Accountability in a Complex World

James Falconer
Eagna Research and Consulting, CAN


I repeat … that all power is a trust; that we are accountable for its exercise; that from the people and for the people all springs, and all must exist.
(Benjamin Disraeli)

Without doubt, the power/responsibility duality is richly embedded in our cultural lexicon, regardless of the broad range of individual perspectives relative to it. The business world has not been immune to its influence: From the earliest days of industrialization and trade unions, the command/control metaphor that passed to it from the feudal and subsequent societal forms has been eroding. In the past few months, in dramatic fashion, evidence has arrived of a sea change in business, a shift in the core strategic driver and operational precept of corporations away from “profitability” and toward “accountability,” as a crisis of confidence has opened up substantial cracks in the western capitalist bulwark. The two terms were once quite closely related, but nowadays the latter has little to do with fiscal performance and much to do with standing up to public scrutiny. Despite our predilection to quantify and capitalize everything, no matter how intangible, accountability has so far resisted the tide and has not become the next “capital.” With “relationship” and “reputation” having succumbed, it may nevertheless not be long before it is compromised as well. This article rages against such a frivolous approach to so fundamental an issue.

Many threads weave through this shift toward accountability. First, the “new-economy” enterprises of the late 1990s, in the main, situated profitability in the marginalia of business. Regardless of whether this was a harebrained idea and the tragic flaw that killed the dot-coms—as some said then and many now believe—it did cause many corporations, including those that were decidedly “old economy,” to explore new paradigms for corporate valuation and measures of viability. When the pendulum inevitably swung back, it never did so completely—some artefacts exist that crystallize the extent of the fallout (Eccles et al., 2001)—and like it or not, the way we view profitability, one of business's closely held certainties, was forever altered.

Second, the business wrongdoing that was exposed in the early months of the twenty-first century has brought more focus on to corporations again and held them accountable for questionable actions. While this has happened before (Three Mile Island, Bhopal, Challenger, Chernobyl, Exxon Valdez, to name only a few examples of reprehensible corporate misdeeds) with far more catastrophic and lasting impact than the latest spate (Enron, Arthur Andersen, WorldCom, Tyco, Global Crossing, Livent, et al.), the number of transgressions that have been uncovered in a relatively short span of time has returned an appropriate level of attention to the “duty” of business, for however long the media decide that the subject is still newsworthy.

Third, the business cycle has become an ephemeral one. As observed by de Geus (1997) and others, the long-lived businesses of yesteryear have in large measure disappeared, and competitiveness and profitability have proven more difficult to achieve and sustain. Some (Johnson & Kaplan, 1987) have blamed dominant accounting practices themselves for the downward trend in business viability and longevity in the postwar years. Faced with this reality, many corporations have turned their focus to other, long-neglected, iconic emblems of viability (strength of vision, degree of customer satisfaction, potential for growth and/or ROI, etc.). Whether these constitute grist for real expectations or are merely skeptical distractions remains an open question.

Fourth, a brief focus on business ethics, which appeared in the late 1980s (in the wake of one false boom followed by a market crash, and in advance of another false boom followed by a market crash) and generally called for reform (Olive, 1987), has sprung back to life in the current similar climate.

Fifth, there is an observed (Ries & Ries, 2002) shift, moving away from traditional advertising—in whatever “edgy” or image-making guise it now must appear (which could reasonably be termed “the managing of lies about a company”)—and toward corporate public relations (which could, perhaps optimistically, be referred to as “the managing of truth about a company”). This is in response both to what is becoming the predominant conduit for corporate information and to the level of skepticism and savvy, as well as the insatiable desire for the “new,” of the media generations.

Whatever the matrix of motivation, the sea change toward accountability is driving myriad paradigm changes in the way businesses are managed. Many companies, for example, have appointed executives to be in charge of corporate ethics. “Watchdog” organizations of every sort and stripe abound, trying to drive behavior that demonstrates integrity while keeping a wary eye on notorious or surreptitious transgressors on behalf of an occasionally interested general public, courageously yet inadequately breasting the tide of visibility against increasingly toothless (and, ironically, often unethical) news media. While business is going through a markedly volatile period and the strategic drivers in boardrooms today are many and diverse, the waxing emphasis on accountability may constitute the single most important observation that can be made about the often confusing and apparently contradictory business landscape of today, one that is liable to characterize the turn of the new century in future writing about this period.

Ultimately, companies' stakeholders and the general public are driving the sea change toward accountability, rather than corporations themselves, but the decision to acknowledge the shift and to respond to it strategically rests with the firms concerned.


The widely held yardstick of value for the history of modern business has been profitability, the simple principle of revenue exceeding (hopefully) the cost of producing it. A straightforward, linear concept, this has stood the test of time, eventually becoming the lynchpin of managerial accounting and its key device, the income statement, in more modern times— and most recently being mildly lampooned in such “hip” measures as EBITDA (earnings before interest, taxes, depreciation, and amortization) and NIACC (net income after cost of capital). A business could rest much of its decision making on the state of its profitability. If the numbers were good, the business might consider investing in growth, either through expansion or diversification or simply by increasing production. If profits were slim, or if the business incurred a loss, this might signal a need for retrenchment, scale reduction, or divestiture.

This model has withstood incursions introduced through the evolving nature of business over several decades. In the postmodern corporation, the utility of profitability amid other value-assessment devices now turns on comparative degree, rather than being a binary decision point. A useful analogue in this is the scientific method—much important research hinges on it, but how many breakthroughs has it produced when measured alongside serendipity, accident, and the unexpected? Similarly, while the profitability model may still be adequate for the neighborhood grocer, composite multinational corporations looking for measures that reflect their true nature are starting to move elsewhere.

In many ways, the evolving, evanescent form of the postmodern corporation continues to strain the capability of profitability to serve it adequately. New accounting methods are abroad. Birnberg calls this the postmodern management accounting period, where accounting managers “strive to deal with a dynamic environment, new organizational structures, and a significant number of users in nonmanufacturing firms” (Birnberg, 2000: 714). Profitability's roots in a linear, bounded, quasi-mathematical approach are starting to show, and its inadequacies as a viable indicator are beginning to become material. Make no mistake: The move toward accountability in this context is a quantum leap away from profitability's roots and toward an approach that is fundamentally complex, as complex as the businesses it describes.

Complexity, to capture the basic argot of the sufficiently aligned current discipline (which coalesced, in the main, from the mid-1980s to the mid-1990s), refers to a systemic state on the cusp between chaos and order, a condition where uncertainty, variety, dependency, and interconnectedness are high and understanding is fragmented, localized, and fleeting. While this concept initially arose in more scientific domains, its application to business and organizations has proven tremendously suitable. I contend that accountability, as it satisfies the above criteria, is a business concept that is inherently complex, and this will be discussed in more detail below.

It may seem as though the shift from profitability to accountability is a recent event, fueled by recent developments and circumstances. In fact, subtle forces have been at work over the past couple of decades that represent milestones along a continuum between the two conceptual foci. Starting in the 1980s, concepts such as the value chain (Porter, 1985), activity-based costing (Cooper, 1990), the balanced scorecard (Kaplan & Norton, 1992), and economic value added (Stern et al., 1994) entered our lexicon, introducing new measures of business effectiveness. In the late 1990s, disciplines arose around the valuation of intangibles like organizational knowledge, people relationships, intercompany dynamics, and so on as “capital,” so that the “real” value of knowledge-intensive organizations, which were identified as being dramatically different from traditional product-manufacturing enterprises, could be usefully measured. In fact much earlier such writers as Drucker (1959) and Toffler (1980) had identified, respectively, the ascendant role and sustained importance of the knowledge worker, and the coming industrial dominance of information-based enterprises, but to a very great extent we are still struggling with ways to measure success in the business world that these define. With the rise of the internet and the frenzy it begat, new economic concepts such as increasing returns (Arthur, 1996) were put forward. The inevitable bursting of the dot-com bubble tended to push these theories back to the margin, but the voices that arose have by no means been silenced. An interesting tributary here has been the reframing (Krugman, 1996; Arthur, 1999) of the economy as a complex system.

At the same time, a growing parallel dissatisfaction with traditional accounting methods has led to “invention” with regard to using loopholes or broad interpretation within such accepted guidelines as GAAP or IAS to make bad news more palatable. No matter how unpleasant the financial tidings, there are the means to make them appear less onerous while remaining in conformance with whatever rules might apply. If this option were not available, new-economy businesses (in particular) could simply denigrate traditional accounting or valuation principles and paint them as obsolescent and with no relevance to the exigencies of the business landscape of today—and they have, conspicuously. In mostly unintentional support of less than ethical accounting practices, a number of academics have been critical of tradition (Johnson & Kaplan, 1987) and/or have advanced new accounting methods to replace more accepted (but now ostensibly inadequate) practices (Howell et al., 1992; Lev, 2001). In response, accountants and businesspeople of a more purist, traditional outlook have defended the accepted ways, the resultant breach bringing a measure of instability to what has traditionally aspired to be one of the most stable professions. The net result of all this unrest has been to cause businesspeople to become dissatisfied with the general state of affairs and to cast their valuation gaze away from the legacy of Luca Pacioli (the monk who first documented the established Venetian practice of doubleentry accounting in 1494) and the US industrialists of the nineteenth century (who were key stewards of what became known as managerial accounting), leaving behind the miasma of ethical dilemmas that has been engendered and greasing the skids for slavering litigators.

Ultimately, the rejection of a single coherent schema to demarcate corporate valuation represents a kind of move into the realm of the postmodern—some (Macintosh et al., 2000) would say hyperreal—in understanding the assessment of business viability. In human societal systems postmodernism, as Cilliers (1998) cogently argues, is the handmaiden of complexity, and business viability is certainly, at least in the arguments advanced here, to be seen as aspiring to such a complex system, rather than remaining a set of mechanistic practices.

I contend that business has, in many quarters, elevated the evanescent concept of accountability to the pantheon that probability—as the nexus of traditional corporate valuation—once occupied. This is part of an interesting role reversal between the public and private sectors, in as much as accountability has traditionally been the stock in trade of government and public agencies, which in recent years (at least in the West) have begun to turn to fiscal responsibility and in many quarters have successfully abandoned accountability entirely. The transfer of accountability from one sector to another is not surprising if one accepts the notion—advanced by such writers as Karliner and Karliner (1997) and Korten (2001)—that real economic and political power, and the responsibility that goes along with it, is no longer held exclusively by world governments but in recent years, to an alarming degree, by large transnational corporations, which may not be rising to the ethical expectations of this role. The protests at World Trade Organization and G7 gatherings in large measure take their catalysis here.

The ascendance of accountability has been abetted by two related concepts. The first of these is the notion of what has come to be known as corporate transparency. This refers to the degree to which corporations have been forthright and forthcoming and have made themselves open to general scrutiny from stakeholders and the general public—the opposite of secrecy. Ideally corporations should aim for full disclosure, because full disclosure, ultimately, will aim for them. Whether intentional, accidental, enforced, or as a by-product of the networked organization and its technocentric infrastructure, transparency will prevail and only give more traction to the accountability juggernaut, and this has been borne out by circumstances.

The second abetting concept is that of responsibility. While those outside an organization own accountability, the organization owns responsibility. Accountability, however, can be served by a responsibility analog if the area of accountability is assumed, owned, and advanced by the corporation. If it is not so served, if it remains solely owned by stakeholders, it remains accountability. Regardless of whether the responsibility takes hold, the accountability remains and is not diminished if fewer people hold it. Note that, for the purposes of this article, I am largely not focusing on internal accountability—that held by certain roles, teams, processes, functions, and so on in regard to others within the organization—but instead am mainly directing the focus on accountability toward that invested by interests external to the organization.


Where traditional profitability-based valuation is linear and simple—and some (Fuller, 2002) have begun to promote this as the cause of its fall from grace in the business world we currently inhabit—accountability is a complex phenomenon and a complex basis for assessing corporate viability. It has to do with ways in which the various stakeholders in a corporation's destiny hold it up to judgment in terms of strategy, operation, behavior, performance, viability, and image. The stakeholder fabric is a rich one and is made up of many players: direct and indirect shareholders; customers, suppliers, alliance partners, competitors, and so on; financial analysts and assorted business media; interest groups and “watchdog” agencies; the general public; and the company itself. Stakeholders represent a vast range of viewpoints, generally subjective, and offer positions that possess considerable variety in terms of sophistication and defensibility. Stakeholder positions, as a result, prove very difficult to analyze and cluster into themes or domains.

Accountability, qua complex system, has no mutable, consistent nature; it is a construct that is subject to many realities. It is at the same time subjective (each stakeholder holding a very personal view) and tacit (making the view difficult or unproductive to articulate in cogent, general terms). Each stakeholder struggles even to circumscribe his or her own matrix of accountability that can be and is applied to the activity of an enterprise, but then is at even greater pains to describe it in a fulsome and, ultimately, defensible manner.

Accountability, qua complex system, has vague boundaries and its limits are often only superficially explored; it is not constrained by any conceptual stuff associated with the object of its focus. Stakeholders may also, quite reasonably, devise challenging visions for corporations or sectors that they wish to hold accountable, and although these visions are often not formally captured, articulated, and communicated, they are nonetheless real for stakeholders, and their realization or abandonment is no less tangibly felt and answered.

Business situations are constantly in flux and firms are often strongly challenged to cope with the degree of uncertainty and unpredictability that exists. Stakeholders, however, tend to be better at this, as often so much less is at stake for them than for the organization being held accountable, in terms of the risks involved in dealing with the lack of certainty. Accountability, thereby, tends to be susceptible and reactive to environmental novelty. Furthermore, in this context not only is the reaction unpredictable, but so is the novelty; and not only is the novelty unpredictable, but likewise the environment, as the stakeholders wish subjectively to define it. Complex systems often prove challenging when it comes to defining the environment within which they operate, the boundary between system and environment proving evanescent, fluid, and fuzzy; this is only exacerbated by introducing human choice into the dynamic. In effect, accountability constitutes, in Prigoginian terms (see Prigogine & Stengers, 1984), a dissipative structure in an open, far-from-equilibrium system—a construct with highly unstable states of order that appears outwardly stable, but is in fact constantly in flux, shifting in response to the environmental novelty that it so consistently confronts.

Accountability is a multiplex, comprised of many domains, many players, and a complex overlay of relationships conjoining them, and again defies serious attempts to model or quantify the system it comprises using conventional tools. The influence of accountability on marketplace attitude and behavior is made complex by a lack of easy traceability. It is difficult to determine what influences what, what influences whom, or how those influences are made manifest, and it is similarly difficult to determine who is influenced, individually, collectively, or in market, industry, or demographic segments.

For example, who decides what constitutes an ethical transgression: the corporation, its competitors, its stakeholders, the market, the press, or the general public? Which group has the greatest influence? Which has the greatest impact? Which is the most sensitive? Which responds more to widely held perception and which more to demonstrable truth? Who decides what form the adjudication and/or punitive mechanism will assume? How does the organization know how and/or when to respond and how does it know the effect that its actions will have? How does it know what the slope of the accountability curve (i.e., depicting the overall level of accountability to which the corporation is subjected over time) looks like? How does it demarcate the effects stemming from issues of accountability from the more traditional effects driven by the perspective and circumstances of the market?

The level of uncertainty with which this system is imbued is easy to appreciate without even citing a specific example. Mostly, accountable corporations cope poorly and perform inadequate ex post facto analysis with sketchy information. The next level of desirable and useful analysis—trying to predict a priori when accountability will surge and when it will ebb, when particular, manifest judgments of accountability will occur, and what the character of the collective response will be to such evolutionary/revolutionary events—is virtually impossible, like trying to predict the ecosystemic/ecosocietal consequences of the unprecedented introduction of a new species.

Accountability, finally, is prone to emergent phenomena, to properties of the system that assume new form and thereby reveal some new information. Accountability will adapt itself and organize itself into patterns that will emerge in response to attractors (perturbing points of information, novel products of the environment that are introduced into the system). For example, an ethical transgression would constitute an attractor of intellectual focus that might cause people to incorporate the ethical principle that has been violated into their value sets, where it may not have hitherto existed, and hold firms accountable to it henceforward. Firms would have to respond in this state of uncertainty, blind to the extent of the emergent accountability but nonetheless compelled to address it. For more dramatic shifts in the dynamic of accountability priorities, attractors would provoke a complex response fabric—analogous to a highly unbalanced electrochemical system—that leads to the emergence of new virtual organizations and market segments and new relationships between traditional firms, nonprofit agencies, government, NGOs, interest groups, and other entities. In this way, the complex system adapts to environmentally derived perturbations and thereby engenders a new environmental state. In such flux, the concept of “enterprise” itself becomes emergent in nature, defined in terms of “the emergent properties of the confluence of stakeholder actions” (Fuller et al., 2001).

Complex systems, in their embracing of systemic and environmental uncertainty, depart from the language of power that has hitherto defined the operating conditions of organizational systems. In as much as accountability represents a threat to the power base of business, an approach to organizational understanding that is operating under other bases represents a more suitable space for informed discussion here.


If we accept the notion that our inevitable, inexorable shift toward accountability in corporate valuation, however ephemeral this state at outcome, has taken us into the heart of a complex system, then we must submit to the idea that understanding accountability requires a new set of tools. Our new toolkit itself would therefore need to be complex in nature as well, but each “tool” within it, each ready-to-hand model of the system, would be simple, and therefore compromises would have to be made regarding the confidence we place in each tool and the likelihood that it would approximate both in the most optimal way possible and in the most useful way for our purposes. These caveats in plain view, I offer the following sighting points for navigating the complex landscape of accountability that swathes the postmodern organization.

First, in a complex world corporations need to embrace the multiplex of interests in the system and the matrix of scrutinous stakeholders that can hold them to account. Correspondingly, corporations need to reconsider the notion that they can arbitrarily define “one master” (i.e., one (proto)typical customer, or even a numbered few) and can derive all their behavior from the agglomeration of operating principles involved in serving that ideal (and hence nonexistent) stakeholder exemplar. Even in a stable, familiar system there is uncertainty, and the best market research is a flawed interpretation of some artificially bounded, past version of reality. A high price can be paid for relying on the validity of such suspect information, or its resilient viability per the present/future conditions, and on making judgments correspondingly (which amounts to guesswork with an excuse). Instead, corporations need to turn their service focus in two directions at once. First, they need to think in terms of serving no master (i.e., being fair, equitable, and objective in their behavior); and second, they need to serve all masters real and potential (i.e., considering the needs of all stakeholders concomitantly and holding them all in some sort of balance). Not only will this lead companies to more innovative customer service approaches, but it will leave them better positioned to respond to a lattice of accountability that is shared by them and their stakeholders and is multifaceted in its composition.

Second, in a complex world organizations need to decrease their reliance on overly simple models. For some, this reliant mindset is a legacy derived from an aggregate “jaded past” replete with “staged” business-school cases that could be solved by the judicious application of the “correct” model. For others, it is a result of a collective worship of the endless glitter of the next shrink-wrapped business gimmick that has led to a slavish and fickle reliance on ever newer models. Models reduce the inherent complexity in the systems they are intended to depict, and hence are flawed representations of reality. Models can aid explanations, can level the intellectual playing field, and can allow the untutored eye to see things perhaps unlooked-for—but models often inhibit true understanding of represented situations, and if applied blindly, ignoring the effects of context, can more often than not be inappropriate tools and can leave the firms in question ill-equipped or exposed. Accountability, as we have seen, is an inherently complex phenomenon and so might be poorly served by attempts to describe or depict it using simple models, but would constitute only one such phenomenon thus affected. In general, corporations need to treat every reality they face as potentially being sui generis. While looking for patterns, rather than models, to guide their understanding, they should be reassessing this understanding based on the circumstances present in the precise situation they are experiencing and remain open to wherever that rethinking takes them, and however their patterns evolve.

Third, in a complex world there is pervasive uncertainty. Rather than attempting to “manage uncertainty” (the latest in a series of management fads that feature the concept of mandating control over inherently selfdetermining phenomena), corporations need to submit to the uncertainty and address it in a fundamentally different way. Accountability issues, for instance, emerge from our shared, everyday state of operational uncertainty, a state that is unstable, constantly in flux, and highly susceptible to environmental novelty. Flexibility and responsiveness, rather than control seeking, are key traits that corporations should develop and foster. The use of scenario-based methods for analysis, forecasting, and readiness development, a well-documented approach (Wack, 1985a, 1985b; Schwartz, 1996; van der Heijden, 1996), has lately been expanded into “strategic flexibility” (Hamel et al., 1999; Raynor & Bower, 2001), and this is a useful evolutionary thread. At the same time, business needs to continue to take risks actively in order to grow. However, the contemporary approach to “risk management”—also a problematic, oxymoronic concept that, to a degree, has supplanted accountability in some firms—has been to develop extensive, bounded, quantitatively based frameworks to categorize, measure, and circumvent risk (which, in this self-interested context, generally does not emphasize social, environmental, or ethical risk), rather than developing general responsiveness, agility, and creativity. As the mechanism is inwardly focused, it only expands the applicability gap. As with many complex systems that are present in organizations, accountability comprises issues and circumstances that favor the firm that is aware, prepared, responsive, and open—and most firms are entrenched, hopeful, reactive, and defensive. Positive anecdotes, such as Home Depot's commitment to stop selling old-growth lumber, Nike's policy reversal on third-world sweatshops, and the swift response to the Tylenol poisonings in 1982, need to be more typical of leadership in the face of significant uncertainty and accountability demands.

Last, in a complex world, strategy cannot be treated as either a discrete or a prescriptive activity. Instead, strategy needs to be framed as an emergent phenomenon, one that is a function more of the operating corporation than an arbitrary, artificial, independent construct that has effect on it. Ineffectual as traditional strategies generally are, the point here has less to do with their success than their prima facie appropriateness for the job. I do not think that corporations should—or would—abandon the traditional approach to strategy formulation and implementation, where the future direction is speculatively plotted (to varying degrees of concreteness) on rolling one-, three-, and/or five-year linear scales, as this type of outlook is still essential, though to call it “strategic planning” is to give continuance to a relic that Mintzberg (1993) has so cogently dispatched. Strategy should also be viewed as continuous and part of a symbiotic, self-organizing system that involves constant interplay with the decisions taken by and the ongoing operation of the firm. Issues of accountability constitute only one category of emergent phenomena that stem from an operating business enterprise, but, as outlined above, in a state of high uncertainty their predictability is low. In concert with operational flexibility, strategic flexibility is fundamental to creating an organizational landscape where emergent issues of accountability can quickly be brought on board and corporate strategy flexibly adapted to embrace or respond to them.


The ascendance of accountability is society asserting itself. Perhaps it represents some initial response to Soros' warning (1998: 27) that “the development of a global society has lagged behind the growth of a global economy … unless the gap is closed, the global capitalist system will not survive.” An organizational posture oriented toward closing this gap, through fostering accountability, seems healthy. Our mental orientation must also be open and should in addition embrace the tenets of complexity along the lines of what is suggested here. In this way potential benefits will be maximized and, as a result, further societal phenomena might assert themselves and accountability may emerge, may direct attention, pressure, or environmental effects on to business/economic systems, and may augur similar positive impacts. To maximize benefits will require substantial repurposing for organizations and a tolerance of risk hitherto uncommon, but the potential systemic and environmental value is real.

Will this trend reverse itself? Possibly, but more likely it will evolve rather than return to a previous state. Even if profitability returns to the pantheon, perhaps it too will be viewed as a more complex phenomenon, an orientation that cannot be unhealthy for valuation or for business in general.

To extend the discussions in this article, careful observation (and longitudinal study, should sufficient useful assessment data be available) of corporate viability using a holistic, qualitative assessment framework—as taken against the relative emphasis on such outward-focused strategic elements as accountability, compared with more traditional inward-focused elements such as profitability, risk, and control—might reveal more conclusive insights and enable more general conclusions about the applicability of complexity-based strategic elements for organizations. It is hoped that this article will provide the catalyst for some important future work along these lines.


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