bsc ethics

Balanced Scorecard EthicsAuthor(s): Chris GardinerSource: Business & Professional Ethics Journal, Vol. 21, No. 3/4, Selected Papers from the2001 Conference of the Australian Association for Professional and Applied Ethics (Fall-Winter 2002), pp. 129-150Published by: Philosophy Documentation CenterStable URL: http://www.jstor.org/stable/27801293 .Accessed: 09/08/2011 09:00

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BUSINESS & PROFESSIONAL ETHICS JOURNAL, VOL. 21, NOS. 3&4

Balanced Scorecard Ethics

Chris Gardiner

In his polemic on the question of the social responsibilities of business,1 Milton Friedman declared that the responsibility of a corporate executive "is to conduct the business in accordance with their [the owners of the business] desires, which generally will be to make as much money as possible while

conforming to the basic rules of the society, both those embodied in law and

those embodied in ethical custom"2 (emphasis added). Friedman sought to

provide a simple rebuttal of the claim that corporations had "social

responsibilities." Whether he succeeded is debatable. What he did do, however, is leave us with the dilemma, in the passage quoted above, as to

the nature and scope of the "basic rules of the society" in law and in "ethical

custom" that executives need to follow. I want to suggest that a professional paradigm is emerging globally

that can guide a manager or executive in her/his practice of management by

clarifying and addressing the issue of the basic social rules and ethics that

Friedman acknowledges she/he should follow. The scope and content of

this paradigm have to do with product and product impact; with employee relations, conditions and development; with processes of regulatory

compliance and public accountability; and with value creation?that is, with

Product, People, Process, and Profit.

Recent Analyses of the Ethical and Social Responsibilities of Business

A number of different proposals have been developed over the last several

years that seek to articulate and integrate ethical and social accountabilities

for businesses. Five such proposals are briefly outlined below. These are

the Principles for Global Corporate Responsibility ^Principles")', the

? Business and Professional Ethics Journal 2002. Correspondence should

be sent to Chris Gardiner, 151 Valley Rd, Hazelbrook 2779, NSW Australia

or; via email: [email protected]

130 Business & Professional Ethics Journal

Sustainability Reporting Guidelines ("Guidelines"); the Social

Accountability 8000 Standard ("SA 8000"); Dalla Costa's universal

principles and business ethics strategic planning process; and Wilson's seven categories of emerging social rules for business.3 The Principles, Guidelines and SA 8000 consist of too many indicators and guidelines to be detailed in this paper. A summary by way of a guide to the conceptual structure is provided.

The Principles for Global Corporate Responsibility were developed jointly by the Taskforce on the Churches and Corporate Responsibility in

Canada, the Ecumenical Council for Corporate Responsibility in the UK, and the Interfaith Center of Corporate Responsibility in the US. The stated

purpose for the Principles is "to promote positive corporate social responsi bility consistent with the responsibility to sustain the human community and all creation"4 by providing a set of "ethical standards of measurement" for

corporate social responsibility.5 The Principles, and related policy criteria and outcome benchmarks,

are divided broadly in the two areas of corporate relationship, one that is described as the "Wider Community" and another described as the

"Corporate Business Community." Ethical criteria and benchmarks are

developed within the following conceptual groupings:

The Wider Community: ecosystems, national communities, local

communities, and indigenous communities;

The Corporate Business Community: the employed (in terms of

Conditions) and the employed (in terms of Persons, covering women, minority groups, persons with disabilities, child labor, and forced labor); suppliers; financial integrity; ethical integrity; shareholders; joint ventures/partnerships/subsidiaries; and customers and consumers.

The Sustainability Reporting Guidelines have been developed by the Global Reporting Initiative (GR1), an undertaking supported by a number of non-government organizations and corporations(NGOs), and the United Nations Environment Program(UNEP). The GRI describes itself as

a long-term, multi-stakeholder, international undertaking whose mission is to develop and disseminate globally applicable sustainability reporting guidelines for voluntary use by

Balanced Scorecard Ethics 131

organizations reporting on the economic, environmental, and social dimensions of their activities, products and services.6

The Guidelines are meant to assist investors, management, and community stakeholders understand and compare the impact of corporate actions and

products, through the use of external reporting principles that compliment traditional financial reporting principles. They are also meant to highlight the linkages of the three broad reporting areas, which are outlined as:7

Economic, including, for example, wages and benefits, labor

productivity, job creation, expenditures on outsourcing, expendi tures on research and development, and investments in training and other forms of human capital. The economic element

includes, but is not limited to, financial information;

Environmental: including, for example, impacts of processes,

products, and services on air, water, land, bio-diversity, and human health;

Social: including, for example, workplace health and safety, employee retention, labor rights, human rights, and wages and

working conditions at out-sourced operations.

The Social Accountability 8000 Standard (SA 8000)8 is modeled on

the International Organization for Standardizations ISO 9000 management system standard. It focuses on documentation of management policies and

processes in the area of social standards, on processes of continuous

improvement for these policies and processes, and on independent external audit and certification by accredited auditors. It is promoted by Social

Accountability International, with the support of an international advisory board that includes the global certification and audit firm SGS-ICS.9

SA 8000 bases itself on the UN Declaration of Human Rights, the UN Convention on the Rights of the Child, and on a range of International Labor

Organization (ILO) conventions. It is divided into the following categories of standards: child labor; forced labor; health and safety; freedom of

association and the right to collective bargaining; discrimination; disciplin ary practices; working hours; compensation; and management systems.10

The Principles, the Guidelines and SA8000 are the product of

collaborative efforts by NGOs, international organizations such as the ILO


Table 1

Process Step Central Question

Ethical Assessment What ethical temptations challenge an ethical orientation?

Identify Critical Ethical Factors What are the "critical ethical factors" for suc

cessfully maintaining an ethical orientation?

Identify Corporate Ethical Virtues What skills, procedures and competencies are

necessary for resisting temptations and deep ening an ethical orientation?

Develop Ethically Oriented Strategy What is the ethical expression of the business

strategy that integrates an ethical orientation?

Develop Ethically Oriented Plans What are the concrete steps for implementing and measuring an ethical orientation?

and UNEP, and multinational corporations. Two further efforts to articulate a comprehensive ethics and accountability framework for business, by in dividuals rather than coalitions of organizations, are comparable in purpose and scope.

Dalla Costa11 has proposed a model for organizational planning and review around six areas of organizational development and alignment: Board Guidance; CEO Example; Strategic Commitment; Cultural Supports; Group Dynamics; and Personal Commitment. He analyses the Declaration of the Parliament of World Religions, The Interfaith Declaration (a document produced by the Canadian Interfaith Special Joint Committee on Canada's Constitution and Charter of Rights), and the Caux Principles, to

identify ethical principles for a universal ethics framework for business. He identifies six such principles: Strategic Clarity; Respect Dignity; Be Fair; Be

Honest; Strive for Justice; and Honor the Environment.12

Balanced Scorecard Ethics 13 3

This model is applied via a process Dalla Costa describes as "Strat

Ethic"?strategic planning in organizational ethics?involving five elements

(Table l).13 More recently, Wilson has sought to identify evolving societal

expectations that organizations must address if they are to be viable in the

future.14 He codifies what he sees as new social rules for business under seven headings:15

Legitimacy: To earn and retain social legitimacy, the corporation must define its basic mission in terms of the social purpose it is

designed to serve rather than as the maximization of profit.

Governance: The corporation must be thought of, managed, and

governed more as a community of stakeholders, and less as the

property of investors.

Equity: The corporation must strive to achieve greater perceived fairness in the distribution of economic wealth and in its treat ment of all stakeholder interests.

Environment: The corporation must integrate the practices of restorative economics and sustainable development into the

mainstream of it business strategy.

Employment: The corporation must re-write the social contract of work to reflect the values of the new workforce and increase both the effectiveness and the loyalty of employees and the

corporation.

Public-Private Sector Relationships: To ensure the success of the

power shift, corporations must work closely with governments to achieve a viable and publicly accepted redefinition of the roles and responsibilities of the public and private sectors.

Ethics: The corporation must elevate and monitor the level of ethical performance in all its operations in order to build the trust that is the foundation of sound relationships with all stakeholder

groups.

In discussing ethics specifically, Wilson refers to work undertaken by Holland on emerging ethical standards. These are identified as: produce


high quality products; respect the sanctity of contracts; create and preserve a sense of corporate integrity that makes the firm trustworthy; obey applicable laws; protect proprietary information and respect confidentiality in business transactions; respect the environment; respect the rights and liberties of others; respect human well-being; and respect the independence of all individuals.16

The Balanced Scorecard as an Approach to Strategic Planning

At the same time as these proposals were being developed to address the

scope of ethical and social accountabilities in business, a framework for business strategic planning and performance management was being developed by Norton and Kaplan, which they called "the Balanced Scorecard." Norton and Kaplan's work was the result of a KPMG research

project on performance measures, and was first published in a series of Harvard Business Review articles in the early 1990s.17 They claimed to

have developed a core management system from an identification of key performance measurements, and the cause and effect relationships between the business elements being measured. This system contained the elements

and methodology to allow "competitive advantage" and "dramatically improved financial performance."18 It was organized around four

perspectives?financial, customer, internal (processes), and learning and

growth. It sought to balance short- and long-term objectives, financial and

non-financial measures, lagging and leading indicators, and external and internal performance perspectives.19

The elements of each perspective examined by Norton and Kaplan were: revenue growth and mix, cost reduction and productivity improve ment, and asset utilization and investment strategy, under the financial

perspective; product or service attributes, customer relationship, and image and reputation, under the customer perspective; innovation, operations and

post-sale service, under the internal process perspective; and employee

capabilities, information systems capabilities and motivation, empowerment and alignment, under the learning and growth perspective.20

Ulrich, Zenger and Smallwood developed the methodology further by applying the Balanced Scorecard approach to the area of business leader

ship.21 They argue for an integrated view of the various elements of business leadership around four result areas "balanced across four stake holders: employees, organization, customers, and investors."22 Leaders, they


argued, who excel in only one result area, are not "effective."23 They establish four overarching criteria to determine whether leaders are focused on results in these areas:

Desired results are balanced. They don't build success in one

dimension by ignoring (or tolerating failure in) another. Desired

results are strategic: they ultimately contribute to distinctiveness

and competitive advantage for their organization. Desired results are lasting: they won't sacrifice long-term success for short term

gains. Desired results are selfless: they work to benefit the larger whole, not just their own group or area.24

The work by Norton and Kaplan, and that by Ulrich, Zenger and Small

wood, does not address the area of ethical and social accountabilities.

Indeed, they have a lot in common with Friedman in terms of what they believe to be the purpose of the corporation and the business executive. Norton and Kaplan set the context for the Balanced Scorecard as follows:

A Balanced Scorecard must retain a strong emphasis on out

comes, especially financial ones like return-on-capital-employed or economic value-added. Many managers fail to link programs, such as total quality management, cycle time reduction, re

engineering, and employee empowerment, to outcomes that

directly influence customers and that deliver future financial

performance. In such organizations, the improvement programs have incorrectly been taken as the ultimate objective. They have not been linked to specific targets for improving customer and,

eventually, financial performance. The inevitable result is that such organizations eventually become disillusioned about the lack of tangible payoffs from their change programs. Ultimately, causal paths from all measures on a scorecard should be linked to financial objectives15 (Original emphasis).

Ulrich, Zenger and Smallwood state the responsibility of leadership in stark,

Friedmanesque terms and beg the same questions Friedman does: "One

aspect of an absolute focus on results is giving results priority over

everything else, except adherence to the organization's ethical standards and values26" (emphasis added).


The Balanced Scorecard as an Ethical Tool

The connection I wish to make between work the by Norton and Kaplan, by Ulrich, Zengler and Smallwood, and the Principles, Guidelines and SA

8000, is threefold. Firstly, all of these contributions articulate a multi-level,

interdependent framework in which to understand the nature and scope of

corporate performance. The corollary, I want to suggest, is the identification of a multi-level, integrated paradigm for the practice of management.

Secondly, the Balanced Scorecard provides a simple, mainstream manage ment tool that, whilst focused on traditional business performance indica

tors, can also be used to incorporate the indicators or outcome data provided by the application of the Principles, Guidelines or SA 8000. That is, it can

be used to incorporate and draw into the mainstream of organizational

planning the strategic planning and annual assessment of the ethical issues

facing the business. It can therefore bring into articulated relationship traditional performance indicators with performance indicators for the "rules

of society," or the "organization's standards and values," to quote Friedman

and Ulrich, Zengler and Smallwood, respectively.

Thirdly, and most interestingly, using the Balanced Scorecard to

incorporate and order data from the Principles, Guidelines and SA8000

simplifies and highlights the generic ethical issues inherent in a manager's

practice around a simple four-element professional paradigm for managers of Product, People, Process, and Profit:

What good or harm does this product, and its production and

promotion, create or cause?

What do I owe those I employ or work with?

What are the processes and structures to be used to develop and

communicate ethical business practice, and what account do I owe

my community via such processes? What value is created through this business and my practice, and

for whom?

I would argue that the management paradigm that emerges from this

structure constitutes and incorporates "balanced scorecard ethics" around

moral purpose, moral (Kantian) duty, moral development, and moral value.

For the purpose of this paper, however, I wish simply to focus on the use of the Balanced Scorecard as a tool for integrating performance in the


Table 2: Merging of Balanced Scorecard and Global Reporting Initiative

Product/ Cons

umer

GRI 3: organizational vision and strategy; 5.11 ; identification of and relationships with

stakeholders; 6.1-11: energy and material usage; 6.12-13: water usage; 6.14-23:

emissions, waste and effluent; 6.24: transport data, e.g., kilometers traveled; 6.28-31 :

environmental issues in product/ service; 6.52: absolute and net jobs provided; 6.53:

philanthropy and donations; 6.85: human rights screens in investments; 6.90: security and human rights assessment in country risk assessment and facility development; 6.56: nature and location of outsourced operations; 6.25-27: performance of suppliers in terms of environmental indicators; 6.92: performance of suppliers in terms of social account

ability.

People/ Learning & Inno vation

GRI 6.44-45: human capital investment (training) and research and development; 6.60: retention rates; 6.61: jobs offered to acceptance ratios; 6.62: evidence re. Employee mission/vision orientation; 6.63: employee participation in management decision making; 6.64: internal and external ranking of organization as an employer; 6.65: job satisfaction; 6.66: reportable health and safety cases; 6.67: injury, lost days absentee rates; 6.68: investment per worker in illness and injury prevention; 6.69-71: wages and benefits: 6.72-74: non-discrimination; 6.75-77: training/education: 6.78-79: child' labor: 6.80-81: forced labor; 6.82-84: freedom of association; 6.91: remuneration and rehabilitation of

employee victims of security force actions

Proces

ses

GR11-3: CEO statement content, organizational profile data, identification of key performance indicators; 5.1-10: regulatory and standards framework, policy framework,

reporting structures, quality improvement processes and systems, criteria for contrac

tor/supplier selection, criteria for selection of infrastructure location; 6.55: number and

type of incidences of non-compliance with prevailing national and international stan

dards; 6.58: performance meeting contracts with suppliers, including payment sched

ules; 6.85-86: human rights monitoring of organization practices, number and type of

non-compliance, and evidence of response: 6.88-89: evidence of indigenous participa tion in decisions making, and number and type of protests; 6.93-94: number and type of

supplier incidences re. non-compliance of human rights standards and frequency of

monitoring of contractors regarding labor conditions; 6.36: incidences of compliance and

penalties against national and international environmental standards

Profit/ Financial

GRI 7.37-42: profitability; 6.34: intangible assets; 6.46-47: capital investment and debt

equity ratios; 6.48-49: wage expenditure; 6.50: productivity; 6.51: taxes; 6.57: value of

goods and services outsourced

(In this table 'GRI' refers to the Global Reporting Initative. The item number relates to the GRI

reporting content guideline.)

13 8 Business & Professional Ethics Journal

area of ethics with traditional business performance planning and evaluation. So let me give an example of how the Balanced Scorecard could be used to mainstream strategic and annual management of business ethics and

accountability. At the most basic level it can be used to provide a frame work for structuring policy and practice, and to review performance data, based on the Principles, Guidelines and SA 8000, within a strategic review and planning process. All that is needed in this regard is a quick exercise to

show how the allocation of content and indicators from the Global Reporting Initiative can be structured in terms of the Balanced Scorecard. This is

provided in Table 2. One of the weaknesses of any corporate ethics program is its potential to be "decoupled" and marginalized as an "add-on" to core

business processes, the responsibility for which rests with a separate project team or specialist unit.27 Table 2 is an example of how basic issues in ethics can be incorporated into a standard management methodology that guides senior managers in their strategic and annual business planning.

The strategic mapping and linkage approach suggested by Norton and

Kaplan can also be applied and adapted to integrate ethics into business

planning.28 In terms of mapping an ethics strategy using this approach, the

logic and utility of Balanced Scorecard ethics could be developed and communicated as set out in Diagram 1. The example provided is a first draft of Balanced Scorecard ethics undertaken within a health services organiza tion. It is also possible to articulate and map the strategic benefits, and cause

and effect relationships, of a Balanced Scorecard ethics focus in terms of

other strategic goals, as outlined in a preliminary way in Diagram 2.29 Let me reiterate the linkage being made in this paper between

development of integrated ethical frameworks for business managers and the Balanced Scorecard methodology. The incorporation of an ethics element in Balanced Scorecard planning furthers the articulation of a practice paradigm for managers, which emerges from the work through the 1990s to articulate integrated and interdependent business elements and performance measurements. Managers are increasingly expected, in terms of this

paradigm, to produce a balanced set of outcomes in four areas: customer

outcomes, staff development and organizational learning, internal processes, and financial return or value creation. To do this they are expected to draw on bodies of knowledge and disciplines such as marketing, individual and social psychology, systems thinking, and accounting, in addition to whatever

body of knowledge is inherent in their product or service. As suggested


above, use of the Balanced Scorecard to plan ethics in a business highlights the inherent ethical issues and the moral expectations managers need to

address within the four elements of this paradigm and practice. These are

the moral purpose, and harm or good, of their product; the duties they owe to colleagues and employees; the nature of moral development in terms of

systems development and improvement; and the ethics of value creation and

opportunity cost.

Two Ethical Challenges

Having presented the case for using a popular business planning methodol

ogy to integrate ethics into a manager's strategy and evaluation, it is

important to also identify the parameters of the ethical obligations the

managers should be expected to address. In developing Balanced Scorecard

ethics, managers and executives will face two distinct ethical challenges: the ethical challenge to produce and manage responsibly, and the moral

challenge to take on social responsibilities. I believe that they have an

obligation only in regard to the first challenge. Let me explain the difference between these two challenges by reference to the Principles for Global

Corporate Responsibility. The principles are grounded in a clearly stated communitarian and

environmental foundation. In the view of their authors, Mthe community rather than the company is the starting point of economic life,"30 and sustainable community depends on recognition and respect for each of the various groups in the community. Corporations share with other groups a

responsibility not just to sustain community, but, as "the context of all human activity is the totality of creation," to sustain "all creation."31

Declared assumptions within the world view that informs the

Principles are that:

1. Companies carry responsibility for the human and moral

consequences of their economic decisions;32 2. The promotion and protection of human rights are minimum

standards for all social institutions;33 3. Institutions have a responsibility to work for a just society

marked by love, compassion and peace, with justice requiring evaluation of the allocation of income, wealth and power in terms of its impact on the poorest and most vulnerable.34

Patient &

Community

Meet

Regulations

Promote Life

Target Need

Build

Community

Respect Individual

CQI audits

Develop priority plan for policy and protocol

development based on

pro-life

risk assessment.

Bid for fully funded public programs for service gaps.

Establish

Community Boards of Advice.

Develop participative case management

and consent

processes. Develop case load system to ensure intake is

linked to preferred

quality levels.

Employees

Meet regulations

Develop Staff

Manage Conduct

Be Family Friendly

CQI audits

Fund staff development at benchmark level. Educate staff on the

business drivers. Educate staff in

ethics, esp. leaders.

Educate

supervisors in performance management of

conduct issues.

Continue to

favor

family leave in Award

discussions. Develop

policy on

after

hours

Internal

Processes

Meet

Regulations

Benchmark

OH&S

Develop & Manage

Codes

Get Workplace

Feedback

Get Customer

Feedback

CQI audits

Develop

and

communicate values

and ethics

statements. Establish Care

Ethics Committee for clinical and

research oversight.

Schedule culture assessments. Rate values performance in annual business review. Create

ethics com

plaints/concern

process.

Build personal validation

questions into customer satisfaction surveys.

Finances

Meet

Regulations

Add Value Control Costs

Identify Real Costs

Be Transparent

CQI audits

Balance public & private, profitable,

marginal

&

subsidised.

Map and improve

real costs

such as environmental

impact control costs.

Maintain open

planning &

operational budgets and accounts to

stakeholders.

Customer

Learning & Growth Internal

Processes Financial

Ethical Development for Staff

Due process in employee

relations

Ethics and Social Accountability Audits

Minimise internal fraud, stock loss

Minimise risk/costs of negligence, harassment, dismissal

litigation

Transparent Triple Bottom Line

Accounting

Family Friendly Policies

Prevent costly external regulation

Minimise Staff Acquisition and turnover costs


It is possible to distinguish in the Principles what it means to act responsibly (point one above) from what it means to have "social responsibilities" (point three above). The distinction is crucial (even if not recognized by the

authors of the Principles). It is important in regard to point two above, in terms of whether we can say that a corporation acts responsibly if it respects

(protects) human rights, but takes on a social responsibility if it promotes human rights (by means other than simply respecting them). To act

responsibly is an ethical obligation of a corporation, but to assume social

responsibilities is, to use a term from Christian moral theology, a supererog

atory act (that is, not obligatory, but commendable).35 I believe, with

Friedman, that if accepting "social responsibilities" involves the use of owner or shareholder resources to assume the responsibilities without their

consent, it may even be unethical.

My reasoning depends on understanding the contemporary use and

meaning of the term "social responsibility." I take the term to refer to

obligations, alleged to be held by corporate entities, by individuals or the

community, that have not been deemed significant enough to be made legal

obligations but which are seen as morally compelling by some sections of

the community. Consider the claim, for example, that banks have "social responsibili

ties" in terms of the third point above (from the worldview underlying the

Principles), that is, a responsibility to address social disparities of wealth and

power. Take the claim, specifically, that a bank should not close a branch

in a small town, because it will lead to increased unemployment, and the

further claim that the bank has a social responsibility to maintain the branch

as a result. The claim, I would suggest, is based on an assumed right, held

by individuals (or families), to earn an income. Given the constraints of this

paper, let us accept that a person has a right to an earned income to ensure

access to the basics of life. The issue in question is about the placement, or

possible displacement, of shared (i.e. social) obligations to this person and

others in his/her position. The bank has an obligation to the unemployed because all those aware of the plight of the unemployed have such an

obligation. The question is how we structure such shared or social

obligations. I would suggest that this moves us beyond management ethics

into political philosophy and political ethics (Friedman's original insight). Now, in the context of liberal democratic, welfare capitalist polity and

a society within which this paper's discussion finds its meaning, the rights


and obligations issues we are considering have been cast in terms of a

political settlement or contract, constituted as follows:

1. An individual has a number of inalienable rights, understood to

mean that, by virtue of one's humanity and basic needs, he/she has a claim against others, both negative and positive, to have those

rights protected and/or honored, respectively. 2. These rights include a right to the basics of life such as food,

shelter, and good health, and, consequently, to the means by which

these can be obtained. 3. Where the means to obtain these basics is not available, an

individual has a claim against those aware of and capable of

responding to his/her needs and rights. 4. The multiplicity of needs and rights, and the volume of legitimate

(i.e., rights-based) claims, has led to the development of a system of public provision of income support or direct services based on

the taxation capacity/power of government. 5. The taxation system, and the political system that ensures the

taxation system's legitimacy, are based on recognition that a claim

against another's possessions via the taxation system must be based on legitimate rights' claims or on provision to meet common

threats or needs. Further, the taxation system is based on a shared burden of taxation and a shared control of the taxing authorities. The taxation system is, finally, based on a recognition of lesser and

greater capacity to contribute, and, therefore, on a scale of taxation linked to that capacity.

6. The political system is sensitive to the impact on wealth creation, and also to the capacity to fund provision for public need through the taxation of individual and group endeavors.

Now, as I have suggested, the claim that a corporate entity has social

responsibilities beyond those responsibilities inherent in the direct activities and relationships of its business draws its strength from the fact that the

suggested obligations are based on legitimate claims about unmet needs and threatened human rights. The problem with the claim, however, is that it fails to respect the balance of the various rights identified and respected in the political contract or settlement outlined above, by insisting that one

group of individuals, rather than all those against whom a claim can be


legitimately made, discharge the shared responsibility out of its/their own resources. It is asked to do so over and above what has been established as a fair system of taxation to share the costs of meeting just these kind of

claims.

In brief, the claim that a bank has a social responsibility to the

unemployed and should use its shareholder's resources to address the issue

goes beyond identifying those responsibilities inherent in the activity and

relationships that constitute the business. The assertion of an additional

'social' responsibility seeks to place the onus of a universal obligation onto

the shoulders of a sub-group of the broader group against whom the claim can be legitimately made. I would suggest, further, that it does so by going beyond the normal means of political allocation of obligation and consent

through law making, precisely because it has failed to make its case within

that process. What does the distinction that I am suggesting between acting respon

sibly and assuming social responsibilities mean in practice? Let me address

three areas of possible social accountability to develop the argument: discrimination, environmental management and employment practices. A

responsible company discharges its ethical obligations in the area of non

discrimination?it acts responsibly?when it employs or promotes people

solely on the basis of their competence for the position. It accepts a social

responsibility beyond that minimal requirement to do no harm, when it

adopts a policy and practice of positive or affirmative discrimination to

contribute to social rather than business goals. A responsible company

discharges its ethical obligations in the area of environmental management when it does not pollute, or pollutes at levels deemed acceptable to the

community and authorized by the community in terms of net social gains. It accepts a social responsibility for the environment beyond the minimal

requirement to do no harm or to minimize harm, when it allocates resources

away from product development or sales towards community "greening" programs, for example. A responsible company discharges its ethical

obligations in terms of employment practices when it fulfills contractual and

occupational health and safety obligations to its workers. It accepts a social

responsibility for employment levels beyond its minimal duties to fulfill

commitments and not treat humans as simply means to an end, when it

carries or takes on employees at the expense of technological innovation and

efficiency and profitability.


Further examples topical in Australia at the present time are the

provision of branch services by banks, telephone services by communication

companies, and insurance for policy holders of failed insurance companies by viable insurance companies. When a bank is asked to keep a branch open that is not profitable, or a telephone company is asked to subsidize services to regional communities, or one insurance company is asked to take up the liabilities of another, failed company, one part of the community is being asked to fund services that all members of the community should fund. One

group?company owners, shareholders, and customers?are being asked to assume what is in fact a responsibility of all citizens, taxpayers, or neigh bors. This, it seems to me, is the effect of calls for business to accept their "social responsibilities."

I agree with Friedman that managers and executives have no ethical

obligation to accept such responsibilities in their corporate roles and on

behalf of the corporate entity for which they act. They may have, of course, an obligation to do so as individual citizens and taxpayers. And they may, with the support of shareholders, choose to do good beyond the scope of their direct business activities. But I think the limitation of Friedman's

polemic was its failure to articulate the implications of his acknowledgment that pursuit of business goals, and profit in particular, needs to be informed, and if necessary constrained, by some social rules and ethical customs. The

development of Balanced Scorecard ethics might be one way of integrating, but limiting appropriately, ethical customs and business related accountabili ties central to a business.

Let me briefly conclude by summarizing the two parts of this paper. Business managers and executives should not feel obliged to assume social

responsibilities. They should, however, act responsibly?that is produce responsibly, market responsibly, employ and terminate responsibly, establish and manage developmental systems responsibly, create value responsibly, pay taxes responsibly, and report finances responsibly. Within the balanced

approach to organizational management and leadership expected of

contemporary managers and executives, they need to identify, and manage strategically, the ethical and moral dimensions of the elements I have described as product, people, process and profit. To the extent that they fulfill their own potential and provide a needed or desired product or service, and employ and work with people, without doing harm; to the extent that

they create wealth; to the extent that they use process management for


continuous improvement and human and organizational development, they act responsibly. Tools such as the GRI and SA 8000 provide guides to

responsible action in this regard. And the notion of Balanced Scorecard

ethics provides a methodology to plan, manage strategically and fulfill the

legitimate ethical accountabilities inherent in their activity and relationships.

Notes 1. Friedman, M. "The Social Responsibility of Business is to Increase

its Profits," New York Times Magazine, 13 September 1970, reprinted in

Donaldson, T. and Werhane, P. (eds), Ethical Issues in Business: A

Philosophical Approach, (Prentice Hall, Englewood Cliffs, 1983,2nd edition) pp 239-242.

2. Ibid, p. 79. 3. The Principles, Guidelines and SA 8000 consist of too many

indicators and guidelines to be detailed in this paper. A summary by way of a guide to the conceptual structure is provided.

4. Interfaith Center on Corporate Responsibility, Principles for Global

Corporate Responsibility: Benchmarks for Measuring Business Performance (Interfaith Center on Corporate Responsibility, New York 1998), p. 1.

5. Ibid, p. 2. 6. Global Reporting Initiative, Sustainability Reporting Guidelines

(Global reporting Initiative, Boston, 2000) p. 1 (accessed at www.global reporting.org).

7. Ibid 8. Accessed at www.sa-intl.org/sa8000.htm

9. For information access www.sa-intl.org/ and www.sgs.co.uk/

certification/social/. 10. Op. cit. www.sa-intl.org/sa8000.htm. 11. Dalla Costa, J. The Ethical Imperative: Why Moral Leadership is

Good for Business (Addison Wesley, Reading MA, 1998). 12. Ibid,pp. 143-174. 13. Ibid, pp. 240-262. 14. Wilson, I. The New Rules of Corporate Conduct: Rewriting the

Social Charter (Quorum, Westport, 2000). 15. Ibid, p. 34.

\6.Ibid,pp. 148-149.


17. See Kaplan and Norton's articles "The Balanced Score card?Measures That Drive Performance," Harvard Business Review

(January-February 1992); "Putting the Balanced Scorecard to Work," Harvard Business Review (September-October 1993); "Using the Balanced Scorecard as a Strategic Management System," Harvard Business Review

(January-February 1996); and "Having Trouble with Your Strategy? Then

Map It," Harvard Business Review (September-October 2000). See the book

by Kaplan, R. and D. Norton, The Balanced Scorecard: Translating Strategy into Action (Harvard Business School Press, Boston, 1996) from which

quotes in this paper are sourced. See also the latest work by Kaplan and

Norton, The Strategy-Focused Organization: How Balanced Scorecard

Companies Thrive in the New Business Environment (Harvard Business School Press, Boston, 2000). See also the web-site for the Balanced Scorecard Collaboration, www.bscol.com and further application of the scorecard by Becker, B., Huselid M. and Ulrich, D., The HR Scorecard:

Linking People, Strategy, and Performance (Harvard Business School Press, Boston, 2001) and N. Olve, Royse J. and Wetter, M., Performance Drivers: A Practical Guide to Using the Balanced Scorecard (John Wiley & Sons, Chichester, 1999).

\S.Ibid, (1996), p. ix. 19. Ibid, p. viii.

20. Ibid, pp. 47-62, 63-91, 92-125, and 126-146 respectively. 21. Ulrich, D., J. Zenger, andN. Smallwood. Results-Based Leader

ship (Harvard Business School Press, Boston, 1999). 22. Ibid, p. 30. 23. Ibid. 24. Ibid p. 29. 25. Kaplan and Norton, Op. cit. 1996, pp. 150-151. 26. Ulrich, Zengler and Smallwood, Op. cit. p. 171 27. For a discussion of "decoupling" and integration of ethics

programs, see Weaver, G. et al, "Integrated and decoupled corporate social

performance: Management commitments, external pressures, and corporate

ethics practices," Academy of Management Journal, 42 (5), pp. 539-552, Oct. 1999.

28. Kaplan and Norton, Op. cit. 2000, pp. 167-176.


29. Diagram Two has "Reputation" as a key strategic focus in terms of cause and effect linkage. Jackson reported recently that the global promo tions firm Simon Worldwide, with revenues in 2000 of approx. US$800

Million, lost more than eighty percent of its business, eighty-five percent of its share price and two of its directors after it became known that promotions for McDonalds had been rigged over six years by one of Simon's employees. It seems legitimate to link ethics, reputation and business outcomes and

profitability, given such as case study. See Jackson, S., "McBunfight," The

Australian, 11th September 2001, p. 32. Gettler has reported that Ford had a US$9.3 billion reduction in share value three weeks after it recalled

potentially dangerous Firestone tyres. See Gettler, L., "What's a reputation worth?," The Good Reputation Index, Sydney Morning Herald, 22 October

2001, p. 2. 30. Interfaith Centre on Corporate Responsibility, Op. Cit. p. 2.

31. Ibid, p. 1.

32. Ibid. 33. Ibid. 34. Ibid. 35. See the brief and simple definition "Supererogation, Works of in

Macquarie, J., ed. A Dictionary of Christian Ethics (SCM Press, London,

1967) 337.

Bibliography

Becker, ., M. Huseld, and D. Ulrich. The HR Scorecard: Linking People,

Strategy, and Performance (Harvard Business School Press, Boston,

2001). Dalla Costa, J. The Ethical Imperative: Why Moral Leadership is Goodfor

Business (Addison Wesley, Reading MA, 1998). Global Reporting Initiative, Sustainability Reporting Guidelines (Global

Reporting Initiative, Boston, 2000). Interfaith Center on Corporate Responsibility, Principles for Global

Corporate Responsibility: Benchmarks for Measuring Business

Performance (Interfaith Center on Corporate Responsibility, New York 1998).

Kaplan, R. and D. Norton. The Balanced Scorecard: Translating Strategy into Action (Harvard Business School Press, Boston, 1996).


Kaplan, R. and D. Norton. The Strategy-Focused Organization: How Balanced Scorecard Companies Thrive in the new Business Environ ment (Harvard Business School Press, Boston, 2001).

Mclntosh, M. (ed). Visions of Ethical Business (Financial Times Prentice

Hall, London, 2000). Olve, N., J. Roy, J. and M. Wetter. Performance Drivers: A Practical

Guide to Using the Balanced Scorecard (John Wiley & Sons, Chichester, 1999).

Ulrich, D., J. Zenger, and N. Smallwood. Results-Based Leadership (Harvard Business School Press, Boston, 1999).

Wilson, I. The New Rules of Corporate Conduct: Rewriting the Social Charter (Quorum, Westport, 2000).

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