DEFINITION of ‘Corporate Accountability’

Corporate accountability is the performance of a publicly traded company in non-financial areas such as social responsibility, sustainability and environmental performance. Corporate accountability espouses that financial performance should not be a company’s only important goal and that shareholders are not the only people a company must be responsible to; stakeholders such as employees and community members also require accountability.

BREAKING DOWN ‘Corporate Accountability’

In conjunction with the annual financial reports, which the Securities and Exchange Commission (SEC) requires corporations to produce, many corporations choose to produce corporate accountability reports to satisfy demands from the public and shareholders. Private organizations, not a government body, set standards for social and environmental responsibility that they expect public companies to meet and be account for. Corporate accountability is also important to shareholders concerned with ethical investing.

The basis of this practice is the concept that businesses should be held responsible for the impacts of their actions. Governments do not have broad authority to regulate corporations except when specific legislation has been passed. Historically, passing such legislation has required a concerted public effort to convince politicians to regulate particular practices.

Corporate Accountability in Industry

One of these early efforts was the campaign to ban tobacco smoking advertisements and to label tobacco products as dangerous, which resulted in the 1969 passing of the Public Health Cigarette Smoking Act. This was preempted by both public outcry at television and radio advertising luring in new smokers without giving equal weight to the views that smoking is dangerous, as well as an exhaustive Surgeon General report that outlined the specific health hazards of smoking.

Subsequent campaigns have lobbied for other public health initiatives, environmentally sound or sustainable business practices, social justice issues such as employee exploitation and bribery and corruption. Sometimes initiatives are triggered by specific incidents, like periodic campaigns to regulate oil company practices after highly-publicized oil spills. Many non-profits, like Corporate Accountability International and Friends of the Earth, have directives to lobby for increased corporate accountability on specific campaigns.

The increased prevalence of such movements, and increased concern with ethical or responsible investing, has led to many companies providing these annual corporate accountability reports. There is no clear formula for corporate accountability reports and they vary widely from industry to industry, but many private organizations provide services or guidelines to track a company’s accountability reports and judge their practices. Corporate accountability reports can also serve as good publicity for a company. Common features include reports on the treatment of employees, efforts to produce their products or provide their services sustainably, company culture and internal management and quantitative estimates of the externalities – good and bad – of their business practices.