The (Neglected) Value Of Board Accountability In Corporate Governance

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The (Neglected) Value Of Board Accountability In Corporate Governance via

Marc T. Moore

University of Cambridge, Faculty of Law

February 17, 2015

University of Cambridge Faculty of Law Research Paper No. 9/2015


The concept of board accountability is central to literature and debates on corporate governance, not least in the United Kingdom and United States. However, as a social phenomenon it is frequently misunderstood, particularly by corporate lawyers. This article identifies two particularly common misunderstandings of the term within a legal context, where it has tended to be viewed (erroneously): first, as a mitigating counter-pressure to directorial decisional authority; and, second, as an inherent structural corollary to shareholder decisional empowerment – or, vice versa – board decisional disempowerment. The article takes issue with both of these perspectives, and – in response – develops a more nuanced alternative understanding of board accountability in corporate governance, derived from sociological and institutional-economic insights into the nature of accountability as a discrete social-relational practice. Essentially, accountability is understood here as the compelled provision by an authorised decision-maker (to her recognised decision-beneficiary) of normatively cognisable reasons in support of her discretionary decisions and/or actions, which has the ultimate effect of legitimising – and, in turn, sustaining – relational power imbalance between private decisional parties. By recognising these broader dimensions of board accountability as a social phenomenon, corporate lawyers – it is submitted – will be better positioned in future to grapple with the full institutional complexity of corporate governance as a subject of legal enquiry.

The (Neglected) Value Of Board Accountability In Corporate Governance – Introduction

The term ‘accountability’ is virtually ubiquitous within literature and debates on organisational governance,1 and particularly within Anglo-American corporate governance. However, in the latter context it frequently tends to be used in a rather glib or simplistic sense without regard for its proper meaning, especially when the term is deployed by corporate lawyers.

To a large extent, this is unsurprising. After all, it is to be expected that complex sociological issues posed by the historically peculiar scale and structure of public companies – such as decisional power, accountability and legitimacy – will be received somewhat uneasily within orthodox corporate law discourse. Indeed, with limited exceptions,5 Anglo-American corporate law scholarship today remains rooted in the traditional conceptual habitat of private law,6 with its characteristic focus on the discrete relational transaction. A latent but nonetheless significant consequence of this has been the definitional ‘fudging’ by corporate lawyers of some inherently public-governmental phenomena that are relevant to corporate governance, in an attempt to render them consistent with the logic and language of private law. This is true nowhere more than with respect to the difficult concept of accountability.

An especially common misassumption in this regard is that the dual tenets of: (i) board authority, and (ii) board accountability in corporate governance are mutually offsetting (or ‘sliding scale’) phenomena, such that a gain in one can only be achieved at the corresponding loss of the other. Thus an increase in board accountability to shareholders in any respect – according to customary belief – necessarily translates into a corresponding decrease in the scope of authority enjoyed by directors; and, vice versa, an increase in directors’ authority leads inextricably to a reduction in board accountability to shareholders. As conceptually neat as the above logic may be, though, it does not properly represent the nature or significance of accountability as an organisational governance quality, particularly where its relation to the logically distinct governance attribute of authority is concerned.

As will be explained further below, the concept of decision-maker accountability – when used in its most commonly understood sense – is not equivalent, or even tantamount, to the qualitatively distinct notion of decision-maker disempowerment. Rather, accountability as an institutional phenomenon – when understood in its proper sociological sense – essentially denotes a manifest requirement imposed upon a decisional authority-holder A ‘to give an account of themselves’ to B: that is, to provide normatively cognisable reasons in attempted support of their decisions or conduct. For this purpose, B may be either a distinct individual or collective beneficiary of A’s decisions (if the relevant relation is discrete or private in nature), or – alternatively – someone perceived as being affected by A’s decision in a broader sense (which is more likely where the relevant relation is indiscrete or public in nature).

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