IAABD Paper(1)

8/2/2019 IAABD Paper(1)

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PERFORMANCE MANAGEMENT:

A CASE STUDY

IN A

STAKEHOLDER ECONOMY

Mr BARRY PIERCE & Mr MARTYN KENDRICK*

* Martyn Kendrick is deputy Head of Department of Corporate Strategy & Management at

Leicester Business School, De Montfort University, UK; e-mail: [email protected]

Barry Pierce is a freelance consultant and associate of Leicester Business School;e-mail: [email protected]

Mailing Address:-

f.a.o. Mr M KendrickBosworth House Tel: +44 (0) 116 257 7914De Montfort UniversityThe Gateway Fax: +44 (0) 116 257 7256Leicester LE1 9BH


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Abstract

A practical application of stakeholder theory in a case study. The context, a South African companyoperating in a social polity of affirmative action toward racially-disadvantaged stakeholders andinvestors, provides an ideal setting to examine the moral tension faced by management between profitand social responsibility. A model of performance management is proposed that overcomes thedichotomy between the prioritisation of shareholders advocated by neo-classical economics and the

wider interests of stakeholders. It uses three dimensions of performance criteria, specific to eachstakeholder, and a fourth, value added, as an integrating mechanism. The attitudes of directors, executivemanagement, and external stakeholders convey the pragmatism adopted between value and values.


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PERFORMANCE MANAGEMENT: A CASE STUDY IN A STAKEHOLDER ECONOMY

Introduction

This research is a response to the frustration felt by many advocates of stakeholder theory that academicdebate over the moral obligations of business has inhibited pragmatic application of the concept. Both thesenormative and instrumental considerations (Donaldson & Preston, 1994) are confronted in this case studyof a para-statal company operating in South Africa subject to targets across a number of stakeholder groups

because of government policy initiatives on black economic empowerment [BEE]. The normativedimension lies in whether management owe a duty to shareholders alone or to a wider group of stakeholdersand, if the latter, whether interest is teleological or solely a means to generate shareholder wealth. Theinstrumental dimension arises in what manner this ethical choice is made operational. The research problemlies in the difficulty for commercial organisations to reconcile demands for financial returns to shareholderswhen obligations to other stakeholders are statutorily imposed.

Shareholder prioritisation, agency and stakeholder theory

The normative role of business is ill defined in law. Statute, certainly in the US, UK, and South Africa,avoids defining obligations toward shareholders, preferring to place restraint on directors: not to be recklessor fraudulent; not to breach corporate trust or misapply monies. In common law, fiduciary duties areinterpreted as owing to the company and firms have the legal autonomy to act proactively and advance the

interests of a number of stakeholders simultaneously (Marens & Wicks,1999:287). The relative importanceof stakeholder groups has shifted in case law over time in tune with changes in government policy: historicexamples of a shareholder emphasis are giving way to a wider recognition of public interest. There is aconcerted shift toward accepting greater latitude in direction within a broader framework of governance.This remains far short of requiring that business adopt an ethical posture toward its community.

Various propositions have been put forward as justification for the pre-eminence of the shareholder. Thisview evolved from the right of the owner to enjoy the benefits of private property, but the singularorientation of management was argued on public policy grounds to be the most efficient way to generatenational economic growth and on the basis that a wider college would enhance managerial power and thusthe potential for abuse or distraction. Agency mechanisms of governance are seen as attempts to counteractthis tendency but can be adapted to fit a stakeholder context (Hill & Jones, 1992) by incorporating bondingcosts & performance incentives into contract and establishing mutual monitoring & enforcement structures.A bilateral agency with shareholders, based on their unique inability to renegotiate terms and bearing ofresidual financial risk, is countered by Charreaux & Desbrieres (2001) who argue that the components ofownership held by the stakeholders (ie decision rights over value creation)are in the majority non-transferable (p115). The market expects investors to hold a diversified portfolio which reduces their risk.Whilst shareholders do not have renewal opportunities, they can sell their holding at any time as if it were aproduct. Employees, by contrast, risk more than a loss of income especially if they have specific skills;creditors are exposed in bankruptcy and sustain indirect effects; customers face interruption in their chain ofsupply. Arguably then, equity finance can be looked upon as just another resource whose provision isassociated with risk. Market intervention at the nexus of relationships ease the cost of multiple agency:-

The shareholder value principle and the shareholders discipline the firm; the stakeholder value

principle and the stakeholders discipline and limit the shareholders; the purpose of the firmdisciplines and limits both, the shareholders and the stakeholders. (Koslowski, 2000: 143)

Financial markets demand appropriate return for investing in risky businesses and will penalise managementthat fail to create value; just distribution of reward based on contribution to value creation inhibits anexcessive bias on shareholder return; customers demand value-for-money and uncompetitive firms will notcreate value.

Management are in a unique position to affect relations with stakeholders and represent the company towider society. Freeman (1984) placed strategy at the discretion of management, given effect by astakeholder analysis rooted in intrinsic values. Whilst this could, and was, readily advocated as a moralimperative, it meant that social responsiveness could be coupled with a shareholder wealth maxim if the

Board of directors so chose. Instrumental stakeholder theory does not insist upon altering the relativeallocation of value but that, by balancing interests and contribution, absolute value may be created overall.


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Performance monitoring

Dufrene & Wong (1996:6) contend stakeholder theory creates a schizophrenic, bounded moral rationality.The wide adoption of multi-dimensional performance frameworks over the last decade may assuage suchconcern about a lack of managerial focus. The Balanced Scorecard, for example, retains an emphasis onachieving financial objectives, but also includes the performance drivers (Kaplan & Norton, 1996:2). It is

approximates to a stakeholder model but falls short in that its performance criteria are not specificallyaligned with or informed by stakeholder groups, nor does it cover these comprehensively. Weaver & Gioia(1994) contend a parameter deficit in stakeholder theory because of the incommensurable nature ofperformance measures appropriate for each stakeholder group.

ADAPTABLE MODEL OF STAKEHOLDER PERFORMANCE MANAGEMENT

Who or what is a stakeholder? Any group or individual who can affect or is affected by the achievement ofthe organisations objectives (Freeman,1984:46).This definition, the most frequently cited, limitsstakeholders to human constructs and emphasises thetwo-way nature of the relation, for benefit or detriment.

Mapping stakeholders

Such maps are customised to context, but a modelrequires a generic taxonomy and fig1 is based uponThe Corporate Report (ASSC, 1975) on the users ofpublished accounts. Management is depicted at thenexus of two-way contracts. An a-priori assumption ofequality among stakeholders (Freeman, 1994) is made.Contracting terms are influenced by the markets fromwhich the financial, human, and supplied resources aresourced and the firms output demanded. Government,top-centre, has an over-arching role in two ways: it can

temper the operation of all three markets and regulatethe contractual relationships themselves throughpricing, social, fiscal, trading, employment policies and disclosure requirements. Government is also seen asrepresenting the interests of society and environment. Suppliers include outsourcing and partnership. Debtrepresents any non-equity finance and thus includes banks. In any specific company, the seven genericstakeholder groupings could also represent named organisations or individuals.

The nature of contracting

In reality, equality cannot be presumed and power factors could alter the relative importance of stakeholderswhilst attitudinal factors could alter their vectors. Stakeholder importance has been attributed by Mendelow(1991) to power and interest, by Savage & Nix (1991) to dominance, opportunity, and motivation, and byMitchell, Agle & Wood (1995) to power, legitimacy, and urgency. Attitudes may be born of self-interest(Hill & Jones, 1992) aggressive or defensive - or a belief that mutual benefit arises out of trust (Barney &Hansen, 1994). The role of government and regulation could distort the overall contracting geometry. Takentogether, the following sequence of issues is thought pertinent when applying the model:-

1. ETHOS: are we concerned about how others are affected by the firms objectives or solely howthey can affect us? Is stakeholding a mutual concern or is it self-interest? Is it viewed beneficiallyor is it to counter threat? Are there regulatory considerations?

2. LEGITIMACY: in terms defined by our ethos, which groups lay claim to stakeholding? Does theirlevel of interest and motivation have a bearing on the firms attempts to form a relationship?

3. POWER: is the importance of the stakeholder determined by the relative power they have over thefirm? Is it to counter threat?

MGNT

DEBT

GOVERNT

EQUITY

SUPPLIER

CUSTOMER

EMPLOYEE

CONTRACTING

INTERFACE

Figure 1

financial

markets

labour market

commercial

markets


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A stakeholder map can then be created based on legitimacy, where ethos determines geometry anddirection, and relative power may be represented. Sustaining and improving these relations will requiremonitoring. Whilst monitoring criteria may be incommensurable, three common perspectives are discerned:-

CONTRIBUTION: a criterion that represents the stakeholders impact on the firms objectives CLAIM: a criterion that represents the firms impact on the stakeholder which should be informed

by liaison. Note that this perspective is absent if organisational ethos is defined by self-interest

COMPLIANCE: a criterion which represents a regulatory conditionAn integrating parameter between stakeholders is essential and this is hypothesised to lie in value added.

Value as an integrating criteria

The Corporate Report (ASSC, 1975) advocated the use of value added statements as a way of portrayingthe sharing of profit amongst its contributors. Two equations demonstrate the concept:-

VALUE ADDED = SALES OUTSOURCED COST PROFIT = VALUE ADDED EMPLOYMENT & INTEREST COSTS TAX

The first equation purports to represent value creation within defined boundaries of the firm by netting offinput (of suppliers) from output (to customers). The second represents distribution of the value addedamongst employees, government, and debt investors, leaving a residual, profit, to shareholders.

In the researchers model, value creation is seen asa process involving all stakeholders, directedunder explicit and implicit contract bymanagement. Commencing with owner capital,upon which debt can be leveraged, funds are usedto create an infrastructure involving employeesand suppliers to generate intellectual capital in theform of products and services which are valued by

customers. The net revenues from whom meetfiscal obligations to government and service thefunding. If this circuit has created value, thenequity rises and collateral can be used to lever debtto fuel business expansion. The circuit of valuecreation becomes a virtuous spiral. Using threecustomised parameters and value added as anintegrating mechanism, the model in Fig2 isespecially useful where management seek tobalance financial reward with social responsibility.

CASE STUDY

In 1994, South Africa witnessed a peaceful transition from minority rule under the apartheid system to agovernment elected by universal suffrage. The African National Congress has used the power of super-majority cautiously and incrementally to reverse the social and economic injustice of white hegemony.Monetarist and liberal supply-side policies have been adopted in parallel with social emancipatory measures.With real growth in gdp over the first decade at half the target level of 6%, senior government figures haverecently expressed criticism of economic empowerment. EE is an integrated and coherent socio-economic process that directly contributes to the economic transformation of South Africa (DTI, 2004:12). It isrooted in four principles: broad-base; inclusivity; governance; growth. A scorecard is used in all publicsector procurement decisions, but has become an important device to establishing empowerment credentials.An updated scorecard followed the Broad-Based Black Economic Empowerment Bill, 2003 with targetscovering equity ownership, management, employment, procurement, skills & enterprise development.

Stakeholder relations have thus been formally structured and offer an ideal if atypical context for study.

DEBT

GOVERNT

EQUITY

SUPPLIER

CUSTOMER

EMPLOYEE

CLAIM

CONTRIBUTION

COMPLIANCE

VALUE ADDED

Figure 2circuit of

value


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Fika (a pseudonym) is a medium-size company (of 1600 employees & turnover of SAR1.5bn) based atvarious sites in South Africa but with markets which reach into sub-Saharan Africa and Europe. Its twolargest shareholders, neither of whom have majority control, are public utilities. Fika is therefore, indirectly,a para-statal but profit making since its inception in the post-apartheid era. None of Fikas shareholding iscurrently owned by a BEE fund, but over 70% of its suppliers are BEE accredited, the majority of its Boardand executive management is black, 50% of its employees are black and 30% female. It invests in manycommunity projects. It has always been the board of directors intention to ultimately list the company onthe Johannesburg Stock Exchange (JSE). However, shareholders are required to seek approval of theMinister of Public Enterprises which has changed hands following the election in April 2004. The DTI hasset a target black ownership of 40% of the JSE to be black-owned, and Fikas strategic options are currentlyconstrained by ministerial debate and indecision.

Research Design

The field research took place over a five week period in July 2004. It was conducted in two phases with thefirst passive phase an assessment of local stakeholder context by interview and phenomenological inquiry.Knowledge of the model was withheld until the second active phase out of concern that it would distortdescriptive and normative responses on the nature of and attitude toward stakeholders. A researcherundertook 16 formal interviews with directors of the company, members of its Executive, and importantstakeholders. Interviews were recorded and a transcript sent to the respondent with a request for correctivefeedback. Triangulation was attempted between interviewees and between stakeholder groups, by informaldiscussion outside the interview set, and by reference to internal and external documentation. Access tosensitive information was never withheld but was always in response to a request from the researcher actingunder a veil of ignorance. It is possible then, that other material relevant to the study remained unknown tothe researchers. A formal presentation was made to ExCo during the visit when the passive phase wasalmost concluded: a researcher explained the model and concept of value creation, the consensus frominterview and his interpretation. The active phase involved review and proposed adaptation of strategicperformance monitoring systems to reflect the stakeholder context and consensus from the passive phase.Ex-post interviews followed a report with, separately, the President, MD, and FD.

Several investigative questions governed the study:- Who do management regard as stakeholders? Is the choice determined by ethical or instrumental considerations? What is the stakeholders perception of this relationship? What are appropriate mutual performance monitoring criteria? Can financial value be used as an integrating mechanism?

Stakeholder mapping

Each executive was asked to identify stakeholders based upon Freemans definition. Where a respondenthad not initially selected one of the common groupings - notably the community, banks, suppliers andExCo, he or she was prompted. Fig3 shows all groups for which there was more than one nomination,ranked using a Likert scale where a 5 represented high significance (and 1 none) to Fikas objectives. Anaverage score for unsolicited responses is compared with a score that included those prompted for which ahalf-weighting was attached (to reflect researchers intervention). The ranking is based on overallassessment of the four criteria, and is approximate because of the subjective nature of ordinal scale.

The customer, universally significant, is ranked top. Ownership featured next: ultimate shareholder of Fikais the government, commented the FD on political control over the two major shareholding para-statals.These, it should be noted, also dominate custom (representing 70% of sales) but only one executiverespondent failed to differentiate between the sales and equity relation. The researchers have maintained thisdistinction. The employee was universally nominated, but variously ranked. Half of Fikas staff areunionised and three members of ExCo regarded the union as a distinct stakeholder. The MD saw it expresslyas a political lobby. Three respondents subsumed ExCo into employees to them, management is simply the

executive arm of the Board which sets the direction. The FD alone identified the Board as a distinctstakeholder, because the Board acts as agents for all stakeholders.


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Stakeholder unsolicited

score

mode frequency

of selection

weighted

score

Rankapprox

Customer 4.9 5 8 4.9 1

Minister of Public Enterprises 3.9 5 7 3.9 2

Employee 3.8 4 8 3.8 3

Shareholder 3.3 5 6 3.5 4Technical partner 1.8 4 4 2.2 5=

Supplier 1.5 3 4 2.2 5=

Executive Committee 1.5 4 3 1.9 6

Community / Society 0.8 None 3 1.6 7=

Other government ministries 1.5 None 3 x 1 1.5 7=

Banks & financial institutions 0.3 2 1 1.5 7=

Trade union 1.3 3 3 1.3 7=

FIKA Board of directors 1.2 5 2 1.3 7=

The top four stakeholders replicate a survey of US directors undertaken by Wang & Dewhirst (1992) exceptthat the position of employees and shareholders was reversed. Of considerably less significance are

suppliers and technology partners, initially ignored by executives without linked organisationalresponsibilities. With reserves of cash and no debt finance, the low recognition of banks was notunexpected. Given the political initiatives to redefine the role of business in South African society, of whichFika is a leading exponent, it is surprising that prompting was necessary for the community. Only the MD,FD and the development executive identified it, and assigned relative low significance. No discernibleclustering of response was evident by race or origin. To the non-executive interviewees, employees werethought the most significant stakeholder, followed by the customer and shareholder. The Minister of PublicEnterprise was regarded as of the highest importance by the President. There was broad agreement withexecutive respondents over the composition of the main stakeholders but the non-executives consideredstakeholders as more significant to the achievement of Fikas objectives.

Both non-executive respondents viewed stakeholding as a symbiotic relationship, not influenced by

power, level of interest or compliance with socio-economic policy. 75% of ExCo regarded it as reciprocalthough a majority also identified threat. Those that saw it as uni-directional were considering the impactupon Fikas aims with the MD, among others, regarding power as a determining force. However thedevelopment executive, who saw stakeholding in beneficial terms alone, regarded any abuse of power asundermining the spirit of the relationship which he expressed in terms of ubuntu - solidarity of mutualinterest. For the same reason, he did not believe that stakeholding should be influenced by compliance with BEE requirements - a view shared by fellow executives.

Who do management regard as stakeholders? This case research broadly endorses the findings of theCorporate Report (1975) premised in the model. Almost universally, respondents within and without, soughtmutual benefit in a stakeholding that conveyed a spirit of collaboration that went beyond contracting. Thismight be described as the normative position. In reality, contractual terms, imbalance of power and therecognition of threat, influence response and relations emerge out of protective self-interest. Perhaps thisleaves the ethical high ground at Board level, but what about the position of management themselves?Firstly, the researchers do not accept the view of some of the ExCo that they are simply part of theemployees because there is a material difference in the impact of their decisions on the fortunes of thecompany and the geometry of its stakeholding. However, if they are purely the executive arm of the Boarddoes not that mean that the board occupies that nexus? If the Board sees itself as solely an agent of theshareholder, then a stakeholder orientation should not be possible. If the Board is the manifestation of asocially responsible firm, then its directive role could justify its designation as a stakeholder. In the case ofFika, the Board do not appear to see themselves as simply agents of the shareholders and elevate the roleplayed by other stakeholders in the companys success. They place ExCo with primary responsibility forfinancial return, acting within the wider (stakeholder) governance of the Board. They set the moral tone and

define the stakeholder map the normative posture of the company; ExCo are the instrument of the Boardand act in an instrumental manner with stakeholders to deliver financial return to shareholders.

Figure 3


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Stakeholders as means or ends?

No respondent, including non-executive, viewed Fikas objectives solely in financial terms or subordinatedcommercial and social aims to financial goals. Invariably they saw a symbiosis between the two:-

We have a social responsibility to our employees and the people we directly affect; if you cannot

meet those social objectives they will influence the financial performance. (FD)

All bar the marketing executive accepted this moral obligation and all bar the President endorsed theinstrumental use of stakeholders as means to achieve financial goals. This apparent paradox between thedeontological and teleological is perhaps best reconciled by the development executive in using goals scoredin football as a metaphor for financial success in business: you dont play to win - you play a good game,and a win has got to come out of a good game. The consensus among ExCo inverts the notion put forwardby Goodpaster (1991:410) to describe the paradox. Paraphrasing his text: it is essential, yet illegitimate, toorient decisions that go beyond ethical considerations to consider strategically financial ones. Ahypothetical dilemna was posed to interviewees to test this abstract moral tension. It presented a decisionwhich would increase Fikas profitability, but only by retrenching a disproportionate number of blackemployees. The reaction confirmed the duality: four [including the non-executives] gave an unconditionalno, the dissenter [a white executive] yes, and the remainder contained caveats as illustrated in responses

from first the FD and then the MD.No, providing the companys survival is not at issue. Youve got to balance financial

returns against social impact: there is strategic value in a strong BEE profile

Fika is a youthful organisation described as immature by one external respondent and has yet to face afinancial crisis where such a dilemma between financial & social interest presents itself. BEE may be abusiness imperative (MD) in the new South Africa but, in the short-run the business imperative is survival.This should not be construed as endorsing shareholder primacy as financial survival is not the same as profitmaximisation. It is defined by cash adequacy. There is thus no ethical conflict at this level betweenshareholder and stakeholder interests. Perhaps there is a corporate equivalent of Maslows hierarchy ofneeds where once fundamental economic survival is assured, management act to satisfice (Williamson,1964) by distributing value created amongst all stakeholders [including equity] in relation to contributed

resource. Only then, at the aspirational end of the hierarchy, does management have discretion tomaximise shareholder wealth or social welfare. Fika is currently in the intermediate zone, placing its ethoswith stakeholders in the expectation that they are the instrument of shareholder reward.

Performance Management

As well as customising the stakeholder model to represent the findings at interview, researchers examinedthree other models of corporate performance management relevant to Fika and its context. These were:-

BBBEE scorecard (SA Dept of Trade & Industry, 2004) Balanced scorecard (Kaplan & Norton, 1992), adapted to a Group Performance Compact which

lay at the apex of departmental/staff appraisal system. It was not part of routine performance review

Shareholder model, based on agency theory with a singular financial focus. ExCo uses PBIT.

The motive for the examination was two-fold: firstto establish the potential dimensions of performanceappropriate to Fika; second, to supplementrespondents input on appropriate metrics for thosedimensions. In addition, a researcher reviewedinternal management accounting systems atcorporate and SBU level to establish the scope anddepth of data available and to discover any localperformance systems. The result, presented to ExCo,displayed four models against the principal

dimensions, and is shown in fig4.Strictly Confidential

Enterprise

Management

Employees

SkillsSuppliers

Partners

Customers

Society

FinancialInstitutions

Government

STAKEHOLDER MODEL

FIKAs PERFORMANCE COMPACT(developed Balanced Scorecard)

BBBEE SCORECARD

SHAREHOLDER MODEL

Owner

Strictly Confidential

Enterprise

Management

Employees

SkillsSuppliers

Partners

Customers

Society

FinancialInstitutions

Government

STAKEHOLDER MODEL

FIKAs PERFORMANCE COMPACT(developed Balanced Scorecard)

BBBEE SCORECARD

SHAREHOLDER MODEL

Owner

Figure 4


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What are appropriate mutual performance monitoring criteria? The researchers conclusion was that theextant Performance Compact offered the most extensive coverage of performance dimensions prioritised byFikas management but required modification to make it more relevant and inclusive. Selectiveempowerment targets are incorporated in this compact, implying compliance is a criteria for judgingrelations despite its dismissal at interview as a factor. It is thought that this inconsistency is due their havingbeen already met, and therefore take on the guise of hygiene factors, ceasing to provide a motivation forperformance improvement. Outside the ambit of the compact lie society & financial institutions, whichattracted low significance at interview, and management, whose performance is arguably monitored throughappraisal under subsidiary compacts. However weaknesses render it unbalanced and incomplete as a multi-dimensional performance monitoring device: the government is ignored; the weighting adopted betweenperspectives did not reflect researched consensus; chosen indicators were too many and historic in nature.

An alternative compact was developed by the researchers [fig5] in which the perspectives of the BalancedScorecard [shown in the top group of four] are enlarged to embrace the stakeholders as mapped out for Fika.The criteria adopted along the value chain on the left, for the government and for the learning & growthperspective tend to be leading with lagged financial indicators for the shareholder. This concurs with thecorporate ethos of Fika and Kaplan & Nortons principle. Criteria represent the two-way relationship

endorsed by interview: the contribution to Fika, the claim upon Fika, and compliance (in South Africa, thisrelates to BEE and forges an extra criterion in each perspective except customer & government). Valueadded is the integrating metric, common to all. Figures are not shown to preserve commercial anonymity.

Figure 5

CUSTOMER $income SHAREHOLDER $earnings

Forward order book Board support

Service level breaches RoE (& PBIT)

N/a BEE target

EMPLOYEE $value add Learning & Growth N/aIncome per emp/ % chargeable time Service / customer innovation rate

Indy salary benchmark Skills development index

BEE target BEE target

TECHI PARTNER $value add GOVERNMENT $tax

Gross margin / service level breaches Political barometer

Creditor days

BEE target

Issue commentary

KEY:-SUPPLIER $inputs STAKEHOLDER

VALUEADDED

Cost reduction targets CONTRIBUTION to FIKA

? (not interviewed) CLAIM on FIKA

BEE target COMPLIANCE with BEE

Is value added an appropriate integrating mechanism? As a reformatting of conventional profit, it is readilyassimilated into strategic review and provides an attribution of customer generated wealth (sales turnover),through each stakeholder (value added), to shareholder wealth (retained profit). Its drawback lies in itsshort-term orientation and basis in profit. It ignores cash, important in situations of business survival, anddoes not explicitly force attention on the future of the business. Since the ultimate value of the company isdependent on market perceptions of its future potential, this is an important limitation.


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Conclusion

This research explored the use of a model that represents the ethical tension in two conflicting paradigms ofstrategic financial management: agency theory and stakeholder theory. Application of the model exposedweakness in the companys value creation process but, by accommodating monitoring requirements of thehost, weaknesses were exposed in the construction of the model itself. The resulting adaptation possessedthe following characteristics: it depicts all stakeholders of significance to Fika; reconfigures the geometry toreflect a conventional value chain; adds a non-stakeholding dimension, learning & growth, therebyincorporating the perspectives of the balanced scorecard; retains the three dimensional criteria for eachstakeholder and value added as an integrating metric. In short, it offers a unified framework, tailored tocontext, that provides leading indicators of performance by stakeholder, linked through the value creationprocess, to lagging financial returns to shareholders. The case demonstrates how the profit motive can bereconciled with wider social responsibility. Irrespective of whether advocated by the company or imposedby government, obligations to stakeholders become a constraining framework within which firms competefor investment. Within a national polity there should simply be a level playing field. It is at the inter-nationallevel in an era of globalisation that the treatment of respective stakeholder groupings influences nationalcompetitiveness. The ethics of business and society are therefore not a decision for business, but for society.South Africa has chosen to trade off short-term economic growth for social justice with the expectation that

this will yield greater equality and prosperity in the long-term. In the same way, a company may trade offshort-run profit maximisation for sustainable development. The central role of Fikas Board in recognisingthe interests of their stakeholders, whilst leaving its executive arm to focus on shareholder returns, places itin the vanguard of contemporary developments in corporate governance elsewhere in the developed world.

Further research is encouraged on the link between various notions of business value, economic growth anda nations wealth. The limitations of value added as an integrating mechanism require exploration in thisregard. Further research may also be merited upon our conjecture that a Boards orientation toward itsstakeholders is a function of survival and success.

References

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IAABD Paper(1)