Balanced Scorecard Ethics Corporate Governance and Social Responsibility

What Does Balanced Scorecard Mean?

A performance metric used in strategic management to identify and

improve various internal functions and their resulting external outcomes. The balanced scorecard attempts to measure and provide feedback to

organizations in order to assist in implementing strategies and

objectives.

Product Leader e.g. Sony, Apple Operationally Excellent e.g McDonalds, FedEX, SouthWest Customer Intimacy e.g. IBM,

The Balanced Score Card

Financial performance Customers

Internal business processes

Learning & Growth

Strategic and Financial Controls in a Balanced Scorecard Framework

Financial

Cash flow Return on equity Return on assets Assessment of ability to anticipate customer needs Effectiveness of customer service needs Percentage of repeat business Quality of communications with customers

Customer

Strategic and Financial Controls in a Balanced Scorecard Framework

Internal Business Processes Learning and Growth

Asset utilization improvements Improvements in employee morale Changes in turnover rates

Improvements in innovation ability Number of new products compared to competitors Increases in employees skills

Balance scorecard as a strategic initiative.

Clarify and update strategy

Communicate through the company

Align unit and individual goals

Conduct periodic performance review

Four processes to link long term objectives with short term actions

Translating the vision Communicating and linking Business planning Feedback and learning

Translating the vision

Helps build a consensus around the companys vision and strategy

Helps arrive at an integrated set of objectives and measures that describe the long term drivers of success

Communicating the linkage

Helps link strategy individual objectives to departmental and

This marks a change in approach from evaluating departments by financial performance and tying individual incentives to short term financial goals

Business Planning
Enables companies to integrate their business and financial plans

Helps in aligning diverse initiatives with strategic goals

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Conclusion Balanced score card can be used to:

-clarify and update strategy

-communicate strategy throughout the company

-align unit and individual goals with the strategy

-link strategic objectives to long term targets & annual budgets

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Ethics
Based on the article Using the Balanced Score card

Ethics

Ethics, also known as moral philosophy, is a branch of philosophy that addresses questions about morality that is, concepts such as good and evil, right and wrong, virtue and vice, justice and crime, etc. ExampleUK clothing firm Primark has fired three Indian suppliers because they used child labour to finish goods.

Key Strategic Leadership Actions: Emphasizing Ethical Practices

Effectiveness of processes used to implement the firms strategies increases when based on ethical practices.
Ethical practices create social capital and goodwill for the firm

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Key Strategic Leadership Actions: Emphasizing Ethical Practices

Actions that develop an ethical organizational culture include:

Establishing and communicating specific goals to describe the firms ethical standards Continuously revising and updating the code of conduct Disseminating the code of conduct to all stakeholders to inform them of the firms ethical standards and practices

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Key Strategic Leadership Actions: Emphasizing Ethical Practices (contd)

Actions that develop an ethical organizational culture include: Developing and implementing methods and procedures to use in achieving the firms ethical standards Creating and using explicit reward systems that recognize acts of courage Creating a work environment in which all people are treated with dignity
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Key Strategic Leadership Actions: Establishing Organizational Controls

Controls Formal, information-based procedures used by managers to maintain or alter patterns in organizational activities Controls help strategic leaders to: Build credibility Demonstrate the value of strategies to the firms stakeholders Promote and support strategic change
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Corporate Governance

Definition of corporate governance

Corporate governance - the set of mechanisms used

to manage the relationship among stakeholders and to determine strategic direction and control the performance of organizations

The System by Which Companies are Directed and Controlled

Shareholders

Regularly report and update Monitor and guide

Managers

Directors

Internal governance mechanisms

Three internal governance mechanisms

ownership concentration the board of directors executive compensation

The market for corporate control is the single external governance mechanism influencing managers decisions and the outcomes resulting from them

Ownership separation

Modern organizations are characterized by an agency relationship that is created when one party (the firms owners) hires and pays another party (top-level managers) to use its decision-making skills

An Agency Relationship

Separation of ownership and control

Separation of ownership and control creates an agency problem when an agent pursues goals that conflict with principals goals Principals establish and use governance mechanisms to control this problem

Ownership concentration

Ownership concentration is based on the number of large block shareholders and the percentage of shares they own

Institutional investors are an increasingly powerful

force in corporate America and actively use their positions of concentrated ownership to force

managers and boards of directors to make decisions that maximize an organizations value

Boards of directors

An organizations board of directors (composed of insiders, related outsiders, and outsiders) is a governance mechanism expected to represent shareholders collective interests

Executive compensation

Executive compensation (including salary, bonuses, and long-term incentives) is a highly visible and often criticized governance mechanism

The firms board of directors determines the

effectiveness of the organizations executive

compensation system

Corporate control

While shareholders and boards of directors may have become more vigilant in their control of managerial decisions, they are insufficient to govern managerial behavior in many large companies Therefore, the market for corporate control is an important governance mechanism

Although corporate control is also imperfect, it has been effective in causing corporations to combat inefficient diversification and to implement more effective strategic decisions

Effective governance mechanisms

Effective governance mechanisms ensure that the interests of all stakeholders are served Long-term strategic success results when firms are governed in ways that permit satisfaction of

capital market stakeholders (such as shareholders) product market stakeholders (such as customers and suppliers) and organizational stakeholders (managerial and nonmanagerial employees)

Effective governance produces ethical behavior in forming and implementing strategies

Corporate Social Responsibility

Social Responsibility
An organizations obligation to maximize its positive impact on stakeholders and to minimize its negative impact. Includes legal, ethical, economic, and philanthropic (discretionary) dimensions.

Types of Social Responsibility

Economic the duty of managers, as agents of the company owners, to maximize stockholder wealth. Legal the firms obligations to comply with the laws that regulate business activities. Ethical the companys notion of right and proper business behavior.

Areas of Social Responsibility

There are mainly four types of areas of social responsibility are there and they are as under.

Responsibility towards Customers. Responsibility towards Investors. Responsibility towards Employees. Responsibility towards Environment.

Customer Responsibility Issues

Rights of Consumers Unfair Pricing Ethics in Advertising

Responsibility Towards Investors

Improper Financial Management. Insider Trading. Misrepresentation of Finances.

Employee Responsibility Issues

Human resource management issues

Provide equal opportunity for rewards and advancement without discrimination Social responsibility issues
Safe workplace, no abuse Privacy issues

Drug testing and computer monitoring

Environmental Responsibility Issues

Air Pollution Water Pollution Land Pollution

Principles of corporate social responsibility

There are two principles of social responsibility. And there are as under: A) Charity Principles: Business should give voluntary aid to societys needy persons and groups. B) Stewardship Principles: Business, acting as a public trustee, should consider the interest of all who are affected by business decision and policies.

Social Responsibility and the Small Business

Small businesses face many of the same ethical and social responsibility issues as large firms.

Some wonder if they can afford a social

agenda.

Need to decide in advance how to respond.