Accountability and openness – what does it mean in practice?

Whether your business is in the private sector, charity sector or public sector, all relevant standards and governance codes have a common inclusion: the need to be accountable and open with key stakeholders.

With social media now making it easier for every employee, customer or interested person to have their say, you can argue that it is more important for companies and organisations to be open and accountable than ever before.

Best practice

The introduction to the FRC’s Corporate Governance Code [1] talks about a company’s culture promoting “integrity and openness…and being responsive to the views of shareholders and wider stakeholders”. It also highlights the importance of non-executive directors holding management and individual directors to account.

The charity governance code [2] has an entire Principle on openness and accountability which states that “The board leads the organisation in being transparent and accountable. The charity is open in its work, unless there is good reason for it not to be.” The rationale behind this principle is that public trust is fundamental not only to individual charities but to the success of the wider sector.

The QCA Corporate Governance Code [3] says that companies should “Take into account wider stakeholder and social responsibilities and their implications for long-term success” and also talks of the importance of openness between executive management and the Board.

There are many other industry specific governance codes, many of which also include key points on accountability and openness as well as socially responsible practice.

What does Openness and Accountability mean in practice?

The common theme across all sectors is that openness allows stakeholders to have confidence in the decision making and management processes of the organisation in question. Such confidence informs what company an investor chooses to invest in, what charity to support through donations, what company to work for, through to what company to buy products and services from.

Accountability is the process by which an organisation, its board and leaders and employees are responsible for their actions and decisions. Who do they answer to and how? Organisations will generally be answerable to different stakeholders for different things. For example, a public company will be answerable to their shareholders at an AGM and are also answerable to regulators, stock exchanges for different elements of their practice. Companies are also becoming more and more accountable to the general public, whether they have a direct relationship or not, for their environmental impact.

Who are your stakeholders?

Every organisation will have a different set of stakeholders, or individuals/groups that have an interest in it and how it is run. Stakeholder groups include:

  • Employees
  • Investors
  • Customers
  • Regulators
  • Local/Central Government
  • Media
  • General public
  • The environment

Difficulties arise when the different groups have competing priorities or views on how your business should be run. For example, introducing measures to improve/reduce your environmental impact may increase the costs of your products or reduce your profits leading to a negative impact for your customers or investors.

The first step it is to identify who your stakeholders are and what is important to them. The Board should then decide how it will be accountable to each group – this is called Stakeholder Management.

How to demonstrate accountability and openness

Once you have identified your stakeholder groups the Board also needs to decide on how to be open and accountable. It will need to determine the type and amount of information to be made available. In some sectors, such as public bodies subject to Freedom of Information legislation, this will include almost all types of information. For those in the private sector it will be a balancing act between ensuring enough information is made available to give confidence to stakeholders, but without compromising the need to ensure commercial or competitive advantage.

The following are common mechanisms for ensuring openness and accountability:

  • Following a relevant governance code
  • Ensuring board meeting arrangements reflect accountability and where possible openness (For example, in the public sector it is a requirement to publish meeting minutes)
  • Company accounts – should follow legal requirements and are a key expression of accountability and openness. When drafting report & accounts, the Board should consider its purpose, what should be included and its intended readership. It is an opportunity to provide key information to various stakeholders in a formal way.
  • Effective Annual General Meetings (if required to hold)
  • Business plans and policies ensuring accountability of management and staff
  • Using websites to publish information to stakeholders including potential customers and the wider public
  • Ensuring an effective communications policy is in place

Corporate Social Responsibility

Another key area to consider is your organisations Corporate Social Responsibility (CSR). There are various definitions of CSR – ensuring that business activities are conducted in an ethical way; helping a company to be socially accountable; accounting for a company’s social, economic and environmental impact; the need to act as a good corporate citizen.

It focusses in particular on the social and ethical impact of a company and deals with its accountability to society at large ensuring that its behaviours are in tune with the wider public interest.

Some organisations are legally required to have CSR policies in place whereas others may consider that having one helps support their culture, values and outputs and is therefore important to have one for commercial reasons.

A CSR Policy may include commitments or objectives in relation to:

  • Environment – climate change, carbon emissions, sustainability, Recycling and reuse
  • Employment – inclusivity, equality of opportunity, fair pay structures, training, apprenticeship and leadership programmes
  • Community – charitable giving, nurturing relationships with local groups
  • Supply chain– only engaging suppliers with high ethics and standards, developing relationships of trust and communal responsibility, fair payment terms

Now, perhaps more than ever, is the time to ensure that your organisation is as open and accountable as it can be to its various stakeholders. Your reputation as well as public, customer and investor confidence depend on it.

Help where you need it

Bridgehouse Company Secretaries are brilliantly placed to help with all your stakeholder management needs from identifying stakeholders and developing engagement strategies; reviewing published information; assisting with AGMs through to drafting and measuring the effectiveness of CSR Policies.

For advice on all your governance requirements and to get in touch click here.

[1] https://www.frc.org.uk/getattachment/88bd8c45-50ea-4841-95b0-d2f4f48069a2/2018-UK-Corporate-Governance-Code-FINAL.pdf

[2] https://www.charitygovernancecode.org/en/7-openness-and-accountability

[3] https://www.theqca.com/news/briefs/158996/the-new-uk-corporate-governance-code-and-small-and-midsized-quoted-companies.thtml

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