Accountability failings in private sector organisations, like Steinhoff, are equally devastating because they have a different negative effect on the wealth of many working-class families through their pension fund investments, for instance.
Boards of directors in state-owned or private entities are designed to, amongst others, ensure appropriate levels of accountability by the top management to external stakeholders that have an interest in the entities they lead. However, it seems that, from time to time, boards of directors are found wanting in this task. In an attempt to clarify what accountability means and establish accountability targets, last year, we embarked on a research project to try and identify the sources of accountability that influence non-executive directors. Essentially, our academic paper titled Sources of Accountability Inside the Boardroom aimed to reframe accountability within the corporate governance field.
The importance of accountability cannot be overstated in a country desperate for investment, growth and employment. Corporate scandals can be catastrophic to the country’s reputation as an investment destination. Despite these scandals, South Africa has been an advanced exemplar for good corporate governance principles due to the contribution the King Commission has made in this area. We believed research into South African boards would also add significantly to the dearth of research around accountability and good corporate governance.
Understanding accountability
Accountability is multi-faceted and complicated. There is no singular definition of what accountability entails; however, it is generally accepted that accountability is broadly defined as the perceived expectation that a person’s actions, decisions and behaviours will be reviewed or evaluated by another relevant individual or group. An explanation will be required, and consequences or rewards will be given based on the outcome of the expected evaluation.
Typically, when we look at accountability from a corporate governance point of view, we can say that individual board members and non-executive board members are accountable to various stakeholders. People who are accountable within an organisation include the chairperson of the board, shareholders, peers, auditors, the company secretary, executive directors, the organisation and stakeholders. What is important to note is that different stakeholders hold different people to a greater or lesser extent. Therefore, accountability stakeholders can be internal or external to the organisation and even personal.
Our research found that while corporate governance scholars have focused on examining corporate governance and accountability, few have researched the number of additional accountability stakeholders and the types of accountability within the corporate governance space. Put differently, there needs to be a shift from boards considering themselves primarily accountable to shareholders solely through formal accountability mechanisms.
This proved the focus area of our paper. We felt it was imperative to clarify the additional accountability stakeholders as well as the types of accountability. This necessitated an understanding of how awareness and reprioritisation of additional accountability stakeholders and types of accountability could strengthen board effectiveness and performance and ultimately stem the tide of corporate governance-related failures.
Reframing accountability
It is not sufficient to simply define accountability. We also needed to understand what drives accountability and what motivates individuals to be accountable. We found two types of accountability – formal and informal – observed in organisations. Formal accountability is where organisations introduce formal or external accountability methods. These could be informed by company statutes or regulatory policies, including the Higgs Report, the Sarbanes-Oxley Act (2002), the King IV Report, or legal contracts.
Informal accountability is more difficult to identify. It is aligned with social norms, culture and values. It is about interpersonal and social interactions. It may manifest in the respect shown to colleagues and peers, organisational culture and norms, and self-accountability. Perhaps self-accountability is the most interesting. It includes self-evaluation, and judgement and sanctioning of one’s actions. A key aspect of self-accountability is that of personal reputation.
What must be remembered when talking about accountability is that formal accountability is not necessarily the reason a person will behave in an accountable manner. We believe informal accountability may have a far greater impact on how people behave.
Finally, no discussion on accountability would be complete if it did not include how people respond to the collective. A board comprises individual members who need to work together to make strategic decisions for the organisation. Individual accountability is often dependent on collective accountability since individual goals can only be attained through interaction and reliance on others.
What is interesting to note in the discussion of the collective accountability of boards is that, until recently, board control by the chairman had not been a major consideration. However, given the myriad corporate scandals of late, there is a growing trend towards the chair being more engaged and taking active responsibility for monitoring accountability.
Our takeaways
Our research involved interviewing 15 South African non-executive board members who operate across various industries, including retail, financial services, manufacturing, mining, construction, education, and consumer goods. We asked the participants a series of questions to forge a greater understanding of how they viewed accountability and what sources of accountability they encountered.
Among the standout takeaways from these discussions included the following:
Defining accountability
What was surprising was that participants found it difficult to define accountability. Many participants viewed accountability and responsibility as interchangeable concepts. Some suggested it was about being answerable to someone else. Other definitions proffered included holding oneself up against predetermined targets or mandates and taking ownership of tasks. Based on this, we define accountability in the boardroom as the responsibility felt by governance actors towards one’s role and the answerability towards someone for performance against the role’s requirements.
Enablers of accountability
Participants mentioned multiple layers of accountability and said they experienced accountability from all directions. Many had a reactive view of accountability and said they were most likely to be held accountable in times of crisis or failure.
When asked about the sources of accountability, participants mentioned that the collective board kept individual members accountable, together with corporate governance policies and guidelines such as the King IV Report. Many also valued feedback from the chair or through the formal board evaluation process.
Beneficiaries of accountability
The non-executive board members interviewed reported feeling accountable to not only the shareholders of the company but also to the company’s employees, the community, and customers. Peers and fellow board members were additional beneficiaries of accountability. Two clear types of accountability emerged: structural and relational. Structural types of accountability are the legal mechanisms used in relation to shareholders, management, the organisation itself and the profession. Relational types of accountability are mechanisms that focus on informal interpersonal or socio-emotional processes among governance actors.
Prioritising beneficiaries of accountability
Shareholders topped the list when it came to those our participants felt most accountable to. However, our participants largely felt that all beneficiaries were equally important: the organisation itself, legal and regulatory compliance, and personal reputation and brand. Two cautionary comments around which beneficiaries of accountability should be prioritised were, “The ones that shout the loudest” and, “I do not think [shareholders] are more important, I just think practically that is how it pans out”.
Interaction of beneficiaries of accountability
It was universally agreed that beneficiaries of accountability do not act independently of one another. We then asked how they interact. Board and management interaction came up as the most common form. The Annual General Meeting was also listed as an arena where beneficiaries could potentially interact simultaneously.
A key insight was the concept of information flow between accountability beneficiaries and the quality and trustworthiness of that information. Boardrooms should be places of robust discussion and interaction and bearing that in mind, information flow is a vital prerequisite for non-executive board members to take accountability. Participants mentioned the need for greater preparedness when attending board meetings to properly interrogate the information and issues being presented.
It was also apparent that the need for interaction between accountability beneficiaries – and, therefore, greater information flow – increased notably during times of crisis and poor performance.
Final impressions
While accountability is vital for ensuring good corporate governance, our research found a lack of understanding of what ‘accountability’ actually means. This was particularly evident when it came to board-level accountability and for what issues individual board members should be held accountable.
This research has enabled us to frame a clearer picture of board-level accountability, especially enhancing the concept of informal, relational accountability. Our findings suggest that an equal focus on relational accountability mechanisms, alongside formal ones, will enable non-executive board members to act as an independent voice on behalf of all stakeholders – not just shareholders – to ensure the continued success and sustainability of the organisation.
A better understanding of what is meant by accountability would help crystalise board members' obligations and help guide the selection process of board members and outline the operational duties of these members. This, in turn, would improve the overall corporate governance fitness of the board as a whole.
Practical learnings
Sources of Accountability Inside the Boardroom outlines practical measures that can be adopted to enhance accountability at the non-executive board level. They are:
- Improved accountability through identification and prioritisation of beneficiaries of accountability and utilising both relational and structural types of accountability.
- Including wider stakeholders in the framework increases board-level accountability for both the chair and the board members.
- Boards should comprise a team of effective non-executive members held accountable through formal measures, including governance codes and board evaluations.
- Board members should have a high level of self-accountability.
- Thorough due diligence must be conducted before appointing board members. Both formal and informal types of accountability should be considered at this stage.
- Flow and quality of information are vital to ensure non-executive board members make informed decisions and can be held accountable for those decisions.
- Interaction with beneficiaries of accountability should be increased beyond times of crisis or poor performance.
Julia Goodman
Julia Goodman is a principal in Heidrick & Struggles’ Johannesburg office, which operates across sub-Saharan Africa. She is involved in senior executive search projects in the technology & services, consumer markets and social enterprise practices. Goodman has gained expertise working on leadership assessment and leadership development projects across all industries. She holds an MBA from GIBS, as well as three additional post-graduate qualifications.
Hayley Pearson
Hayley Pearson is the executive director of faculty, and the director of the MBA programme at GIBS. She has extensive experience in education, learning, management, and leadership development, and lectures in the areas of leadership, organisation behaviour and human resources. In addition to the BSc, PGCE, MBA that she holds, she is currently completing her PhD focussed on individual-level accountability and performance within organisations.
Dr. Morris Mthombeni
Dr. Morris Mthombeni is the interim dean of the Gordon Institute of Business Science (GIBS). Prior to this appointment, he was executive director of faculty at GIBS. He is one of the senior academics in the areas of environment of business, corporate strategy, and innovation at GIBS. He lectures on the masters and doctoral programmes as well as on executive education programmes including the Global Executive Development Programme from GIBS as well as the Harvard Business School’s Senior Executive Programme Africa. Beyond the academic field, Mthombeni has over 30 years of experience in the financial services industry, mostly at top management and board level.
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