MT Masterclass - Accountability

What is it? President Harry S Truman understood accountability. 'The buck stops here', read the little sign on his desk. He was answerable for the actions of his government and his country. Managers need to know to whom they must answer, be it shareholders, the board or trustees. Proponents of CSR argue that organisations have many stakeholders to whom bosses are accountable. The risk of being so to everybody for everything, however, is that you can forget about the grubby business of making money. And if lines of accountability are not clear, no-one is accountable at all.

Last Updated: 09 Oct 2013

Where did it come from? At first, businesses were run by their owners, with family firms establishing dynasties. But as they grew larger, the concept of the professional manager emerged: a hired hand accountable to owners, operating on their behalf. Michael Jensen's 'agency theory' suggests that managers' interests have to be aligned with those of the owners (ie, shareholders) - through, say, share options. The consequence of this has been to encourage managers to manipulate share prices over the short term, to the long-term detriment of shareholders.

Where is it going? The concept gets more confusing. John Sunderland, boss of Cadbury Schweppes, said last year that the owners towards whom he wanted to be accountable were more elusive, less predictable and less communicative than in the past. Mark Goyder of research outfit Tomorrow's Company explains: 'The very word "ownership" is ceasing to describe the relationship between the company and its investors. Owners - hedge funds, private equity and the like - are getting harder to recognise. The (share) price mechanism risks becoming the only serious discipline being exerted on management.'

Fad quotient (out of 10)

Six and steady.

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