Managerial Accountability in Decision Making.
| Author | Dhiman, Amit |
Introduction
In the recent past, there has been increasing concern among business leaders, principals, governments, and regulators of the need to curb the agency problem in the organizations. Cases of governance impropriety in organizations such as Enron in US, Satyam Computers in India, subprime loans crisis leading to financial meltdown in 2008, demonstrates the harm fraudulent behavior executives of can cause to the legitimate interests of various stakeholders (Beecher, 2003). These incidents have highlighted the need to make managers more accountable for their decisions and actions inside the organizations.
Accountability is relatively an under-researched construct in the management and social psychology research (Frink & Klimoski, 1998; Hall et al., 2017). However, in other streams such as economics and public policy there exists extensive literature on accountability. Agency theory in economics focuses on accountability in its formal form e.g., monitoring of managerial actions and alignment of actions with their incentives (Eisenhardt, 1985; Jenson & Meckling, 1976). The social psychologists have extended the concept to include informal accountability mechanisms e.g., personal relations, and its cognitive, affective, and behavioral consequences (Tetlock, 1985). Besides some scholars have conceptualized self accountability as an internal regulatory mechanism (Schlenker & Weigold, 1989), which is guided by decision maker's personal values and ethics.
Despite some development in the field, there exists gap in integrating accountability conceptualization from different perspectives. It is proposed in the current paper that, in a given decision context, decision maker's accountability is the net result of its various forms pulling the decision maker in different directions. The current paper presents a comprehensive model to understand manager's accountability in a decision context. Based on different perspectives, it identifies various factors which contribute to the accountability forces on a decision maker. The model also specifies accountability contingencies which make a decision maker adopt a particular decision heuristic.
Economics Perspective
Agency theory, in effect, delineates formal mechanisms to make agents (the managers) accountable to principals (the owners) for their actions in an organization. Typically, principal (owner or a superior) delegates work to an agent (manager or subordinate) and expects it to be accomplished. However, the interests of two parties often do not meet, and agents fulfil their self- interests at the cost of principal's or organization's interests. There exists information asymmetry between principal and agent, and the latter often behaves opportunistically to fulfil their goals. The theory suggests that agents' opportunistic behavior can be curbed through accountability mechanisms such as performance linked incentives (Jenson & Meckling, 1976). Agency problem concerns with finding the optimal contract or the most efficient accountability mechanism which minimizes cost of monitoring and curbs agent's dysfunctional actions (Eisenhardt, 1985). Empirical research has widely supported the theory (e.g., Eisenhardt, 1988). Researchers have highlighted some of the common assumptions that agency theory shares with the organizational theories, such as control theories (Eisenhardt, 1989), having direct import for accountability concept.
Social Psychological Perspective
In social psychology stream, majority of empirical work on accountability is based on its conceptualization by Tetlock (1985). It holds that decisions are not taken in vacuum and managers are held accountable for the decisions by different constituencies or stakeholders, e.g., by superiors and decision recipients. Managers take decisions depending on which constituency they feel most accountable to, including self (Schlenker & Weigold, 1989). Their primary goal is to maintain a positive regard of important constituencies to whom they feel most accountable (Tetlock, 1985). Two hard core assumptions of this conceptualization are as follows: accountability of conduct is a universal feature of natural decision environment, and people are approval and status seekers. Tetlock (1985) identified three motives for people to seek approval and adhere to accountability measures: protect and enhance social image, protect and enhance self image, and secure control of desirable resources. Three motives are complementary and mutually reinforcing.
The basic assumption of Tetlock's conceptualization and agency theory is same. Both assume 'decision makers as a politician', whose underlying motive is to safeguard their interest, whether it aligns with the organizational goals or not. But whereas economics theory propounds incentives-based accountability measures, social psychology additionally proposes people-based measures such as 'clan control' (Ouchi, 1979), personal relations (Shapiro, 2005), informal norms within teams (Barker, 1993), or organization wide cultural norms.
Frink & Klimoski (1998) made a major contribution to theoretical development of accountability. They used Katz & Kahn's (1978) role theory to base their accountability conceptualization. The relationship between role sender (principal) and role taker (agent) forms the central unit of analysis in role theory. The accountability forces are formed based on role related expectations principal has from the agent. These expectations are formed on the basis of formal mechanisms such as rules as well as informal means like interpersonal relations. Frink & Klimoski (1998) argued that this conceptualization is eclectic, and allows for expansion of accountability theory. Specifically, they proposed that working relationship, principal's power, agent's tenure in the organization, agent's perceived ability, multiple principals, and peer's expectations will affect agent's felt accountability one way or the other.
Ethics Perspective
Despite the existence of extensive accountability measures, agency problem pervades managerial decision making. And it is not desirable to institute bureaucratic controls in situations where managerial discretion is a necessity e.g., quick decision making, and innovative decision making. Today more and more organizations are adopting flexible structures to remain agile and meet competition. Thus, it is desirable that managers are aligned to the organizational goals without too stifling formal accountability structures. As discussed, 'clan control' is one alternative, the other is role of ethics in decision making.
Simply put, ethics define good or bad, right or wrong human conduct (Beauchamp & Bowie, 1983). In an organization, in a given decision context, ethics can be the result of unwritten social norms or of well- defined rules, ethical codes, principles, and standards applicable to the decision (Maheshwari & Ganesh, 2006). A moral (ethical) issue is present where a person's actions, when freely performed, may harm or benefit others (Valquez & Rostankowski, 1985). This means that in the absence of any external accountability demand, decision makers may be self-accountable for their actions when ethical concern is salient (Dhiman, Bhardwaj & Sen, 2018). Such accountability is not only shaped by rules and norms, but also by agent's own ethical standards or values. Ethical issues are also important when agents are accountable to a principal. Jones (1991:7) defined a construct, moral intensity of decision, which "captures the extent of issue-related moral imperative of a situation." So higher is the decision's moral intensity, more accountable will managers' feel to a principal. Moral intensity has been shown to affect the quality of decisions or ethical decisions (Beu, Buckley & Harvey, 2003).
Felt Accountability
What do we mean when we say that a manager/ decision maker is accountable to a principal? A broader definition which matches our conceptualization in this paper defines "accountability as perceived need to justify or defend a decision or action to some audience(s) which has potential reward and sanctions power, and where such rewards and sanctions are perceived as contingent on accountability conditions" (Frink & Klimoski, 1998 :9). Hall, Frink & Buckley (2017) defined felt accountability similarly. However, the audience's rewards and sanctions power may not always be explicit, as in case of unknown identity of decision maker. But decision maker may still feel accountable to self, if decision's moral imperative is high. Therefore, we define felt accountability as perceived need of focal manager or 'agent' to justify or defend a decision or action to some audience(s), which may include self. Thus, accountability is a felt condition, 'state of mind' rather than an imposed structure or 'state of affairs' (Frink & Klimoski, 1998). In this paper we adopt and expand the agency theory terms, agent and principal, in referring to the decision maker and the constituency to whom they are accountable respectively. Typically, an agent feels accountable to multiple constituencies or principals (fig 1) e.g., agent's superior, decision recipients, and agents themselves. Decision makers often face conflicting accountabilities due to different goals of the stakeholders in a given decision context. In such a situation agents try to cope with the dominant accountability force (Frink & Klimoski, 1998).
In fig 1 the accountabilities of an agent for a decision have been classified based on the 'distance of influence' the decision may have from the constituency (principals) to whom agent is accountable and includes--self (decision maker is principal and agent rolled in one), proximal (principals who may directly get impacted by the decision), and distal (principals at large that may get impacted by decision indirectly).
Accountability as a concept is quite close to responsibility (Frink & Klimoski, 1998). Cummings & Anton (1990) proposed an...
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