Introduction
Measuring social performance is difficult, however, because of its link to the issue of organizational effectiveness an organization’s social performance is an indistinguishable component of its effectiveness. Social performance is adequately defined as the extent to which an organization meets the needs, expectations, and demands of certain external constituencies beyond those directly linked to the company’s products/markets. It is also referred to as participant observation, ecological model, or external effectiveness. Its measurement, involving the perceptions of all external constituencies in an overall index, is at best impractical (, 1998). One approach, however, is to develop reputational indices, listing companies exhibiting good or bad social performance. The relationship between social disclosure, social performance, and economic performance is best expressed by the view that social responsiveness requires from management the same superior skills required to make a firm profitable. Socially responsive firms in terms of social disclosure and social performance should outperform non responsive or less responsive ones in terms of profitability as measured by accounting variables such as a rate of return on investment, and market variables such as a differential stock price return (, 1998).
The last twenty years have seen profound changes to the economy. Many commentators have referred to the arrival of the environmental issue in the mainstream of business life. More recently the arrival of social issues into the business debate has gained attention and is being seen by some as the next wave. These two trends are often put forward as being what sustainability is about the integration of social and environmental issues into our decision making as a society. One of the key outcomes of this evolution is a changing role for business in society. Another is a shift in how change occurs in the economy when social values change. One of the reasons this is important is because when people see sustainability as only the incorporation of environmental and social questions into decision making. If people will examine it in the context of some broader shifts in society, then responding to it becomes not only easier, but it also becomes an opportunity with a series of benefits. The environmental issue has moved from the fringe to the mainstream. It has shifted from being an issue which needed to be addressed, and into a basic part of society’s values and beliefs. Environmental and social movements tend to break down in similar ways. Despite public positions advocating radical change, many environmental and social change organizations are internally very conservative (, 2000). Business has a very important responsibility to the society. It has the responsibility to divulge any information that is needed by the society. Such information can be in the form of internal and external auditing. The accelerated new expectations of society have put new pressures on the corporate management, their boards of directors, and the independent external auditors for socially oriented action. The paper will access whether the internal auditor should be providing services to the corporate management or the board of directors or both.
Achieving sustainable competitive advantage
A customer may defect to a competitor even if satisfied with the current provider because the competitor may be offering a value bundle with the perceived potential for a higher degree of satisfaction for that customer. Therefore, firms have to strive to achieve higher levels of satisfaction than their competition by providing superior customer value. This is the essence of achieving a sustainable competitive advantage. Technology alone will not provide a competitive advantage (, 2003). The combination of superior technology and superior employees with a service orientation will contribute to achieving sustainable competitive advantage. It also quickly becomes evident that they need suppliers as well as distributors and agents who have a similar and compatible culture. Thus, there are two strong themes in any discussion of creating superior customer value at a sustainable profit and this includes a customer-focus imperative and a service orientation (, 2003).
If all aspects of the firm and how the firm creates and delivers value to the customer are focused on the customer, the firm can provide a superior level of customer value. Such a firm is well positioned for a sustainable competitive advantage. A customer focus necessitates a deep understanding of customers and their activities, interests, and opinions around the particular value or solution that the firm is providing. It should be an attitude that is pervasive and that permeates throughout the firm such that it becomes ingrained as a culture. Once this focus becomes a given, then the firm will find itself in the mode of serving the customer while ensuring a reasonable profit (, 2003). Every firm in any industry provides some customer value. The firm that provides superior customer value is the one that has a sustainable competitive advantage. Firms compete with each other on differentiable aspects of the total solution. If organizations can conceptualize that every product has parts that are commodities and parts that differentiate it from others, superior value is in the augmented product, not in the conceptual core (, 2003).
As firms focus on customer needs and become service oriented to deliver satisfaction, there are favorable ripple effects throughout the firm. Consistent delivery of customer satisfaction persuades customers to be loyal because perceived risk in buying a product from that firm is substantially reduced. By way of their continued patronage, they become more valuable to the firm. When customers are loyal to the provider by choice, it is also in their best interest to support the provider because the prosperity and longevity of the provider is beneficial to the customer (, 2003). When employee loyalty is high, employees are likely to be more productive and to be providing quality products and does for the customer and everything associated with it (, 2003). To achieve a sustainable competitive advantage companies have to make sure that they have a good relationship with its society. The company can have a good relationship with the society through providing them with necessary information. Through reporting audit information to management and directors the company can prepare to give the best information to the society.
Report to management
Comprehensive plans have three essential ingredients: evidence regarding internal and external business conditions upon which to predicate planning decisions; planning decisions themselves, including predefined descriptions of success and management’s approach to achieving success, along with a rationale for selecting the approach to be taken rather than alternatives; and, finally, a deliberate, orderly approach to implementing strategy through clearly described actions with assigned management responsibilities, schedules, costs, and benefits as well as a procedure to monitor progress toward objectives and initiate re planning efforts when they are needed ( 2004). Roles of top management team members in comprehensive planning will vary in response to the firm’s size and structure, the CEO’s management style, the industry’s culture, and so on. Thus, it is difficult to provide categorical guidelines for planning roles of senior executives, other than the chief executive and the planning executive (, 2004).
However, it will be demonstrated in a subsequent chapter that participation of management team members in planning is likely to facilitate strategy implementation; that their consensus on strategy is likely to enhance financial performance; and that some discord on goals and objectives probably facilitates a broader examination of alternatives and, therefore, enhances performance as well (, 2004). Top corporate management provides operating management with the corporation’s goals, preliminary strategic objectives, capital allocations, and expected rates of return. Operating management submits preliminary forecasts of market conditions, financial performance potential, and preliminary statements of its own objectives. Differences between corporate and operating expectations then may be resolved; where necessary, objectives can be amended before more detailed planning begins (, 2004).
Firms with greater perceived organizational complexity tended to have more sophisticated planning systems, implying that complex operating systems may need the integrating benefits that comprehensive planning can provide to process information and/or revise strategy effectively Diversified firms with fast growth rates were characterized by a decentralized but well-coordinated management structure; a participative planning style in which top corporate management remained closely involved; and the use of forecasts in control procedures(, 2004). Diversified firms with high profit margins were characterized by less involvement of top management in the planning process. However, those with the highest profit margins also tended to have more formalized organizations and more effective coordination than others. Corporate management should be able to concentrate resources where prospects for growth and earnings are currently highest, and shift allocations between portfolio businesses as their market opportunities shift (, 2004). Internal Auditors should report to the management about the different problems they see within the company so that the management can immediately act on it.
Report to the directors
The board of directors plays two major roles in the corporate governance structure of the firm. The first role, which is determined by law, is the control function. Corporate law requires that the board review and approve management actions to make sure that they are consistent with the interests of shareholders. A second function of board is to provide the firm with access to the resources and expertise it needs to compete successfully ( & , 1998). Directors who are members of several different company boards provide the firms’ executives with information concerning alternative strategies and organizational practices that are being pursued or considered by related firms and industries. In today’s new competitive environment, firms have been developing new approaches to organizing. One major trend is that all firms are trimming corporate staff and middle management positions and pushing the responsibility for decision making to lower levels of the organization ( & , 1998).
Top management is increasingly granting operating units greater autonomy, with unit managers given discretion over all the resources their unit requires to do its work. This increases the speed with which the firm can react to competitive change. Organizations no longer have the time for lengthy communication and debate. When a firm delegates decision making to lower levels of the organization, it eliminates supervisory positions. That means eliminating a level of control. As a replacement to this control system, corporations have come to rely more heavily on new compensation systems to align the interests of management with shareholders. Everyone is required to justify their decisions on the basis of the anticipated impact they will have on shareholder value ( & , 1998).
To compete successfully into the twenty-first century, firms must develop the capacity to change quickly and effectively. This means that the corporate governance process will have to become more responsive to shareholders’ interests. The solution lies, most importantly, with the firm’s executive team and a rejuvenated board of directors. It is not enough that the directors be employed outside the firm they also must be independent of the chief executive officer. Additionally, directors must have the knowledge and experience to be able to challenge the firm’s management. In addition, directors must have access to whatever information they need to make an objective evaluation of the firm’s executives. They cannot rely on the chief executive as the sole source for the information on which they base the executive’s performance evaluation. To get directors to think like the owners they are supposed to represent, reforms should include a contingent compensation system. Directors should receive a larger portion of their compensation based on stock options rather than a flat fee. This is similar to the approach that is advocated to get management to align its interests more closely with those of the shareholders ( & , 1998).Internal auditors should report to Directors so that they can determine what part of the company is causing the problems and they can give it proper solution.
Relationship with auditors
Audit is used to serve two purposes in both the public and private sectors. First, it can act as a tool of management. Secondly, audit can be used as a form of external review, conducted by an independent auditor in order to hold the organization and its management to account. This is external audit. Although the two types of audit serve different purposes and different audiences, they are linked. The purpose of internal audit is to improve value for money, avoid and detect fraud, and check and improve the financial systems. These are not dissimilar from the functions of external auditors, and clearly there is a degree of overlap. This allows the external auditor to rely on the work of the internal auditor if he is satisfied that the internal audit findings are accurate ( & , 1999). Therefore, the closer the fit between the internal and external processes the more efficient and effective the latter is likely to be. The independence of an external auditor is vital to enable the auditor to perform his functions properly. In the private sector, the internal auditor’s basic role is to certify annually, in a report to members, whether or not the accounts of an organization give a true and fair view of the state of that organization ( & , 1999).
The process of audit provides information that can be relevant to all dimensions of accountability. As regards managerial accountability, there is clearly an overlap between the work of the auditor in evaluating systems for achieving value for money (vfm) and the work of management, which is responsible for delivering vfm ( & , 1999). Audit arrangements emphasize the production of comfort; this reflects an institutional need for auditing not to be too successful in finding problems and in producing discomfort by reporting these problems. This tension between comforting and criticizing has deeper implications for the role of auditing as a basis for public dialogue (, 1997). Internal and external auditors have different values to an organization. Both the internal and external auditors have different capabilities and responsibilities. The internal and external auditors are expected to perform well. They should work together so that important auditing information can be related to the organization. The auditors have to have a good working relationship with the other auditors for the achievement of their goals.
Conclusion
Business has a very important responsibility to the society. It has the responsibility to divulge any information that is needed by the society. Such information can be in the form of internal and external auditing. The accelerated new expectations of society have put new pressures on the corporate management, their boards of directors, and the independent external auditors for socially oriented action. Auditors should report to the management about the different problems they see within the company so that the management can immediately act on it. Auditors should report to Directors so that they can determine what part of the company is causing the problems and they can give it proper solution.
Bibliography
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