Vol 6 (2009) - Issue 6

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Accountability and Responsibility: Some Perspectives

One of the stark realities made clear since the start of the ‘credit crunch’ has been a phenomenon regularly described as the ‘one way bet’ many money managers have taken with the cash of the masses (or even the select few) in carrying out their business. The disassociation between the individual and his or her employer and the lack of accountability and responsibility that person assumes for his or her actions is not limited to the finance industry (but it was certainly prevalent), but if we know that it exists, how do we fix the problem?

As a first step, we need to analyse the extent of the problem. This can be done in a number of ways, but throwing mud is fun, so we should try that and see what we uncover. If we play the blame game, we can find good reasons to hold lots of people partially responsible for contributing to the severity of the current downturn. Let me offer some suggestions, staying away from the traditional targets of regulators and rating agencies.

Executive management

Starting at the top of the corporate organisation, executive management – for they are supposed to be ultimately responsible for the enterprise they manage (responsibility flows upwards to the top, not down to the scapegoat). This is not limited to the executive management of banks, financial institutions or other establishments of ‘systemic importance’, but to all executive management. Fred Goodwin has been painted as the face of the credit crunch in the UK, but his personal gain looks a paltry sum when compared to the pay-offs received by many – Richard Grasso’s USD 140 million headline for instance when he and the New York Stock Exchange parted ways (although at least in that case, the pay-off was challenged).

There is so little accountability and responsibility required by their contract of employment (a function of negotiation), or by any legislation or regulation, that an outgoing, poor performing – even potentially negligent – CEO can take enormous amounts of value away from an enterprise at the time they leave and often for long after they have gone. It can actually be far more rewarding to leave the job than to stay in it. While the split can be acrimonious, there are many cases where an outgoing CEO has held onto rights that any normal person would view as outrageous fortune – all the way down to family dental insurance for life …

Non-executive directors

The non-executive directors cannot be free from blame. Their role has often been seen as having two principal components: monitoring executive activity and contributing to the development of strategy. They contribute to many of the committees which are formed as a subset of the board of directors. The requirements of a person sufficiently skilled to be a non-executive director include ‘[the] need to be sound in judgement and to have an inquiring mind. They should question intelligently, debate constructively, challenge rigorously and decide dispassionately. And they should listen sensitively to the views of others, inside and outside the board.’

The requirements go on and, if carried out diligently, a non-executive director’s role is likely to be time-consuming and, from time to time, a thankless task requiring a company’s executive management to justify rigorously the decisions that they wish to make. Nowhere does it suggest that the job is one of playing patsy to the executive management, being little more that a mere observer at the board and casting the requisite votes. So why does it feel as if that is exactly what has happened on more than one occasion? And on boards of institutions we now realise were ‘too big to fail’ – which seem to have been too big to manage effectively?