After reading Jensen’s article, one idea really resonated with me. That was the idea that managers must be held accountable for all their actions. This seems to be a pretty simple idea however Jensen also goes on to say that by having an ultimate goal for the organization, it provides a way to hold these managers accountable. Every action a manager takes should in some way benefit the future value of the organization.
It is with this idea in mind that I came across a blog post which talked about this idea and a way in which corporations and managers could increase their accountability ultimately to shareholders. However, this accountability is not merely to increase shareholder wealth at this point in time, but doing so by making the corporation profitable in the long run, just as Jensen suggested. The author of this blog post, Jerry Landers, suggested four ways in which accountability could be increased.
1. “The first step in becoming accountable….is wanting to be accountable.”
2. Creating a corporate compliance officer which reports directly to the board of directors rather than to the administration.
3. Delayed bonuses and incentive payments that are focused on long term performance rather than short term gains.
4. Adopting the International Accounting Principles rather than the rigid accounting practices currently used by the US.
I believe that the first three suggestions would be very effective in increasing accountability in both managers and corporations together. First, managers and corporations should want to be accountable. As Jensen argued, managers flock toward stakeholder managing because it allows them to be unaccountable for their actions. Managers and corporations alike need to have a desire to be accountable for their actions. Secondly, I believe creating a corporate compliance officer would help to ensure that managers are working towards value maximization and are making decisions that are benefiting the company. Third, I truly believe this change would be critical to guarantee than managers make decisions with the firm’s long term interests in mind. If part of their salary was tied into their decision making, managers would take this accountability much more seriously than ever before.
While the first three of Landers’ suggestions I agree with, I do not agree with the fourth and final change he would make. The reason being is that I believe the rigid rules the US currently uses are doing well. I believe that these rules ensure that all companies “play by the same rules.” Now, I don’t think these rules will always be necessary and eventually we could make the change, but for the time being I think these accounting rules should remain in place.