What Is Accountability?
The term “accountability” refers to the acceptance of responsibility for honest and ethical conduct toward others. In the corporate world, a company’s accountability extends to its shareholders, employees, and the wider community in which it operates. In a wider sense, accountability implies a willingness to be judged on performance.
Key Takeaways
- Accountability is the acceptance of responsibility for one’s own actions and implies a willingness to be transparent.
- Financial accountability in the United States includes a requirement that public corporations make accurate financial records available to all stakeholders.
- There are various ways to be accountable in the workplace, including setting deadlines, delegating tasks, defining ownership, and rewarding success.
- Accountability may help invoke confidence from external investors, loyalty from employees, and better company returns.
- There is an increased focus on other elements of corporate accountability, such as ethical conduct, environmental impact, a commitment to diversity, and fair treatment of employees.
Understanding Accountability
Accountability is an essential concept in corporate finance. It is defined as an entity’s actions to take responsibility for their actions. This can range from accounting for financial discrepancies, conduct toward employees, financial mismanagement, or losing shareholder confidence.
This concept is particularly relevant to the accounting practices that a company adopts when it prepares the financial reports submitted to shareholders and the government. Without checks, balances, and consequences for wrongdoing, a company cannot retain the confidence of its customers, regulators, or the markets.
Corporate accountability has come to encompass a company’s activities as they affect the community. A company’s environmental impact, investment decisions, and treatment of its own employees all have come under public scrutiny.
Each industry has its own standards and rules for accountability that may evolve over time. For example, the rules for social media accountability are being written now.
Types of Accountability
The concept of accountability runs throughout all industries, sectors, companies, and professions. Here is an overview of where accountability is most prevalent in the business sector.
Corporate Accountability
At its most prosaic, accountability is about numbers. Every public company must publish a financial report quarterly and annually, detailing its income and expenses. An independent auditor reviewing a company’s financial statements is responsible for obtaining reasonable assurance that the financial statements are free from any material misstatements caused by error or fraud. This auditor is holding the company accountable for its reporting.
Accountability requires corporate accountants to be careful and knowledgeable, as they can be held legally liable for negligence. An accountant is responsible for the integrity and accuracy of the company’s financial statements, even if an error or misstatement was made by others in the organization. This is why independent outside accountants audit the financial statements. Public companies are required to have an audit committee within the board of directors. Their job is to oversee the audit.
Political Accountability
Political accountability can relate to political contributions and how candidates use resources. For example, the nonpartisan Center for Political Accountability and the Wharton School at the University of Pennsylvania publish a joint annual index rating major public corporations' disclosure and oversight policies regarding their donations to political causes and candidates.
These scandals resulted in tougher regulations, and there are armies of regulators and private watchdogs working to make sure that companies report their earnings correctly, that the exchanges execute trades in a timely fashion, and that information provided to investors is timely and accurate.
The Center for Political Accountability shines a spotlight on corporate spending that aims to influence politicians. In 2021, KFF Health News reported in-depth on a campaign by the pharmaceutical industry to head off a proposal to allow Medicare to negotiate drug prices with vendors. The report named the names of members of Congress who accepted political donations from drugmakers. By 2023, the Center for Political Accountability noted that 218 large public companies had adopted political disclosure policies.
Accountability is subjective. For instance, Merck was named the most responsible company in 2024. However, according to Newsweek, HP was the highest-rate company in regards to responsibility in 2023. Meanwhile, McKinstry was the top rated in terms of a 'Corporate Equality Index'. There's a spectrum of accountability that companies land on, and where they land can constantly change.
Government Accountability
The role of corporate cash is only one of the global issues regarding government accountability. For instance, the U.S. Agency for International Development (USAID), the federal agency that administers civilian foreign aid, measures government accountability by the following key factors:
- A free and fair political justice system
- The protection of human rights
- A vibrant civil society
- Public confidence in the police and courts, and security sector reform
To aid in protecting citizens, the Government Accountability Project protects federal, state, and local whistleblowers who spot problems and report them to appropriate agencies. In this model, governments are held accountable through unofficial, internal audits. Anyone can report anyone else for improper behavior, forcing accountability to be systematic and prevalent throughout organizations.
Media Accountability
The media in the U.S. is uniquely protected by the First Amendment from interference by Congress. However, this does not mean that it is free from accountability.
The media has long been under the constant scrutiny of a number of watchdogs, internal and external. In the internet era, these have been augmented by independent fact-checking organizations such as FactCheck.org, Snopes, and PolitiFact. These and other organizations monitor the media for bias and errors and publish their findings for all to see.
Individuals can now easily contribute to the conversation thanks to social media. There is a debate, though, whether platforms like Facebook are publishers or if the users are the publishers. In either case, social media continues to be under fire for spreading dangerous misinformation, providing a platform for hate speech, and having a generally lacking sense of accountability.
Accountability in the Workplace
For companies to be successful, employees must conduct themselves with accountability. This is done in several ways.
Let’s first consider the soft skills of accountability. This includes showing up to work when expected and showing up to work prepared for the tasks for the day. Accountability extends to every department and every employee, as it starts with being present, honest, and engaged in everyday tasks outside of one’s job.
There is also a deep-rooted sense of accountability in specific positions. Professionals who handle physical or digital money have a standard of accountability to be honest and responsible with funds that do not belong to them personally. Managers have a duty of accountability to properly oversee employees, treat them well, and guide them through growth opportunities.
There are a few ways that a company builds, manages, and sustains accountable practices, such as:
- Making employees verbally commit to completing certain tasks and ensuring they follow through with them
- Having upper management set expectations on the duties to be completed and the associated deadlines
- Creating a safe environment where taking risks is rewarded and learning occurs in a natural, non-threatening way
- Defining ownership of tasks, projects, or other aspects of work. Should there be a problem, the owner of that task or project must be held accountable.
Internal Accountability Vs. External Accountability
Internal accountability refers to the practices within a company. This type of accountability is maintained through internal controls, performance evaluations, audits, and a strong corporate culture. For example, regular performance reviews and audits help identify areas where employees and departments may need improvement.
External accountability, on the other hand, pertains to a company's obligations and responsibilities to outside parties such as regulators, investors, customers, and the general public. This form of accountability is often enforced through legal requirements, industry standards, and public scrutiny. Companies must regularly disclose financial information, comply with environmental regulations, and meet consumer protection laws. If they don't, there may be legal consequences that are detrimental to the company's ability to function.
Both forms of accountability must be present for a company's success and sustainability. However, there are different risks to each. Internal accountability ensures that the organization operates efficiently and ethically from within. Should this not happen, it may be much more difficult to achieve external accountability. Note that external accountability (whether by regulators or consumers) is the more detrimental and costly of the two, but it doesn't happen on its own. In some cases, a failure to uphold internal accountability leads to problems with external accountability.
Benefits of Accountability
Accountability is different at every company. However, there are overarching benefits that accountability can provide should a business be able to appropriately execute accountability practices:
- Accountability promotes operational excellence. When employees understand that their work is being looked at and evaluated, they are more likely to put forth stronger effort, as it is understood that what they do matters. This is especially true when employees are rewarded for strong accountability with raises, promotions, and public recognition.
- Accountability safeguards company resources. It is not limited to just doing your job; it is the practice of being honest and responsible for your actions in all situations. When employees are accountable, they are held to a standard that company resources are to be respected, and employees are less likely to mistreat company assets, as they understand that there will be consequences for their actions.
- Accountability yields more accurate results. Companies with a standard of accountability will have boundaries of acceptable deviation. For example, a company may allow for a certain dollar threshold of financial misstatement due to immateriality. If a company holds itself accountable to a low threshold of materiality, it will not accept larger errors, unexplainable variances, or delays in reporting.
- Accountability builds external investor trust. An investor’s confidence in a company is only driven so far based on the prospect of financial success. Investors must believe that a company is well-run, honest, competent, and efficient with its resources. If a company can demonstrate its accountability, it will be seen more favorably, especially compared with an untrustworthy adversary.
A 2022 research study by Pew Research found that 51% found that the so-called “cancel culture” was a movement to hold people accountable for their actions, while 45% saw the movement as punishment for people who didn’t deserve it. Studies like this demonstrate how accountability can be a blurred line.
Example of Accountability
Corporate accountability can be hard to quantify, but that doesn’t stop anyone from trying. One real-world example of corporate accountability is the Volkswagen emissions scandal, often referred to as "Dieselgate." This scandal exposed how Volkswagen, one of the world's largest automobile manufacturers, had deliberately installed software in its diesel vehicles to cheat on emissions tests.
In 2015, the United States Environmental Protection Agency (EPA) found that many VW cars being sold in America had a "defeat device" in diesel engines that could detect when they were being tested. In reality, cars emit up to 40 times the allowed levels of nitrogen oxides, pollutants that contribute to the formation of smog and acid rain and are linked to various respiratory diseases.
The ultimate fallout was Volkswagen faced hefty fines and settlements. The company agreed to spend up to $25 billion in the United States alone to address claims from regulators, car owners, and dealers. This included buying back affected vehicles, funding environmental programs, and compensating owners. Several executives were charged, and in 2017, Volkswagen pleaded guilty to criminal charges and agreed to pay $4.3 billion in penalties.
The scandal led to significant changes in Volkswagen's leadership. CEO Martin Winterkorn resigned, and other top executives were either suspended or left the company. VW undertook various internal reforms to improve compliance and transparency. They implemented stricter environmental standards and compliance measures to prevent future misconduct. Volkswagen also issued public apologies, acknowledging their misconduct and committing to making amends.
What Does Accountability Mean?
Accountability is the practice of being held to a certain standard of excellence. It is the idea that an individual is responsible for their actions and, if that individual chooses unfavorable actions, they will face consequences. Accountability strives to promote a high level of work, promote honesty, encourage dependability, and garner trust from members around you.
What Is an Example of Accountability?
A company can foster a sense of accountability by setting expectations with employees, delegating tasks to different members of a team, and explaining the consequences if the tasks are completed incorrectly or late.
Another example of accountability is a financial advisor managing a client’s funds. The advisor must not only be held to a standard of fiduciary duty; they must realize that there are consequences for their actions and that what they choose to do today with their client’s money will have downstream effects—either positive or negative.
How Is Accountability Defined in the Workplace?
To management coaches, accountability in the workplace goes beyond giving each employee a task to complete in a project. It also means making each individual accountable for the success or failure of their contribution to the overall project. In other words, it’s all about the ownership of success or failure.
What Does the Government Accountability Office (GAO) Do?
The Government Accountability Office (GAO) is the audit agency of the U.S. government.
It evaluates the effectiveness of U.S. programs and proposed programs. For example, one of its ongoing reviews examined the effectiveness of $4.7 trillion in federal spending related to the COVID-19 pandemic and made recommendations for changes to prevent misuse of funds, fraud, and errors in relief payments.
What Is the Difference Between Accountability and Responsibility?
A responsibility is an assigned (or self-assigned) task or project. Accountability implies a willingness to be judged on the performance of the project. Accountability doesn’t exist in a vacuum. It requires transparency and effective communication of results with all parties that may be affected.
The Bottom Line
Accountability can be a management buzzword, or it can be a real framework for evaluating the success or failure of an individual or an entity. The concept of corporate accountability has always meant honest and transparent financial reporting. In recent years, that concept has expanded to encompass a corporation’s performance and responsiveness to environmental, social, and community issues.
