In a risk averse, blame attributing society, accountability is often seen as a way of shifting responsibility.
But it should be a process that helps businesses manage risks, protect existing value and enable further value-creation.
A company’s board is publicly accountable for its successes and challenges. This means demonstrating responsibility for its decision-making.
But accountability is more than meeting regulatory requirements or explaining how things went wrong, it is about holding others to account and being accountable to others.
Accountability and transparency go hand-in-hand.
While not all decisions can be shared outside the business, the right tone can be established for shareholders and wider stakeholders through the way a company communicates its strategy, risks and results.
They should be able to understand a board’s decision-making process: its responsibility, challenges and how it plans to address them. Informed investors can weigh up the risks and make their own judgements; the ill-informed can only react, or overreact, to events.
Demonstrating accountability – particularly in the annual report – gains stakeholder trust and earns capital; be it investment funds, supplier working capital or the commitment of employees and customers.
But accountability is not always easy to demonstrate. We find consistently in our Corporate Governance Review that while companies are typically good at explaining what they did, they often provide less detail around why they did it.
The principle of accountability relates to the board’s ability to ensure it conducts and presents a fair, balanced and understandable assessment of the company’s position and prospects.
In reporting, accountability should be addressed throughout the annual report. It should relate back to the company business model and strategy, as well as how the board is dealing with business risks and viability.
The audit committee is particularly important, clearly demonstrating accountability in its reporting on key matters such as preparing accounts, principal risks and risk management, internal control systems, and the selection, use of and interaction with internal and external auditors.
As a business, here are some things you should consider:
Although relating primarily to relations with auditors, the same process should apply to other external advisors, such as search firms, boards evaluators or remuneration consultants.
Accountability can be a vague topic but it shouldn’t be. It is critical that internal and external stakeholders have a fair, balanced and understandable assessment of the company’s position and prospects so they can choose where and when to invest their capital. The board needs to consider what accountability means and then address it and demonstrate its commitment.
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