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USE OF FINANCIAL MEASUREMENT SYSTEMS
Generally, most African organisations still use financial management systems to assess their corporate performance. It is a statutory requirement for all registered companies to produce annual audited financial statements that can be accessed by different stakeholders, including the shareholders, as is clear from examples such as Malawi’s Companies Act (Malawi Government, 1986) and the South African Companies Act, No. 61 of 1973 (South Africa, 1973). This statutory requirement also applies to companies that are registered and capitalised on the local stock exchanges, as set out, for example, in Malawi’s Capital Market Development Act (Malawi Government, 1990) and the South African Stock Exchange Control Act, No. 1 of 1985 (South Africa, 1985). Organisations use financial performance indicators to assess their corporate performance status. Because financial reporting is a statutory requirement, an analysis of their annual reports indicates that corporations listed on various stock exchanges rely heavily on financial measures to assess their corporate performance. Financial measurement indicators such as profitability figures, return on investment (ROI), profitability margins and indices, and earnings per share (EPS) form important bases for assessing managerial competencies, departmental achievements and the overall performance of corporations from all sectors of the economy. The use of financial measures as part of a corporate performance measurement system is prevalent in the private sector, but it is common even in the public sector and in non-governmental organisations (NGOs), although these institutions are largely non-profit-making. The public sector and NGOs mainly focus on social obligations and natural environmental protection, more than the profit-making corporations from the private sector do. Traditionally, the assessment of the corporate performance of most African organisations that include the public sector has been based on the financial achievements of the individual entities. The use of traditional financial measures cascades mechanistically from the top levels of an organisation to the lower levels.
At the departmental and employee levels, the general trend is that employee performance measurement is based on financial measures that are linked to a particular manager’s area of responsibility. For instance, staff reward systems are largely based on financial performance by individuals, or departments over which they have direct control within an organisation (Drury, 1996; Horngren & Foster, 1991). Although their primary intention is to enhance people’s motivation to promote higher productivity, in many cases such financial performance-based measurement systems can elicit negative behaviours by the employees concerned. When too much emphasis is placed on financial-based performance systems, employees may be tempted to engage in activities that promise the realisation of short-term rewards, at the expense of long-term corporate sustainability (Niven, 2006; Punniyamoorthy & Murali, 2008; Sandhu, Baxter & Emsley, 2008). This scenario applies even at the senior management level, where financial managers and chief executives may sacrifice long-term projects in order to achieve selfish short-term gains (Kaplan & Norton, 2004a; Smith, 2005). There have been cases of window dressing financial information, where business executives concealed the true picture of their organisation’s performance by manipulating financial figures in order to portray a better picture to various stakeholders of the company (Newman, 2007; Rossouw, 2010e). Through such window dressing, senior executives mislead stakeholders, especially shareholders (both existing and potential shareholders), about the performance and status of a company. In the long run, non-disclosure of a company’s true financial status can lead to corporate failure. Instances of sudden bankruptcy of such giant companies such as Enron and other corporate scandals have led to extreme distrust of the morality of some corporate executives. Lately, many corporate scandals have arisen from malpractices of this nature by senior executives who, ultimately, behaved in ways that undermine the intended purpose of financial measures.
CORPORATE PERFORMANCE
In order to meet the expectations of different stakeholders, senior managers continuously strive to improve the performance of their organisations. Generally, organisational improvement processes follow a continuous circle of three major processes, namely corporate planning, strategy implementation (execution) and performance measurement or evaluation (David, 2005:5-6). The corporate planning phase involves setting goals and objectives that are congruent with the corporate vision, mission and value statements of the organisation. Goals and strategies are formulated after a careful and critical analysis of the organisation’s internal strengths and weaknesses and also of the organisation’s external opportunities and threats, conducted through a SWOT analysis, which is also sometimes referred to as corporate analysis. After the corporate analysis, strategies are formulated as a means to achieve the goals that have been set; and that is followed by the implementation of the corporate plans. The implementation phase involves translating plans into action (David, 2005:56). To put it differently, implementation is the part of the process where strategies are executed. Finally, corporate performance is measured to assess whether or not the goals and objectives that were set in the planning phase have been achieved in the implementation phase. A suitable feedback control system enables managers to use the information provided by performance measurement systems to plan further actions to ensure the continuous improvement of the organisation.
The researcher’s personal observations suggest that performance-based systems usually follow specific prescriptions that are intended to satisfy the needs of primary stakeholders such as shareholders, customers, suppliers and government. In the process, such performance-based systems often alienate other stakeholders, such as the general society, local communities and the ecological systems. In the current study, such prescribed performance-based systems are referred to as mechanistic performance systems, as they are guided by procedures and policies. Examples of mechanistic systems would be traditional financial measures that are targeted at meeting the needs of different stakeholders. The production of financial information is governed by prescriptions set out in the International Financial Reporting Standards (IFRS), developed by the International Accounting Standards Board (IASB), a board that sets the accounting and financial guidelines for the purposes of objective financial reporting using a system that is internationally acceptable. The prescribed financial reporting standards also facilitate comparability of performance between different corporations, usually from the same industry (Iatridis, 2010:193-204). Corporate performance is compared using ratio analysis, as discussed below. However, the use of financial measures is fraught with many limitations, including their focus on short-termism, which is problematic where management makes short-term decisions that are accomplished at the expense of the long-term sustainability of an organisation.
1 CHAPTER ONE: INTRODUCTION
1.1 BACKGROUND
1.2 USE OF FINANCIAL MEASUREMENT SYSTEMS
1.3 THE BALANCED SCORECARD MODEL
1.4 A CONCEPTUAL FRAMEWORK OF STAKEHOLDER RELATIONSHIPS AND NETWORKS
1.5 RESEARCH PROBLEM STATEMENT
1.6 RESEARCH OBJECTIVES
1.7 RESEARCH QUESTIONS
1.8 DATA GEOGRAPHIC COVERAGE FOR PRIMARY RESEARCH
1.9 RESEARCH ANALYSIS AND RESULTS
1.10 RESEARCH SIGNIFICANCE AND IMPACT
1.11 RESEARCH LIMITATIONS
1.12 RECOMMENDATIONS FOR FURTHER RESEARCH
1.13 OUTLINE OF THE THESIS
1.14 CONCLUSION
2 CHAPTER TWO: CORPORATE PERFORMANCE AND FINANCIAL MEASURES
2.1 INTRODUCTION
2.2 CORPORATE PERFORMANCE
2.3 THE CORPORATE PERFORMANCE FRAMEWORK
2.4 CORPORATE PLANNING IN A CHANGING ENVIRONMENT
2.5 IMPLEMENTING CORPORATE STRATEGIES
2.6 PERFORMANCE MEASUREMENT SYSTEMS
2.7 SIGNIFICANCE AND PRACTICAL USE OF PERFORMANCE MEASURES
2.8 CHALLENGES AND LIMITATIONS OF PERFORMANCE MEASURES
2.9 FINANCIAL MEASURES
2.10 SIGNIFICANCE AND PRACTICAL USE OF FINANCIAL MEASURES
2.11 LIMITATIONS OF FINANCIAL MEASUREMENT SYSTEMS
2.12 CONCLUSION
3 CHAPTER THREE: PERSPECTIVES SURROUNDING THE BALANCED SCORECARD (BSC) MODEL
3.1 INTRODUCTION
3.2 BACKGROUND ON THE BALANCED SCORECARD
3.3 ASSUMPTIONS OF THE BALANCED SCORECARD MODEL
3.4 SIGNIFICANCE OF THE BALANCED SCORECARD APPROACH
3.5 LIMITATIONS OF THE BALANCED SCORECARD
3.6 CONCLUSION
4 CHAPTER FOUR: THE AFRICAN UBUNTU PHILOSOPHY
4.1 INTRODUCTION
4.2 UNDERSTANDING THE AFRICAN UBUNTU PHILOSOPHY
4.3 SIGNIFICANCE OF THE AFRICAN UBUNTU PHILOSOPHY FOR CORPORATE PERFORMANCE
4.4 CHALLENGES IN APPLYING THE UBUNTU PHILOSOPHY
4.5 CASES ILLUSTRATING THE AFRICANISATION OF CORPORATE MANAGEMENT SYSTEMS
4.6 CONTRIBUTIONS OF THE UBUNTU PHILOSOPHY TO THE CORPORATE WORLD
4.7 CONCLUSION
5 CHAPTER FIVE: SUSTAINABILITY SCORECARDS AND THE TRIPLE BOTTOM LINE REPORTING
5.1 INTRODUCTION
5.2 CORPORATE SUSTAINABILITY
5.3 THE TRIPLE BOTTOM LINE (3BL) PRINCIPLE
5.4 THE CARROLL MODEL
5.5 THE SENGE MODEL
5.6 SUSTAINABILITY BALANCED SCORECARDS
5.7 SUSTAINABILITY REPORTING GUIDELINES
5.8 SUSTAINABILITY CHALLENGES
5.9 CONCLUSION
6 CHAPTER SIX: BUSINESS ETHICS AND CORPORATE GOVERNANCE
6.1 INTRODUCTION
6.2 BUSINESS ETHICS
6.3 GENERAL THEORIES OF ETHICS
6.4 APPLICATIONS OF BUSINESS ETHICS
6.5 SHAREHOLDER-CENTRED CORPORATE GOVERNANCE
6.6 STAKEHOLDER-CENTRED CORPORATE GOVERNANCE
6.7 CORPORATE GOVERNANCE GUIDELINES
6.8 AFRICAN UBUNTU ETHICS
6.9 CONCLUSION
7 CHAPTER SEVEN: RESEARCH DESIGN AND METHODOLOGY
7.1 INTRODUCTION
7.2 RESEARCH BACKGROUND
7.3 DEVELOPMENT OF A CONCEPTUAL FRAMEWORK OF STAKEHOLDER RELATIONSHIPS AND NETWORKS
7.4 RESEARCH DESIGN
7.5 DATA COLLECTION METHODS USED IN THE STUDY
7.6 THE STRUCTURED QUESTIONNAIRE (LIKERT SCALE METHOD)
7.7 DESIGN OF THE LIKERT SCALE STRUCTURED QUESTIONNAIRE
7.8 VALIDATION STATEMENTS OF THE QUESTIONNAIRE (SECTION B)
7.9 PROFILE OF RESPONDENTS
7.10 SAMPLING DESIGN AND SAMPLING METHODS
7.11 DATA COLLECTION PROCEDURES
7.12 DATA ANALYSIS
7.13 DATA VALIDITY AND DATA RELIABILITY
7.14 ETHICAL CONSIDERATIONS
7.15 CONCLUSION
8 CHAPTER EIGHT: RESULTS AND ANALYSIS OF RESEARCH FINDINGS
8.1 INTRODUCTION
8.2 DEMOGRAPHICS OF THE PARTICIPANTS
8.3 UNIVARIATE ANALYSIS OF QUESTIONNAIRE STATEMENTS
8.4 BIVARIATE ANALYSIS (CORRELATION ANALYSIS) OF VARIABLES
8.5 MULTIVARIATE ANALYSIS USING FACTOR ANALYSIS
8.6 CONCLUSION
9 CHAPTER NINE: DEVELOPMENT OF THE AFRICAN BALANCED SCORECARD (ABSC) MODEL
9.1 INTRODUCTION
9.2 DEVELOPMENT PROCESS OF THE NEW AFRICAN BALANCED SCORECARD MODEL
9.3 PERSPECTIVES IN THE AFRICAN BALANCED SCORECARD MODEL
9.4 USE OF THE AFRICAN BALANCED SCORECARD MODEL AS A STRATEGIC MANAGEMENT TOOL
9.5 PERFORMANCE MEASURES BASED ON THE PERSPECTIVES OF THE AFRICAN BALANCED SCORECARD MODEL
9.6 THE AFRICAN BALANCED SCORECARD MODEL VERSUS THE GENERIC BALANCED SCORECARD MODEL
9.7 CONCLUSION
10 CHAPTER TEN: SUMMARY, CONCLUSION AND RECOMMENDATIONS
10.1 INTRODUCTION
10.2 RESEARCH SUMMARY
10.3 CONCLUSIONS
10.4 RECOMMENDATIONS
10.5 SIGNIFICANCE OF THE STUDY
10.6 RESEARCH LIMITATIONS
10.7 RECOMMENDATIONS FOR FURTHER RESEARCH
