Business Ethics: Corporate Accountability Research Paper

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Corporate Accountability

The corporate scandals of the last fifteen years have brought the issue of corporate accountability to new light, adopting at times a center-stage discussion. When the Bernie Madoff scandal broke, many professionals turned to the accounting department at Madoff Securities along with the auditors who had audited the firm before. Madoff was the one who admitted to stealing $50 billion dollars during the decades that his firm was open -- even though his firm hadn't purchased securities in over 13 years. Such an admission of guilt demonstrates that without strict and enforceable tenets of corporate accountability, $50 billion dollars really can just disappear. Thus corporate accountability is something that needs to be fostered both internally and externally: if it is only enforced and fostered in one way, then this imbalance is doomed to create failure along with other ethical sunsets.

In order to properly enforce corporate accountability, it must be understood by both inside and outside parties and must not be confused with the issue of corporate responsibility. While corporate accountability and responsibility are still branches on the same tree, they are still very different things. Corporate responsibility refers to operating in a manner which is ethical and in line with environmental principles: it's a sense of behavior which orbits around the notion of doing "the right thing" -- in terms of conduct and sustainability. These notions are of course similar to corporate accountability, but are not exactly the same thing: the objectives of corporate accountability are to be certain that a company's products and operations are all beneficial to society and cause no harm. Corporate accountability is so important because companies are not people: they are not moral entities. They have to be taught to behave ethically, along with having strict laws and requirements in place which also hold them to certain standards in a measurable and enforceable manner. "Corporate accountability can be defined as the ability of those affected by a corporation to hold corporations to account for their operations. This concept demands fundamental changes to the legal framework in which companies operate. These include placing environmental and social duties on directors to complement existing duties on financial matters, and legal rights for local communities to seek compensation when they have suffered as a result of directors failing to uphold those duties" (ejolt, 2013). It would be delusional to think that companies will just voluntarily offer up an account of their activities and levels of influence to better their social and environmental performance. Thus the notion of accountability largely means that companies have to be held to an account: thus the requirements set forth are enforceable. This is indeed a more radical position, and is one which is way more fortified than what CSR advocates (ejolt, 2013). Recent trends in the arena of corporate accountability encompass proposals to assert institutional mechanisms in place which actively hold corporations to account, instead of simply urging companies to better the standards or expecting corporations to report in a voluntary fashion (ejolt, 2013). "Corporate accountability initiatives promote complaints procedures, independent monitoring, compliance with national and international law and other agreed standards, mandatory reporting and redress for malpractice" (ejolt, 2013).

At the same time, other experts argue that when it comes to providing financial accountability, companies need to not confuse this form of accountability with social accountability, as it's like comparing apples and oranges. "Financial accounting may not be an exact science -- and what social science is? -- ^but nor is it simply a hodgepodge of disaggregated information. The next time a CEO tells you that her company believes in the 3BL and produces a 3BL annual report for shareholders and other stakeholders, ask her what the social bottom line was last year and how much it increased or decreased from the preceding year. She won't have an answer because the question itself is absurd" (MacDonald & Norman, 2007). While this may be correct, all it really indicates is that there absolutely need to be different requirements and standards in place when it comes to social corporate accountability and financial corporate accountability. Regardless, the two still need to be in place and the corporation needs to be held accountable to these different standards in social responsibility and finance.

However, these standards for accountability need to be daily part of a given corporation's internal existence, along with the day-to-day part of external entities when monitoring a given corporation. The wreckage of scandals like Enron and the Madoff Ponzi scheme have made everyone wonder not only where all the ethics officers were, along with whether or not all corporate compliance and ethics programs were just window dressing (Boehme, 2009).

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"These are fair questions, given that in the 18 years since the 1991 promulgation of the U.S. Organizational Sentencing Guidelines (which set out the roadmap for companies to detect and prevent wrongdoing), several studies have indicated that little progress has been made, and recent events in the corporate world suggest that effective mechanisms to prevent corporate misconduct are lacking" (Boehme, 2009). Active endeavors to spot corruption internally and externally are absolutely essential, along with having multiple levels of support and supervision to ensure that certain benchmarks in accountability are being met. If anything, the corporate scandals of the last decade or so should provide us all with ample examples from which to learn.

Being overly optimistic, hopeful or naive about corporate accountability is only going to lead to disappointment (at best) and more scandals (at worst). Boehme refers to this as the "Kumbaya" approach to accountability and is one which foolishly believes that "…once a code is published, a hotline activated, a rousing speech and memorandum from the CEO is delivered, and an 'ethics officer' appointed, then all the employees and managers will join hands in a 'Kumbaya' moment, and the program will somehow magically work as envisioned. This kind of program may look good at first, but without continuing, empowered leadership on compliance and ethics issues, together with tangible management commitment to making hard choices, such a program is unlikely to succeed in preventing, detecting, and addressing real world problems" (Boehme, 2009). One must not forget that Enron had a code of ethics that was 64 pages long along with an employee hotline: both these elements were long in place before the exposure of the scandals that brought the company to its knees (Boehme, 2009).

One of the most important aspects of enforcing corporate responsibility from the outside is by doing so in a manner which is more risk-focused -- an approach which is governed by the sentiment: where there's smoke, there's fire. The SEC came under massive scrutiny in light of the Madoff Scandal particularly because by the time the scandal broke, it was found that the SEC had already investigated the firm eight times in 16 years and not found any fraudulent activities. "The SEC is responsible for overseeing registered broker-dealers, transfer agents, clearing agencies, investment companies and investment advisers, yet there is not a consistent risk approach used in all of these examinations. For example, in 2003, after widespread unlawful trading practices surfaced in the mutual fund industry, the SEC took steps to take a more risk-based approach" (Williams, 2009). The SEC needs to adapt, becoming one of those external entities which is able to be risk focused, and attentive to the scope and rate of its monitoring and surveillance activities. Thus, it would be advisable for the SEC to set an example for all other entities of surveillance and keep a detailed list of the top, high-risk investment advisers and use this list as standards for setting the review frequency. "Currently, there is no clear indication that the SEC links review frequency or scope of exam with level of perceived riskiness. Former SEC Chairman Arthur Levitt recently indicated that only 10% of investment advisers are examined every three years. A wealth of new fraud can be dreamed up, hatched, and perpetrated at such firms in the interim" (Williams, 2009). For external entities like the SEC there needs to be a more cautious and more proactive approach towards developing a risk filter that can more aptly flag investment advisers who engage in activities which have higher traits of risk (Williams, 2009).

It's important that all regulating entities which are external to a given corporation are centered on issues such as independence, checks and balances along with other day-to-day issues. For example, the external monitoring entity should determine if the investment adviser clears its own trades or if a third party is used; the third party then needs to be examined (Williams, 2009). The third party needs to be looked at in terms of their reputation and how well-known they are; the accountant of the investment adviser needs to be looked at also in terms of their reputation and size. To use the Madoff scandal as an example, the accountant there was indicted as Konigsberg, the senior tax partner at Konigsberg Wolf, was the one who managed accounts….....

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