Analysing accountability dynamics—an institutional perspective

The term accountability is usually used to mean a relationship between an actor (accountee) and another (accountor) in which the accountee is called to explain and justify its actions against one or more sets of different criteria after the fact.

The cast of accountors for regulatory agencies in the UK is a familiar one. There is the core constitutional triumvirate of judiciary, legislature and executive. Accountability also extends upwards, outwards and/or downwards (depending on your perspective), to consumer panels, advisory groups and other ‘stakeholder’ bodies,^[1273] to the media, to the EU institutions, and even to transnational regulatory organizations and/or international institutions.^[1274] Regulators^[1275] thus have account­ability relationships with a number of different bodies or ‘accountors’, in the sense that they are asked, and often agree, to give an account of their operations and performance against a range of criteria. Those criteria may relate to one or more sets of issues, such as whether they have acted in accordance with their legal man­date; whether they have used their financial resources appropriately; whether they have operated in accordance with fair procedures; whether they have engaged in adequate consultation and participation in decision-making; and/or whether the goals that they are seeking to achieve are normatively acceptable.

In orthodox legal descriptions of accountability, it is normal to map the legal powers: who is required to give account to whom, when, how and in respect to what.

Moreover, accountability relationships are just that: relationships. Again, stand­ard legal accounts tend to focus on the accountor: what powers it has; what cri­teria it is using. However, the accountee is also a part of the process. An effective accountability relationship requires the full engagement of both accountor and accountee. For just as those who are regulated can appear to be complying with the rules to which they are subject, whilst in fact subverting them, those who are being held to account can conform with the formal requirements (producing annual reports and accounts, for example), whilst in practice operating in quite a differ­ent way. Furthermore, roles can be fluid: an organization may act as an accountor with respect to a regulator, but also at different times as a participant in regulatory decision-making, as discussed below. The boundaries between accountability and control can also become blurred, again as discussed below.

If we are to really understand how accountability relationships are operating, we therefore need to look beyond formal legal structures. Moreover, we need to bear in

358 Calling Regulators to Account: Challenges, Capacities and Prospects mind that those formal structures may not have been created in order to achieve any functional purpose, but rather for reasons of history or constitutional convention, or for symbolic purposes. Thus in the international regulatory context in which most national regulators sit, those accountability arrangements may have been put in place simply because they are required by EU regulation, or by international organizations.^[1276] Alternatively, or in addition, they may exist to legitimize the regulator and the goals which it is pursuing in the eyes of different legitimacy communities.^[1277] In such cases, we should not be surprised if there is a decoupling of formal processes of account­ability from the organization’s de facto operations, or if accountability arrangements ‘look good’ but turn out to be functionally weak: they were introduced primarily for symbolic, not functional, purposes.

Analysing accountability relationships thus requires us to go well beyond formal legal powers and constitutional conventions. It is argued here that the ability of an accountor effectively to call a regulator to account, and the consequences that it can impose, is largely dependent not on its legal powers per se, but on the accountor’s ‘accountability capacity’ and the institutional position that it has vis a vis both the accountee and other accountors. By ‘institutional position’ is meant not only the legal powers the accountor possesses to call an agency to account, but also the normative or cognitive acceptance by others (including the accountee) of its ‘right’ or appropriate­ness to act as accountor, and the strategic position that it has, political or otherwise, to do so. The institutional position of the accountor within the broader political and constitutional arrangements (widely defined), including, but not limited to, their legal powers, will affect the relationship that it has with the accountee. To given an obvi­ous example, judges engaged in judicial review can impose legally binding decisions on agencies, but face institutional constraints in determining how interventionist to be (whether it is more appropriate for them to be ‘red lights’ or ‘green lights’);^[1278] par­liamentary Select Committees will have no such qualms as to the appropriateness of criticizing the decisions of ministers, but they have little practical ability to impose legal consequences directly. Nonetheless, they can inflict significant reputational dam­age, which itself may be a catalyst for legislative or operational changes.

Moreover, accountors also have different capacities to make use of the accountabil­ity potential that their institutional position gives them. By accountability capacity, I mean (by analogy with regulatory capacity)^[1279] that the accountor has certain resources which it can use to call a regulator to account. In particular, it has (or has access to) information, technical expertise, financial resources, appropriate organizational

processes and practices to manage information and respond dynamically, and legiti­macy and authority (its ‘right’ to call that person to account has to be recognized both by the accountee and by those on whose behalf, if any, the accountor is purporting to act).

1. Challenges facing accountors

The challenges of calling regulators to account are many, but can be distilled for these purposes into five: the scale and scope of the regulatory landscape; the num­ber and relationship between the different bodies involved (and their propensity to blame-shift); the technical complexity and contestability of the regulatory task; the opacity of regulatory processes; and the willingness of the accountor to be called to account.

a. The scale and shifting topography of the regulatory landscape

The scale and scope of the regulatory landscape is significant, and mapping it has been hindered by a number of definitional challenges, notably: what is ‘regulation’, what is an ‘independent agency’ and therefore what is an ‘independent regula­tory agency’. Unfortunately, the legislation which creates an organization does not always specify whether the organization is a ‘regulatory agency’ or not, not all are constituted in the same way (for example whilst most are non-departmental public bodies, some such as the Food Standards Agency, are non-ministerial departments, and a few, such as the Financial Services Authority (now the Financial Conduct Authority) are companies) and regulatory functions can also be performed by gov­ernment departments or units within them. Successive attempts have been made by organizations such as the Better Regulation Taskforce, or indeed by parliamen­tary Select Committees, to ‘map’ the organizational landscape of regulation but the task can exhaust even the most dedicated cartographers.

360 Calling Regulators to Account: Challenges, Capacities and Prospects responded that its aim was to reduce their number rather than to classify them, and so no attempt was even made to identify which organization was regulatory and which was not.^[1282]

Accountors have therefore tended to focus their accountability efforts on the main peaks: the economic regulators (the Rail Regulator, Ofcom, Ofwat and Ofgem), with the Financial Services Authority, Civil Aviation Authority and Office of Fair Trading sometimes being included in that group and sometimes not, and to a lesser extent on the ‘social’ regulators (notably food safety, environment and health and safety). The remaining swathes of the regulatory landscape are often left indistinctly drawn, with only a vague warning sign indicating ‘there be dragons’ marking their existence, until of course, a crisis strikes—for example the recent inquiries into the Care Quality Commission^[1283] or the Commission for Equality and Human Rights.^[1284]

b. The problems of ‘multiple hands’ and shifting roles

The second challenge is that frequently more than one regulator is engaged in regulating a particular sector and/or in achieving particular goals (often under the remit of different government departments), and, moreover that these tasks are shared with different parts of government. In most areas of regulation, there are multiple organizations involved, even where the regulators are ‘mega-regulators’, or the amalgamation of several pre-existing regulators.

There are other examples. In the regulation of water, Ofwat is responsible for setting price controls on the water companies, and has to take account of the rep­resentations of Consumer Council for Water, as well as the strategic objectives set both by the Westminster government and by the Welsh Assembly. Those compa­nies are also under obligations as to water quality, which is the responsibility of the

Drinking Water Inspectorate (DWI) and the Environment Agency (EA). However, the level of financial resources that firms have available to invest in meeting their water quality obligations is significantly dependent on Ofwat’s decisions in the price review process. It can thus be difficult to work out who is responsible if those qual­ity objectives are not met: is it the companies (for not complying), the EA or the DWI (for not regulating properly to ensure compliance), the Consumer Council for Water (for not making adequate representations), Ofwat (for not allowing companies to make sufficient profits to invest to meet quality requirements), the Westminster government or the Welsh Assembly (for setting inappropriate and/ or conflicting objectives)?^[1288] Financial regulation provides another good example. Despite a memorandum of understanding (MOU) between the Treasury, the Bank of England and the Financial Services Authority (FSA), there were significant fail­ures in coordination and considerable misunderstandings as to whose responsibility it was to do what with respect to the rescue of Northern Rock in 2007.^[1289]

Moreover, the roles of organizations which are acting as accountors can also be fluid. As discussed below, a consumer panel may play the role both of engaged participant in the regulatory process, as well as an ex post accountor of that regula­tor’s activities; parliamentary involvement can demonstrate similar fluidity of roles. The question of ‘who guards the guardians’ is thus even further compounded, if the ‘guardian’ is an active participant in the very processes it is seeking to guard.

c. The nature of the regulatory tasks

The nature of the regulatory tasks and the ways in which regulators perform them can also pose challenges for accountors. First, the overall outcomes that regula­tors are meant to achieve are usually specified in highly general terms: for exam­ple, to protect consumers or the environment, to ensure competition, to maintain financial stability or to uphold the rule of law. Moreover, their legal mandates often specify a range of objectives which they have to achieve, which may in some instances compete with one another. However, those mandates rarely give any indication of how trade-offs between objectives are to be made. There are also con­siderable difficulties in measuring performance against generally framed outcomes, in distinguishing which elements of that performance are due to the regulator and which to other causes, and determining the time period over which performance will be measured.^[1290] Furthermore, assessing performance can require judgements to be made on counter-factuals: if there is no environmental degradation, is that because the environmental regulator has done a good job in preventing it and thus

362 Calling Regulators to Account: Challenges, Capacities and Prospects is a success, or does that show that it has not been sufficiently active, as environ­mental indicators, though remaining stable, have not improved? Or is it because there has been an economic downturn and so industries are producing less pollu­tion? If the financial system has remained stable, is that because of the regulators’ actions or in spite of them?

Regulators are also often tasked with roles which require a high degree of techni­cal and specialized knowledge, but which are often highly contestable. Regulators in the area of telecommunications, water and energy, for example, have increas­ingly been required to consider a wide range of social objectives in addition to their economic objectives, and which in some cases may conflict with them. For exam­ple, there is an economic case for charging those in rural areas more for receiving some services than those in urban areas, but the social objectives require universal service at uniform prices, and cross-subsidy of one set of consumers by the other.

Regulators’ tasks also often involve managing risk: resolving such questions as how much money should be spent on installing safety equipment on trains, for example, requires difficult questions to be addressed of how much should be spent to save a person’s life, and whether that sum should differ between rail, road or air transport.^[1291]

Regulators’ decisions can also be contestable because technical rules can have significant economic or redistributive consequences: how a ‘market’ is defined for the purposes of competition law is central to an assessment of whether a com­pany has a dominant position within it, for example. In order to call regulators to account for the effectiveness of their decisions, accountors therefore need to have the technical knowledge necessary to understand what areas to probe, what questions to ask, and what answers to believe: should leverage ratios rather than risk models be used to set capital requirements for banks; how should a market be defined for the purposes of defining market abuse under competition law; what levels of nitrates should be allowed to be disposed in watercourses? However, by their very nature, specialist regulators have far greater technical knowledge of the substantive area they are regulating than do those calling them to account.

In the face of ill-specified and contested outcomes, and substantive decisions which require highly specialized knowledge to evaluate, accountors often resort to calling regulators to account not for their decisions but for their procedures instead: was appropriate consultation undertaken; was a regulatory impact analysis conducted; were sanctions imposed after following fair procedures?^[1292] Whilst these issues are important, it can mean that accountors are unable to engage with sub­stantive aspects of complex decisions in any depth.

d. The opacity of regulatory processes

Accountors face a further problem, which is that the nature of regulatory activities can also present them with difficulties. Some aspects of these activities are highly

visible, such as public consultation processes. Enforcement decisions are also pub­lished, though details of informal settlements reached are usually not. There is little surprise, therefore, that most attention of those calling regulators to account focuses on the ‘input’ processes of consultation or numbers of officials assigned to particular functions, and that ‘outputs’ are measured in terms of highly vis­ible indicators such as numbers of inspections undertaken, successful enforcement actions or levels of fines imposed.

However, most of regulation occurs in practice between those two visible poles of ‘inputs’ and ‘outputs’. Regulation is a continuous process of negotiation, compromise and challenge—on both sides of the regulator-regulatee^[1293] relation­ship. It is very hard for outsiders to penetrate or have clear sight of that process. Moreover, it has been argued by some that the move away from ‘command and control’ regulation (reliance on detailed rules backed by legal sanctions) to ‘new governance’ strategies which rely more on the professional judgement of regula­tors, such as regulation based on principles, or regulatory strategies which require firms to develop their own systems and processes which are then approved by the regulator (which is the norm in health and safety regulation) render the regula­tory process more opaque, as there are no clear standards with which regulatees have to comply, and to which regulators can be held to account. There are fears that they can thus open the regulator up to ‘capture’ by the regulated industry unless appropriate safeguards are put in place.^[1294] Whether or not such strategies are more porous and thus open to capture than a traditional ‘command and control’ approach is a moot point.^[1295] However, such ‘new governance’ strategies make far stronger demands on the professional judgement of a regulator, who is charged with ensuring that outcomes have been achieved rather than simply assuring that there has been technical compliance with a set of rules. Correspondingly, they also require greater professional judgement on the part of accountors.^[1296] Whilst it is neither possible nor desirable for accountors to have access to the day-to-day activities of regulators, they need a greater understanding of regulatory strate­gies and the trade-off and choices that they involve, particularly where regulators have conflicting objectives and/or limited resources. The statutory requirement for Ofcom (regulator of telecommunications and postal services) to explain how it reconciles the interests of the citizen and the consumer in its decision-making is an interesting example of how some transparency can be brought in to this complex area. But often trade-offs require difficult decisions over the applica­tion of resources; understanding that there may simply not be sufficient resources

364 Calling Regulators to Account: Challenges, Capacities and Prospects to allow for regulators to monitor or enforce regulations with the intensity that politicians or the public may want can be hard to accept, as the controversy over border controls in 2012 illustrated.

Moreover, if they are holding a regulator to account in terms of how effective it has been in achieving its statutory objectives, then accountors need a reliable way to assess the effectiveness of a regulator’s activities. However, both regulators and accountors have been struggling for some time to find appropriate ways to assess performance in terms of outcomes, rather than simply inputs or outputs.^[1297] There are nonethe­less welcome attempts by regulators to assess their own outcomes such as the FSA’s Outcome Performance Reports, for example. Some accountors do the same, such as the Consumer Impact Report of the Legal Services Board’s Consumer Panel.^[1298]

e. The role of accountees in the accountability relationship

Finally, accountability is a two-sided relationship: the accountee has to accept the ‘right’ of the accountor to hold them to account. The agencies discussed here have all been given legal mandates and powers, and are expected to operate inde­pendently from political control (and from ‘capture’ by the regulated industry). The balance between independence and accountability is inevitably one which is being continually negotiated between accountees and accountors. As a result, even organizations which are apparently in a strong institutional position, due perhaps to their legal powers, can find their ‘right’ to act as accountor called into ques­tion. So the constitutional supremacy of the Westminster Parliament is strongly embedded in the UK’s constitutional settlement (broadly defined), but there are practical limits to its ability to call regulators to account. Moreover, Parliament’s ‘right’ to call to account is not necessarily recognized by those it is trying to call to account, who may be less impressed with the niceties of constitutional law than orthodox accounts of Parliament’s powers may suggest. Refusals by public bodies to provide parliamentary Select Committees with the information they require are not frequent, but they do happen. A striking example is the recent refusal by the Court of Directors of the Bank of England to disclose details of discussions held during the financial crisis to the Treasury Select Committee (TSC) on the basis that they were not required to by the Freedom of Information Act 2000.^[1299] Another example, though this time from a department, is the refusal by the gov­ernment to disclose financial details relating to Network Rail to a recent PAC inquiry, which was justified on the basis that the Office of National Statistics had classified it as a private company, notwithstanding that its debt is underwritten

by the government.^[1300] (As an aside, in giving evidence to the PAC, the Permanent Secretary to the Department of Transport thought the debt was so guaranteed, but the Alternate Treasury Officer of Accounts did not, though both agreed it was a private company).^[1301]

However, for the most part, regulators are used to being held to account, and whilst they may not enjoy the process, they do engage with it, not least to maintain their own legitimacy and reputation.^[1302] For example, although it initially refused to publish its report on the supervision of the Royal Bank of Scotland (RBS) in the period prior to its rescue, citing the need for confidentiality, the FSA did capitu­late in the face of strong political and media pressure, stemming initially from the TSC.^[1303] It also allowed the TSC to appoint two special advisors to review the report prior to publication and make amendments.^[1304]

Indeed, regulatory agencies are often active participants in their own account­ability processes, doing much which goes beyond what is required by formal accountability arrangements. Regulators frequently engage in consultation and reporting practices which go beyond those required by statute, such as roadshows, focus groups, seminars, stakeholder meetings, annual public meetings, publication of minutes of board meetings (prior to the Freedom of Information Act 2000),^[1305] the appointment of expert reviewers,^[1306] or the creation of consumer panels (for example, Ofcom).^[1307]

Regulators also seek to manage their legitimacy by publicizing their activities, though as Hood and colleagues have noted, some are more publicity-seeking than others.^[1308] As Yeung has argued, regulators’ presentational activities reveal the criteria by which they consider their legitimacy to be judged by others.^[1309] This is usually achieved by publicizing enforcement actions, but regulators use also publicity to try to change the public image of the regulator and the regime it is implementing. For example, the Health and Safety Executive has for several years published a ‘myth of the month’ on its website to dispel notions of ‘health and safety regulation gone mad’, though to little obvious effect either on behaviour or on the public’s views.^[1310]

However, agencies can misread what is required to maintain their legitimacy, or find themselves caught between conflicting accountability regimes. As noted above, the FSA’s initial refusal to publish its report on RBS was driven in signifi­cant part by concern that RBS would take legal action for breach of confidential­ity, but it was a considerable political miscalculation, and it was rapidly forced to reverse its position.^[1311]

Thus, whilst it is conventional to bemoan the lack of accountability of regula­tory agencies, the counter-argument is that they are often active participants in their accountability relationships, and even if they do not go beyond their statu­tory remits, at least they have a (relatively) clear mandate which a clearly defined set of individuals and governance structure (chairman, chief executive and gov­erning board) is accountable for delivering. If regulatory functions are simply swallowed up into large departmental behemoths, there is no clear organizational structure for their performance; tasks are fungible, as are the departmental units performing them; opportunities for meaningful stakeholder participation are lim­ited in the absence of dedicated advisory committees; and the scale of departments combined with the weaknesses of ministerial responsibility is such that account­ability is lessened, not enhanced. For example, in commenting on the coalition government’s Public Bodies Bill, the PAC argued that ‘bringing functions back into sponsor departments is likely to undermine other channels of accountability, particularly with relevant stakeholder groups, and risk leaving policies fighting numerous other priorities for ministerial attention. This will mean less effective accountability and challenge on a day-to-day basis.’^[1312] Whilst the government, pre­dictably, disagreed with this comment, as indeed it stridently disagreed with most of the report (whilst of course, ‘welcoming’ it), it is argued that there is consider­able force in the PAC’s view.

C.