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What is the Connection Between Corporate Governance and Accountability?

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  • Written By: Osmand Vitez
  • Edited By: Kristen Osborne
  • Last Modified Date: 30 October 2016
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Corporate governance and accountability are two features in business that often interrelate in organizations. Corporate governance is a framework of policies or procedures that help safeguard the interest of various business stakeholders. Stakeholders include owners, directors, board members, managers, employees, and the general public. Accountability is the obligation — perceived or actual — a company has to stand by its business operations and activities in society. These items connect because many companies implement corporate governance that outlines goals for remaining accountable to internal and external business stakeholders.

While corporate governance framework is often unique to individual organizations, it may contain universal principles that are commonly operating procedures. Corporate governance and accountability provides a focus for business practices that promote fairness, ethical behavior, and transparency. The framework often provides information for how a company interacts with other businesses via contractual agreements, procedures for reconcile conflicts or disagreements among stakeholders, and the development of a checks-and-balance system among managers, employees, and business departments.

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Accountability is the responsibility to complete business functions. It is not enough to simply complete a function in the quickest or easiest manner possible; most organizations require individuals to follow standards and guidelines. Standards and guidelines can come from upper management, government regulators, third-party organizations, or societal norms. Organizations must be accountable to these standards and guidelines because variations to them can create a distorted view of the company’s true operational or financial health. Individual workers can also intentionally manipulate a company’s information for their own personal gain, damaging the organization’s reputation and goodwill.

Corporate governance and accountability is especially important for publicly held companies. These organizations rely on their governance framework and past accountability performance to secure future equity financing from venture capitalists, investment firms, and private investors. These groups can review corporate governance framework from public reports to see how exactly a company attempts to control its operating environment. These statements can then be compared to the activities a company engages in to ensure it uses accountability to maintain a strong relationship in the business environment. A disconnect between corporate governance and accountability practices can lead to an unfavorable company reputation among investors and the general public.

The general public also looks at a company’s corporate governance framework as the disciplinary system organizations use to reprimand owners, directors, managers and employees who fail to remain accountable in business operations. The ability to correct inappropriate behavior is often needed so companies can remain a going concern and avoid negative business situations from poor corporate governance and accountability.

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