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It’s not just about the $$$, it’s also about SOCIAL RESPONSIBILITIES…

The Balanced Scorecard

A balanced scorecard is essentially a combination of financial and non-financial metrics utilized in gauging the performance of a firm. It is used by more than half of the Fortune 500 companies (Rohm & Montgomery, 2011) and used by many non-profit and governmental institutions. According to Kaplan & Norton, a balanced scorecard is used to “to articulate the strategy of the business, to communicate the strategy of the business, and to help align individual, organizational, and cross-departmental initiatives to achieve a common goal” (1996). Although the balanced scorecard is packed with quantifiable metrics, it is ultimately used to articulate and communicate business strategy (Kaplan & Norton, 1996). Balanced scorecard provides at least four benefits to firms, it (1) illustrates the firms vision, (2) builds a collective understanding which allows every employee see their contribution to the firm’s success, (3) focuses the right strategies and initiatives through data driven decision making, and (4) provides structured learning at the policymaking level of the firm (Kaplan & Norton, 1996).

What to Include in the Non-Financial Metrics

Non-financial metrics should include two of the triple bottom line; the firm products and processes must be economically viable, environmentally sustainable and socially responsible (Trevino & Nelson, 2014). The economic viability is essentially the base of a firm’s corporate social responsibility (CSR) pyramid; it’s essentially the financial side without which the rest are difficult to achieve. In terms of environmental sustainability, firms must consider the preservation of the ecosystem and its biodiversity. The firm must assess its use of and impact to the finite natural resources in terms of emissions and wastes. Finally, firms must consider both primary and secondary stakeholders, consider not just their customer or supplier but also the community as a whole. It must consider not only the laws and regulations but also the business impact to the community by going beyond what the minimum the law requires. Firms must look into its CSR not just in its form and language but also in spirit.

Why include Non-Financial

There are at least three reasons for combining non-financial with financial performance factors in a firms key metric. First, the mix of both performance factors helps not only the short term but also the long term goals of the company. Financial performance, which are typically reported quarterly or annually for most firms, tend to focus on short term goals, but with the combination of non-financial metrics such as customer satisfaction, internal business process quality improvement and employee satisfaction, firms can improve long term performance (Ittner & Larcker, 2000). Second, although non-financial performance measured in terms of customer outcomes, internal business processes, and learning and growth are considered intangible assets, they increase the firms overall market value when combined with its financial performance. A study shows that non-financial performance factors can impact the company’s bottom line (Devie & Widjaja, 2012). Third, non-financial performance gauges are less prone to pressures of the financial market influences. Non-financial measures provide managers more independent control to help firms increase its financial performance. For example, investing in employee education, which are intangible assets, are less likely reported in financial statements but can impact future financial assets of the company; a better array of patented technologies developed by well trained employees increases a company’s financial potential. Why include non-financial? Combining both financial and non-financial metrics forms a synergistic approach as highlighted above.

Devie, J., & Widjaja, D. (2012, October). The Relationship between Non-Financial Performance and Financial Performance Using Balanced Scorecard Framework: A Research in Cafe and Restaurant Sector. International Journal of Innovation, Management and Technology, 3(5), 614-618.

Kaplan, R., & Norton, D. (1996, Fall). Linking the Balanced. CALIFORNIA MANAGEMENT REVIEW, 39, pp. 53-79.

Trevino, L., & Nelson, K. (2014). MANAGING BUSINESS ETHICS: Straight Talk about How To Do It Right. Pennsylvania State University.

Rohm, H., & Montgomery, D. (2011). Link Sustainability to Corporate Strategy Using the Balanced Scorecard. Cary, North Carolina, USA: Balanced Scorecard Institute.

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As a business leader I recognize my role in society.

•  My purpose is to lead people and manage resources to create value that no single individual can create alone.

•  My decisions affect the well-being of individuals inside and outside my enterprise, today and tomorrow.

Therefore, I promise that:

•  I will manage my enterprise with loyalty and care, and will not advance my personal interests at the expense of my enterprise or society.

•  I will understand and uphold, in letter and spirit, the laws and contracts governing my conduct and that of my enterprise.

•  I will refrain from corruption, unfair competition, or business practices harmful to society.

•  I will protect the human rights and dignity of all people affected by my enterprise, and I will oppose discrimination and exploitation.

•  I will protect the right of future generations to advance their standard of living and enjoy a healthy planet.

•  I will report the performance and risks of my enterprise accurately and honestly.

•  I will invest in developing myself and others, helping the management profession continue to advance and create sustainable and inclusive prosperity.

In exercising my professional duties according to these principles, I recognize that my behavior must set an example of integrity, eliciting trust and esteem from those I serve. I will remain accountable to my peers and to society for my actions and for upholding these standards.

This oath I make freely, and upon my honor.
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