Week 7 (Chapter 5: Causal Claims, Kaplan & Norton: Balanced Scorecard, Barker,… The Future of ESG… is Accounting)

Question 1

Define Causal Claims

Answer 1

Argue that certain events or factors (causes) are responsible for bringing about other events or situations (effects)
Ex. may determine that sales of frozen foods are falling because consumers are increasingly concerned about high salt content in their foods.
- Concern for salt is the cause
- Falling sales is the effect

Question 2

What are the three Rival Cause types?

Answer 2

1. Difference between groups
2. Correlation between characteristics
3. Post hoc, Ergo Propter Hoc Fallacy

Question 3

What is the question you need to ask yourself when figuring out differneces between groups?

Answer 3

“Are there any other differences between these groups that may be relevant”

Question 4

Academy Univeristy programs (cause) students to better job offers (effect) Is an example of what type of Rival cuase?

Answer 4

Difference between Groups

• The Academy has more rigorous admission requirements, students are smarter
• The Academy is located in an urban space, where students can find good jobs, whereas Tower is in an rural setting with a few jobs available

Question 5

Define Correlation between Characteristics?

Define Correlation, Casual Link, Reverse Causation, and Third Factor

Answer 5

Correlation: Two things related to each other

Causal Link: Correlation between two factors

Reverse Causation: when two factors A and B are correlated, it may be that A is causing B but it is possible for B to cause A - the linkage works in reverse

The Third Factor: the two items may only have a high correlation because there is a third factor that is linked to both of them (Ex. Ice Cream vs. Heart Attack vs. Temperture (third factor))
- The third factor is the hot temperature that produces both heart attacks and consumption of ice cream

Question 6

Stronger company vision (cause) leads to better company performance (effect)… Is an example of what type of Rival Cause?

Answer 6

Correlation between Characteristics

Question 7

Define the Post hoc, ergo propter hoc fallacy

Answer 7

Post hoc (After this) ergo (therefore) propter hoc (because of this)
- One event following another does NOT mean the first caused the second

Question 8

A new policing strategy (cause) lead to a decrease in crime (effect)… what type of rival cause is this?

Answer 8

Post hoc, ergo propter hoc fallacy
- It may be that the 12 months have seen horrible weather - colder, rainier, snowier, etc.
After the new policing strategy was introduced, the crime rate decreased; therefore, we assume that the decrease in crime must have occurred because of the strategy.
The fallacy sh

Question 9

Define Experimental Research

Answer 9

Aim is to control for (hold consistent) all variables except the presumed cause and effect (i.e. to rule out rival causes)

Question 10

What are the four key things to note will assessing causal arguments

Answer 10

1. Temporal Priority: event A (the alleged cause) always precedes event B (the alleged effect).
2. Covariance: The two events must vary together; as one varies (e.g. increases or decreases), the other also varies (increases or decreases).
3. A reasonable mechanism should be conceivable that enables the causal relation between two events
4. Have other possible causes been ruled out?

Question 11

Kaplan and Norton: Define the Balanced Scorecard

Answer 11

a set of measures that gives top managers a fast but comprehensive view of the business

• Scorecard provides financial measures on action taken
• It provides operational measures on customer satisfaction, internal processes, and innovation activities.
• The operational measures are drivers of future financial performance.
• The scorecard minimizes informational overload.
• It allows mangers to locate the source of improvements and to see if some improvements were made at the cost of another

Question 12

Who founded the Blance Scorecard?

Answer 12

Kaplan and Norton

Question 13

What was Kaplan and Norton’s argument for the The Balanced Scorecard

Answer 13

Argue that traditional measurement system has control bias: managers set objectives and measured to see if employees took action. Instead, the balanced scorecard replaces control with strategy, enabling all employees to act towards the overall strategic vision.

Question 14

Kaplan and Norton: What are the 4 links to measure of performance to the Balance Scorecard

Answer 14

1. Financial Perspective (How do we look to shareholders?)
2. Internal Business Perspective (What must we excel at?)
3. Innovation and Learning Perspective (Can we continue to improve and create value?)
4. Customer Perspective (How do customers see us?)

Question 15

Kaplan and Norton: Define Customer Perspective

Answer 15

Companies must translate their customer oriented mission statements into concrete goals and measures of what matters to customers (time, quality, performance/service, and cost).

Question 16

Kaplan and Norton: Define Internal Business Perspective

Answer 16

The internal perspective focuses on processes that drive customer satisfaction as well as core competencies necessary for market leadership. To achieve goals in these areas, managers must connect them to measures of employee action at local levels.

Question 17

Kaplan and Norton: Define Innovation and Learning Perspective

Answer 17

Due to intense global competition, companies must constantly monitor its ability to introduce new products and capabilities as well as make continual improvements to its existing products and processes.

Question 18

Kaplan and Norton: Define Financial Perspective

Answer 18

Some criticize financial measures for backward looking focus, arguing that companies should focus on operations, which will determine financial success.

Question 19

Who wrote the The Future of ESG Is … Accounting?

Answer 19

Barker, Eccles, and Serafeim

Question 20

Barker, Eccles, and Serafeim: what is the major point of that article?

Answer 20

no universally adopted standards for how companies can measure and report on their sustainability performance (many NGOs; confusion)

Question 21

Barker, Eccles, and Serafeim: What is the company/foundation called that will change how companies measure their sustainability

Answer 21

IFRS Foundation (International Financial Reporting Standards)

Question 22

Barker, Eccles, and Serafeim: How will the IFRS tackle Corporate Sustainability?

Answer 22

(Background) IFRS oversees International Accounting Standard Board (IASB), which sets financial reporting requirements for most companies in the world

• IFRS proposed to create parallel Sustainability Standard Board (SSB)
  SSB would allow integrated reporting (connect sustainability and financial performance)

will then enable investors to understand the relationship between sustainability and performance success better… enable dialogue between investors and companies)