Strategic audits are examinations and evaluations of strategic management processes including measuring corporate performance against the corporate strategy. Whenever a deficiency is noted or performance of an organization is sub-par, the organization may elect to perform a strategic audit. This may be done with in-house auditors, or an audit firm may be contracted to perform the audit.
The auditors will audit performance of the organization against the current corporate strategy and seek to identify problems within the current strategy that may be tied or can be traced to poor performance. Upon completion of the audit, a report will be created regarding the auditing firm or group’s findings and submit the report with recommended remedies to the management of the organization. The organization will then seek to implement the proposed remedies with hopes of increasing organizational performance.
Donaldson has specified five elements of strategic audit. These are: 1. Establishing criteria for performance
2. Database design and maintenance
3. Strategic audit committee
4. Relationship with the CEO
5. Alert to duty (by board members)
The performance criteria should be simple, well-understood and well- accepted measures of financial performance. A number of measures of financial performance are available. One common measure, used by many companies, is return on investment (ROI). The ROI can be analyzed as follows; * Profit per unit of sales (profit margin);
* Sales per unit of capital employed (asset turnover); and, * Capital employed per unit of equity invested (leverage). If these three ratios are multiplied together, the resultant ratio will give profit per unit of equity
To calculate different performance ratios and monitor performance criteria, a proper database is essential. This involves both database design and maintenance. This has to be a regular and an ongoing process. Data on financial performance can sometimes be sensitive to the managers/ employees of a company. It is, therefore, suggested that financial and related data design, maintenance and analyses should be entrusted to the auditors of the company or outside consultants.
For effective strategic audit, a strategic audit committee should be constituted. The committee would decide on the frequency of their meeting, periodicity of interaction with the CEO or top management of the company and, also when they should make presentation to or hold discussion with the full board. If properly conceived, designed and conducted, strategic audit, more than management audit, can be a powerful tool for monitoring the strategic process of a company and also strike a good balance between corporate strategy and corporate governance.
According to United Nations Industrial Development Organization, Corporate Social Responsibility is a “management concept whereby companies integrate social and environmental concerns in their business operations and interactions with their stakeholders” CSR is generally understood as being the way through which a company achieves a balance of economic, environmental and social imperatives (“Triple-Bottom-Line- Approach”), while at the same time addressing the expectations of shareholders and stakeholders”. A company is answerable to its internal stakeholders (owners, shareholders etc). However, a company is also part of the environment and community where it operates. The responsibilities that the organization fulfills or is expected to fulfill to this external community or environment is its Corporate Social Responsibility (CSR).
The conflict between internal and external stakeholders can go much further than mentioned so far. Some feel that this is the most problematic issue in deciding company responsibility. External stakeholders argue that internal stakeholders’ demand be made secondary to the greater need of the society; that is, greater good of the external...