Accountability breeds Responsibility PDF

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Assignment on how accountability of firms' actions leads to responsibility....

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Student ID: “Accountability breeds response-ability” -(Stephen Covey; author and educator) Discuss the above quote using both accounting and non-accounting examples. Accountability is best defined as the responsibility to be accountable for our actions and -in most economic exchanges- to provide accounts for them in a transparent manner; therefore it can be concluded that responsibility is the chain linking organizations and people to accountability. Through the existence of the market, supervisory, public reputational and electoral accountabilities, the statement can be justified because the aforementioned accountabilities emphasise the responsibilities of not only organizations but also those of the public and society. However, response-ability can be hindered due to numerous complications like the principal-agent problem or the incapability of an organization or individual as a result of a lack of either technology, professionalism or management and governance. A successful example where accountability breeds response-ability would be described as supervisory accountability due to the mechanism relying on the idea that ultimate responsibility regarding decisions falls on the supervisors as opposed to those who are firsthandedly accountable. The accountability mechanism aligns the ideas that accountability descends on those who wield power and are accountability holders as a result of their supervisory role as opposed to being those who are actually accountable for the actions; boards of directors and managing directors are regarded as accountability holders due to their responsibility to ensure the unobstructed continuation of the firm’s daily management. Moreover, an example of supervisory accountability would be the removal of CEO JeanSébastien Jacques and two of his associates from the Rio Tinto mining group following their decision to dispose of a 46,000-year-old aboriginal rock-shelter (The Guardian, 2020) which angered investors and lead to their dismissal: the accountability mechanism depicts the fact that power wielders like AGMs and directors are groups of people that are held responsible for situations and disputes like the Juukan Gorge case despite the decision being originally made after a debate with the board of investors and directors. Overall, the supervisory mechanism highlights the quote by Stephen Covey due to the fact that accountability is interrelated with the position served by the accountability holder which therefore requires them to be held responsible for the actions of their firm. Furthermore, accountability of a publicly reputed firm towards their customers and the general public makes them responsible for the production of accounts for the use of society and the public. As a continuation of the public reputational mechanisms, reports like the Shell company scandal -wherein the company is involved in a public case for a $1.3 billion oil licence which is fuelled by corruption and bribery- exhibit the fact that companies use their unsullied public reputation to carry out irresponsible actions. Through the application of public reputational accountability, the idea that accountability is social phenomena and a sign of responsibilities towards the public and the society as opposed to a balance sheet is imposed; firms are pressured by the public (and government to a degree) to provide accounts and therefore take responsibility for their negative actions which have knowingly or unknowingly caused harm. As an aftermath of this accountability, public figures like Mark Zuckerberg are held accountable for negative externalities produced by corporation giants as portrayed by the Facebook information breach which culminated in $100 billion being knocked off the market capitalization (Forbes, 2019) as well as the founder of Facebook

having to clarify his work in front of the US Congress. On the other hand, mechanisms like market accountabilities present the idea that consumers control output markets of firms whereas investors and stock markets reign the fiscal market; being accountable for your actions is more important in the output market due to the volatility of consumers who are easily influenced not only by price but also the public reputation and brand of a firm. Additionally, the fiscal market is more reliant on corporate accountabilities and finance reports for decisions regarding investment and purchasing of shares. The volatility of the output market was broadcasted in September 2015 when the pharmaceutical company Turing obtained the production license of Daraprim and decided to inflate the price from $13.50 to $750; the result of this unnecessary hike in price lead to public outrage as well as eventually causing the owner Martin Shkreli to take responsibility for his actions by being sent to prison as well as causing Turing to return pries to normal rates. Through the Turing pharmaceutical disaster, we can see that market accountabilities can result in companies being forced to take legal responsibility as well as facing negative public reputational accountabilities. Furthermore, fiscal market accountabilities normally result in firms and companies facing bankruptcy as investors decide to invest elsewhere whereas shareholders may decide upon pulling out shares and selling. A combination of fiscal and output market would be the demise of the travel agency Thomas Cooke: the company was declared bankrupt due to increased competitiveness within the market because of online travel agencies and more cost-effective websites to aid booking trips. In addition, the market output of Thomas Cooke was also floundering due to the extensive number of substitutes which was fuelled by the reoccurring agency theory problem. Overall, market accountabilities are closely related to the fundamental idea of companies being held accountable by suppliers and consumers and having to provide different forms of accounts in order to take responsibility for their actions in order to maintain consumer and investor or shareholder confidence. The most recent form of accountability as experienced by Britishers is electoral accountability: electoral accountability is a democratic means of governance wherein all accountability holders (MPs or CEOs and managing directors) are elected by the power wielders (public or board of directors and shareholders). Local elections, Brexit and recent prime ministerial selections are a basic example of electoral accountability at work. Power wielders in this case - also seen as the public- maintain the right to influence who they want to elect and therefore the elected party must provide accounts for all their actions for the public to see as they have responsibilities towards the citizens. Another example of electoral accountability are the selections of GMs and MDs by the board of investors and shareholders or directors however, in this mechanism, the electorates are the accountability holders whereas the elected are power wielders as previously explained according to the supervisory or hierarchical mechanisms. In opposition, theoretical perspectives like the agency problem can contest the excerpt from Stephen Covey by reiterating the divide in proprietorship or shareholders and management due to differentiating objectives and diverging interests in the outcomes. Shareholders aim to maximise profits and their own dividends whereas managers desire bonuses or more considerable commissions and this is where the principal agency perspective challenges the quote: varying objectives will lead to asymmetric information being exchanged between stakeholders and can lead to accounts being inaccurate which can be detrimental to legal

accounting. On the contrary, the principal-agent problem can be resolved by the agency theory which portrays the issue as a separation in control between principals (accountability holders) and agents (power wielder) which can be resolved through hierarchical, financial and management accountabilities. Real estate is a sector that has succumbed to the principal-agent problem due to agents over-exaggerating the property appraisal and then influencing customers to choose their suggestion regardless of budget and price which in return provides them with the commission and lengthy exclusive agreements between 3-6 months. In relation to the agent theory, the application of accountability measures as well as organizing networks of agency problems can assist in the descent of the principal-agent problem and in rectifying the asymmetry in information. In addition, providing accounts is mandatory for all firms and corporations who have their own legal personality because they are considered to be responsible for their own actions and therefore must be held accountable for them. However, the quote proposed by Covey is very ignorant of the ability dimension of accountability (Alawattage et al, 2013) and focuses predominantly on accounting breeding responsibility (Covey). A recent lack of accountability displayed by the British government regarding A-levels and GCSEs was sidelined in August of 2020 due to the government being irresponsible and unable to provide satisfactory accounts; the argument culminates down to the fact that despite power wielders are expected to procure accounts, they should be enabled to provide them through means of technology, professionalism, management and governance. Nevertheless, the government should have been more proactive and should be held responsible for not being more professional and imparting below satisfactory management and governance; Gavin Williamson should have been held accountable for the mishap and confusion on results days of 2020 through his report of dismissal or removal from the parliament. In conclusion, accountability evokes responsibility in spite of all the barriers. For example, during the initial lockdown period -due to the COVID-19 situation all over the UK- public, business owners’ and firms’ expectations towards the governments rose as they anticipated either financial stability or accountability for the economic slump from Prime Minister Boris Johnson; although the conservatives have taken responsibility by introducing schemes like ‘eat out to help out’, they have yet to look into future tactics to assist those struggling currently or may have difficulties in the future. To conclude, accountability has many factors -like hierarchical, legal, fiscal, participatory and many more- however, they all eventually lead to an individual or organization accepting responsibility for their actions and providing accounts whether that is a financial statement for the HMRC or a verbal exchange between friends and family.

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Alawattage, C., Tibbetts, L., Mulhern A., (2013), "Accounting and Accountability: The Context of Accounting", University of Aberdeen BBC (2019), News: “Thomas Cook collapses as last-ditch rescue talks fail”, https://www.bbc.co.uk/news/business-49791249, (Accessed 8/11/20) BBC (2020), News: “Schools: Gavin Williamson on reports of offering to resign”, https://www.bbc.co.uk/news/av/uk-politics-53888952, (Accessed 8/11/20) BBC (2020), Podcast: "Rethink: Kang Kyung-wha: Rethinking Accountability", South Korea's Foreign Minister, https://www.bbc.co.uk/programmes/p08hprdh, (Accessed 8/11/2020) Gray, R., Adams, C. A., Owen, D., (2014), “Accountability, Social Responsibility and Sustainability: Accounting for Society and the Environment”. Property Club, “The Principal Agent Problem in real estate”, https://propertyclub.nyc/article/the-principal-agent-problem-in-real-estate The Independent (2019), News: “Shell faces fresh criminal charges over scandalplagued $1.3bn Nigerian oil deal”, https://www.independent.co.uk/news/business/news/shell-oil-deal-scandal-nigeriaa8803091.html, (Accessed 8/11/20) The Guardian (2020), News: “Rio Tinto CEO and senior executives resign from company after Juukan Gorge debacle”, https://www.theguardian.com/business/2020/sep/11/rio-tinto-ceo-senior-executivesresign-juukan-gorge-debacle-caves, (Accessed 8/11/20)...