Question

Who are private firms accountable to? Discuss, using theoretical and empirical
examples.
Please answer in 1000 words

Answer 1

The accountability of private firms maybe for their investors and shareholders, ethics/societal norms/communities, administrative (to regulate the internal environment of an organization), security (to ensure traceability of the actions so that they do not harm private/organization/national interests, and the employees or individuals within the organization as well.

Of all these accountabilities, the two most paramount and important ones are the accountability of an organization towards its shareholders and society. There has always been a debate on issues like the extent to which the corporate activity should be governed by law to make them socially responsible and accountable. While the primary accountability of an organization is towards its shareholders, the introduction of laws including the Sarbanes-Oxley Act has made it important for organizations to have a well-defined, transparent, and regularly audited code of conduct to ensure that ethics are followed and consumer interest is not put at stake.

Accountability to the Shareholders

Private companies and firms may be responsible to their shareholders in a way that a country is responsible to its citizens. A private firm belongs to its investors and shareholders. The shareholders have a right to seek important information that may be presented in the Annual General Meeting and includes the annual reports on profits and losses, Director reports, auditor reports, and others. When not satisfied, shareholders can also raise questions that are to be responded appropriately. However, the Directors are not required to disclose any more information than what is described by the law, and shareholders may not publicize or challenge the management decisions. The right of Directors is well protected and shareholders cannot interfere in the management decisions made by them. Managers in the private sector want to keep maximum information confidential so that the legitimate interests of shareholders, as well as the management, can be safeguarded. The claim of confidentiality is quite extensive and deep in the private sector due to the nature of the sector itself. We must remember that an organization is set up to create wealth and increase profit, unlike a government whose primary aim is to ensure the well-being of the citizens. The practice of ethics, responsibility, and accountability may all be affected by the ultimate goals and objectives. Transparency and accountancy in the private world may be restricted because of the involvement of private wealth and interests, and only active government moves, policies, and measures may make anything binding for the private firms. However, due to an increase of awareness in general populations, more and more people (consumers, employees/candidates, investors) want to associate themselves with the more accountable and ethical organizations. Hence, many organizations may follow their social corporate responsibilities and practice greater accountability to be more popular in the consumer segments and markets. The presence of honest, empathetic, and self-driven efforts in the direction cannot be denied as well.

Accountability to Society

The interest of the shareholders may be consistent with the interests of society to a far greater extent than many people may think. Markets and market trends have been found to reflect the social/political tastes and socially relevant information. some managers follow the shareholder interest more actively and also are incentivized for maximizing social wealth.

Government Regulations to Boost Corporate Accountability

While the government efforts towards making the corporates more accountable may not be termed as proactive or full of loopholes, flaws included Sarbanes-Oxley Act have still managed to reduce the number of Corporate scandals and incidents by promoting accountability transparency, and following of code of ethics in the corporate environment, even at the highest levels and echelons. The Obama administration also came up with new laws and policies in the aftermath of the depression of the year 2008, which targeted the financial institutions for being a cause of the crisis. While the companies may be more occupied with saving and promoting the shareholder's interest, it is the primary duty of the governments to ensure that the rights of the consumers and the interests of the nation are well-protected.

Nations and States have a duty and obligation to ensure that all the public and private sector entities, as well as business organizations, operate within the legal boundaries. The private firms should also be held to the same standards as the public sector organizations, to ensure that problems including price fluctuations, inflation, and improper service deliveries among others may be avoided. Governments should ensure accountability and transparency in the private sector by subjecting the private firms to laws and regulations, and by carrying out independent reviews, inquiries, and oversights. For instance, the Dodd-Frank Act of the year 2010 provides the legislative framework necessary for ensuring the accountabilities of the third parties. It also protects certain rights including the right to credit, housing, and proper living standard among others. Through the Act, the US corporations investing in other nations are also brought under stricter control and supervision.