Who's Checking the Checkers?
Frank J. Navran
In the years before 'empowering employees' became part of the management lexicon, decision-making authority often rested several layers above where the actual work was being performed. It was commonplace for peoples' work to be checked, first by their supervisors and then rechecked by the manager. Those of us consulting to businesses at that time derisively referred to this process as 'checkers checking checkers'.
There is a new phenomenon gaining attention, which might make those of us committed to the current attention organizations are paying to ethics nervous. It was raised in a recent conversation with an executive of a large European-based, multi-national organization. He called it the 'backlash to the backlash.' If this concern has merit it may be time to bring back 'checkers checking checkers.'
The Backlash
The first backlash was represented by the recent demonstrations in Seattle. The World Trade Organization (WTO) was holding its annual meeting and attracted dozens of special-interest groups, some well known, others part of what might be characterized as 'the fringe,' (PROVIDE DEFINITION). They were demonstrating to draw attention to their various and sundry causes, everything from labor concerns regarding the exporting of unionized jobs to environmental, human rights and national sovereignty issues. Simply stated, the concern was that multi-national businesses, as represented by the WTO delegates, threatened the vested interests of the demonstrators. It was believed that multi-national businesses were becoming too powerful and would override the progress made in several arenas and thwart future progress in those arenas and others.
As publicized,the demonstrations becameunruly and the result was even more international media attention to the WTO meeting and the concerns of the protestors. Several months later, there was a similar showing of concern for the multi-national business agenda in Washington, D.C. as the World Bank and International Monetary Fund met.
What we have is a backlash to the perceived growth in the power of multi-national businesses. Their concern for economic expansion is being characterized in several ways. The opponents to this growth - those representing the backlash to multi-national corporate expansion - talk of their fears of environmental destruction, exploitation of the young and the poor, the dominance of poor nations by rich corporations.
Supporters of multi-national economic expansion and the globalization of the economy claim a variety of benefits. They talk of the benefits of global economic growth, expanding prosperity, rising standards of living and creating more 'haves' -Define 'haves'.
The Backlash to the Backlash
The second backlash is characterized as a politically and economically conservative position, which suggests that the good being done by multi-national economic expansion is worth protecting. The Seattle and Washington, D.C. protestors are viewed as a serious threat to corporate sovereignty and need to be reined in. They do not argue that the causes being supported are wrong. That would be foolish. They are taking a more subtle tack - suggesting that the protestors do not represent the mainstream positions of their causes. That they are the extremists from within these otherwise legitimate movements, and their extremism represents a real threat.
The argument against the backlash is rooted in the belief that multi-national expansion has been the economic engine driving recent (and they argue) unprecedented prosperity. Heeding the cries of the extremists threatens to derail that engine. What's needed is a global corporate retreat from extreme positions of social responsibility and a retrenching of the more traditional corporate focus on economics - a delegitimizing of the extreme positions of the socially responsible.
Included in the definition of 'extreme positions of social responsibility' in some minds is the proliferation of corporate ethics programs/offices and the expansion of the ethics agenda beyond compliance and business conduct to include issues such as anti-corruption, transparency, human rights, cultural sensitivity, environment, health and safety.
Therein lays he raison d' ?tre for this article. Does the backlash to the backlash:
- Raise legitimate concerns?
- Threaten the work being done in the ethics field?
Who is checking the checkers - holding the protesters accountable?
Legitimate Concerns
First, we might ask if the concerns of the Seattle protestors are legitimate. Of course their concerns are. I don't know of anyone speaking out in favor of destroying the environment, exploiting the young and the poor or the domination of poor nations by rich corporations.
This is ultimately a matter of degree. How much must be done in each of these areas? How quickly and by whom? What represents an appropriate balance between the needs and concerns of the different stakeholders? These issues warrant deliberation and those debates are underway in a variety of venues.
I also suspect most reasonable people would agree that multi-national corporations are as in need of checks and balances as are any other institutions with the potential to wield such power. Someone needs to pay attention to the actions of the multi-nationals and the consequences of those actions, especially on those stakeholders too weak or disenfranchised to watch out for themselves. The question is who? Who is the appropriate watchdog, the right checker? Who should society entrust with theresponsibility of managing the balance between pressures for multi-national corporate growth and expansion and the needs of those interests potentially threatened by that expansion?
Is the Backlash to the Backlash Legitimate?
Here are two concerns: First, is the concern that the special interests attracting the most attention might be those that represent the extreme positions. If that is true, will it serve to undermine the credibility and authority of the more moderate, mainstream positions? Does the 'extreme' label apply? Itdoes if you wish to discredit these groups and their causes.
Intuitively, it might be reasonable to conclude that what we witnessed in Seattle and Washington, D.C.was not the most moderate position of the various special interest groups addressing the issues. It seemed to be a departure from the more traditional dialogs held on these topics. Televised interviews and written reports reinforce that intuition. It appears these were the most outspoken and militant of the special interest groups.
But even if they are extreme, that does not mean that the more moderate positions underlying their protests are not still as legitimate as they have traditionally been. Nor does it discount their concerns regarding the perception that multi-national corporations are wielding increasing power in shaping the global social agenda.
The second issue asks if these more extreme positions (the backlash) threaten economic growth, as it appears some now believe? If yes, then do their positions threaten both the well being of multi-nationals, as well as the global economy?
Is the threat to economic growth and prosperity posed by these special interests real? If it is real, is it justified - is slowing the economic engine of global expansion the right thing to do? In truth, I don't believe we really know. The research has not been done. What exist today are opinions, and they appear to cover the entire spectrum of possible answers to these questions.
Threat to Ethics Work
Some are viewing the backlash to the backlash as a threat to progress made in moving from rules-based to principles-based decision making in the corporate arena. (I think this sentence should be reworked. I'm not sure 'ratchet' is the right word to use). The arguments suggest that multi-national corporations take the lead in scaling back their proactive integrity agenda - not abandon the agenda - merely be less aggressive in its pursuit.
The case is being made that the lack of accountability in the independent sector is a threat and that corporations should pay that sector less heed, be less responsive to their demands and basically, get back to business as usual. That does not suggest returning to the integrity standards of the 60s or 70s. Corporations must still abide by law and regulation ranging from labor to safety to environment to human rights to anti-corruption. But they need not - in fact should not - proactively expand the agenda or raise the standards. It is not simply adequate to meet the standards laid out in law and regulation. It is in the corporation's best interest to do what is required - and no more. The ethics agenda of organizations like the Ethics Resource Center (ERC), which advocates deliberate and thoughtful global expansion of the integrity agenda, is directly threatened by this position. Rather than retreat behind the walls of compliance - doing what is required - a siege mentality, the ERC and others are promoting the expansion of the definition of ethics and business conduct. They are speaking out in favor of ethics taking a more prominent position in the strategic thinking and planning or corporations. They view the backlash as legitimate and dismiss the backlash to the backlash - to a degree. The ERC and others recognize extremism in some of the positions demonstrated in Seattle and Washington, D.C., but do not suggest that corporations retreat from the ethics agenda. Rather, they call for increased accountability in the independent sector. Rather than run from the outspoken opinions of the anti-multinational groups, hold them to a standard of reasonableness in their actions against the global corporate agenda.
But accountability is not a simple concept to execute.
Accountability in the Independent Sector
Within the US special interest groups largely fall into what is called the independent sector: non-government organizations, non-profit education and advocacy groups and other non-commercial entities. They are not charities but are often able to attract funding by their non-profit status - providing tax incentives to donors. And, they are subject to IRS scrutiny - oversight which ensures that they meet the non-profit criteria and guidelines. But oversight of this kind is not accountability.
In a recent research project conducted jointly by the ERC and Independent Sector, a non-profit membership association of non-profits, charities, foundations and related organizations, several findings and conclusions emerged. (This paragraph is awkward. Since Independent Sector is defined above, should the sentence be written: In a recent research project conducted jointly by the ERC and independent sector, several findings and conclusions emerged?
What is Accountability?
Accountability is difficult to define precisely. From the research it is clear that 'reasonable' people disagree. The potential for misunderstanding and confusion only increases when those who discuss accountability assume shared meanings without verifying this assumption. Clarifying the concept of accountability is fundamental to understanding how we might respond to the backlash positively. How individuals and organizations define accountability will directly affect how organizations within the independent sector frame and approach critical questions, respond to challenges and interpret their visions and missions.
One approach is to differentiate betweentwo descriptive categories: 'narrow' and 'broad' accountability. Within each category, there are several key dimensions of accountability that can be used to frame and understand how the independent sector might be held to appropriate standards without inappropriately constraining or limiting the legitimate pursuit of their special interests.
Narrow Accountability
Narrow accountability refers to:
- The formal responsibilities of individuals and organizations to report their actions to higher authorities (e.g. the Internal Revenue Service),
- The specific reporting mechanisms they are instructed to use, and
- The formal standards to which they are held.
The standards and expectations for 'reporting' associated with narrow accountability are largely determined by legal requirements and by the applicability of other formal regulations. Typically, these standards and expectations are both explicit and objective. Individuals and organizations are generally aware of them and the accountability mechanisms associated with them. Open and transparent reporting is valued but the amount of information shared is often limited to the letter of the law or stated regulations.
An example from The Council of Better Business Bureau's 'Standards for Charitable Solicitations,' typifies narrow accountability. Under a section of their 1982 standards entitled 'Public Accountability' they request that organizations shall:
- Provide on request an annual report,
- Provide on request complete annual financial statements,
- Present adequate information [in their financial statements] to serve as a basis for informed decisions, and
- For those organizations receiving a substantial portion of their income through the fund raising activities of controlled or affiliated entities shall provide on request an accounting of all income received by and fund raising costs incurred by such entities.
These reporting requirements outline the specific information that must be made available to higher authorities and identify appropriate mechanisms for doing so.
To summarize, narrow accountability is concerned with reporting to a known higher authority vis-'-vis explicit standards of expectations. To ensure this type of accountability, organizations use formal mechanisms to comply with explicit laws, regulations, and standards, such as the recently passed Intermediate Sanctions legislation.
Broad Accountability
The broad definition of accountability includes narrow accountability and expands it in two important ways:
- It broadens the set of higher authorities to whom individuals or organizations are potentially responsible, and
- It broadens the criteria, expectations and standards to which these individuals and organizations may potentially be held.
In the broad view, accountability to higher authorities goes beyond legal and regulatory requirements. In the independent sector, the essence or spirit of this view is often associated with 'serving the public good' and 'maintaining the public trust.' As Joel Fleishman (Who?)observes, 'Ours is a sector that, at its core, is dedicated not to serving itself but to satisfying the needs of others and to creating public goods. In addition, the range of authorities to which non-profits are accountable expands to include the general public, the media, peer agencies, donors and many other stakeholders.'
It is often difficult to identify specific standards and expectations for reporting associated with broad accountability. Unlike the legal and regulatory requirements of narrow accountability, the standards and expectations for reporting associated with broad accountability are rarely formalized. Laws or regulations don't bind the expectations of broad accountability. Rather, broad accountability encompasses vague and indeterminate expectations such as the need for organizations to make 'reasonable' accounts of their activities to the public.
Unlike narrow accountability, many of the broader standards and expectations associated with 'upholding the public trust' are implicit and subjective. Public concerns and expectations vary widely on different issues. Therefore, when nonprofits look beyond their formal requirements and responsibilities, reporting mechanisms become unclear. It becomes very difficult for those in the not-for-profit sector to anticipate occurrences for which they may be held broadly (versus narrowly) accountable. Organizations need ways to ensure greater accountability across their entire spectrum of self-governance, management, educational, credentialing and ethics systems.
To summarize, broad accountability involves preserving the public trust. This means being able to account for the organization's implied promises to its constituencies by pursuing its stated mission in good faith with defensible and transparent management and governance practices. However, in pursing the public trust, what it means for an organization to be 'broadly accountable' is often subjective. Standards tend to be loose and informal. As a result, organizational guidelines for broad accountability remain vague and are frequently in flux.
Available Accountability Mechanisms
The world of special interests is subject to both broad and narrow accountability. The question then remains, how to hold these special interests accountable. There are numerous mechanisms in common use today. Ironically, some of these are consistent with the very systems that those lashing out against the backlash are protesting against. Some of the more common and/or effective accountability mechanisms are listed below. They are separated into two categories - internal - those that reside within the organization and are largely self-managed and external - those that reside in other organizations and can be managed/imposed by others.
Internal Systems of Accountability
- Codes of Ethics, Values Statements and Related Documents. Many organizations formally articulate and distribute their guiding values. In addition, organizations can further clarify how employees are expected to uphold and be accountable to these values in more detailed codes of ethics. While these documents vary significantly by organization, their basic purpose is the same. They serve as reference tool and as a basis for ongoing dialogue about ethics and accountability among staff. And that reference serves both internal decision makers and external interests exercising a degree of oversight.
- Ethics Training and Education. Ethics training and education are important methods of integrating formal codes of ethics and values statements into an organization's culture. Through such means as the discussion of sample cases, they provide additional opportunities to expand learning and awareness around issues of ethics and accountability.
- Credentialing. Systems of credentialing vary and may include: accreditation, certification, licensing and so forth. Credentialing requires organizations to meet objective set of standards. Effective standards are specifically designed and targeted to foster greater attention to issues of public accountability.
- Evaluation. Internal evaluation is a common practice in most nonprofit organizations. Through evaluation, organizations seek to regularly monitor, measure and improve their own performance. As noted in the report by the Maryland Association of Nonprofit Organizations, 'efforts in the areas of program evaluation, client customer evaluation, client customer satisfaction, staff evaluation, board planning, conflicts of interest and financial audits appear to play an important part in nonprofit sector organizational accountability.'
External Systems of Accountability
- Internal Revenue Service and State Oversight and Regulation. The IRS requires that all US nonprofits file a 990 form annually. Individual state's attorneys general also have their own regulatory requirements governing nonprofits that operate within their state borders. Together, IRS and state regulation provide the most basic level of legal accountability for nonprofits.
- Oversight Organizations. Various oversight organizations investigate the accountability of nonprofits throughout the United States. They allow the public to make more educated and informed decisions about their contributions. These organizations typically develop sets of standards by which they judge nonprofits. The standards cover such topics as financial accountability, fundraising, governance and program management.
- Nonprofit Sub-sector Groups. Sub-sector associations perform a variety of different functions, which serve to strengthen and support their members in furthering their common missions. In addition to evaluating performance and credentialing individual nonprofit organizations, they address issues relating to governance, fundraising practices, financial management and more frequently the quality and method of service delivery of the organization.
Corporate Accountability
One means of putting the question of accountability for special interest groups into context is to briefly review the types of mechanisms, systems and strategies that have been utilized to enhance accountability outside the independent sector.
For-profit corporations are subject to an extensive regulatory framework, which directly impacts their accountability. Elements of this scheme include everything from how corporations are formed and how they govern themselves, to (in the case of corporations traded on the stock exchanges) extensive regulations concerning the trading of securities. The regulations promulgated by Congress and Securities and Exchange Commission (SEC) are a classic example of the type of accountability mechanisms imposed on corporations.
In the case of the securities regulation, there are historical reasons for the strict oversight by the SEC. Due to rampant fraud, many of the securities offered in the 1920's in America were worthless. Legislation had been created to protect against fraud; however, weak enforcement provisions hampered their effectiveness. In essence, the great stock market crash of 1929 was strongly linked to a lack of effective regulation. Following the crash, Congress created the SEC and passed a series of major acts focused on eliminating securities fraud.
The SEC is an independent, bipartisan, quasi-judicial agency of the U.S. Government that reports to Congress. It is composed of five members, where not three of whom may be members of the same political party. The laws administered by the SEC relate in general to securities and finance and seek to provide protection for investors and the public in their securities transactions. The SEC createdsecurities laws to facilitate informed investment analyses and prevent discriminating investment decisions by the investing public.
Just a sampling of the critical laws in this area include:
- Securities Act of 1933. The objective of this 'truth in securities' law is to enable investors to make informed investment decisions by requiring all securities to be registered with the SEC. It calls for the disclosure of accurate financial information and other facts regarding the company and the securities for sale.
- Securities Exchange Act of 1934. This act is an amendment of the disclosure law and seeks to protect the investor through more extensive regulations and the demand that information be filed periodically and updated. It demands that companies, exchanges, brokers and others dealing in securities register with the SEC. Some internal activities of companies are addressed, such as voting, insider trading and margin trading. The investigation and enforcement practices are also defined.
- Public Utility Holding Company Act 1935. In 1935, Congressional inquiries uncovered financial and operational abuses by the monopolistic electric and gas public-utility-holding-companies. Congress aimed to correct the problems and protect consumers by requiring companies to register and meet certain specifications.
- Investment Company Act of 1940. This act defines standards, prohibitions and regulations for all companies that primarily conduct business in investing, reinvesting and securities and whose own securities are sold to the public. The law demands the disclosure of complete information about activities and prohibits the change of the nature of the business or policies without approval of stockholders and dictates who may serve as officers and directors.
- Investment Advisers Act of 1940. This law covers the regulation of investment advisors. It requires brokers and dealers to register with the SEC and to behave according to statutory standards. It contains anti-fraud provisions; and it details actions that would lead to the denial, suspension or revocation of the registration.
- Foreign Corrupt Practices Act of 1977. This act has two parts. The first imposes internal accounting requirements and requires accurate financial records to be kept. The second is a prohibition of foreign bribery; this does not include 'grease' payments to lower-level officials whose duties are mainly clerical or ministerial. The harsh penalties for non-compliance are also addressed.
In addition to external regulatory systems, for-profit corporations have made great efforts to develop a series of internal systems and strategies that impact directly on both narrow and broad accountability. In essence, to ensure accountability within their organizational cultures, corporations have instituted an interwoven set of systems that help to establish, define, evaluate and update the means by which their employees are made aware of what they are accountable for and to whom. Typical systems that directly or indirectly impact the accountability of a corporation are outlined in the table below.
|
|
Conclusion
The backlash to the backlash may indeed pose a real threat to sustaining the efforts of legitimate special interests and the multinational corporations, which are responding to their pressures. What is needed is not a roll back of commitment to the highest ethical standards. Rather, what is needed is:
- The implementation of appropriate and reliable accountability mechanisms within multi-national corporations to ensure their effectiveness in meeting the spiraling demands for social and corporate responsibility, and
- The implementation of equally rigorous and effective accountability mechanisms within the independent sector, among the special interests themselves, assuring that these groups are held to appropriate standards of reasonableness.
What is called for is mutual accountability. It is not healthy to have special interest groups, holding multinational corporations to ever-rising standards, themselves free from any oversight, checks or balances. The special interests serve society by checking the expansion of corporate agendas and overseeing the implementation of those agendas. What we need are systems and mechanisms for checking the checkers.