accountabilitybloke (old blog)

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The False Promise of Regulatory Reform (Repost from http://bit.ly/zbqmEE)

[My colleague Justin O’Brien recently launched a new portal for his Centre for Law and Regulation at the University of New South Wales. He invited me to post some thoughts about corporate accountability and regulatory reform — and I delivered a two part analysis. Here is the second part — the original is found at http://bit.ly/zbqmEE]

I have argued thus far that much of the global policymaking rhetoric emerging in response to the 2008 financial market collapse has been based on the two simple narratives that stress the role of corporate accountability as both cause and cure. Together these comprise the “policy theory” that underlies current government responses to the crisis.

Students of public policy are taught that the policymaking process is a messy business involving a clash of interests engaged in bargaining and compromises. But in many cases — especially those related to particular events or crises — policymaking also involves explicit or implied theories of cause and possible cures. The implied policy theory reflected in responses to the financial crisis triggered by the 2008 bankruptcy of Lehman Brothers has been relatively clear: the economic turmoil resulted from deregulation and the subsequent lack of responsible behavior on the part of the banking community and especially major investment houses. It followed that what was needed was a reconstruction and reinvigoration of a stronger regulatory regime with the intent of strengthening corporate accountability in the financial industry and throughout the corporate world.

In an ideal world, theories are grounded in facts and constantly put to the test; in the world of policymaking they are often based on pure speculation and supported primarily by an unwarranted but strong belief in the theory and its veracity. The problem is that in policymaking such strong beliefs often trump efforts to weigh the evidence against a dominant theory or in support of alternative policy approaches.

At this juncture I have no intent to argue against the causal (explanatory) part of this policy theory, other than to note that most analyses indicate that the issues underlying the events of 2008 and the Great Recession that followed were more systemic than the theory implies. Deregulation and the lack of corporate accountability certainly factor into any explanation, but there is little evidence to back the argument that a future recurrence of the crisis will be prevented if we rebuild the regulatory regimes that began to dissipate from the late 1970s onwards. If that is the only major response, then we have certainly learned little of value from the economic collapse.

At the same time, I do not intend to argue against the cure part of the theory, for certainly any coherent policy response must take into account the need for greater corporate accountability in the future. The issue is whether regulatory regimes — new or reconstructed — are the only or appropriate policy responses to the need for a greater sense of corporate responsibility for the actions they take. There are alternative approaches that can be seriously considered.

Before outlining the alternatives, however, let’s revisit the issue of corporate accountability to place it in historical perspective. The issue itself is a creature of the “managerial revolution” that took root in the early 20th century. It  became a major cause for concern as corporate decisions and control passed from ownership to the emerging technocracy within the more successful enterprises. Throughout the 1920s and 1930s, the problems of accountability were primarily within corporations. They were typically resolved through policies based on such concepts as fiduciary responsibilities and other legalistic instruments that made mangers accountable to shareholders. In the public sector, similar concerns were being raised as governments turned increasingly to quangos and other forms of autonomous public enterprises. It was in this context that corporate accountability first emerged as a public policy issue in the form of how to make those public authorities and crown corporations more responsive to the public interest.

But it was not until the 1950s and 1960s that the public impact of private sector corporate decisions became increasingly evident and calls for greater corporate accountability found a place on the political agenda of most advanced economic systems. Because many of the issues being raised involved specific areas of corporate behavior (e.g., auto safety, the environment), regulatory solutions seemed most relevant. But there were those, like John Kenneth Galbraith, who were warning that the rise of corporate power and influence in the “new industrial state” called for more than just regulatory solutions. On this reading corporate accountability was a more systemic challenge. It required policies that went beyond merely making and enforcing rules. (Ironically, in the aftermath of the 2008 financial market collapse, those who turned to Galbraith’s writings ignored his warnings about the new industrial state and focused instead on his classic analysis of the 1929 stock market crash.)

What emerges from this brief overview is the idea that we need a multifaceted approach to the issue of corporate accountability, one that reflects the scope and range of the problems we are attempting to resolve. There is no doubt a place for (re)regulation where we are dealing with specific arenas of corporate behavior where malfeasance (criminal acts) or market indifference (externalities of corporate decisions on the environment and public health and safety) are possible or likely without government intervention. But such regulatory approaches are not designed to handle the broader, macroeconomic threats posed by irresponsible corporate decisions and behavior.

One such approach is the option of creating more responsible behavior through a “managed” economy in which corporations become part of an overall governance scheme that attempts to hold them accountable for their role in the general economy. Such a managed approach is often associated with now discredited (but at one time widely advocated) national economic planning policies. Nevertheless, in more subtle forms (e.g., industrial policies, economic development policies) the approach remains a viable and active means for inducing corporations to take the public impact of their decisions into consideration.

Another approach — one more often implied than explicitly advocated — is to alter the parameters and rules of the environment in with corporations operate. It involves reconstituting (or fiddling around with the design of) what organization theorists call the “task environment” of corporate enterprises. Underlying this approach is the assumption that accountability does not have to be created, but rather changed. “Moral beings are accountable beings,” wrote Adam Smith in 1759; it is in our social nature to be accountable, both as individuals and as organizations. Under this “constitutive” strategy, it is a matter of reshaping and redirecting the accountableness that already exists — to develop policies that foster and nurture a more desirable (i.e., moral?) sense of corporate accountability. We see this approach implied in the work of public choice theorists as well as in the work of the growing cadre of behavioral economists who seek to “nudge” rather than regulate or manage. On a practical level, we see it in the US with the development of B-corporation charters in a growing number of states that alters the fiduciary relationships required under traditional corporate law. Done mostly under the radar of mass media news coverage, this new charter allows B-charter firms the freedom to modify their operating norms away from the bottom line in order to explicitly serve more than shareholder interests.

Sadly, simple narratives and simplistic policy theories often carry the day when it comes to reform. Perhaps with a bit more public reflection and debate that can be changed. In the case of corporate accountability it is not too late.

March 12th, 2012 Posted by | accountability, accountabilitybloke, accountable governance, corporate accountability | no comments

Scratching the itch…. (warning: pretty dull stuff)

I have to admit to having this “itch” to get to the bottom of accountability — not merely as mechanisms of governance (which is the focus of anything I might publish on the subject), but also as a ethical and psychological concept that drives that part of human behavior related to governance. And the more I scratch that itch, the more it becomes an obsession….

Last week as I did my intermittent wandering through the bookstores in Harvard Square (something Randi and I do every so often — this time with friend Justin), I stumbled across Stephen Darwall’s “The Second-Person Standpoint.” I have come across this title before, but the $49.95 price tag ($10 bucks cheaper on Amazon) kept me from even opening the book out of curiosity. (My urge to scratch that itch has its limits — obviously economic in nature).

June 1st, 2008 Posted by | account giving, accountability, accountabilitybloke, accountable governance | no comments

Bacevich on JCS…

This morning’s Boston Globe “Ideas” section (always a good read) leads with a piece by Andrew J. Bacevich on the need to reform — or, better yet, get rid of — the Joint Chiefs of Staff (JCS). It is, he argues, a failed institution that is beyond salvation.

Bacevich — whose credentials to discuss this topic are professionally, academically (see here and here and here) and personally well established — is focused on this particular institution, but what we have here is part of a more significant problematic: the unitary executive theory (UET). Bacevich contends that the failure of the JCS is partly due to design flaws that have not been resolvable via reform, and in part due to the mediocrity of those who rise to the level of JCS chair. (He does note Chairman Colin Powell to be the major exception, but his “success” in the position was a major reason for the mediocrity that has followed….) I think it pretty clear that the institutional context of the unitary executive theory is a more critical factor, for it defines and drives the logic of accountability and responsibility for the JCS and other agencies that were designed to have some degree of autonomy and detachment from the White House.

June 17th, 2007 Posted by | accountable governance, Iraq War | no comments

Accountability and democracy (I)

And now for something completely different — some thoughts on accountability….

Getting back on track seems to be a constant theme of the few blogs I have posted over the past several months, so it is time once again to try doing so.

This time my focus is on the relationship between democracy and accountability — a topic that is actually newsworthy given the elections coming up this Tuesday. But instead of the mid-year vote, my thoughts are in reaction to an award-winning book by political philosopher Henry S. Richardson (son of Elliot, by the way) titled Democratic Autonomy: Public Reasoning About the Ends of Policy.

I am only at the beginning of this work, but the problem Richardson addresses is the possibility of democratic governance in the context of the modern administrative state (my phrasing, not his). He sets the stage by noting that most discussions of modern democracy focus on two issues: how to constitute a democratic system that builds upon and protects individual rights (liberal democracy) and how to establish a democracy that does not foster tyranny of the majority (republican democracy). What neither of these traditions directly confront is the necessity of administrative discretion and the accompanying potential for bureaucratic domination.

While this may be a refreshing reconfiguration of the current debate among democratic theorists, it is hardly a new topic for students of American public administration or administrative law. For the mainstream scholars in American PA, Dwight Waldo‘s articulation of the problem in The Administrative State and later publications has been a preoccupation since at least the mid-1940s, with notables such as David H. Rosenbloom (e.g., here) and John A. Rohr (e.g., here) leading the way to finding some rationale for “retrofitting” constitutional democracy into the administrative state. For those who study US administrative law, the constitutional problem of how to deal with delegation of authority issues reached its peak in the 1930s and has been circumvented rather than resolved for all these decades (e.g., here).

My own take on the issue places accountable governance at the center of the “democracy in the administrative state” question — with equal stress on both accountability and governance. Despite the conventional wisdom that assumes and inherent tension between democracy and bureaucracy (e.g., here), the two are linked by a fundamental and necessary reliance on mechanisms of accountability. But while accountability is a necessary condition of each, it is far from a sufficient condition for either. That said, almost all contemporary reforms (and related discussions) that attempt to address or resolve the problematic relationship between democracy and bureaucracy either over invest in the enhancement of accountability or fail to appreciate the complex role it plays in both.

More to come as I plod ahead into Richardson’s work….

November 4th, 2006 Posted by | accountable governance, political science | no comments