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Towards a socially responsible management control system

Chris Durden
School of Business, James Cook University, Cairns, Australia
Abstract
Purpose The purpose of this paper is to investigate the measurement and monitoring of social responsibility within the management control system (MCS) of an organisation that subscribes to a stakeholder and social responsibility approach and to propose a framework that provides for the integration of the MCS with social accounting and social responsibility aspects. Design/methodology/approach The paper is based on a case study of a small privately owned New Zealand manufacturing business that subscribes to social responsibility and stakeholder principles. Findings Overall, the paper nds that the MCS of the case organisation did not measure or monitor social responsibility. Building on the case ndings and the literature examined, a framework is proposed that provides for the integration of the MCS with social responsibility. A signicant nding is that both formal measurement and informal control are key aspects in developing a MCS that incorporates social responsibility considerations. Research limitations/implications The ndings relate to a single manufacturing organisation based in New Zealand. Future research could examine different settings (i.e. country, organisation type, etc.) and investigate application of the proposed framework in relation to particular performance measures and controls that organisations may possibly adopt. Practical implications Organisations following a stakeholder and social responsibility approach should also consider the design of their MCS. Originality/value This paper helps to ll a gap in the literature concerning knowledge about the design and operation of MCSs in relation to stakeholder and social responsibility issues. Few studies in this area have been based on a case study approach. The paper further contributes to the literature by proposing a framework that provides for the integration of the MCS with social responsibility aspects. Keywords Corporate social responsibility, Social accounting, Stakeholder analysis, Managers, Control systems Paper type Research paper

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Received 2 October 2006 Revised 2 April 2007 Accepted 19 July 2007

Introduction There is a growing body of accounting research variously described as, for example, social accounting, corporate social responsibility, sustainability accounting, social and environmental accountability and environmental accounting (Mathews, 1997; Gray et al., 1998; Deegan, 2002; Gray, 2002; Parker, 2005). These are broad umbrella terms that encompass socially responsible accounting practice, which includes reporting on social and environmental matters and other areas beyond traditional nancial information. Often this non-traditional information is presented within a triple bottom line (TBL) report (Elkington, 1997; Deegan, 2002). The focus of the literature in this area views such reporting as an adjunct to or progression of external nancial reporting
The author is grateful for the helpful suggestions and comments received from two anonymous reviewers. Thanks are also due to Hector Perera for the guidance and advice he provided in the early stages of this research.

Accounting, Auditing & Accountability Journal Vol. 21 No. 5, 2008 pp. 671-694 q Emerald Group Publishing Limited 0951-3574 DOI 10.1108/09513570810872969

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(Gray et al., 1995; Gray, 2002; Moir, 2001; Deegan, 2002). A key limitation highlighted with such reporting is that it is not a mandated requirement and accordingly there are no established accounting standards or guidelines indicating how such information should be presented or collated (Medley, 1997; Moir, 2001; Parker, 2005). In this sense the eld is still very much evolving. The motivation for disclosing social responsibility information is often unclear. Various researchers suggest that the goal is often window dressing or business image enhancement, rather than a strong desire to be accountable to stakeholders and presenting a broader range of information (Dowling and Pfeffer, 1975; Gray et al., 1993; Deegan and Gordon, 1996; Neu et al., 1998). Research in this area has been driven largely from the perspective of (positive) stakeholder theory and legitimacy theory (Moir, 2001; Campbell et al., 2003; Deegan, 2002). This study is motivated mainly by two factors. First, the context of analysis of the literature in this area tends to be external reporting and the organisations examined have tended to be public reporting entities that already have an obligation to produce external nancial reports (Moir, 2001; Deegan, 2002; Gray, 2002). Second, there is only limited consideration of social responsibility issues and social accounting from the perspective of how it should t or align with an organisations management control system (MCS)[1] (Norris and ODwyer, 2004; Parker, 2005). The research presented in this paper examines the MCS of a New Zealand manufacturing business which has promoted a strong stakeholder and social responsibility image and produced a TBL line report. A relatively small privately-owned business was selected for the research because it has been suggested that, unlike large public corporations, such organisations often have strong visionary management and may adopt a broader accounting focus, encompassing aspects such social accounting and other related initiatives (Mitchell and Reid, 2000; Dillard et al., 2005). These organisations have been described as ones that get religion (Dillard et al., 2005, p. 98) and could be seen as potential innovators in relation to social responsibility and social accounting practices. The overall purpose of this research was two-fold. First, to discover whether the MCS of the organisation examined measured and monitored social responsibility and to identify any particular problems or issues associated with this. Second, to propose a framework that builds on relevant literature and the research ndings, and which provides for the integration of the MCS with social accounting and social responsibility aspects. The underlying theoretical position of this paper is normative and based on the ethical branch of stakeholder theory (Donaldson and Preston, 1995; Hasnas, 1998; Moir, 2001; Deegan, 2002). Organisations that attempt to operate in a socially responsible manner generally claim to be doing so for broader stakeholder reasons. Following this position it is argued that such businesses should have control systems in place that reect a stakeholder focus. In other words, managers would need a MCS that enabled them to regularly monitor whether the business was operating in accordance with social responsibility and stakeholder goals. The existence of a MCS focused in this way would reinforce that a business was attempting to operate in a socially responsible manner and discharge an obligation to stakeholders rather than merely indulging in an image enhancement exercise. This paper makes a number of contributions to the literature. First, it is one of few studies to examine stakeholder and social accounting issues in a MCS context.

Second, it adopts a qualitative methodology, reecting the calls for a greater level of eld-based research in the area of social accounting (Adams, 2002; Gray, 2002; Parker, 2005). And nally, it proposes a normative framework that provides for the integration of the MCS with social accounting and social responsibility aspects. In this respect the paper reects Parkers (2005) call for inductive theorising. The remainder of this paper is organised as follows. The paper rst reviews prior literature concerning stakeholder theory, social accounting research and related MCS issues. Next, the research design and methodology is discussed followed by an overview of the case study organisation. The empirical results from the case study are presented in the following section. In the nal section, the research ndings are discussed and a framework is proposed that provides for the integration of the MCS with social responsibility aspects. Prior literature A wide variety of terms and labels have been used to encompass the eld of accounting directed towards the interests of stakeholders, such as the provision of social and environmental information (Gray, 2002). For the purposes of this paper the primary term adopted is social accounting, which is seen to include both a stakeholder orientation and a socially responsible accounting approach. Overall, this is a growing area in the accounting literature (Mathews, 1997; Deegan, 2002; Gray, 2002; Parker, 2005). Reecting this growth it has been observed that:
The stated focus of corporate executives, as reected in places like recent annual reports, has shifted from shareholders to stakeholders and discussions of community licenses to operate are commonly within annual reports (and stand-alone sustainability and triple bottom line reports) along side discussions of corporate accountability (Deegan, 2004, p. 91) [emphasis in original].

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As highlighted in Deegans comment above, an important facet that underlies social accounting is the notion of stakeholders. Stakeholder theory A stakeholder can be dened as any group or individual who can affect or be affected by the objectives of companies (Freeman, 1984, p. 46). Stakeholder theory is associated with varying and often contradictory meanings (Moir, 2001; Deegan, 2002; Antonacopoulou and Meric, 2005). Despite wide acceptance of stakeholder ideals it remains very fuzzy as a concept (Antonacopoulou and Meric, 2005, p. 22) and there is much debate surrounding whether it is primarily a normative or instrumental theory (Donaldson and Preston, 1995; Hasnas, 1998; Moir, 2001; Deegan, 2002). Often usage of the term stakeholder is unclear as the two theoretical approaches are not distinguished (Deegan, 2002). Reecting the two strands of stakeholder theory it has been described as a theory of organisational management and ethics (Phillips et al., 2003, p. 480) [emphasis added]. The managerial or instrumental strand is focused on how particular stakeholder groups are managed, particularly those that control resources necessary to the organisations operations (Hasnas, 1998; Deegan, 2002; Herbohn, 2005). This relates closely to legitimisation theory (Deegan, 2002; Campbell et al., 2003). From a managerial perspective stakeholder theory is used to identify the connections, or lack of connections, between stakeholder management and the achievement of traditional

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corporate objectives (e.g. protability, growth) (Donaldson and Preston, 1995, p. 71). The normative or ethical strand of stakeholder theory indicates that organisations should be managed ethically in accordance with the needs of identied stakeholders. This implies that management should thoughtfully consider the interests and wishes of those stakeholders (Freeman, 1984; Hasnas, 1998). The normative strand therefore suggests that organisations should treat stakeholders in an inclusive manner and emphasises a (social) responsibility to operate in accordance with particular ethical or philosophical expectations (Hasnas, 1998; Deegan, 2002; Cormier et al., 2005). Social accounting research From a conceptual viewpoint, social accounting research appears to follow two main themes. The rst theme adopts a societal or ethical perspective and is concerned with the accountabilities and obligations of organisations in relation to the provision and disclosure of social accounting related information (Gray et al., 1991). This reects a normative stakeholder viewpoint. The second theme adopts a managerial perspective and explores issues concerned with the information organisations choose to produce and disclosure to stakeholders and how this may be used to legitimise the existence of the organisation (Deegan et al., 2002; ODonovan, 2002). Accordingly, this reects a managerial stakeholder viewpoint or a legitimacy theory position. Much social accounting research indicates that disclosure in this area is often motivated by the desire to legitimise various organisational activities (Deegan, 2002). This can be contrasted with managers accepting that they have an accountability, or responsibility, to disclose information to those who have a right-to-know (Deegan, 2002, p. 283), which reects a normative stakeholder position. Deegan (2002) highlights the role of legitimacy theory and stakeholder theory as means to examine why organisations may adopt certain social accounting practices. Legitimacy theory is based on the premise that there is a notional social contract between an organisation and society and that to legitimise its operations an organisation needs to operate in accordance with the contract (Mathews, 1993; Moir, 2001; Deegan, 2002; ODwyer, 2002; Cormier et al., 2005). Corporate social disclosures have commonly been linked to legitimising intentions (Moir, 2001; Deegan, 2002; Campbell, 2003). The normative approach to stakeholder theory is used to interpret the function of the corporation, including the identication of moral or philosophical guidelines for the operation and management of corporations (Donaldson and Preston, 1995, p. 71). In other words the normative approach attempts to provide direction to an organisation about how it should operate based on philosophical principles (Donaldson and Preston, 1995; Deegan, 2002). It says in effect, do (dont do) this because it is the right (wrong) thing to do (Donaldson and Preston, 1995, p. 72). According to Donaldson and Preston (1995, p. 85), it is the responsibility of managers to select activities and direct resources to obtain benets for legitimate stakeholders. In this paper, it is argued that selecting activities and directing resources implies an important role for the MCS in organisations attempting to operate in accordance with particular stakeholder principles and goals. Accordingly, such organisations should have a suitability specied MCS which is aligned with stakeholder interests to enable them to respond appropriately to the information needs of stakeholders and to operate in a socially responsible manner. This follows the principle that:

[. . .] managers should manage the business for the benet of all stakeholders. [Normative stakeholder theory] views the rm not as a mechanism for increasing stockholders nancial returns, but as a vehicle for coordinating stakeholder interests and sees management as having a duciary relationship not only to the stockholders, but to all stakeholders (Hasnas, 1998, p. 26) [emphasis in original].

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Following this line of thinking management should put in place MCSs that are responsive to and aligned with the interests of both shareholders and stakeholders. MCS issues Social accounting can be viewed from the standpoint of a traditional accounting framework (Lamberton, 2005). In this regard there should be both an external and internal perspective to the information produced. While some broad guidelines have been developed for social accounting at the external level the translation of these into the internal management level is problematic (Lamberton, 2005). Broad guidelines relate to mechanisms such as the Global Reporting Initiative (2002), which is an attempt to develop a stakeholder-focused sustainability reporting framework. However, this does not extend to MCS design issues. According to Lamberton (2005, p. 19):
The provision of sustainability accounting information to internal users would focus on the provision of relevant and decision useful information to management. For example, an array of performance indicators and lifecycle data compared to relevant sustainability targets would assist the internal management of the organisation toward the multidimensional sustainability objective.

A performance measurement framework proposed by Rouse and Putterill (2003) reinforces the need for a greater internal accounting focus on stakeholder interests. They argue that stakeholder expectations should be taken into account when designing performance measurement approaches. In this context, managers should consider both a macro and micro perspective in relation to performance measurement information made available to stakeholders (Rouse and Putterill, 2003). From a micro perspective appropriate management controls would need to be in place to help managers ensure that a business was operating in accordance with stakeholder expectations. The overall point is that performance measurement must emphasise goals and stakeholder expectations in the development of lower level control systems (Rouse and Putterill, 2003, p. 798). Similarly, in the context of adopting new manufacturing technologies it has been argued that impacts on stakeholder groups should be monitored (Steadman et al., 1996). This implies that the role of the MCS should be considered in relation to providing information to managers that can be used to help assess impacts on stakeholders. Norris and ODwyer (2004) undertook a case study examining the management controls of a UK rm that had published external social reports for 5 years. They found that social responsibility outcomes were not formally measured. In relation to socially responsive decision making (p. 191) their ndings characterise the rms controls as social, self and clan based, reecting a highly informal approach. The informal approach created a high level of awareness in the organisation about social responsibility goals. This, however, also created conict for managers in terms of pursuing social responsibility goals when these were not reected in the formal control system. In general, consideration in the literature of MCS dimensions in relation to social accounting is limited and an under researched area. Primarily, the work that has been

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undertaken relates to the environmental accounting area. In this regard, Milne (1996, p. 154) argues that management accounting should explicitly recognise environmental concerns and asserts that management accounting currently ignores the environmental impacts of private business rms. To help remedy this point Milne (1991, 1996) suggests that various techniques from other disciplines, such as the natural and social sciences, should be integrated into management accounting practice. As a formal approach within the environmental area the concept of environmental management accounting has been proposed (Bennett and James, 1997; Medley, 1997; Bartolomeo et al., 2000; Parker, 2000a). This could operate in combination with techniques from other disciplines (Rouse and Putterill, 2000) and be seen as an extension of or complementary to various existing management accounting approaches. For example, environmental accounting dimensions could be applied as part of activity-based costing, product life-cycle costing or the balanced scorecard (Bennett and James, 1997; Medley, 1997; Parker, 2000a). As an extension of an existing management accounting approach Rouse and Putterill (2000) examine the use of environmental cost drivers in relation to highway maintenance. By adopting an engineering model, and highlighting the impact of the geological environment via cost drivers on highway maintenance, they demonstrate a broader role for management accounting in relation to environmental costing. Other research, such as Stone (1995), has examined environmental management accounting in a North American context, while Parker (2000b) considered the application of environmental costing both internationally and in Australia. Bartolomeo et al. (2000) report on a European project that investigated environmental management accounting. They dened this as:
The generation, analysis and use of nancial and related non-nancial information, in order to support management within a company or business, in integrating corporate environmental and economic polices and building sustainable business (p. 31).

The project observed how several companies adopted or developed techniques to assist in measuring their performance in the environmental area (Bartolomeo et al., 2000). Overall, however, the ndings suggest that awareness and application of environmental management accounting is quite limited and that while rms may claim to apply particular techniques, this generally only applied to isolated experimental projects. The core nding is that implementation was neither systematic nor widespread. It was further observed that management accounting applications were not evident in other internal processes potentially affected by environmental and sustainability policies, such as new product development. In summary, the literature reveals that only limited attention has been given to MCS design issues in relation to social accounting research. This attention relates mainly to the area of environmental accounting. However, building on the literature it is argued that a broader conceptual basis to the social accounting eld, which recognises the need for alignment of external and MCS perspectives, would offer a more logically consistent position in relation to the design and operation of accounting systems orientated towards social responsibility concerns. This paper contends that such an approach is necessary to help ensure attainment of stakeholder and social responsibility goals. In other words, from a normative viewpoint, it would be inconsistent and problematic for an organisation on the one hand to produce external

social accounting information and to claim to operate in a socially responsible manner, but on the other hand for its MCS not to reect and recognise this position. An organisations MCS should support and orientate managers in their pursuit of social responsibility and stakeholder goals. In order for an organisation to operate in a socially responsible manner an integrative approach is required where there is alignment and t of both external and internal social information needs. To investigate this issue the MCS of an organisation that subscribes to stakeholder theory was studied to see if this incorporated performance measures that reected social responsibility and to identify any particular problems or issues associated with this. Research design and methodology The research was based on a case study informed from a naturalistic interpretive perspective (Baxter and Chua, 2003), but one that was also somewhat ethnographic in nature. Following Baxter and Chua (2003, p. 99), a naturalistic perspective is where the researcher seeks to investigate management accounting practice in its everyday organisational context. The idea is to examine management accounting in its natural setting and from a practitioner viewpoint (Tomkins and Groves, 1983). Normative stakeholder theory also informed the research and analysis. This involved considering social responsibility issues in relation to the case organisations stakeholders. Following stakeholder theory it would be expected that social responsibility goals and measures would be aligned with the needs of particular stakeholder groups. In other words the MCS system, in relation to social responsibility, should include measures focused on stakeholder needs. The MCS, by incorporating a stakeholder perspective, should provide scope for an organisations managers to monitor stakeholder interests. As a result stakeholder considerations would become an integral component in relation to how managers guide and direct the organisation. The use of stakeholder theory provided a basis for considering and analysing linkages between stakeholders, social responsibility and the MCS. The case organisation studied was a privately owned New Zealand manufacturing company. The research was undertaken in 2001 as part of a broader study of its MCS. Selection of the organisation was based on a theoretical sampling approach (Scapens, 1990; Ferreira and Merchant, 1992; Chua, 1996; Baxter and Chua, 1998; Patton, 2002) due to its adherence to stakeholder and social responsibility principles. The aim was purposely to select a suitable organisation that would likely provide a rich source of data for the study. A considerable amount of time was spent at the case organisation, with data collection and site visits taking place over a 3 month period. Visits typically were in ve working day blocks and covered a daily period from approximately 9 a.m. to 4 p.m. In total, approximately 5 weeks was spent at the research site. While this may not necessarily reect the classic ethnographical approach of going native, it still reects an extension of a more limited case study approach. In this sense the study mirrors an approach to qualitative research within organisations that is about . . . small-scale case studies and concern with the empirically observable . . . (Mouritsen et al., 2002, p. 504). Multiple sources of evidence were collected at the research site, following what is generally described as data triangulation (Scapens, 1990; Ferreira and Merchant, 1992; Chua, 1996; McKinnon, 1988; Yin, 2003). The main sources were: audiotaped and non-taped (informal) interviews, documents and direct observation. Available documents

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relevant to the research area that were examined included formal reports, company notices and condential documents such as the strategic plan. Additionally, observation was made of a wide range of organisational activities, such as management meetings and factory processes. A note book was used to collect data and record observations and impressions relating to informal evidence (Scapens, 1990; Chua, 1996). Audiotaped interviews were conducted with seven organisation members, including the owner, management team and board members. These were between approximately 60 and 90 minutes in duration. Interview transcripts were returned to the interviewees for checking and verication. Informal discussions (interviews) of about 10-15 minutes duration (and sometimes signicantly longer) took place with approximately 20 organisational members. These discussions generally occurred as various facets of the business operation were being casually observed. Most interviewees were involved in a diverse range of organisational activities, although they had core responsibilities in particular areas. These included: accounting, factory and warehouse, marketing, product development, ofce administration, engineering and governance. Accordingly, respondents often had wide-ranging knowledge relating to a variety of organisational areas. The names and job titles of respondents have been kept condential and anonymous. In the research ndings respondents formally interviewed are labelled generically as owner, manager or board member. A semi-structured interview guide was used to steer discussions with organisation members formally interviewed (Appendix). This also provided a focus for issues covered during the informal discussions (interviews). The guide reected the studys conceptual underpinnings in terms of exploring MCS design and measurement issues in relation to social accounting and social responsibility issues. The main purpose of the interview guide was not as a list of questions to put to the interviewees but as a checklist for me, the researcher, to ensure that relevant issues were covered (Alvesson, 2003). Care was taken to not overtly highlight any particular focus on social responsibility issues. This was to avoid respondents thinking that this was an aspect of special importance or signicance and so providing what they considered were more acceptable or desirable responses in relation to social responsibility. A key difculty with case study research is translating raw data into patterns and identifying conceptual themes (Chua, 1996; Ahrens and Dent, 1998; Baxter and Chua, 1998). Miles and Huberman (1994, p. 2) comment that it is difcult to . . . see how the researcher got from 3,600 pages of eld notes to the nal conclusions, as sprinkled with vivid quotes as they may be. In this study, evidence collected from the research site was initially written up as detailed research summaries (Morse, 1994). This was an intensive process that involved not only writing up the research evidence in light of MCS measurement and monitoring aspects, but also identifying patterns and themes and attempting to determine any linkages between these and a social responsibility and stakeholder thrust. The process was lengthy and required many iterations before analysis of the data was complete (Morse, 1994). The process was undertaken in a critical and questioning manner, with care being taken to view the data from a social responsibility and stakeholder perspective while simultaneously considering characteristics that suggested or demonstrated integration with the MCS. In the following section the preliminary part of the analysis is presented, which provides an overview of the case organisation.

The case study organisation The organisation examined is a privately owned New Zealand food manufacturing company. The companys product range is wide and it has always strived to make innovative and distinctive products with high-fruit content and unusual avours. It has won a number of awards for its innovative products and packaging. The company has also purposely adopted distinctive and unique brand product names and uses a wide range of ingredients sourced locally, from the Pacic region and internationally. Innovative packaging is also a distinctive feature of the business approach. All packaging is very bright and colourful, and distinctly different in style from other competing products. The owner has attempted to position the business with a personal image and to create a values-based company. As a result the business is closely associated with the prole and values of its owner and CEO who considers that the company has a soul and is caring and sharing in relation to its approach to business. The foci in this regard are particular values and beliefs that relate to the operation of the company. For example, the owner believes that businesses should measure their performance in environmental and social terms as well as economic. The owner subscribes to a stakeholder view and considers that ownership of the business creates a stewardship and moral obligation, whereby he needs to give something back to society as payment for the ability to use its resources, own a company and have limited liability. This approach includes a focus on the local community and the donation of money and goods to what are considered worthy causes. The company has a policy of hiring mainly from the local community with a particular policy of targeting young people and long-term unemployed. The owners basic philosophy is to operate the company for the public good and his vision is to distribute 20 percent of prots to public projects (at the time of this research about 10 percent). The company operates from a large complex in Auckland, New Zealand. All products are produced at this site. The overall operation has a staff of approximately 130, with the majority working in the factory and warehouse areas. At the time of the research the management structure comprised four senior managers, including the owner and CEO, and approximately ve middle managers. Further, there were various supervisory staff in the factory and warehouse areas. A formal board of directors was in place, appointed by the owner. This comprised three senior managers, three outside directors and the owner. Board meetings were held approximately every 6 weeks. Overall, the business strives to be seen as an innovative and distinct from competitors. This is particularly evident in terms of its product range, social responsibility philosophy and interaction with the broader community. The company focuses on manufacturing a product range that is unique and in conjunction with this its core brand is actively developed. This provides a point of clear product differentiation and a means of surviving in a market place that is dominated by internationally-based competitors. Case study ndings Overview of ndings A variety of views concerning social responsibility aspects and their relationship to the MCS from the owner, management team and board members are presented. The views in general reect a strong social responsibility commitment. They demonstrate how the

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business has a goal to operate in a socially responsible manner and to assess business performance from a broader TBL perspective. However, when respondents generally were asked their views about the actual measurement and control of business performance, aspects relating to social responsibility and the TBL were much less evident. Only limited reference was made to stakeholders. Further, how stakeholders might be linked with particular social responsibility goals was not mentioned. In this regard it was unclear if social responsibility goals had been developed. This hindered the organisations ability to measure social responsibility performance and limited the integration of social responsibility into the MCS. A key nding is that the case organisation was having difculty measuring social responsibility. Any focus on social responsibility in a MCS context was virtually non-existent or, at best, only anecdotal. More specically, there was uncertainty concerning how social responsibility should be measured, reported and monitored within the MCS. It appeared that social responsibility was intended primarily to inuence the external image of the company rather than being an integrated part of the MCS. One reason for this was the apparent lack of development of social responsibility goals and how these aligned with stakeholder groups. Social responsibility and the TBL Various respondents spoke about business success being more than just the achievement of a satisfactory prot result. This reected the businesss strategic plan, which listed as a key aim the development of socially responsible business practice and a TBL approach, along with nancial performance. When the owner was asked to describe the strategic focus of the business, he responded:
To be a socially responsible business. To give back a fair proportion of the prot and possibly some of the capital value of the company to the community. Thats accepting that its not there to make myself and my family super wealthy. I guess interaction with people and the need to attach dignity to everyone associated with the company (owner).

In general, most of the management team and board reiterated the owners commitment to operate in a socially responsible manner. For example, when a manager was asked about the long-term strategy of the business, he responded:
Our long-term goals would be, in general terms, to achieve distinction in three areas the triple bottom line nancial, social and environmental facets. We have to continually monitor our progress towards that. Short term, of course, weve got to break those down and see whether were actually controlling the short-term components such as waste levels or absenteeism levels (manager 1).

The owner was asked how business performance was linked with the longer term strategic focus. His response highlights a TBL approach:
Using a triple bottom line approach that were working through now, looking at the quality of the prot as well as the quantity, and looking at the overall performance in a wider sphere. Im very hot on the idea that you dont just measure performance of the company in terms of just nancial results. Well be looking at the nancial, social, and environmental side of things (owner).

A manager reiterated a similar view when he was also asked how business performance was linked with strategy:

The emphasis in this company has always been not to look at prots alone. And so you have to then somehow judge your success in the rm with non-prot areas: how did our customers view us; how do our neighbours and community see us; how is the morale in the company. All those things have to be looked at, together with prots. What we do has to be responsible. So we will forgo certain prot areas if it doesnt follow through our principle of being responsible or helping the community (manager 1).

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To highlight its social responsibility commitment the company published a TBL report[2], which it made available to stakeholders, setting out social and environmental achievements (and negatives), along with nancial results. The front end of the report included a CEO statement, information on the companys vision and business philosophy, company prole and governance. This was followed by three major sections covering economic performance, social performance and the environment. Information contained in the report was largely text-based, anecdotal and descriptive in nature rather than reecting a systematic reporting framework. In one part of the report stakeholders are dened as employees, customers (trade and retail), suppliers and the local community. Although in another part the government tax ofce, shareholders and banks are also dened as stakeholders. In the case, organisations strategic plan six key aims are listed. One of these is to be seen as a leader in the development of socially responsible business practice and a TBL approach to business. However, this is the only reference to social responsibility and the TBL within the strategic plan. The plan provides no indication of how this aim might be actioned or achieved. The only stakeholder group mentioned in the strategic plan were staff, though they were not specically described by the organisation as a stakeholder group. In this regard various goals were listed covering aspects such as staff welfare, company culture, staff quality and recruitment focus. Most of the goals were expressed from a company rather than a stakeholder perspective. In this respect the overall strategic plan contained no direct reference to or use of the term stakeholder. MCS issues To understand the relationship between social responsibility and the MCS, various facets of the operation were observed and the measurement and monitoring of business performance was discussed with the management team and board members. The accountant, part of the management team, was asked to describe the organisations measurement approach:
There are various things. Firstly, the nancials and attaining an acceptable prot level, which gives the money to plough back into growing the business. Theres social performance which is a whole lot harder to measure and can only be measured against some idea of community expectations. Then theres the environmental side of things. Its not a area that we have a huge impact on. Were doing what we see as being good things, or trying to. Again, no formal measurement of that. But were trying to minimise what goes into solid waste or were putting some of our money into various environmental projects (manager 2).

While his response mentions social and environmental aspects, he highlights the difculties of measuring these aspects and indicates that the approach taken is only tentative and preliminary. Further discussion with the accountant suggested that an important purpose of the social responsibility and TBL thrust related to business image and as part of the business culture, rather than necessarily being developed as an integrated component of the MCS.

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A manager was asked directly about the social responsibility image promoted by the owner and the role of this in relation to the business. She responded:
Substantial, because it is what keeps current users [customers] in tune with what the company is doing and all that. It just keeps that prole out there for [the owner] and enables us to push in different areas and bits and pieces (manager 3).

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She was then asked if this was a branding exercise and responded:
Yes. Thats what drives us the [owners] personality, the brand and the packaging. So that everyone feels they have a common understanding of what the brand means (manager 3).

When asked how business performance was monitored most managers made no direct reference to stakeholders, social responsibility or TBL aspects. For example, one manager strongly emphasised prots and sales performance:
The prot report at the end of the month, thats it. Ive either delivered on sales or I havent (manager 3).

Respondents were probed further on the nature of internal reports and measurement and asked, apart from nancial aspects, what were the keys to evaluating and assessing business performance. One board member responded:
I guess it starts with market share in each of the individual categories. We look to grow that, we look to ensure that [were] growing with existing products but also if were adding the right products to the marketing mix, to ensure that we get the share of different segments that we may not be strong in. So it starts with sales but looking very much at the cost of goods sold and what the gross prot percentage is and looking at other segments of expenses (board member 1l).

Another board member when asked a similar question did make reference to the TBL:
The ultimate is the bottom line, there is no other measurement. But Im an accountant, so thats where I come from. What should it be its almost triple bottom line. You know if you expand protability, supplier satisfaction, customer satisfaction, market acceptance the whole package should be there saying were running well (board member 2).

But when asked if the package emphasis was there his response indicated that the TBL focus was conceptual rather than as a tangible measurement component:
Yes, I think it does come up, but [Im not sure] whether its a rounded emphasis or not. [The owner] loves to stress the triple bottom line, but whether the whole package is there, trying to bring all the threads together into the centre, is another matter. But the idea is there. It will grow (board member 2).

During a conversation about monitoring business performance a board member was asked how the control and measurement focus of the business reected the owners social responsibility and TBL thrust. He responded by questioning whether the importance of these issues, in terms of the strategic position and future of the business, was adequately captured or understood in relation to the design of the existing MCS. His response suggests that these aspects are not embodied in the existing MCS:
[The owner] has done a great job building his strength and position. I think hes also an innovator and hes got a social position. All his market capabilities are extremely strong and you can assign them to [the owners image]. But Im not sure yet if the whole business has

been assigned. Im talking about, say, if youre socially responsible what do you do about the factory? The internal performance and information systems are not as sound as they could be (board member 3).

Overall, the management team and the board indicated that heavy reliance was placed on the monthly prot and loss report to monitor and provide feedback on business performance. Accordingly, a focus on social responsibility and TBL factors was lacking. In this regard a managers response summed-up the core emphasis on nancial measures:
The two measurements that are used at every board meeting are, rst of all, did we get the turnover and did we get the gross margin? And then well look at the bottom line. That tends to be the pattern of analysis (manager 1).

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The use of non-nancial measures and their possible relationship with stakeholders and social responsibility aspects was explored. In this regard the accountant was asked to describe any particular non-nancial measures used within the business:
We put out a set of KPI reports, which is a growing sort of thing at the moment because the board is starting to look at them and ask what [else] is needed. So far as formal reporting is concerned, monthly we produce our nancials and KPI reports. We put out, on a weekly basis, the production report and the wastage report. Theres [also] the traditional sales reporting (manager 2).

Analysis of the actual key performance indices (KPI) report documentation revealed that it covered the following areas: . sales, split into local and export; . local and overseas aged debtors balances; . factory wages, including a separate heading for overtime; . production measures of total cost per carton, waste costs and warehouse cost per carton; . liquidity measures; . stock levels broken into raw materials, packaging and nished goods; and . foreign exchange cross rates for NZ versus Australia, the USA and the UK. The KPIs did not include social responsibility or TBL related measures. Respondents were asked about the role of the KPIs and how these might change or develop in the future. While they spoke about an expanding role for KPIs, this did not include specic reference to stakeholders, social responsibility or TBL aspects. References to such aspects were conspicuous by their absence. For example, a manager remarked:
There will be more need for reports based on key performance indices [KPIs]. We will need to know from day-to-day, week-to-week, month-to-month, whether the trend in productivity, waste, manning levels, absenteeism or whatever is actually in control. So its the key performance indices the KPIs that well be looking at (manager 1).

While some of these KPIs potentially could have relevance from a stakeholder and social responsibility viewpoint, further probing of management and the board suggested that this had not been considered. Rather, an expanded range of KPIs was seen as important only from the perspective of understanding the drivers of protability (e.g. minimising waste improves reported prot).

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In terms of KPIs another manager spoke about the need for better analysis of factory performance and assessing the protability of various customer groups:
There are several things. Within the general marketing area the ability now to focus on key accounts [customers] and to manage those relationships through information. Certainly at factory level there is a hell of a lot more focus. The KPIs in terms of wastage, wages, overtime and hours worked it used to be a very broad brush focus. A lot more heat is being placed on that area (manager 3).

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The development of KPIs was driven primarily by ad hoc requests from board members. This had no obvious link back to the businesss stated commitment to the development of socially responsible business practice and a TBL approach. This indicates that the MCS is not orientated towards monitoring these dimensions. This was evident, for example, when the accountant was asked to describe how KPIs were selected and likely to develop in the future. His response reects a traditional ROI perspective:
Looking at operations, for example, we said we were going to spend the money and put in machines. So the board knows which of the machines have been ordered and what the timelines are for them to arrive. Once they are commissioned the board is asking to see the savings and to see the payback. Hence, theres going to be some data capture and some numbers crunched to show that they are paying for themselves (manager 2).

Respondents also put forward viewpoints that appeared to directly contradict the social responsibility and TBL ethos promoted by the business. This further reinforces how consideration of social responsibility aspects seemed quite unconnected from the MCS and the daily operation of the business. For example, when a manager was asked about the role of employees as stakeholders and their interest in business performance, he responded:
The factory staff on the oor are not interested [. . .] theyre just interested in coming here to work. Like a supervisor said to me the other day, they take their brain out and they put it on the shelf and go into the factory for eight hours and do their time. Then they put their brain back in, take their money and go home (manager 2).

Other organisational members made similar observations. For example, a manager, during an informal discussion said that the business projected a particular business image to the outside world, which differed from the reality of measurement and control within the organisation. When asked if he was referring to social responsibility and stakeholder related aspects, he responded yes. He went on to say that to the average worker in the factory the issue of social responsibility had little meaning. He said their motivation was to earn wages and they did not work away thinking how can I make positive changes in the business. He said that much of their work was repetitive, boring, demanding on the body and relatively unskilled. Some rank-and-le staff informally spoken with conveyed a sense of indifference or cynicism concerning the social responsibility ideals of the business. A respondent, for example, when asked if the social philosophy of the business was reected in daily operations, responded by saying how the owner surrounded himself with tough people whos operating decisions and actions did not always seem to align with the business philosophy. To support this view she went on to describe the process that was used to negotiate deals with suppliers and how the tactics applied did not seem to align with the social image associated with the business.

Discussion and conclusion The case study ndings suggest a strong preference for nancial measures within the MCS. These were frequently mentioned by respondents. It was uncertain, however, as to how any conict between these and social responsibility aspects would be resolved. Even though some respondents suggested that social responsibility concerns would often prevail over prots, it was not evident how this could occur when the MCS lacked a systematic focus on the monitoring of social responsibility. While most respondents expressed awareness of the organisations social responsibility thrust, this did not translate into the design of the MCS. It would appear that social responsibility was perceived predominately as an external image factor and associated more closely with the business owner rather than an internal factor signicantly inuencing actual business operations. This was reected in a lack of clarity about the role of stakeholders and social responsibility within the case study organisation. While a social responsibility image was promoted and the business attempted to operate in a socially responsible manner, it was unclear how this was made a regular component of continuing operations. An important nding is that the case organisation did not have clearly dened social responsibility goals which were linked with particular stakeholder groups. This contributed to a lack of integration of social responsibility into the MCS and uncertainty as to how it should be measured and monitored. The strategic plan highlighted a key aim of embracing socially responsible business practice. However, the plan made no reference to how this might be achieved or the targeting of particular stakeholder groups. While (approximately) four stakeholder groups were identied in the TBL report, these were not apparent in relation to the focus of the strategic plan or MCS. The TBL report seemed primarily a publicity exercise rather than something that had been developed in response to stakeholder needs or concerns. Further, the information presented in the TBL report was largely descriptive and anecdotal and did not reect a systematic reporting framework. Accordingly, the lack of social responsibility goals linked with stakeholder groups hindered the formal integration of these aspects into the MCS. In this regard integration into the MCS would be problematic without greater clarity of social responsibility in terms of operational goals and measurement and linkages back to stakeholders. The literature stresses the importance of core organisational goals being reected in the MCS (Anthony and Govindarajan, 1998; Chenhall, 2003). Lack of systematic monitoring of social responsibility goals potentially reects a serious shortcoming within organisations following a stakeholder approach. Informal controls are an important means of orientating the focus of an organisations employees towards strategic and operating goals (Ouchi, 1979; Flamholtz et al., 1985; Fiegener, 1997). Such controls can be dened as shared values, beliefs and traditions that guide the behaviour of group members (employees) (Norris and ODwyer, 2004, p. 177). Such an approach, however, was not evident in the case organisation in relation to supporting a focus on stakeholder groups and social responsibility goals. While the organisations managers promoted social responsibility and a TBL approach, this primarily reected an external image and brand that they wished to cultivate. The case ndings did not suggest the existence of shared values or collective beliefs relating to social responsibility. Instead the views and actions of organisation members would often diverge from or conict with a social responsibility and TBL focus. Consequently, social responsibility was not well supported from either a formal or informal control perspective. Norris and ODwyer (2004) identied conict between formal and informal

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controls within the MCS of an organisation that produced external social responsibility reports. They found that social outcomes were only monitored informally and that formal controls prevailed if there was conict between social outcomes and nancial goals. In the case organisation, because social responsibility was not well supported by informal controls, there was no apparent conict. This therefore reinforced the dominant role of nancial and operational controls within the organisations MCS. In this regard a benet of at least having in place informal controls is that these could potentially signal managers that the MCS should include formal recognition of social responsibility dimensions (Norris and ODwyer, 2004). Milne (1991, 1996) highlighted the potential role of adopting techniques or tools from other disciplines to monitor environmental outcomes. Rouse and Putterill (2000) reect such a viewpoint in their development of an interdisciplinary approach that integrates environmental factors and the MCS. However, nothing was evident in this regard within the case organisation. Bartolomeo et al. (2000) in relation to a eld study of environmental management accounting found a separation between the reality of this approach versus comments made by various respondents. While the rms they investigated claimed to have environmental management accounting systems in place, these tended to be only isolated and experimental projects. This has parallels to the situation in the case organisation, where strong adherence to a social responsibility ethos was expressed, but this was not reected in terms of the measurement focus of the MCS. Overall, the case study ndings highlight various problems concerning social responsibility and its relationship with the MCS. A fundamental issue is that there was no inclusion in the MCS of social responsibility measures. An underlying reason for this was uncertainty about who were stakeholders and their relevance to the organisation. Consequently, there was no real development of social responsibility goals, which created uncertainty concerning measurement. Uncertainty also arose because there is not an established template to guide measurement in the social responsibility area. A further obstacle hindering the measurement and monitoring of social responsibility were the varying meanings managers attributed to the terms social responsibility and TBL. Managers perception of these terms was built on general usage within the organisation, which highlighted an external image and branding role. However, while there may have been some colloquial jargon used, this was not linked to particular stakeholders or social responsibility goals. In other words, the case organisation had not clearly or precisely operationalised the meaning of social responsibility, which made measurement and integration into the MCS problematic. Reinforcing this issue was the lack of alignment between the content of the TBL report and the strategic plan. In this regard the strategic plan made no reference to stakeholders or TBL reporting and only mentioned social responsibility as an overall aim and did not indicate how it might be achieved. Towards a framework to integrate the MCS with social responsibility goals Building on the literature examined and the case study ndings a framework is proposed that provides for the integration of the MCS with social responsibility goals and outcomes. In particular, the proposed framework extends earlier literature that has highlighted a need for a greater focus on internal and micro dimensions in relation to stakeholder factors (Milne, 1996; Rouse and Putterill, 2003; Norris and ODwyer, 2004; Lamberton, 2005; Parker, 2005). The proposed framework is shown in Figure 1.

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Figure 1. MCS and social responsibility framework

The framework highlights the connections between the MCS and social responsibility, and steps required for a stakeholder approach and associated social responsibility goals to be translated into social responsibility outcomes. The starting point of the framework builds on the case study ndings and how uncertainty about stakeholders and the development of social responsibility goals limited their inclusion in the case organisations MCS. In this respect the framework commences with the identication of relevant stakeholder groups. Interlinked with this is the development of social responsibility goals. In the case organisation this was largely a one-way process in the sense that the organisation viewed social responsibility primarily from its own perspective rather than in conjunction with stakeholders. The framework provides for a two-way process, with the reciprocal arrows indicating that social responsibility goals should be developed in conjunction with and to reect the needs of particular stakeholders. A reciprocal or consultative approach reects normative stakeholder theory (Donaldson and Preston, 1995; Hasnas, 1998). In this sense social responsibility goals should be relevant to the identied stakeholder groups. The goals and how they link with particular stakeholder groups are then incorporated into the MCS. This step represents a core linkage point between stakeholder theory and the MCS. It symbolises how an organisation should translate descriptive social responsibility goals into

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workable components of the MCS. Consequently, the step requires direct and purposeful management intervention to ensure that a measurement and monitoring framework is put in place that captures information pertaining to the accomplishment of social responsibility goals. In this regard the proposed framework addresses a key weakness in the case organisation where the identication of stakeholder groups and the development of social responsibility goals was ambiguous and unclear. This hindered the integration of social responsibility into the MCS. As was evident in the case organisation, without integration into the MCS managers may ignore social responsibility dimensions or perceive that these only have relevance from an external branding or image viewpoint. Two key dimensions should steer the MCS in relation to social responsibility goals: formal measurement and informal control. Both are important to ensure that the MCS functions appropriately. The lack of formal measurement and informal control were signicant limitations in the case organisation. Formal measurement recognises the need for explicit measures and a systematic monitoring approach that reects social responsibility aspects. Informal control recognises how monitoring and measurement should ideally be imbedded as part of the organisational culture and therefore should be a pervasive component of operations (Norris and ODwyer, 2004). The formal measurement of social responsibility signals to managers that stakeholder groups and social responsibility goals are considered prominent and relevant within the organisation. The two dimensions should be mutually reinforcing. Either dimension of itself is unlikely to be sufcient and could limit or compromise the MCS in relation to the achievement of social responsibility goals. Formal measurement alone may not adequately underpin and signal the role of social responsibility within the overall business culture and the emphasis that managers should place on this. On the other hand, sole reliance on informal control may lead to management uncertainty or confusion concerning the importance assigned to social responsibility factors if these are not formally recognised. The next component of the framework is titled management actions. This signies how the MCS should guide and orientate management decision making and actions so that these directly reect and encompass social responsibility aspects. The nal component reects how integration of social responsibility goals within the MCS should in turn lead to desired social responsibility outcomes. These outcomes should also align with and reect any external reporting of social responsibility information. In terms of the proposed framework, the case study ndings do not reect the integration of social responsibility into the MCS. An underlying reason for this is that stakeholder groups were not clearly identied. Managers overall, while acknowledging social responsibility generally as a core business aim, were uncertain about how this should be measured and monitored. Hence, they either largely ignored social responsibility aspects or were hesitant about how these should be dealt with. Comments, for example, about the difculty of determining community expectations in relation to monitoring social responsibility outcomes reect this. In this regard the case study ndings reveal the difculties associated with attempting to measure social responsibility. While a strong social responsibility commitment was articulated by the owner and some senior staff and board members, there were varying degrees of awareness of this among staff generally. In this sense there was a disconnection between the stakeholder and social responsibility ideals of the business and the reality of how this inuenced operations, which encompassed the MCS. The proposed

framework illustrates the factors that should be considered if an organisation wishes to integrate social responsibility into its MCS. In summary, this paper helps to ll a gap in the literature concerning knowledge about the design and operation of the MCS in relation to the measurement and monitoring of social responsibility. The research was based on a case study of a privately-owned organisation that promotes a strong stakeholder and social responsibility stance. Key ndings from the research include: rstly, the importance of moving the social responsibility dimension beyond a business image exercise primarily orientated at an external audience; secondly, the need to develop a comprehensive articulation of social responsibility, particularly with respect to identifying stakeholder groups and developing social responsibility goals, so that formal measurement and monitoring mechanisms can be developed which are integrated into the MCS; and thirdly, recognising the role of informal control in relation to underpinning a social responsibility approach. In this respect the alignment of informal and formal controls is a potentially powerful combination (Chenhall, 2003; Norris and ODwyer, 2004). Based on the case study ndings and the literature examined a normative conceptual framework is proposed which provides for the integration of social responsibility into the MCS. Future research could investigate application of the proposed framework, particularly in terms of the design of the MCS relating to the types of formal measures and informal controls that organisations could adopt.
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Appendix. Semi-structured interview guide Personal details 1. How would you describe your role? 2. How long have you been in this position? 3. What background and experience do you bring to this position? Developing long term goals and plans 4. How are long-term goals and plans developed? 5. Who is responsible for this? 6. How structured or informal is the process? 7. Does this involve accounting input? 8. Has the long-term direction changed over time and why? 9. How are long-term plans conveyed to staff? 10. How are long-term plans translated into the daily business? 11. What are the benets of these processes? 12. Are there any problems or shortcomings with these processes? Monitoring long term goals and plans 13. How are long-term goals and plans monitored? 14. How do you know that the long-term goals and plans being monitored are still current? 15. How is information in relation to the previous two questions generated or reported? 16. How structured or informal is this information? 17. What are the benets of the processes just described? 18. Are there any problems or shortcomings? 19. Under what circumstances do staff directly intervene in operations in a way that could potentially modify the businesss long-term direction? How? 20. When and how are long-term plans discussed, debated, and challenged? Management/internal reports and controls 21. What internal reporting systems are used in the business/your area? 22. What do they cover? 23. What types of measures are used? 24. What is the frequency of reporting? 25. How are budgets set? 26. What is included? 27. What is the frequency of budget reporting? 28. How has the internal reporting system changed over time and why? 29. How are the reports used in various meetings and dealings with other staff? 30. What are the benets of the reporting system? 31. Are there any problems or shortcomings with the reporting system?

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Managing business performance 32. How is business performance evaluated? 33. How much emphasis is placed on current nancial performance? 34. How is business performance discussed and considered in meetings? 35. Are there any possible conicts between different types of performance goals? 36. Is business performance information communicated to all staff? How? General 37. Is there anything else you wish to add? Corresponding author Chris Durden can be contacted at: chris.durden@jcu.edu.au

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