Corporate Accountability: Definition, Examples, Importance

What Is Corporate Accountability?

The term corporate accountability refers to a public company's performance in non-financial areas such as social responsibility, sustainability, and corporate governance. 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. In fact, it includes stakeholders such as employees and community members as those who require accountability.

Understanding Corporate Accountability

Companies are typically driven by profit. As such, businesses answer to their shareholders, whether that means their leadership, investors, or other related stakeholders. But many people believe that a company's bottom line shouldn't be the only motivating factor. In fact, businesses and their leaders should also be held accountable for their actions. This is done through corporate accountability.

As noted above, corporate accountability means that a company takes responsibility for any and all of its actions. This can be for its financial success (or lack thereof) and, more importantly, in areas like social responsibility and sustainability. This means that companies are accountable not only to their financial stakeholders but also to others, such as their employees, those in the community, and the general public.

Corporate accountability maintains that businesses should be held responsible for the impact of their actions on society and the environment. It is also an important concept for investors and shareholders concerned with ethical investing. This strategy involves choosing investment based on ethical principles.

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

History of Corporate Responsibility

Governments do not have the broad authority to regulate corporations except when specific legislation is passed. Enacting such legislation historically requires 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.

Subsequent campaigns lobbied for other public health initiatives, environmentally sound or sustainable business practices, and social justice issues such as employee exploitation, 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, such as 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 Accountability vs. Corporate Social Responsibility (CSR)

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

Both are based on the belief 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. One example is to protect the rights of workers and communities affected by business activities.

While accountability usually refers to more confrontational or enforceable strategies of influencing corporate behavior (pressure exerted by social and political actors beyond the company itself), CSR often indicates voluntary approaches, Such actors can adopt a range of strategies. This includes (but is not limited to) mobilizing legal mechanics to enforce social standards. As such, the preemptive measure of corporate accountability produces annual accountability reports.