. They get remuneration as if they had had shares or 

options, and value increases had fallen to them. They are invited to acquire shares or options 

through the employing company, and they can take advantage of increases in values-in-

exchange, if any. Incentives are tied to estimated model values when actual values-in-

exchange do not exist, for example for a sub-unit. Thus, incentive systems with variable 

components aim at making the actions of subordinates congruent with the interests of 

superior principals. Beyond this, potential employees at high levels that are competitive can 

be offered attractive working conditions and the possibility to build up private capital. For 

some constructions, the borderline between employee and owner may be diffuse through a 

two-sided role. This, in turn, concerns accounting foundations because the distinction 

between owners and an organisation with employees is fundamental.  

Influence on basic perspectives of central executives is an important aspect of incentive 

systems. As a matter of fact, this is a primary purpose. Thus, central executives may 

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represent more or less the same financial logic as financial principals do, rather than an 

activity-oriented and separate logic tied to an organisation as such. Generally speaking, 

financial incentives have been much more decisive for both planning and running operations. 

However, during the last decades of the 20

th

 century, great efforts were also made to achieve 

an orientation towards broader goals, particularly by means of balanced scorecards. 

Nevertheless, financial measures and key variables have been dominant, which has been 

self-evident especially in the business fields of financial transactions.