The framework depicts the layers of management, their respective areas of responsibility and the timing of control and accountability. A third factor are the environment and infrastructure. While environment and infrastructure play a vital role in firms’ performance, they include a degree of unpredictability because their changes can be beyond management’s control.
Investors (shareholders) are not directly responsible for performance but participate in the decision process. They can impeach directors, vote in decisions and eventually vote them out in general meetings. Shareholders also qualify the directors’ performance by revaluing or devaluing their own stock of shares. So, in theory they could be accountable for voting the wrong causes or appointing the wrong people, but in any case they are not accountable. That responsibility is specifically delegated to directors.
Shareholders act reactively because since they are detached from the running of the business, they must wait for the performance and financial results to be made available to evaluate them; then qualify the directors’ performance in the context of the business environment and decide on action.
Directors, middle managers and employees are proactively accountable because they run the business in real time and should evaluate their work on ongoing basis to take timely corrective action.
Directors are responsible for strategy setting & business policies, in terms of defining the results or targets they expect, identifying the measures of success and failure; ensuring the firms has or can acquire the resources it needs, that the infrastructure can support the production activities and the business environment can relate timely and well to the firm’s needs, (e.g. that there are customers for the product and that they are prepared to buy the forecast sales output).
Middle managers are responsible for implementing the operational procedures in place to achieve the results and ensuring that the resources and infrastructure are available and efficient.
Employees are responsible for the quality of their work, using resources wisely and infrastructure correctly.
Occurrences as failing to hit profit targets, unhappy employees and customers’ complaints are indicators that there are problems in the business process, a mismatch somewhere.
On close analysis, an observer could identify if a failure, (or equally success in the reverse case) was due to employees applying a procedure incorrectly, (employees’ accountability); or employees being unable to apply the procedure correctly because of flaws in its design, (middle managers’ accountability); or the procedure being incorrect because of wrongful identification of parameters and resources to achieve the proposed target, (directors’ accountability).
Employees are in charge of their performance and results for very short periods at time, but report to managers, who apply control to regulate the flow and quality of their work. Managers, in return report their performance to directors who so have an opportunity to appraise their policies and take eventual corrective action.
As indicated, resources and infrastructure could be incorrectly used, in which case responsibility falls wholly in the inner framework, (management and employees) or the resources and infrastructure could become unsuitable due to unpredictable, (and difficult to rectify) circumstances beyond managers' authority. In the last case responsibility for failure can be shared and considered not wholly attributable to directors’ actions.
A point to ponder is that the influence of the environment and infrastructure are subjective. In times of failure, directors would argue that the environment is to blame and shareholders that the directors should have been more assertive. But the reverse is rarely or never true. Directors often acknowledge the positive contribution of the environment but not above their own assertiveness, and shareholders would not encourage directors to rely on changes in the outside more than in their own initiative.
Directors are accountable to shareholders. The function of the owners, (shareholders) is to evaluate the financial and non financial performance to assess director’s abilities to achieve the targets and procedures in the context of the business and firm’s environment.
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