»WHILE THE ACCOUNTABILITY MECHANISMS OF PUBLICLY LISTED COMPANIES RESEMBLE THOSE OF DEMOCRATICALLY ELECTED GOVERNMENTS, IN PRACTICE, THESE MECHANISMS ARE OFTEN LARGELY INEFFECTIVE.«
Introduction 3
The Concept of Accountability 4
Governance and its Relationship to Accountability 5
Publicly listed companies and accountability 6
Accountability with regards to various participants 9
The Challenges of Technology 11
Conclusion 12
Bibliography 14
Introduction
The governance and accountability of the corporate world has been a significant focus for many since the economy fell apart during the 2007 financial crisis. Prior to this event, there was a lot of public trust in corporate structures; however, after the financial crisis, there was less faith than ever before. The public scrutiny revealed that there exists a plethora of various regulations for corporate governance and legal standards in publicly listed companies. Many of them display a peculiar approach to accountability that to some extent resembles the one adopted for the democratically elected governments. However, despite the prolific number of various standards and codes of conduct, the level of accountability is by no means at a satisfactory level (Armstrong, Jia and Totikidis, 2001).
The corporate world has gained an extended outreach, opportunities and influence on the everyday life of peoples around the world. This pattern has been fostered by the democratization process itself, combined with economic liberalization, globalization and technological breakthroughs. In turn, these breakthroughs sparked a renewed interest into the limits and governance over the activity of private economic actors. Additionally, the shift in the economic thought to full embracement of neoliberalism effectively meant that the state as a governing and monitoring body has been granted a very limited role in its regulatory outreach on the actors in the economy. Consequently, this further facilitated the process of blurring the rules and establishing varying standards in different sectors as well as within different countries (Mulgan, 2003).
This discussion will focus on the accountability of publicly held and publicly listed companies, particularly focusing on the effectiveness and efficiency of the regulative mechanisms that guide their governance. In order to accomplish this, it examined the concepts of accountability and governance, and their utilization in practice when it comes to the economic actors. Further on, the paper was aiming to substantiate the argument that the majority of mechanisms are indeed effective because of the current neoliberal economic thought that favors deregulation, but the accountability to the market is to some extent ensuring proper behavior and adherence to standards.
Accountability of Publicly Listed Companies
The Concept of Accountability
For publicly listed companies, there is some discussion regarding what accountability really means— and what level of accountability publicly listed companies have to the public as a whole. Accountability, essentially, can be defined as “the duty to answer for one`s actions to someone else who has the right to demand the answer” (Mulgan, 2006, p.4). Even though the concept of accountability can be traced in practically every aspect of the social order, it has been historically mostly associated with the operations of governments across the globe.
However, in recent years, the world has also witnessed heightened interest in the accountability of the economic actors in an increasingly deregulated economy. Specifically, because more and more services and products are offered not by governments, but by the market and its participants of the private legal nature, the issue of regulation and accountability has become more prominent in the public debate. Some have dubbed this as a “shift from government to governance” (O`Riordan, 2001, p. i), meaning that from governmental control, private and public economic actors are increasingly become a subject of debate surrounding accountability to its stakeholders, and governance over their actions and behavior. Accountability in itself is, for the most part, exercised by utilizing structures and various procedures that have the ability to effectively oversee, evaluate and ultimately control the actions of economic and political powers alike (Nelson, 2007). Within the concept of accountability, it is important to note the pivotal role of transparency which can be seen as the facilitator for holding companies accountable in the public eye. More specifically, it relates to the “amount, scope, quality, accuracy and timeliness of information which is accessible to relevant stakeholders” (Nelson, 2007, p. 5). By increasing the level of transparency, business as well as government sectors are to the larger extent subjected to the evaluation of their processes, practices and institutions, and thus more likely to become accountable for their strategies, objectives and mandate.
Governance and its Relationship to Accountability
Governance is one of the fundamental underpinnings of responsibility in business and business affairs. Governance reflects the dependency “upon a close rapport with the character of society and its values” (Keating, 2000, p.8). The system of governance must rightfully balance the interests of the governed body, as well as the interests of the broader society. Inevitably, the established governance system thus reflects the social, economic, as well as technological realities in every social set up that requires the act of governance. Governance can be seen as a broader framework of good practices, within which accountability is seen as one of the most important values (Armstrong et all, 2001).
In the world of economy, governance is mainly focusing on “structures and process for decision- making, accountability, control and behavior at the top of organizations (Armstrong et all, 2001, p. 1). The main interest behind effective and efficient governance of companies is the desire to add value to the organizations in an economically, environmentally and socially sustainable manner, while at the same time reducing various business and finance- related risks, increase the confidence of the participating stakeholders, and actively prevent dishonest and promote ethical behavior. Because of the benefits of good governance, experienced in the public sector, many of the practices have been transcending into the private sector, as well. Even more so because the many challenges of the corporate world, intertwined with heightened competition and difficulty of differentiation on the predominantly saturated markets have established the utmost urgency for the companies to constantly strive to significantly improve their attempts for good governance, and thus attain the maximum possible outcomes for the organizational stability, success and long- term survival. For many theorists, internal and external governance is not a suggestion— it is a necessity (Van Doevern, 2011).
Publicly listed companies and accountability
Publicly listed companies can be both state or privately owned, which does not necessarily change accountability ethics, although it may change the restrictions they experience. They may be subjected to more than one set of policies and objectives, and thus must adhere to both public as well as private sector related standards. Public and market accountability at times create a very confusing framework for operating due to aforementioned tendency of governments to withdraw from the economy on the hand, and increased independence of economic actors on the other. Overall, the majority of research suggests that the less the company is in some way overseen by government structures, the less accountable it is to the public sector and its stakeholders (Nelson, 2007). Organizations that are out of governmental or other effective control make its operations much harder to monitor, evaluate and ultimately, make accountable for.
Despite the arguments of the neoliberal theorists, the free market is not a form of accountability in the economic sectors, although it does to some degree encourage proper behavior with promise of a reward for meeting the needs of potential customers. The main fault in this system is that the existence of the market alone does not provide the basis for the consumers to demand answers from the providers (Mulgan, 2014). Perhaps to the surprise of many, the rights of individuals that are in some way involved in the economic exchange are far less significant ad restricted than the ones that citizens in a specific country are entitled to with relation to their governments. The latter can be clearly distinguished in the fact that political leadership is usually far more susceptible to public objection and calls for answers (Gregory, 1998) than the economic and business leadership is. The main reason for this discrepancy lies in the essence of Western liberal democracy which has been historically more concerned with potential dangers of the governmental power. Governments are seen as the actors with extensive authority over the lives of its citizens, and should therefore be accountable to the same citizenry. This also represents the basis for the social contract between people and the state (Mulgan, 2014).
With the spread of neoliberalism, the governments were to some extent also thrown out of the regulatory mechanism in the economy. The merging of actors, resources and ideas that go beyond the national borders is making the process of accountability and transparency even harder, which in turn also increases the maneuvering space in the governance options. What is reassuring is that many highly influential economic bodies, such as for example multinational corporations (MNCs) are still very much dependant on their home base, and can actually benefit by having a more “national” character. Some of those benefits include the timely inventory management, adjacent location to suppliers and efficient and known forms of management that increase the influence over the future strategies and investment objectives.
Even though MNCs can be considered very powerful in terms of their influence in any particular industry sector, their actions continue to be limited by the specific set of circumstances within the countries they are operating in (Keating, 2000). Conclusively, even though that the interested stakeholders are not entitled to hold them as accountable as, for example, national governments, the dependence on the same stakeholders for the success of any organization is what ultimately forces them to keep in check with the requirements, and are thus aware of their necessary accountability to the people. As the OECD implementation guide for accountability and transparency indicates (2008), another usable platform for increase in accountability is clear and public statement of mandates and objectives. Clearly defining these concepts should establish the framework for proper behavior and business endeavors, but also for the evaluation of actions, and the basis for accountability for the actions that have been undertaken in reality. But even with such practices, the tendency for accountability establishes an issue for increased efficiency, very similar to the issues experienced in the government system on the same manner. Trouble is, that increase in accountability and transparency usually corresponds to the increase in costs, related to financial as well as human resources, which is the opposite of the logic behind any economic actor. Consequently, the drive behind lesser accountability is in fact often the desire for greater profitability, and the tendency to properly balance the two is by no means a walk in the park.
Whereas profitability can stand in the way of accountability, it can also act as a catalyst for practices of better governance and transparency. Even though specific machinations that result from poor governance and lack of accountability can go unnoticed for great many years, they are unable to stay hidden forever, and more often than not results in either public scrutiny or financial loss for the company, or both. Consequently, the reputation of the company, which can go a long way for its future prospects, is to some extent always connected to the performance and the image a specific organization holds in the eyes of its stakeholders. This power can greatly influence the behavior and attitude of the management and leadership structures in the private sector (Fergusson, 1991). Conclusively, we can establish that private sector is always to some extent accountable to its stakeholders, even if this accountability is vague and has little to no enforcement tools; its main power is in the key role that the stakeholders play in the ultimate support of the business endeavors the company decides to undertake.
Accountability with regards to various participants
The private sector is accountable for its actions on four different levels: with regards to the market, morals that should be and are exercised, accountability to the state regulatory framework and to the society as a whole (Mulgan, 2003). Market accountability is, as any other form of accountability, dependent upon the ability to attain an insight into specific behavior. Accordingly, as Borowiak (2011, p. 137) asserts, market accountability is “only as effective as its information is good.” This provides an insight into the relationship between market competition and democratic accountability.
Arguably, the markets are able to very effectively process large quantities of information and from all the participating economic factors which makes the markets itself “particularly useful as a means of economic coordination in complex societies” (Borowiak, 2011, p. 137). This superb efficiency in information processing is what creates a favorable environment for market accountability over political accountability. In deregulated market economies, the accountability has been shifted from the public eye and control to competitive forces that have the ability to throw out the actors that overly exhaust either the industry, financial or other resources. That is, in the world of perfect competition which is rarely a possibility outside textbook theorizing. In the economic environment of imperfect competitiveness, however, many factors can significantly diminish the accountability of economic actors, as well as their customers. Accordingly, enforcing market accountability is to some extent effective, because it creates conditions where the best performing actors are most rewarded, and vice versa (Sanzillo, 2015). But on the other hand, accountability can often fall short. Ultimately this occurs when some form of information or the other is incomplete, false or biased, and market disciplinary measures miss their mark, establishing the reality that the consequences of diminished accountability do not always reflect the actual performance (Borowiak, 2011).
Accountability to moral and ethical standards is usually reflected in the moral/ ethical code of conduct for an organization, but the existence of such a code does not guarantee that it will be followed. This goes for the public as well as private companies alike. Moral accountability within organizations themselves is applied to individuals, and how well do they follow suit the ethical guidelines and provisions. Accountability, in this sense, is “a statement of personal promise” (Bivins, 2008, p.30). Sometimes, however, ethical conduct that is traded off for greater profitability. Unethical and immoral business practices are a sad reality of a highly competitive economic world, and it is hard to track the machinations if organizations do not decide to closely monitor the moral conduct of their employees, and also apply proper penalties for those that do breach the moral code for whatever reason and provide an example for other to not follow suit such practices (Beu, 2000).
Ethical accountability can also be considered to be part of the wider accountability towards the society and its members. Companies should be responsible for the actions they perform and the way they reflect in the society. Many argue that the traditional accountability to the society has been lowered, similar to the accountability to the governmental and legal provisions, due to the neoliberal economic practices that favor deregulation and minimal governmental interference (Joób, 2013). The essence of accountability towards the society is embedded in the notion of corporate social responsibility that should ensure that business practices are economically, socially and environmentally sustainable, and do not cause any particular harm to the society and its members. Unfortunately, these practices can often be hidden from the public, and the limited outreach of the government is establishing many difficulties for ensuring accountability to the society (Michalowski, 2013). Clearly, the situation suggests that increased monitoring in this area is of utmost importance, as well as better access to information by the public. Active civil society is what can ultimately makes a difference, and a combination of better government control with increase in public scrutiny would most likely ensure greater accountability towards the society in the end.
Finally, accountability to governmental and legal provisions is the basis for any other form of accountability. The regulation of economic actions is much harder within the current neoliberal economic thought, and the idea of the invisible hand of the market has significantly diminished the ability of governments to effectively monitor and regulate the behavior of private economic actors. Recent financial crisis only further proved this issue. At current, the world is still deeply in the neoliberal phase where deregulation has significantly diminished any truly meaningful corporate accountability towards governmental provisions. Accordingly, this type of accountability has moved much further away from the one exercised in the typical democratic government. What is encouraging is the fact that many of the world governments have started to realize that the myth of self- regulation has been exposed for what it is, and a number of national policymakers have started the process to enact a number of new laws and regulations to fully commit to enforcing higher standards in the business practices of economic actors, as well as the possibilities to impose a wider array of penalties in the cases of blunt misconduct (Bunn, 2008). We have yet to witness the final effects in the upcoming years.
The Challenges of Technology
The incomprehensible speed with which technology has been evolving in the past decade or so has created many new challenges for accountability and transparency of public and private actors alike. Even thought that the rise in, for example, Internet and the social media seemingly suggest that such technological advancements are facilitators of democracy, there are some serious shortcomings to the same technology. Two of most obvious ones are the lack of transparency and the lack of safeguards when it comes to the quality and accuracy of information (Grill, 2011). As much as technology is making the information and association process easier, it does not fully provide the means the close the feedback loop between citizens and the authorities or institutions they are targeting. In order to make technological novelties fully capable of providing the change, government must also become much more aware of the actual public needs (Giggler and Bailur, 2014, p.5) and this is the point where the accountability of political and economic actors faithfully overlaps.
Conclusion
In the modern, developed world that is characterized by democracy and globalization, the issue of accountability is appearing to be the vanguard of public and scholarly debate. This essay point out to why this is the case. The neoliberal economic thought has been moving the practice of government overseeing the actions of economic actors into the realm of governance where actors are responsible for self- regulating themselves. Consequently, the level of accountability to the public has been diminished. Even though it to some extent resembles the practices of democratic governments, economic actors are far less subjected to public scrutiny and accountability than governmental institutions and figures. Thus, we could say that the accountability of publicly listed companies should ideally reflect the practices of democratically elected governments, since our research suggests this is at current not the case.
The practices of monitoring and control for publicly traded companies are not only missing, but are also ineffective in many cases. The larger part of accountability can be related to the market forces, but only to some degree. Market demand rules the game in the global economy, and losing the trust of customers is one of the most faithful things that can occur to a company. Thus, we must also say that we agree with the second part of the statement that the accountability measures are largely ineffective, especially since the only concrete form of accountability to the market can go unnoticed for years. This also support our initial thesis that accountability to the market forces is in the current economic framework the most powerful accountability force that can ensure some form of proper behavior and standards.
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