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Managing Corporate Social Responsibility with Management Control Systems

Written by F. Issah

Paper category

Master Thesis

Subject

Business Administration>Management

Year

2020

Abstract

Master Thesis: Corporate Social Responsibility Kramer & Porter (2011) defined corporate social responsibility as policies and practices that improve the competitiveness of a company while improving the economic and social conditions of the communities in which it operates. Corporate social responsibility aims to call on the conscience of enterprises to not only focus on profitability, but also to make great contributions to improving the quality of society in which they operate. Due to the interdependence between enterprises and society, several viewpoints on corporate social responsibility have emerged. The main point of disagreement is usually related to whether companies should only focus on their profit motives or have the obligation to carry out corporate social responsibility activities (Carroll, 1991). In order to achieve the best point, in terms of satisfaction with different stakeholders, it is emphasized that the profit motive of the enterprise takes precedence over the legal, moral and charitable responsibilities (Carroll, 1991). 2.1.1 CSR Drivers Huang and Watson (2015) believe that pressure from stakeholders is one of the main driving factors. Corporate social responsibility participating organizations. This led to the stakeholder theory, which is the main theory in corporate social responsibility participation (Freeman, 1984). The theory states that managers always ensure that they meet the needs of stakeholders, especially key stakeholders (investors, creditors, suppliers, employees, and customers). Especially in modern times, companies have realized that their success depends to a large extent on how to best meet the needs of their stakeholders. These stakeholders have the power to influence the organization's participation in corporate social responsibility activities (Aguinis and Glavas , 2012; Carroll, 1991; Huang and Watson, 2015). Ramanna (2013) also mentioned that stakeholders may influence managers to make unprofitable CSR investments at the expense of shareholders. Another reason for organizations to participate in corporate social responsibility is that the system is homogeneous. Institutional isomorphism describes the process of organizations becoming more and more similar in structure despite fundamental differences (DiMaggio and Powell, 1983). Institutional isomorphism is related to institutional theory; Scott, 2004). DiMaggio and Powell (1983) identified three main forces that lead to institutional isomorphism. These factors include coercion, regulation and imitating isomorphism. Mandatory isomorphism is mainly related to the initiatives, policies and strategies designed by the government and regulatory agencies to influence the organization's performance of corporate social responsibilities. 2.2 Management control system Management control, as later defined by Anthony & Govindarajan (2007), is the process by which managers influence other members of the organization to implement organizational strategies. In order to facilitate this process, a system needs to be established to ensure compliance. Mayegle & Nguidjol (2017) explained that it is better to call management control a "system", because a system usually refers to objects, practices, and standards that are meaningful when considered collectively. According to Simons (1995), management control systems are routine, information-based routines and procedures used by managers to maintain or change organizational activity patterns to achieve expected strategies. However, it is worth mentioning that management control also includes informal aspects such as corporate norms, culture and beliefs, which are integrated with management accounting procedures to influence employees to achieve certain goals (Chenhall, 2003). Therefore, management control systems are both formal and informal, and these systems complement each other in creating the overall control system in the organization. Anthony & Govindarajan (2007) further defined the formal control system as a normative method used by managers to ensure that individual activities are carried out and influence organization members to achieve established organizational goals. Formal control can be in terms of performance measurement, evaluation, incentives, and compensation. Ferreira and Otley (2005) and Simmons (1995) provide an in-depth understanding of how organizations use formal control systems to implement business strategies. Informal control systems can be interpreted as the internal values ​​that exist in the organization, including established norms, shared values, culture and customs. Many scholars believe that MCS can be a useful tool for managing corporate social responsibility in organizations, which is not surprising. 2.3 The framework of management control system has existed as a management control system for decades (Lowe, 1971). Some literary works have been carried out, and the main theoretical frameworks are Malmi & Brown (2008), Otley (1999) and Simons (1995). The most commonly used framework for MCS is the control lever of Simons (1995). Martyn et al. (2016) pointed out that despite improvements in general organizational strategies, structures, and networks, Simmons' control framework levers are still gaining popularity among researchers. However, some people have also criticized the applicability of this control framework, especially for the method of corporate social responsibility strategy, because Simmons (1995) formal control system ignores the role of informal control system (Ghosh et al., 2019) And Laguir et al., 2019). Otley (1999) has also been focusing on performance measurement systems, so it does not represent a reliable framework in the design to manage appropriate controls for corporate social responsibility. Read Less