What Is Corporate Accountability?

Corporate accountability refers to a publicly traded company's performance in non-financial areas such as social responsibility and sustainability. Corporate accountability espouses that financial performance should not be a company's only important goal and that shareholders are not the only people to whom a company must be responsible; stakeholders such as employees and community members also require accountability.

Understanding Corporate Accountability

In conjunction with the annual financial reports that the Securities and Exchange Commission (SEC) requires corporations to produce, many publicly traded companies publish their own corporate accountability reports to satisfy demands from their shareholders and the public. Private organizations, not part of a government body, set standards for social and environmental responsibility that they expect public companies to meet and be accountable for.

Corporate accountability maintains that businesses should be held responsible for the impact of their actions on society and the environment. Corporate accountability is also an important concept for investors and shareholders concerned with ethical investing.

Key Takeaways

  • Corporate accountability refers to a publicly traded company's performance in non-financial areas such as social responsibility and sustainability. 
  • Corporate accountability holds that, beyond making a profit for its shareholders, a company must also be accountable to its employees and community members.
  • The concepts of corporate accountability are important for those concerned with ethical investing.

Corporate Accountability in History

Governments do not have broad authority to regulate corporations except when specific legislation has been passed. Historically, passing such legislation has required a concerted public effort to convince politicians to regulate particular practices.

One of these early efforts was the campaign to ban tobacco smoking advertisements and to label tobacco products as dangerous, which resulted in the 1969 passing of the Public Health Cigarette Smoking Act. This prompted both public outcry at television and radio advertisements for luring in new smokers without giving equal weight to the views that smoking is dangerous, as well as an exhaustive Office of the Surgeon General report that outlined the specific health hazards of smoking.

Other Corporate Accountability Campaigns

Subsequent campaigns have lobbied for other public health initiatives, environmentally sound or sustainable business practices, and social justice issues such as employee exploitation and bribery and corruption. Sometimes initiatives are triggered by specific incidents like periodic campaigns to regulate oil industry practices after greatly publicized oil spills. Many nonprofit organizations—like Corporate Accountability International and Friends of the Earth—have directives to lobby for increased corporate accountability for specific campaigns.

Corporate Accountability Reports

The increased prevalence of such movements and heightened concern with ethical or responsible investing has led many companies to produce annual corporate accountability reports. There is no clear format for these reports, and they vary widely from industry to industry. However, numerous private organizations offer services or guidelines to track companies' accountability and judge their practices.

Corporate accountability reports can serve as good publicity for a company. Common report features include sections on the treatment of employees, efforts to produce goods or provide services in a sustainable way, company culture and internal management, and quantitative estimates of the externalities—both good and bad—of companies' business practices.

Corporate Social Responsibility (CSR) vs. Corporate Accountability

Is there a difference between corporate social responsibility (CSR) and corporate accountability? The two terms are sometimes confused or seen as synonymous. However, corporate responsibility and corporate accountability are usually distinguished from one another in a way that seems subtle, but which carries an important distinction.

Broadly, both corporate responsibility and corporate accountability believe that corporations have responsibilities beyond generating a profit for their shareholders. Such responsibilities include the negative duty to refrain from causing harm to the environment, individuals or communities, and the positive duty to protect society and the environment—by protecting the rights of workers and communities affected by business activities, for example.

However, whereas corporate responsibility often indicates voluntary approaches, corporate accountability usually refers to more confrontational or enforceable strategies of influencing corporate behavior—pressure exerted by social and political actors beyond the company itself. Such actors can adopt a range of strategies, including but not limited to mobilizing legal mechanics to enforce social standards.

Thus, corporate accountability's preemptive measure of producing annual accountability reports.