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What is Meant by Corporate Accountability?

By Darren Finkelstein
By Darren Finkelstein

The Accountability Guy®

Home » Corporate Accountability » What is Meant by Corporate Accountability?
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While the primary function of any business is to market services and products for consumption, organizations today also focus on generating social and environmental value for employees and society in general. Today, 75% of senior executives in investment firms consider sustainability an important metric in their investment decisions.  With increasing environmental and social awareness, people are demanding more from corporations and organizations regarding accountability.  Understanding corporate accountability is crucial for any leader, so let’s explore this concept in detail.
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Table of Contents

What is Corporate Accountability? An In-depth Understanding

Businesses are set up to generate profits, also called the bottom line. Therefore, they’re answerable to the leadership, investors, shareholders, and the like. However, many believe profits and losses shouldn’t be the only things driving a business. After all, a company exists in a social context, thus sharing some important responsibilities. When a corporation is held answerable for its actions through legal and social means, it is known as corporate accountability

It means that companies are accountable for their actions and the impact those actions have on their employees and society at large. They are answerable to their investors and shareholders, employees, regulatory institutions, and customers. The level of corporate accountability exhibited by a company is an important consideration for investors who believe in ethical investing.

Why Does Corporate Accountability Matter?

Corporations don’t exist in a vacuum; they’re part of society with people and the environment. With industrial and technological progress, corporations have become increasingly influential in the socio-political and socio-economic spheres. They have become the primary drivers of economic growth worldwide, producing jobs and offering better products. In 1990, global GDP stood at 65.21 trillion AUD, reaching over 197 trillion AUD today, thanks to businesses sprouting and expanding everywhere.

However, these companies have become powerful with time, and not everything about them is rosy. They have been found to abuse tax laws, mistreat workers, flout environmental sustainability regulations, and more. Thankfully, some mechanisms help prevent human rights abuse and tax evasion from corporations.

Corporate accountability is crucial because it ensures that a business operates within the boundaries of the law and upholds various environmental and social regulations. It pushes companies to do the right thing, making them a net positive rather than a net negative for society. Corporate accountability also addresses situations in which businesses don’t comply with the regulations and exacts robust penalties to ensure future compliance.

Let’s explore the concept of corporate accountability by addressing its various aspects:

Antitrust Regulations

Many countries enact antitrust regulations and laws to ensure businesses operate in a competitive environment instead of monopolizing a market by sidelining competitors. Moreover, these regulations protect consumers from predatory business practices where they have no choice other than the monopolist for a particular product or service. Antitrust laws apply to bid rigging, monopolies, price fixing, acquiring competitors, and more.

For instance, in Australia, competition laws are dealt with in the Federal Competition and Consumer Act 2010. It prevents organizations from amassing power beyond a certain measure, then using it to damage or eliminate competitors, preventing them from entering the market, or preventing a person from a competitive activity in that or any other market. Similarly, the Federal Trade Commission and States run the antitrust mechanism in the US.

Doing performance accountability using this framework gives you a holistic picture of your organization.

Environmental Regulations

With climate change taking a toll on the planet, people are more concerned about the impact of corporations on the environment than ever. Therefore, people are demanding action from regulators to ensure businesses comply with environmental regulations. Here is what compliance with environmental regulations looks like for corporations:

  • Store and recycle waste securely. A licensed organization should collect it and shouldn’t cause any harm to people’s health. 
  • Hazardous chemicals, ozone-depleting substances, radioactive materials, and more should be handled and disposed of carefully. 
  • Taking care of biodiversity around them, including local natural reserves, parks, wetlands, special conservation areas, and more. 
  • Limit pollution and the damage it causes to species, water, and human health.

Employment Regulations

Employee regulations ensure that businesses treat their employees fairly and ethically and punish those who don’t. Following are some of the major employment laws in action today:

  • Anti-discrimination laws ensure fair treatment for everyone regardless of race, gender, beliefs, and socio-economic background. 
  • Wage and hour laws ensure workers are paid fairly by setting a minimum hourly wage.

Types of Corporate Accountability

Type

Description

Antitrust Accountability 

Ensures perfect competition in the market by preventing unfair business practices, such as monopolization, bid rigging, and more. 

Environmental Accountability 

Holds corporations accountable for their impact on the environment. 

Employment Accountability 

Ensures fair treatment of employees through anti-discrimination and minimum wage laws. 

Conclusion

Adhering to key accountability principles and laws is more crucial for corporations than ever. Not only do they protect companies from legal challenges, but they’re also beneficial for their finances in the long run.

If you’re a corporate leader today, it’s high time you invest your energies in learning about accountability. If you need assistance you can take a look at my accountability coaching packages or take an accountability assessment.

Contact me today and let me guide you through this journey.