I’m often asked about the difference between accountability and responsibility. The distinction I make (perhaps a bit oversimplified?) is that responsibility can be and often is shared with others. However, one cannot share accountability. Another distinction I’ve heard in our leadership circles is that one takes responsibility, but one is held accountable (by oneself and/or others).
In the recent business news, it has been reported that the board at Wells Fargo has finally decided who shares responsibility and who, as individuals, are going to be held accountable for the extensive fraud perpetrated against unsuspecting customers. Well, kind of, anyway. Apparently millions of dollars and stock options are going to be taken away from both the CEO and the head of Community Banking responsible for all the fraud. Of course, they are still left with many millions anyway.
I’m wondering if other public company boards have learned any lesson from this debacle. Is the executive team playing short term or long term? Are they too closely focused on Key Performance Indicators (KPI’s) or are they focused on the welfare of all stakeholders (NOT just shareholders). In other words, are the KPI’s the reason for existence or are they viewed as secondary but necessary to support values, vision and mission?
Perhaps the biggest fraud perpetrated by public corporations is invoking the tired old mantra “maximizing shareholder value.” Don’t misunderstand me. I don’t mind the idea of maximizing shareholder value, I mind how it is applied in so many cases. The phrase is used to drive focus on KPI’s above all other considerations. It is used to justify irresponsible compensation plans (such as the incentives at the Wells Fargo community banking unit).
History provides no comfort when it comes to changing the corporate culture in the U.S. One doesn’t have to dig too hard to find that we have continuous ethical failures in the world of public corporations. Too many boards shirk their governance responsibilities. They do not provide proper oversight of the executive team and do little to actively manage the corporate culture.
One thing that does provide me some hope is the movement to establish “B Corporation” entities (B-Corp).
B Corps are for-profit companies certified by the nonprofit B Lab to meet rigorous standards of social and environmental performance, accountability, and transparency.
It is my understanding that many decades ago, it was understood that in return for a corporate charter, a company was expected to be a good corporate citizen. A company was expected to demonstrate adding value to the commonwealth. Obviously, greed and misdeed distorted that charter to what we have now: a myopic focus on short term gain at the expense of stakeholders and long term sustainability.
The B-Corp can help get boards and executive teams focused on long term sustainability. Of course, if a company is a closely held private company, they don’t need protection of B-Corp status to be an ethical organization. For public companies though, the board and executive team need to fend off the shareholder activists who may insist on maximizing short-term profits and shareholder value at the expense of sustainability and other stakeholder value. The B-Corp charter (articles of incorporation) can provide that platform.
Strength vs Weakness
Every strength over-used is a weakness. There is no denying the strength and power of our capitalist economy. With apologies to Carl Schurz, I like to say, “My economic system right or wrong; if right, to be kept right, if wrong, to be set right.” Two things seem obvious to me and, I think, obvious to most people in our country. A third thing is not so obvious to many, but is becoming so. First is that our system has fallen into the capitalist trap of creating extreme income/wealth inequality. This is nothing unexpected for those who study economic systems. It was predicted by those who espoused opposing systems to democracy and capitalism. Sometimes, the opponents have a good point.
The second thing that seems obvious is that those who are at the top of the capitalist food chain are not very likely to voluntarily allow or initiate the re-apportioning of the economic pie. They have no incentive to do so.
The third thing I see, and have been writing about for many years, is that technological advances (Biotechnology, Artificial Intelligence, Automation) will exacerbate the bifurcation of our economy.
Sometimes, demolition and reconstruction are the best ways to solve a problem. Such is NOT the case here. Rather, we must make incremental, methodical changes to set the economy right. Too many forces are arrayed against us. The technology issue, coupled with the inevitable demographic changes as the Millennial generation comes of age, will force our hand.
We can begin by simplifying our economic systems (taxes, regulations, etc.) to help minimize fraud. We can demand more transparency from corporations and government. We can hold our corporate leaders and politicians accountable. The question is, do we have the collective will to make the necessary transformations?