Demand for & Supply of Moral Accounting Engagements

 NOTE:  This post is a self-contained description of the practical aspects of moral accounting, intended as the basis for interviews with activists, accountants, consultants, and organizational leaders.  Those who want more background (including a more scholarly justification of my claims) can read this. Please contact Robert Bloomfield at Cornell University if you are interested in discussing this.  A companion piece about the philosophical aspects of moral accounting is available here, intended as the basis for interviews with experts in philosophy, religion, political ideology, or culture.

Introduction

Professionals in accounting, finance and consulting offer a range of services to help organizations live up to their social obligations.  Corporate Social Responsibility (CSR) services help organizations address the concerns of those affected by their actions, while Environmental, Sustainability and Governance (ESG) services help investors allocate capital to firms that are socially responsible.  Efforts like the Sustainability Accounting Standards Board (SASB) and Impact-Weighted Accounting offer reporting standards to aid CSR and ESG.  However, those offering such services must confront difficult moral questions.  What exactly are the social obligations of an organization?  How should parties be held accountable for those obligations? How should employees balance their obligation to their employers and their obligations to society?  How should organizations prioritize their social obligations when all cannot be fulfilled?

Moral accounting offers a comprehensive framework for answering such questions, grounded in long-standing and well-accepted principles drawn from traditional accounting, modified only slightly to accommodate moral (rather than only financial) obligations.  Moral Accounting Engagements (MAEs) offer recommendations based on this framework, and are structured to maximize the chance that the recommendations be accepted even by those with sharply opposed interests and moral views.

In this document, I describe the scope and structure of MAEs, and highlight features that I claim would foster demand by making such engagements worthwhile, and/or foster their supply by making them feasible and cost-effective.  I am testing these claims by interviewing a highly diverse set of activists (who might demand and fund moral accounting engagements), accountants and consultants (who might supply or support moral accounting engagements, or have related expertise), and organizational leaders (who might receive and be asked to act upon the resulting recommendations for change).  I am hoping you will be willing to read this short document and talk with me about the following questions:

• Where do you see moral accounting engagements being more and less useful?
• What types of people and organizations do you see best positioned to fill the demand for moral accounting engagements?
• Were any of the claims or perspectives in this summary particularly surprising or questionable?  Why?
• Are there terms in this document that could be changed to make moral accounting engagements easier for people to understand and embrace?
• What research would you suggest I conduct to assess and improve the usefulness of moral accounting engagements?

Moral Accounting Basics

Stewardship and Morality

Moral accounting treats everyone as a steward acting on behalf of the societies in which they operate.  Like a financial steward, social stewards are entrusted with assets (powers), which they are obligated to use wisely on behalf of a beneficiary (their societies).  Good moral performance is defined by good stewardship, and is evaluated by asking familiar accounting questions:  Did the steward use assets wisely?  Did they live up to their obligations?  Are they ensuring they will be able to live up to them in the future?  The biggest difference between traditional and moral accounting is the scope of obligations included in a steward’s books.  Traditional books recognize only obligations that are enforced effectively enough that the steward has little or no ability to avoid them.  Moral books recognize all obligations, even if no one has the will or power to enforce them.

Governance

Moral accounting identifies governance as a special class of stewardship, in which assets are used to shape a steward’s moral performance. Governance is exercised through accountability systems—webs of reports, incentives and controls.

• Reports communicate information
• Incentives tie reports to reward and punishment, to motivate better performance and hold people accountable for their performance.
• Controls make behavior easier or harder.

For example, consider how people’s driving is governed residential neighborhood.  Signs posting the speed limit and warning that children may be in the street serve as reports.  Fines for speeding serve as incentives.  Speed bumps serve as controls that make it harder to speed.

A full analysis of governance requires examining the complete network of all those who govern.  Consider a society in which people have a moral obligation not to drive after drinking alcohol.  Government can punish those who do so, but they can also punish those who sell them cars and alcohol.  Private organizations in turn may impose controls that make it harder to drive after drinking.  Car manufacturers may install breathalyzers into ignition systems.  Bars and restaurants may punish employees who serve anyone too much alcohol.  Friends and family members can make it easier to avoid drunk driving by serving as designated drivers, or punish it by showing visible disapproval.

Moral Accounting Principles (The MAP)

Moral accounting improves moral performance by improving governance systems.  It thus differs from approaches that seek to improve the moral character of those who misbehave, or to improve society’s views of what is moral.

Improvements to accountability systems are guided by a set of Moral Accountability Principles (the MAP), which must be upheld for such systems to hold parties accountable in a moral way.  The MAP is derived from long-standing and well-accepted principles from traditional accounting, modified just enough to apply to moral issues. The MAP requires that parties be held accountable:

• for only and all they do, encourage and discourage (The Entity Principle);
• in proportion to their moral performance (The Proportionality Principle);
• on the basis of their balanced moral books, in which their power is perfectly matched by their obligations (The Bookkeeping Principle);
• under the moral standards of the society in which they operate (The Social Recognition Principle);
• in a way that supports those standards (The Effectiveness Principle);
• with good knowledge, competence, impartiality and courage (The Judgment Principle); and
• by the parties and systems that can best uphold the preceding principles (The Subsidiarity Principle).

Exhibit 1 lists a variety of immoral behaviors commonly seen among organizations: consumer fraud, excessive pollution, discrimination, sexual harassment, and (for law enforcement) excessive force.  The Exhibit also identifies shortcomings of the relevant accountability systems commonly associated with such misbehavior, indicating the name of the principles on which they fall short. Note that all of the examples indicate that the systems fall short on Effectiveness, because they fail to prevent misbehavior.  Violations of Effectiveness are typically created by other violations, such as punishing bad performance inadequately (Proportionality), holding people accountable on the basis of bad information (Judgment), or ignoring the greater obligations that come with greater power (Bookkeeping).  Accountability systems can also be effective but still govern in immoral ways, by using excessive punishment (Proportionality) or collective punishment (Entity), holding people accountable for obligations they couldn’t possibly fulfill (Bookkeeping), or holding people accountable for obligations society does not recognize (Social Recognition).

Exhibit 1. Common Accountability Failures and Possible MAP Violations

Consumer Fraud	System fails to prevent problem (Effectiveness); employees are rewarded for behavior society views as immoral (Social Recognition); punishment does not reflect existence of obligations to consumers (Bookkeeping) and/or is too small relative to degree of immoral performance (Proportionality).
Pollution	System fails to prevent problem (Effectiveness); employee accountability is based on measures that fail to capture impact of pollution (Judgment); employees are rewarded for behavior society views as immoral (Social Recognition); punishment is inadequate to moral failings (Proportionality).
Discrimination	System fails to prevent problem (Effectiveness); people are held accountable on the basis of group membership, even when that membership is irrelevant to their moral performance (Entity); people are recognized to have different assets and obligations based on their group membership, even when society does not recognize such differences (Social Recognition); people are held accountable on the basis of snap judgments, rather than on the basis of detailed knowledge of their performance (Judgment).
Sexual Harassment	System fails to prevent problem (Effectiveness); those who engage in sexual harassment rarely face sufficient punishment (Proportionality); people are held accountable for rejecting sexual advances, even though society recognizes no obligation for them to accept such advances (Social Recognition).
Excessive Force	System fails to prevent problem (Effectiveness); police are not trained to de-escalate situations (Judgment); civilians are punished with extreme severity for minor offenses (Proportionality), while officers are punished lightly for severe offenses (Proportionality); civilians are held accountable even when they are innocent (Entity); officers hold civilians accountable rather than leaving accountability to the courts (Subsidiarity); officers are not held accountable for their obligations to protect civilian life (Bookkeeping).

 

Goals, Scope & Roles in Moral Accounting Engagements

Goals

The goal of an MAE is similar to a mediation, except that it seeks to help disputing parties fulfill competing moral principles, rather than their own competing interests.

A traditional mediation begins with parties in conflict.  The mediator is brought in to help them come to a good outcome.  The parties control the outcome—the mediator isn’t an arbitrator or judge who renders a decision.  But the mediator controls the process, imposing and enforcing an agenda and rules for who can talk when, and about what, in large part to keep the parties’ judgments from being too clouded by emotion, and encourage their judgments to reflect knowledge and understanding. The key challenge of a mediation is to move parties from focusing on the specific outcomes they came in demanding (their positions) to focusing on what they get out of positions they initially advocate (their interests). This allows the parties to see that there may be positions they have not considered, but that would allow both parties to fulfill their interests more than they are able to do in the status quo.  The traditional mediation ends with an agreement that both parties promise to live up to.

An MAE is similar to a traditional mediation in that it starts with parties in conflict, and allows the parties to control the outcome.  The moral accountant can only issue evaluations and recommendations, leaving the parties to act on them.  Also as in mediation, the moral accountant owns the process, which is largely designed to avoid unproductive debates and enhance knowledge and understanding.  However, the key challenge of an MAE is not to move parties from their positions to their interests, but to recast the conflict among parties into a conflict among principles of the MAP, and then find ways to resolve that conflict by living up to all competing principles more completely.

For example, imagine that community members request an MAE to address the problem of excessive force used by community police.  The MAE would identify aspirational principles that everyone can agree on individually, even if they disagree on how they should be balanced.  For example, everyone is likely to aspire to a community in which police use force only when necessary, that police should allow courts to mete out punishment, that police should be safe from harm, and that police should be allowed to protect themselves.   The MAE would then study the relevant accountability systems to see how they can be changed to allow all of these principles to be fulfilled more completely.  For example, officers could be trained to deescalate dangerous situations, and be held accountable when they escalate conflict unnecessarily.

Scope

The scope of an MAE is limited to evaluating accountability systems in light of the aspirational principles of the MAP.  This is a narrow scope that largely excludes three topics that often feature prominently in moral debates:  moral character, intent, and the quality of a society’s moral code.

Character. An MAE does not render any judgments on anyone’s character.  It does not judge those who are held accountable (“governed”) by accountability systems.  If an employee defrauds customers, their behavior is evidence that the accountability system may be ineffective, and perhaps even evidence that it might be unreasonable to expect employees to govern themselves appropriately.  But otherwise, the character of the governed is irrelevant to an MAE.  MAEs are forward looking efforts to improve performance by improving accountability systems, and a party who behaved badly in the past may well be replaced by another who will be governed by the system in the future.  Raising character issues accomplishes little but to derail the process into arguments about unobservable matters, and to lead those whose character is attacked to engage in defensiveness and counterattack.  In controlling the MAE process, moral accountants must ensure that all parties avoid expressing character judgments.  This scope limitation extends to those who design and operate accountability systems—those who govern.  At issue is not whether those who govern are flawed, but whether the system is flawed.

Intent.  In many societies, intent is an important consideration in evaluating moral performance.  An accountability system must therefore consider the intent of those it governs, if it is to recognize their powers and obligations as their society does. However, an MAE does not concern itself with the intent underlying the accountability systems it seeks to improve.  This is partly because this intent is tied to the character of those who govern, which is excluded from the scope of an MAE as explained in the preceding paragraph, and like character, intent is hard to observe and hard to debate constructively.  More importantly, intent is irrelevant to the principles of the MAP, each of which describe the impact an accountability system must have on those it governs.  A system is either effective or not; proportional or not; and so on.

Finally, many aspects of accountability systems are unintentional.  Some aspects of governance are involuntary.   Someone who laughs or frowns at an inappropriate remark in a business meeting might do so involuntarily, but is still rewarding or punishing the speaker, and thus is holding them accountable. Other aspects of governance reflect systems that have long outlived their original intent.  Americans started tipping servers at restaurants in the mid-1800s, for a mix of reasons still debated by historians.  But those reasons have no bearing on how today’s approach to governing servers could be made more moral.

Societal morality.  The Bookkeeping Principle requires that a party’s moral performance be evaluated on the basis of how they serve as a steward of their assets (powers) and obligations. The Social Recognition Principle requires accountability systems to recognize those assets and obligations as they are recognized by the societies in which the system operates.  As a result, the recommendations arising from an MAE must reflect the recognition standards of those societies, regardless of how the parties to the MAE feel about them.  Societies vary widely in the assets and obligations they recognize.  Some societies recognize women as having very few assets, allowing them few rights to property or decision-making, while others treat them as having most of the same assets and obligations as men.  Some societies recognize people as having obligations to kill themselves over offenses that other societies deem minor. There are certainly good reasons to debate what assets and obligations a society should recognize different parties as having.  However, that debate has no place in an MAE.  As with character, the reason for this scope limitation is largely practical.  Changing a society’s morality is very difficult, and even suggesting that someone’s society is immoral is likely to derail the conversation.

Roles

An MAE involves a number of different roles.

• Activists raise concerns about some type of immoral behavior. These concerns provide the impetus for the MAE.
• Funders define the scope of the MAE, select someone to oversee it, and provide funding to conduct it.
• Moral accountants control the process of the MAE and issue a report.
• Witnesses provide the moral accountants with relevant information.
• Advisees receive an MAE’s recommendations because they are in a position to act on it.

A single person with power over an accountability system can play all five roles.  For example, if I might be concerned that students are cheating in a class I teach, I can decide to oversee an MAE to address the problem, which I conduct myself, use my own personal knowledge as my only evidence, and act upon the MAE’s recommendations.

A single person could play all roles but the advisor, when they lack power over the accountability system. For example, someone might be concerned that Facebook is publishing too much disinformation, that police departments are using excessive force too often, that drug use or abortion are too common, and so on.  However, such an MAE would be a rather academic exercise with little influence on the relevant accountability systems.  For MAEs to effect change, advisors would need to have far more faith that the witnesses provide full and faithful information, which will require more funding, and often (but not always) including advisees as witnesses.

Steps of a Moral Accounting Engagement

Documenting concerns

The first task of an MAE is to document moral concerns.  These concerns begin with those raised by the activists who provide the impetus for the MAE, but do not end there.  The moral accountants conducting the MAE must work with a variety of witnesses to document concerns that are related to those that inspired the MAE, and particularly those that might conflict with them.  For example, consider the concerns about pollution listed in Exhibit 1.  Assume that the concerns of the activists are perfectly valid—the existing system does fail to prevent the problem (Effectiveness); employee accountability is indeed based on measures that fail to capture impact of pollution (Judgment); employees are in fact rewarded for behavior society views as immoral (Social Recognition); and punishment is indeed inadequate to moral failings (Proportionality).

But the activists’ original concerns are likely to be countered by competing concerns:  that regulators are less able to govern firms well than the firms can govern themselves (Subsidiarity); that activists are ignoring the firm’s moral obligations to provide their valuable and perhaps life-saving products or services (Society Recognition), or failing to acknowledge that those obligations make it harder to live up to other obligations (Bookkeeping); that regulation imposes costs on firms and ultimately consumers than the benefits it generates (Efficiency, an element of Proportionality); and so on.  An MAE must document the full range of concerns related to those that inspired it, by allowing a wide range of stakeholders to serve as witnesses, including those whose behavior concerns the original activists.

Note, however, that the MAE does not document all conceivable concerns one might have about accountability failures even for the same advisee.  An MAE focused on pollution need not also document concerns about consumer fraud or sexual harassment, unless they appear to be directly related to the concerns that provide the impetus for the MAE.

Documenting Accountability Systems and Networks

The next step of an MAE is to document the relevant accountability systems and networks. Accountability systems are not simple top-down affairs. A college Professor holds students accountable, but those same students hold the professor accountable, mostly for how well the teacher holds them accountable. Most obviously, they evaluate the Professor’s performance at the end of the term, a report that Deans tie to incentives. They can also complain directly to the Professor’s Dean, a report that typically results in some type of punishment, even if just in the form of extra meetings. The very fact that a teacher holds students accountable gives them power to return the favor. They can inundate a bad teacher with emails and requests for office visits, respond unpleasantly to grades or feedback, and deter bad performance by making it clear they will do so. Accountability is almost always a two-way street, because if one party wants a subordinate to perform in a certain way, the subordinate’s performance serves as a reward or punishment in itself. These accountability networks must be documented in full, in order to give the advisees a complete picture of possible improvements.

Documenting Aspirational Moral Standards

A society’s moral aspirations are characterized as answers to two questions:  Who should be recognized as having what powers, and what obligations should come with those powers?  By focusing on aspirations, rather than current practices (e.g., who does have what powers, what obligations do they actually live up to), moral accounting avoids basing its recommendations on tendencies that a society views as immoral but fails to address because governance is imperfect.

Even in the most contentious settings, aspirational moral principles are generally widely shared within a society.  They are documented in countless values statements, vision statements, proclamations by civil and religious leaders, and even the hypocritical statements of those who support in public principles they violate in private.  All of these statements become part of the evidence moral accountants use to document a society’s moral aspirations.  Moral accountants need not concern themselves with controversies that are manufactured through arguments based on bad faith or bad information; what matters are the sincerely held moral views of knowledgeable parties.

Moral controversies typically arise when moral principles conflict.  For example, almost everyone in American society recognizes that private firms should have the power to provide goods and services to those who are willing to pay for them, and that private firms should have an obligation to limit the damage they do to the environment.  Legitimate controversies arise when those two principles come into conflict, as when (for example) air travel is both a valued service and a substantial contributor to climate change.  At this stage of the MAE, however, it is not necessary to determine how to balance competing principles.  Instead, the MAE must simply document individual aspirations with widespread agreement.

Moral controversies frequently arise when parties interact across societal boundaries.  Moral accounting defines a society as a group with a shared mission.  By this definition, most people are members of many small societies—their family, their neighborhood, the organization that employs them, their local religious organization, and so on.  Even within an organization, there may be many societies distinguished by departmental structure and hierarchy.  People working in the same department, or holding a similar job rank, typically share a mission of looking out for others like them that they do not share with those in other departments or ranks.

Moral accounting gives every society the power to determine which assets and obligations are to be recognized for their members.  Even in a fairly homogeneous setting, this can cause conflict.  A close knit department might recognize obligations to members to protect one another from looking bad to senior management, but the firm as a whole likely recognizes that they have obligations to report problems to senior management.  In pluralistic societies, like most modern nations, conflicts between societies can be far sharper.  However, these large societies, which are essentially federations of many smaller societies, typically still have clear aspirational principles on how inter-societal conflicts should be resolved.  Typically, they allow those societies to set their own standards for purely intra-societal matters, unless they are causing serious harm (“live and let live”), and let them impose their own standards when others come into their territory (“when in Rome, do as the Romans do”).  As a result, most MAEs will be able to document moral aspirations even in the presence of societal conflict.  However, in extreme cases, an MAE can issue multiple reports, each detailing recommendations based on a different set of documented principles.

Proposing, Testing & Reporting Recommendations

Once moral accountants have documented moral concerns, accountability systems, and moral principles, the next step of the MAE is for them to propose and test recommendations to improve the accountability systems.  Most promising are recommendations that allow some principles to be fulfilled more completely without sacrificing any other principles.  Less promising, but still worth proposing, are recommendations that fulfill some principles much more completely, while requiring only minor sacrifices to other principles.  Such principles face greater challenges, because some parties might place very high value on the principles being sacrificed, even if only slightly.

Once recommendations are proposed, they must be presented to witnesses and advisees to determine whether they are likely to perform as anticipated. The MAE is completed by providing a report that details the processes it used to document moral concerns, accountability systems, and moral principles, and to propose and test recommendations.

 

Appendix:  The MAP

In this Appendix I briefly describe each principle of the MAP.  All are derived from accounting, though most will also be familiar to non-accountants, as they are quite similar to principles espoused by many civic and religious leaders and organizations.  Each principle answers one question about how people should be governed (held accountable).

How should governance affect society? 

The Effectiveness Principle states that governance should improve the moral performance of a society’s members, ensuring that powers are used morally and obligations are upheld.  Thus, if two forms of governance differ only in effectiveness (e.g., the status quo vs. a revision), the one that is more effective in improving moral performance is more moral.

Who should be held accountable?

The Entity Principle identifies the types of parties that should be held accountable, and what they should and should not be held accountable for.

Only accountable entities should be held accountable.  An accountable entity is defined as a party or group of parties connected by an internal system of governance.  Every sentient being is an accountable entity because (by definition) each one engages in some degree of self-governance.  The Smith Family, Apple Corporation, and the European Union are all accountable entities.

The group of “all left-handed people” is not an accountable entity because they have no internal system of governance. If left-handed people began encouraging one another to perform unusually well or badly, those who engage in such encouragement can be held accountable for that performance among others in their group.  Otherwise, however, one person couldn’t be held accountable for the behavior of another simply because both are left-handed.

Every accountable entity should be held accountable for their own moral performance and the performance of those they govern, to the extent their governance shaped the moral performance in question. Thus, in most family-based societies a parent should be held accountable for some of their children’s behavior, a CEO for their employee’s behavior, and so on.  A company’s CEO should also be held accountable for many aspects of a company’s performance; its janitor should be held accountable for only a very narrow scope of performance, if any.

On what basis should performance be evaluated?

The Bookkeeping Principle states that an accountable entity’s moral performance should be evaluated on the basis of their moral books.  Because moral accounting treats everyone as a steward acting on behalf of society, moral bookkeeping is quite similar to the traditional bookkeeping used for stewards.  Stewards are entrusted with assets, which give them power, and those assets are balanced by obligations.  Assets include rights to wealth and property, granted by society, capacities endowed by nature and training, authorities to decide and direct, and the power to influence.  Obligations include specific liabilities to perform in certain ways, restrictions against performing in certain ways, and debts to society (often for past misbehavior).  Assets and obligations must always be in perfect balance, so any assets that remain after all other obligations are accounted for give rise to a general obligation to use them on behalf of society.

Some implications of the Bookkeeping Principle are worth special emphasis.  Because assets and obligations are always in perfect balance, those with more assets always have more obligations.  Thus, the Bookkeeping Principle is like the familiar Spider-Man Principle (borrowed from Voltaire):  Those with greater power have greater obligations.

If someone comes into a sudden gain of power, or is relieved of an obligation, their books will be balanced by adding to their general obligations to society.  For example, imagine that someone discovers treasure in their back yard, or finds that the child whose tuition they promised to pay has won a scholarship.  Most societies will give them considerable freedom to choose how to fulfill the resulting general obligation to society, including improving their own well-being.  However, few societies would see it as moral for them to buy up scarce life-saving medicine and burn it in their driveway.

It is also possible for someone to experience sudden loss of power, or the sudden addition of an obligation.  For example, they may have promised to drive a neighbor’s child to the park, only to find that their car will not start (loss of an asset) or that their mother needs to be driven to the hospital (a new obligation).  In such cases, the books must be reorganized, much like they are in bankruptcy:  the obligations are prioritized from most to least important, and those of lowest priority are cancelled to the extent needed to balance the books, because they are impossible to fulfill.  The flip-side of the Spider-Man Principle is that one cannot hold someone accountable for failing to accomplish the impossible.

Who determines the powers and obligations of the governed?

The Social Recognition Principle states that every entity’s assets and obligations are recognized (entered into their books) as determined by the societies of which they are a member.  Entities do not decide for themselves what powers society recognizes them as having, or what they owe to others, or what powers others have over them or owe to them.

The overlapping nature of societies poses some practical challenges in addressing conflicting assets and obligations.  For example, one society may view an animal as vermin, giving everyone an obligation to kill them on sight, while another views them as sacred, giving everyone an obligation to treat them with care.  What then are the obligations of a merchant who travels from one society to the other?  Such interaction gives rise to a “federalized” society that makes such determinations.  The Social Recognition Principle does not spell out how this society should handle such conflicts, but most federalized societies tend to defer to their component societies as much as possible, obligating visitors and newcomers to defer to local morality, and overturning local recognition decisions only in cases of extensive cross-societal interaction and severe incompatibility.

How should governance be tied to performance?

The Proportionality Principle states that governance should be suited, in both nature and extent, to the moral performance it is governing.  The Principle expands on the familiar maxim to let the punishment fit the crime.  Accountability for past behavior, which can include not only punishment, but rewards and changes to controls, should be proportional to the extent of the moral performance it is addressing. To the extent accountability involves changing controls, it should be tailored to the nature and severity of performance (e.g., installing breathalyzers to prevent drunk driving, rather than confiscating cars).

What qualities should governance reflect? 

The Judgment Principle states that people should be governed with knowledge, competence, diligence, neutrality, and courage.  The first three are familiar elements of the professional standards to which accountants and other professionals are universally held.  Neutrality is sometimes excluded for professionals who advocate on behalf of their client, while courage is emphasized mostly for those who must make decisions against the interests of those with power to retaliate.  But moral governance requires neutrality and courage because those who govern do so on behalf of society, not for the benefit of themselves or any other specific parties.

Who should govern? 

The Subsidiarity Principle states that a party should govern only to the extent that (1) they cannot avoid doing so, or (2) their governance upholds the complete set of Principles more completely than would otherwise occur.

Requirement (1) is essential because governance is often unavoidable.  For example, when someone makes an inappropriate remark in front of you, any response can be viewed as holding the speaker accountable—a smile is a reward, a frown is a punishment, and a neutral response is the absence of a reward or punishment.  Even “no control” and “no accountability” are forms of governance.

Requirement (2) is essential because typically many parties have the power to govern.  For example, a child misbehaving at a public park could be held accountable by the people who were harmed, the child’s parents, bystanders, a park employee, or a police officer.  If no one governs the child, the child is left to self-govern; self-governance is always unavoidable.

To live up to the Subsidiarity Principle, each party must govern exactly to the extent that they fulfill all six remaining principles of governance more completely than if they let someone else govern.  In practice, this often means that governance should be decentralized, and specifically left in the hands of local parties closest in space, time and relationship, unless the benefits of proximity are outweighed by the benefits of the more distant parties’ capacities.