Public Management and Administration - Owen E.hughes

238 Public Management and Administration
of some debate. Is the agent accountable, liable or merely answerable? Behn
argues that ‘when people seek to hold someone accountable, they are usually
planning some kind of punishment’ (2001, p. 4). In common usage this is probably
correct, although accountability should also include overall responsibility
for both success and failure.
The private sector is presumed to have clear avenues of accountability available
to it, in what is an attempt to ensure a business operates to the benefit of its
ultimate owners. The management of a company is expected to act for the benefit
of its shareholders. By law and custom it is the responsibility of the board
of directors to act in the interests of the company and, through it, the interests
of the shareholders. As Donahue points out (1989, p. 43), this kind of accountability
addresses problems of the relationships between principal and agent:
One particularly significant device for overcoming agency problems is a layered structure
of accountability – the profit-seeking, wage-paying private firm. Ownership is wholly or
partially distinct from operations. Production workers are accountable to managers, and
are paid a wage in exchange for time on the job. Managers, in turn, are accountable to
owners, and are paid a salary for directing and supervising production. Finally, the owners
are accountable to customers, and collect a profit – the excess of revenues over costs –
in exchange for organizing and monitoring the whole process. From the customer’s point
of view a classic profit-seeking agency relationship prevails, but with layers of more
complex contracts within it.
The chief executive and other managers are accountable to the board, the board
is accountable to the shareholders. There is presumed to be a clear line of
accountability from management to the board and, finally, to the shareholders.
There are several other accountability devices in the private sector which are
not present in the public sector. First, private shareholders are able to trade in
the equity capital of the enterprise and fluctuations in the share price are a continuing
measure of performance. Secondly, the company competes for capital
on commercial terms. It faces the continual monitoring of its investment and
borrowing programmes and is subject to the judgement of rating agencies, such
as Moody’s or Standard and Poor’s, for this purpose. Thirdly, there are threats
of takeover or merger and the ever-present chance of insolvency. Fourthly, the
presence of competitors means customers will go elsewhere if dissatisfied. All
these points mean that the private organization, particularly its management,
has strong incentives to perform. Given the uncertainties of the business environment,
it is normal for there to be little security of tenure for any employee.
From the highest level down, no one is guaranteed their position in the company,
with continued employment often conditional on personal and company
performance. Advocates of the private enterprise system of accountability
would argue that there is a clear and well-understood set of incentives that
should lead to enhanced personal and organizational performance.
Accountability relationships in the private sector are increasingly seen as
a model – the best available practice – for the public sector. There are two aspects