I am required to explain Capture Theory in my coming 3rd year class on Accounting Theory. The theory is used to explain the necessity of regulation in the disclosure of accounting information and the dynamics between the Regulator and the regulated.
What is Capture Theory?
The regulated party seeks to take charge (capture) of the Regulator with the intention that the rules subsequently released by Regulator will be in favour of the regulated party.
In more human language, I would paraphrase by saying, “Those people you are out to control in the first place, actually taken control of you.”
Can Edgar relate the Theory to some real life applications in Singapore context?
National Wage Council is a tripartite entity made up of the employers, the union representatives and the Government. A tripartite entity would ensure nobody get “captured”.
Under Code of Corporate Governance, the Board of Directors are required to be represented by independent directors too. Whether the independent directors are “captured” by directors who are in executive positions/representing majority shareholders are less clear and it varies from company to company.
In the recent ACCA conference, there was a rallying call from a leading accounting professional from Malaysia to fellow professionals and interest groups in this region, to speak up and participate actively in the IFRS standard-setting process. I guess this is ensure that IFRS put into law are not “captured”.