Course Code: MGT-304

Course Title: Corporate Social Responsibility

Lecture / Week No. 10

Department of Account
 Contents

1. Introduction
2. What is Performance
3. Social Accounting
4. Aspects of Performance
5. The balance scorecard
6. The Environmental Audit
7. The Measurement of Performance
8. The Evaluation of Performance
Performance Evaluation and Performance
Reporting
Reference No. 1 Topic: Performance Evaluation and Performance Reporting

Performance Evaluation and Performance Reporting

If the confidence of the public in the integrity of accountants’ reports is shaken, their
value is gone. To preserve the integrity of his reports, the accountant must insist upon
absolute independence of judgment and action. The necessity of preserving this
position of independence indicates certain standards of conduct.’
Arthur Andersen 1932

In a survey organized by Faversham House Group four out of every five executives
interviewed said that new laws were the most important factor in persuading their
companies to spend on the right technology and management to save energy and
reduce emissions. More than half viewed prosecution as the ultimate weapon for
forcing responsibility to the top of the agenda at board meetings.
Reference No.1 Topic: Performance Evaluation and Performance Reporting

1.Introduction
For all organization the question of the management of the organization depends upon the ability to
measure performance and then evaluate and report upon that performance. When we are considering
CSR this is equally true, although it becomes more difficult to measure and evaluate that performance. In
this chapter therefore we will consider some of the issues involved.

2.What is performance?
It should be clear that the determination of good performance is dependent upon the perspective from
which that performance is being considered and that what one stakeholder grouping might consider to be
good performance may very well be considered by another grouping to be poor performance (Child 1984).
The evaluation of performance therefore for a business depends not just upon the identification of
adequate means of measuring that performance but also upon the determination of what good
performance actually consists of.
 Reference No.1 Topic: performance

From an external perspective therefore a very different evaluation of performance might arise, but
moreover a very different measurement of performance, implying a very different use of accounting in
that measurement process, might arise.

The measurement of stakeholder performance is perhaps even more problematic than the
measurement of financial performance. Objective measures of stakeholder performance are not
reported in the annual reports of companies and therefore we have chosen to consider the subjective
measures included within the “Britain’s Most Admired Companies” surveys annually published in
Management Today. These measures provide a reputation rating, as gathered from ‘rivals’ perceptions,
in nine categories and these measures are also added to also provide a total score. The nine
categories are:
Reference No.1 Topic: Performance

These measures provide a reputation rating, as gathered from ‘rivals’ perceptions, in nine
categories and these measures are also added to also provide a total score. The nine categories
are:
•Quality of management;
•Quality of goods and services;
•Capacity to innovate;
•Quality of marketing;
•Ability to retain top talent;
•Community and environmental responsibility;
•Financial soundness;
•Value as long-term investment;
•Use of corporate assets.
 Reference No.1 Topic: Social Accounting

Social accounting

Social accounting first came to prominence during the 1970’s when the performance of businesses in a wider
arena than the stock market, and its value to shareholders, tended to become of increasing concern. This
concern was first expressed through a concern with social accounting. This can be considered to be an
approach to reporting a firm's activities which stresses the need for identification of socially relevant behaviour,
the determination of those to whom the company is accountable for its social performance and the development
of appropriate measures and reporting techniques.
Thus social accounting considers a wide range of aspects of corporate performance and encompasses a
recognition that different aspects of performance are of interest to different stakeholder groupings. These
aspects can include:
•The concerns of investors
•A focus upon community relations
•A concern with ecology
Reference No.1 Topic: Social Accounting

Measuring performance in terms of these aspects will include, in addition to the traditional profit
based measures, such things as:
•Consumer surplus
•Economic rent
•Environmental impact
•Non-monetary values.

Many writers consider, by implication, that measuring social performance is important without giving
reasons for believing so. Solomons (1974) however considered the reasons for measuring
objectively the social performance of a business. He suggests that while one reason is to aid rational
decision making, another reason is of a defensive nature.
 Reference No.1 Topic: Model for Social Performance

Model for Social Performance

XAnalysis of Social Performance

Statement of Social Income: £

Value generated by the productive xxx

process
+ unappropriable benefits xxx

- external costs imposed on the xxx

community
Net social profit / loss xxx

While Solomons proposes this model, which seems to provide a reasonable method of reporting upon the effects
of the activities of an organization on its external environment, he fails to provide any suggestions as to the actual
measurement of external costs and benefits. Such measurement is much more problematic and this is one of the
main problems of any form of social accounting – the fact that the measurement of effects external to the
organization is extremely difficult.
Indeed it can be argued that this difficulty in measurement is one reason why organizations have concentrated upon the
measurement through accounting for their internal activities, which are much more susceptible to measurement.
 
 Reference No.1 Topic: Aspects of performance

Aspects of performance

One factor of importance to all organizations, which comes from its control system, is the factor of performance
measurement and evaluation. To evaluate performance it is necessary to measure performance and Churchman
(1967) states that measurement needs the following components:
•Language to express results;
•Specification of objects to which the results will apply;
•Standardization for transferability between organizations or over time;
•Accuracy and control to permit evaluation.

Kimberley, Norling and Weiss (1983) also make this point and argue that traditional measures do not
necessarily even measure some aspects of performance and can certainly lead to inadequate and misleading
evaluations of performance. They state that:
 Reference No.1 Topic:The balanced scorecard

The balanced scorecard

A different perspective upon performance evaluation has been proposed by Kaplan and Norton (1992) with the
development of their balanced scorecard approach. They argue that traditional measurement systems in
organization are based upon the finance function and so have a control bias but that the balanced scorecard
puts strategy and vision at the centre. They identify four components of the balanced scorecard, each of equal
importance, and each having associated goals and measures.

The four components are:

•Financial perspective - how does the firm look to shareholders;

•Customer perspective - how do customers perceive the firm;
•Internal business perspective - what must the firm excel at;
•Innovation and learning perspective - can the firm continue to improve and create value.
Reference No.1 Topic: The balanced scorecard

They state (1993) that measurement is an integral part of strategy, stating:

Today's managers recognise the impact that measures have on performance. But they rarely think of
measurement as an essential part of their strategy. For example, executives may introduce new strategies
and innovative operating processes intended to achieve breakthrough performance, then continue to use the
same short-term financial indicators they have used for decades, measures like return on investment, sales
growth, and operating income. (p135)

Effective measurement, however, must be an integral part of the management process. (p136)
They maintain that the balanced scorecard is a way of evaluating performance which recognises all the
factors affecting performance and it is certainly true that an external perspective, in the shape of
customers, is included in this framework. The framework they propose looks as in Figure 6.2.
Reference No.1 Topic: The balanced scorecard

The Balanced Scorecard

Financial Perspective Customer Perspective

Internal Business Innovation and

Perspective Learning Perspective

 Reference No.1 Topic: The Balanced Scorecard

The scorecard enables companies to balance their short-run and long-run goals. It also highlights where
results have been achieved by trade off of other objectives.

The scorecard uses four perspectives from which to view the firm. These are:
•Financial: How the company is perceived by the shareholders.
•Customers: How the company is perceived by its customers.
•Internal What must the company excel at e.g. core competencies.
•Innovation & Learning: How can future value be created.

Each business that adopts the approach develops its own purpose built scorecard that reflects its “mission,
strategy, technology and culture”.

The scorecard could, for example, take a mission statement that has a customer focus and convert generally
stated goals into specific objectives and then develop associated performance measures. In this example the
measurement system may seek an interface with the customer’s management information system. If the
customer has a system for capturing data that assesses its suppliers the firm could attempt to capture this
information to enable it to judge its performance through the customer’s eyes.
 
 Reference No. Topic: The environmental audit

The environmental audit

Before the development of any appropriate measures can be considered it is first necessary for the organisation to develop
an understanding of the effects of its activities upon the external environment. The starting point for the development of such
an understanding therefore is the undertaking of an environmental audit. An environmental audit is merely an investigation
and recording of the activities of the organization in order to develop this understanding (Kinnersley 1994).

Indeed ISO14000 is concerned with such audits in the context of the development of environmental management systems.
Such an audit will address, inter alia, the following issues:

•The extent of compliance with regulations and possible future regulations

•The extent and effectiveness of pollution control procedures
•The extent of energy usage and possibilities increasing for energy efficiency
•The extent of waste produced in the production processes and the possibilities for reducing such waste or finding uses for
the waste necessarily produced
•The extent of usage of sustainable resources and possibilities for the development of renewable resources
•The extent of usage of recycled materials and possibilities for increasing recycling
•Life cycle analysis of products and processes
•The possibilities of increasing capital investment to affect these issues
•The existence of or potential for environmental management procedures to be implemented
Reference No.1 Topic: The Environmental Audit

The objective of such an audit is firstly to arrive at an understanding of the effects of organisational activity and then to be
able to assign costs to such activity. It should also enable the managers of the organisation to consider alternative ways of
undertaking the various

activities which comprise the operational processes of the organisation and to consider and evaluate the cost implications,
as well as the benefits, of undertaking such processes differently.
Such an audit will probably necessitate the collection of information which has not previously been collected by the
organisation, although it may well be in existence somewhere within the organisation’s data files. A complete
environmental audit is a detailed and time consuming operation but there is no need for such an exercise to be completed
as one operation.
 Reference No. 1 Topic: The Measurement of Performance

The Measurement of Performance

The measurement of performance is central to any consideration of performance evaluation and this resolves into two areas
for consideration, namely why measure and what to measure.

Measurement theory states that measurement is essentially a comparative process, and comparison provides the purpose
for measurement. Measurement enables the comparison of the constituents of performance in the following areas:

•Temporally by enabling the comparison of one time period with another;

•Geographically by enabling the comparison of one business, sector or nation with another;
•Strategically by enabling alternative courses of action and their projected consequences to be compared.
 Reference No.1 Topic: The Evaluation of Performance

The Evaluation of Performance

A variety of measures exist to measure and evaluate performance, and while these have been criticized in
their efficiency by some writers, it is nevertheless true that such measures have a role in this function. The
efficiency of measures of performance can only be determined however by considering their use in the
measurement of performance when the purpose of that measurement has been determined. It seems
reasonable to argue that different purposes need different measures and that perhaps some, but by no
means all, measures are universal in addressing all needs.

Measurements derive their meaning however from the use to which they are applied and mismeasurement
by using measures incorrectly causes conflict and misunderstanding. Once a framework has been developed
which identifies and addresses needs and purposes of evaluation it is then possible to consider the efficiency
and effectiveness of existing measures and identify deficiencies in the measurement system. It is then
possible to develop and implement new measures which are appropriate to the purposes identified.
 
 References / Resources

1. Text Book

Title: Corporate Social Responsibility Author: David Growther and Gular Aras
Publisher’s Name: David Growther and Gular Aras & Ventus Publishing
2008 David Crowther, Güler Aras & Ventus Publishing ApS ISBN 978-87-7681-415-1