Responsibility vs. Accountability

Controlling your Accountability

Your Rights

Our description of accountability in the previous chapter sounds pretty rough, but taking risk of personal financial loss comes with the ability to profit. It also comes with the right to choose who to make responsible for the organization and its assets.

So in your own company, you decide who to hire and fire as officers and employees. As a publicly traded company stockholder or member of a homeowners association, you get to vote for the board of directors.

You see that your ability to control the assets is generally based on how accountable you are in relation to the entire organization:

• If you are the sole owner of a small business, you have complete control over who your officers and employees are and what will be their responsibilities.
• If you own common stock, you can vote for the corporation's directors, but if all the candidates you voted for lose and you think everyone now on the board is incompetent, understanding that you are still accountable for the effects of their decisions will help you decide whether to divest.
• If you invest in mutual funds, your mutual fund manager is responsible for turning profits in the long run, and you're accountable for the money you've put in. But notice you have no say in hiring or firing mutual fund managers, let alone their decisions. You have no power over those who are responsible. This is acceptable in general because mutual funds are designed as safe investments. And, as with common stock, if you don't have faith in the manager of a fund, you can move your money to another.
• If you own a home in a homeowners association, you can take a seat on the board of directors, and even get elected president, to have maximum influence on its operations and management of funds. If you don't have the aptitude for this, you can nominate those candidates you trust and campaign to get them elected.

Transferring from Responsibility to Accountability

Can company directors or officers be forced to cover company losses if they do a bad job? That is, be made accountable or held accountable? Generally, no.

If you're a director or executive officer in a commercial enterprise, the company pays you a salary to take responsibility for it. If you do poorly, the remedy is to remove you from responsibility (by firing you or demoting you) if someone better can be found, or try to improve your performance through training and mentorship. If you get fired, you stop earning that salary, whatever it was, until you find another job. But in such an arrangement, the company has no right to send you a bill for the organization's losses. It might be millions!

The same concepts apply to volunteer directors (who are also owners) and professional management companies that run a homeowners association.

To explain a little further: If you're a director or officer and you make reasonably sensible decisions while doing your job based on what you know, or even if you make mistakes, and your organization suffers losses, you generally won't be found personally liable. Because there will always be many factors that contribute to failure of a product launch, a construction project falling behind causing financial loss, or a maintenance disaster in an old apartment building you manage. And there will have been countless decisions other responsible parties inside and outside the organization had to make in planning, execution, and monitoring of its work. These can and should be scrutinized to determine what changes in responsibility might be made, but those responsible won't be held accountable to pay for the company's losses.

There are exceptions, though. As a director or officer of an organization, you can expect to be held accountable for willful misconduct, or for actions taken outside your scope of responsibility.

The most obvious example of willful misconduct is stealing. If you embezzle money from your company, and you get caught, you will not only lose the position of responsibility that enabled this, you may be forced to pay it back, and/or suffer punishment by sitting in prison for a long time. You will be held accountable to those who are accountable for the business.

Other examples of willful misconduct include taking actions you knew were illegal (such as labor law violations, or dumping poison in a lake), violating company safety policies designed to protect the company from liability, or making unconscionable decisions that belie an ulterior motive, such as a desire to hurt another employee or the company itself. When this happens, you could be arrested and/or sued and required to pay restitution to whoever was hurt, including the stockholders—that is, held accountable. It can also apply if you didn't take the improper actions, but you knew about them and didn't speak up. More on this later.

You could also be held accountable for taking an action that isn't illegal or improper, but which is outside your area of responsibility. Let's say you're the chief information security officer, and you sign a contract for a huge purchase of needed manufacturing equipment thinking you're helping get the production line up and running, but it turns out the purchasing officer ordered the same material already from another vendor. The products are delivered and the bill arrives. No returns! If your company can prove you should have known you weren't authorized to make the purchase, you could be liable to pay that bill!

How did all these articles by business experts about "accountability" not mention any of this! It's something you should know! Especially because it's quite common for executives and directors to take actions they could be held accountable for without realizing it, especially when we're talking about directors in a homeowners association, who are often volunteers with little business savvy.

Delegation of Accountability

What about delegation of accountability? With our definitions, responsibility can be delegated, but the idea of delegating accountability doesn't apply. Delegation applies to actions, and accountability is a condition. If you put assets in a blind trust and delegate a trustee to maintain them, you still personally gain or lose depending on how the trust performs. The trustee is only responsible for his actions; the money is still on your account.

You can transfer aspects of this condition to others, though. For example, if you buy insurance against casualty loss, this transfers financial risk of loss to the insurer in exchange for a monthly premium payment. If you suffer an uninsured loss in a business investment, you can try to transfer your accountability to someone else, such as an executive officer who engaged in gross misconduct, or a competitor who engaged in treacherously unfair or illegal business practices, in hopes of recovering your losses.