Management control systems in response to social and environmental risk in large Nordic companies

Natalia Semenova

doi:10.1186/s40991-021-00067-5

Natalia Semenova

Open Access

https://doi.org/10.1186/s40991-021-00067-5

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Abstract

This empirical study investigates the relationships between management control systems and social and environmental risks. Building on Simons’ Levers of Control conceptual framework, this study proposes that companies facing social and environmental risks will enhance the quality of their management control systems by integrating social and environmental elements into management control systems in order to manage the related risks. The study uses a longitudinal dataset of the 1179 largest listed Nordic companies for the period 2014–2018. The multivariate regression confirms a negative relationship between the social and environmental integration and social and environmental risks. The results indicate that the social and environmental integrated performance measurement system and strategy implementation are not congruent with the social and environmental risks that the companies face. Nordic companies have not adopted the social and environmental integrated measurement system and strategy in response to social and environmental risks. When the number of social and environmental incidents increase and companies meet high levels of social and environmental risks, their management control systems do not match the related risks. Such social and environmental integration should be improved in order to prevent wider negative implications of the incidents on the natural environment and society in large.

Highlights

In recent times, attention has been paid by academics and professionals to company management of social and environmental (SE) risks emerging from social norms, such as the United Nations Sustainable Development Goals and Global Compact principles on environmental, human, and labor rights, and anti-corruption matters (Arjalies & Mundy, 2013; Sands et al, 2016)
Drawing on the boundary Levers of Control (LOC), this study suggests that SE risk management is a boundary element of Management control system (MCS)
The columns report the coefficients of depended variables, performance measurement systems, Performance measurement systems (PMS), and corporate social responsibility (CSR) strategy, CSRS and their two-tailed tests of significance

Summary

Introduction

Attention has been paid by academics and professionals to company management of social and environmental (SE) risks emerging from social norms, such as the United Nations Sustainable Development Goals and Global Compact principles on environmental, human, and labor rights, and anti-corruption matters (Arjalies & Mundy, 2013; Sands et al, 2016). The sustainability literature defines SE risk as a company’s adherence to social norms that are integral parts of a social contract (Capelle-Blancard & Petit, 2019; Deegan, 2015; Dimson et al, 2015; Hoepner et al, 2018; Kruger, 2015; Kumarasiri & Gunasekarage, 2017; Schultze & Trommer, 2012). The consequences of incidents can be linked to failed internal SE risk management, a potential threat to a company’s legitimacy and substantial and non-negligible costs imposed on a company by society (Aerts & Cormier, 2009; Deegan, 2015; Hoepner et al, 2018; Kruger, 2015).

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