Breaking down the wall of codes: Evaluating non-financial performance measurement

In some third-world factories there is a literal "wall of codes." Posted are dozens of codes of conduct as defined by dozens of customer, firm, and industry groups and a host of certifying organizations. The cost of this wall of codes is clear for managers: They must fill out endless forms and host endless visits from compliance auditors. Less obviously, the wall of codes is costly for consumers and other stakeholders who care about the social performance of businesses. Not only must they pay the (passed on) costs of compliance, but with so many standards they cannot always identify which standards and codes are valid measures of true social responsibility. This article documents the proliferation of metrics and outlines some of the problems regarding reliability, validity, and comparability of existing codes. It examines two large sets of metrics: those used in the apparel industry and those created by the socially responsible investment funds. It concludes with some practical suggestions that will help reduce the burdens on managers and yield more reliable, valid, and comparable metrics.

Duke Scholars

Author Aaron Chatterji Fuqua School of Business