Opening the Domain of Management Control

Traditionally, management control systems have merely been an exercise to monitor and adjust operating performance. Harvard Professor, Robert Simons, put the term “diagnostic control systems” to these kinds of operation.

Simons opens the domain for management control systems by pointing at three levers of control in addition to that of diagnostic control systems:

• Belief systems communicating core values such as mission statements, credos and vision statements.
• Boundary systems articulate codes of conduct and ethic statements that define the limits of freedom. 
• Interactive control systems provide strategic feedback and vehicles to update and redirect strategy.

If mutually employed, the levers of control are all important for innovation. A belief system may nurture and motivate creative performance. The boundary system stake out the territory for each participant and thereby relieving her from any doubt on the arena for appropriate innovative initiatives.

Balanced scorecards as interactive control systems

The interactive control system is the last-mentioned control lever. It tracks ideas and triggers new learning. The mechanism is very much like the thermostatic radiator valve, for which my company is well known for. Once the temperature is set (by top executives), the thermostatic radiator valve measures the temperature in the room (feedback from the organization) and adjusts the heating (strategic direction) supplied to the room accordingly. The triple bottom line and balanced scorecards can be means of such interactive control systems embracing financial, social and environmental management performances.

Control is, hence, not only the sovereign concern for control and budget departments. The modern management control system is a cross-disciplinary function involving Corporate Social Responsibility, IT, human resource and environmental affairs.

Almost 7 years ago, the European Commission kicked-off its Green Paper ‘Promoting a European Framework for Corporate Social Responsibility’. It was the ambition of the EU Commission to encourage European businesses to “acting voluntarily and beyond the law to achieve social and environmental objectives during the course of their daily business activities”. The European Union tried, in other words, to make the donkey dance by playing the tambourine rather than by using the traditional stick and carrot.

Third party endorsements

Research has shown how Danish companies are exposed to increased expectations from stakeholders. While still wanting the world to know about their good deeds, yet, they are reluctant to communicate the CSR messages themselves (Morsing, Schultz & Nielsen, 2003). Danish business executives instead rely on third-party endorsement from media or experts.

Danish minister for employment, Claus Hjort Frederiksen, was cited in a Danish newspaper in 2006 saying: “There is a tradition of not talking too much about corporate social responsibility. This is very sympathetic and very Danish, but when taking this stance it is difficult to see the economic potential. One should ask oneself: What is it that we are doing, and how can we use it to improve our image?”

For better or worse – your employees are the best ambassadors

I work for a company that wishes to do things right rather than saying the right things. The main rationale is simple: at one point of time it will be disclosed if there is a gap between what is done and what is said.

Will such a gap be disclosed by media? Not likely. Though the press and NGOs, as stated above, are increasing the pressure on corporations to act responsible, they only manage to reveal the tip of the iceberg. The most likely source of disclosure of social- and/or greenwashing activities will be your employees. For better or worse – they are your ambassadors. And they are numerous with an almost infinite number of relations to customers; future employees; and neighbours in the local society.

Jeopardizing with your image is when employing corporate social responsibility too much as a brand-device, rather than just doing things right.  

With respect to public affairs wrote Lise Holdt (2009) in her Thesis that it is a paradigm shift when the enterprises that traditionally were bound to the commercial arena now also need to be able to master the political sphere.

External stakeholder relations are essential for the company in order to face the new challenges and expectations to business. Or put in Linsky’s word (1995) If not the firm is capable of setting the agenda, it has lost before it began.

Linsky is only partially correct. If you cannot change the outside world, the doctrine of evolution has taught us that adapting to the environment can be a strategy to survive and then dominate. In a business context, there is a parallel to be drawn: a fast adaptation to new political terms can be a competitive advantage, if it is done faster and more efficiently than competitors.

Only through the close monitoring of new political initiatives – and by acting upon this form of intelligence – it is possible to adjust one’s product and business strategies to new terms.

Think of just one product which has not been subjected to the direct or indirect influence of a politically created framework or demands? Markets for goods and services are not natural. They are constituted by humans. Theorists, such as the father of the theory of transaction costs, Ronald Coase, and the French economic sociologist, Michel Callon, have pointed out that markets are constituted on the basis of a set of rules which are the result of different actors in the economy. Some of the rules are culturally defined at the microlevel by the actors involved; others are set by political institutions. Anyone who has performed transactions in other cultures knows that the key to success is to appreciate the rules. At any time, though, the rules are changeable and negotiable. European companies are constantly recognising that success depends on the ability to act according to the rules of the game – or have them amended. Both scenarios necessitate an understanding of the rules.

The new aspects are found in technological (and even process) innovation. Technology – in the widest sense of the term – is in essence the answer to social needs. The political environment contributes to the definition of some of these social needs and, therefore, can be a source of innovation. As a result, appropriate in-house competencies are required for a company to be able to translate signals and information from the outside world into operational and applicable knowledge. Long-term sustainability would be gained if companies were able to receive feedback as well – instead of focusing solely on feeding policymakers with messages.

My answer to this question is: Yes! if seen through the lenses of the (reactive) license to operate, or, preferably, the (more proactive) as a vehicle to enforce social innovations. Both approaches request an understanding of the market as a social space. The former focuses on the companies’ allowance to transact its goods and services. The latter employs the dynamics of this social space.

CSR is not against the market – but part of the market. Let me first address the notion of the market. Regardless of ideological discussions about the market, I employ the concept of the market as a social space making transactions of goods and services possible. Some scholars, such as institutionalists and actor-network scholars, argue that if markets are social constructions, this includes those formal rules and regulations made by policy makers as well as less formal rules made by society. Or put in short: businesses can only transact goods and services if they take its stakeholders into account. This is the core of my perception on CSR.

Long-term Maximization of Stakeholder’s Value.  One group of opponents to CSR claim that the core obligation of any enterprise is to maximize economic returns to its shareholders. Against this has strategy guru, Michael Porter, proposed that is not sufficient for a company only to maximize shareholders’ returns. The firm will have to maximize the long-term value of its stakeholders. I support Porters’ point of view. But I do, nevertheless, disagree with the very narrow interpretation of his positioning theory vis-à-vis to competitors. Making CSR a device for brand differentiation, risk management or license to operate only is too short-sighted and neglects the potential for business development from the dynamics and changes among stakeholders.

Business development. Technology – being a product or a process – is in its essence an answer to social needs. Those needs can be defined by consumers, policymakers, NGO’s or any other stakeholder of the company. Those stakeholders belong to the same social space which makes the transaction of its goods and services possible. The clever firm engages into dialogues with its stakeholders for it to smoothly transact goods and services. But the intelligent company learns from this dialogue and employ it to identify social needs and hence making it a source of innovation. If successful, long-term value is guaranteed for both stakeholders and shareholders.

Spørg et hvilken som helst dansk folketingsmedlem om følgende: Hvis du var amerikaner, ville du da foretrække et sæde i en delstats statskongres eller i den føderale Kongres i Washington D.C.?

Mon ikke de fleste ville svare sidstnævnte!?

I Portugal, Spanien, Benelux-landene og de fleste af de nye medlemslande er det præstigefyldt at være europaparlamentariker. Konkurrencen og talentmassen er derfor høj. Danske virksomheder har i den grad brug for dygtige parlamentarikere. De er repræsentanter for det danske civilsamfunds – og dermed også erhvervslivs – interesser i Europa. 

Når medierne beskæftiger sig med den politiske kampplads i Bruxelles (samt Strasbourg og Luxembourg) bør det tages lige så alvorligt som dækningen af Washington D.C.