You can be responsible to people to whom you are not accountable; and you can deal with interlocking and conflicting responsibilities. Why do so many thoughtful people fail to realise this?
A board is responsible for its employees and customers, but responsible to its shareholders. This has become a form of words which would do credit to a mediator in Northern Ireland. It is designed to give comfort to all sides of an argument – until, of course, they start to unravel what it means.
I do not want to offend Alistair Ross Goobey of Hermes, who used this sentence in a letter to the Financial Times last week, and managed to attract the headline “board responsibility is clear”. Still less Mark Goyder or Chris Haskins from Tomorrow’s Company, whose support he claimed. Or Jonathan Rickford, Project Director of the Company Law Review enquiry. Or the CBI, with whom I think these reassuring words originated, or the Hampel Committee which endorsed them. Still, I feel a responsibility to the readers of this newspaper to begin the process of unravelling.
If we must engage in fine distinctions of language, there is indeed a difference between the phrases “responsible for” and “responsible to”. When I borrow a lawnmower from you, my neighbour, I am responsible for the lawnmower but responsible to you. I do not have any duty or obligation to the lawnmower – that would be absurd – but I do have duties and obligations in relation to the lawnmower which arise from my duties and obligations to you.
We have responsibilities both for, and to, our children. We are responsible for their behaviour. I have a duty to try to stop them breaking your windows and if they do I have an obligation to apologise to you and to pay for the damage. My responsibility for them is the product of my responsibility to you. But I am also responsible to my children, in that I have an obligation to them to bring them up well, and give them the opportunity to live a happy and fulfilling life.
It need hardly be said that these are not simply legal responsibilities, although legal structures underpin and reinforce them. They follow from the nature of the society in which we live.
So how does this apply to companies? Are the employees and customers of a company like my benevolent neighbour, or like his lawnmower? There is a difference between people and lawnmowers and good managers will do well to remember it. Company directors are responsible to shareholders, and perhaps others, for their relations with customers and employees. But they are also responsible to their customers and employees. We might argue about the extent of that responsibility – that is what the stakeholder debate is about – but that it exists is not seriously open to question. At a minimum, the company should treat its employees and customers with fairness, honesty and decency – not because such treatment is in the interests of the shareholders (it may or may not be), but because that is how you behave. We have responsibilities to others simply by virtue of living, working and doing business in modern Britain.
And this is not a theoretical point. The 1985 Companies Act makes explicit provision for directors to recognise the interests of employees. It does so because cases had cast doubt on the propriety of directors approving provision for redundant employees in excess of the legal minimum. They felt responsible to workers they were no longer responsible for. And quite right too. I have not met many company directors who react differently. And when I do I will despair of the future of a market economy. It is essential that a revised company law legitimises these sentiments.
So why do so many wise and thoughtful people say things they cannot possibly mean? There are two confusions. One is a belief that directors cannot handle a range of responsibilities. But all of us juggle our various responsibilities all the time. My cab driver must balance his responsibility to me, his client, with his responsibilities to other road users. My cleaner must, in the limited time available, reconcile her responsibility for cleaning the kitchen with her responsibility for cleaning the bedroom, all within the context of her overall responsibility to me. Even if they find this difficult, they manage, for remuneration a great deal less than corporate executives receive.
The second confusion is between responsibility and accountability, and between accountability and appointment. You are not necessarily responsible to the people you are accountable to, and vice versa. The Home Secretary is responsible for the queues outside the passport office. He is responsible to you, me and the people in the queue for the shambles at Petty France. He is accountable to Parliament for the discharge of these responsibilities. And he is appointed by the Queen on the advice of the Prime Minister.
All these accountabilities and responsibilities are clear enough, even if the results leave a lot to be desired. Even if Jack Straw is appointed by Tony Blair and answerable to Parliament, but no-one thinks that he has discharged his responsibilities once Mr Blair and his fellow MPs, passports in hand, have set off on their summer holidays. You can be, and frequently are, accountable to someone for responsibilities you owe to others.
I take a broad view of the nature of the responsibilities of company directors and corporate managers. But I do not think that board meetings should be representative assemblies, in which the agenda of different constituencies confront each other: in fact I am sure the results of such a process would be disastrous. Boards can only work effectively in a co-operative environment with an agreed sense of common purpose. And I believe strongly in a business judgement principle, in which these professional managers are free to arrive at their own conscientious view of the balance of responsibilities they face. The role of company law in this area is to restrain gross abuse, not to permit judges to second guess management decisions. Because responsibility, accountability and appointment are separate, we can determine the process and the nature of the responsibilities separately.
I hope I am not responsible for any remaining confusion – but if I am, I am responsible to my readers and accountable to the editor. Clear enough?