European Management Journal (2013) 31, 209 222

Adam Smith
Business School
journal homepage: www.elsevier.com/locate/emj

How can management control system fairness reduce

managers unethical behaviours?
Pascal Langevin
a
b

a,*

, Carla Mendoza

EMLYON Business School, 23 Avenue Guy de Collongue, 69134 Ecully cedex, France
publique, 75543 Paris Cedex 11, France
ESCP Europe, 79 Avenue de la Re

KEYWORDS
Management control
systems;
Ethics;
Fairness;
Justice;
Slack;
Data manipulation;
Organisational commitment;
Trust

Summary Empirical research has shown that as management control systems (MCS) put
heavy pressure on managers to achieve their objectives, they may induce two types of
unethical behaviour: creation of budgetary slack and data manipulation. Recently, studies
have introduced Organisational Justice theory into the area of management accounting
research and shown the positive effects of organisational justice on managers attitudes
and behaviours. However, few studies have systematically analysed how MCS fairness
reduces unethical behaviours and which characteristics of MCS could increase managers
perception that they are treated fairly.
The purpose of the paper is to contribute to this research. It formulates testable
hypotheses on how some specific dimensions of MCS can enhance perceived fairness,
which in turn helps to reduce the creation of slack and data manipulation through
increased Organisational Commitment and Trust in supervisor.
2012 Elsevier Ltd. All rights reserved.

Introduction
Management control systems (MCS) are widely used in companies. They include all the mechanisms (strategic planning;
budgeting; resource allocation; performance measurement,
evaluation and reward; responsibility centre allocation; and
transfer pricing) managers use to ensure that the behaviours
and decisions of their subordinates are consistent with
the organizations objectives and strategies (Anthony &
Govindarajan, 2007; Merchant & Van der Stede, 2007). More
specifically, MCS provide information that is intended to
be useful to managers in performing their jobs and to assist
* Corresponding author. Tel.: +33 478 337 987; fax: +33 478 337
928.
E-mail address: langevin@em-lyon.com (P. Langevin).

organisations in developing and maintaining viable patterns

of behaviour (Otley, 1999, p. 364). Firstly, MCS help managers to make the right decisions by aligning their objectives with the companys global objectives, and by
informing them of their performance so that they can take
corrective action if necessary. Secondly, MCS are used to
motivate managers: at the beginning of the year, they
enable managers to negotiate their objectives and the resources necessary for their achievement; at the end of the
year, managers performance is assessed by comparing their
results with the objectives. Organizations often link managers material rewards, such as bonuses, to how well their
unit achieves budgeted performance results (Van der Stede,
2000). The ability to meet budgetary objectives is thus a
critical factor in managers performance evaluation. In addition, managers whose units achieve their budgeted goals

0263-2373/$ - see front matter 2012 Elsevier Ltd. All rights reserved.
http://dx.doi.org/10.1016/j.emj.2012.12.001

210
may more likely see themselves as winners which is a
source of psychological rewards such as self-esteem
(Merchant & Manzoni, 1989).
However, instead of motivating managers and encouraging them to contribute to the achievement of company
objectives, MCS may also induce unethical behaviours. In
particular, creation of budgetary slack (e.g., Dunk, 1993;
Merchant, 1985; Onsi, 1973; Schiff & Lewin, 1970; Young,
1985), and data manipulation (Bitner & Dolan, 1998; DeFond
& Park, 1997; Merchant, 1989; Merchant, 1990; Merchant &
Rockness, 1994; Umapathy, 1987) are two unethical behaviours largely observed in organisations.
Slack is generally defined as resources and effort towards activities that cannot be justified easily in terms of
their immediate contribution to organisational objectives
(March, 1988, p. 4). A common type of slack occurs when
managers negotiate highly achievable targets, that is, targets that are deliberately lower than their best-guess forecast about the future (Merchant & Van der Stede, 2007, p.
183). When created during the management control process, slack is commonly called budgetary slack (Lukka,
1988; Onsi, 1973; Schiff & Lewin, 1970). MCS provide managers with opportunities for understating revenues and/or
overstating costs. Such misrepresentation of managers true
performance capabilities will frequently be to their advantage since it provides more readily achievable performance
targets and increases their chances to obtain monetary
(e.g., bonuses) and non-monetary (e.g., favourable evaluations, praise) rewards (Merchant, 1985; Merchant & Van der
Stede, 2007).
The second type of unethical behaviour that researchers
have examined is data manipulation. Management control
systems include performance measurement mechanisms,
which organisations use, during the year, to verify that results are in line with objectives and, at year-end, to evaluate managers performance. During these performance
measurement steps, managers can try to look good by
manipulating the performance indicators (Merchant & Van
der Stede, 2007, p. 185). Data manipulation comes in two
basic forms: falsification and data management. Falsification involves reporting erroneous data, whereas data management, also labelled earnings management, can be
defined as any action on the part of the management
which affects reported income and which provides no true
economic advantage to the organisation and may, in fact,
in the long-term, be detrimental (Merchant & Rockness,
1994, p. 79).
Management accounting research provides considerable
evidence that these behaviours exist in organisations (Libby
& Lindsay, 2010; Merchant, 1985; Merchant, 1990; Onsi,
1973). This is a problem because these behaviours distort
the planning and performance measurement processes,
motivate decisions that are contrary to the organizations
interest, and generate useless costs in the forms of unwarranted rewards. An important issue, yet not much addressed
in the literature, is how to design MCS that avoid or, at least,
limit managers propensity to adopt such behaviours. However, over the past decade, a few management control
researchers have started to use the insights provided by research on organisational justice (Cohen-Charash & Spector,
2001; Colquitt, Conlon, & Wesson, 2001) to show that these
unethical behaviours can be reduced when MCS are perceived

P. Langevin, C. Mendoza
to be fair (Little, Magner, & Welker, 2002; Staley & Magner,
2007; Wentzel, 2004).
Therefore, our purpose is to combine the results produced by research in both management accounting and
organisational justice in order to build a general framework
(Figure 1) that identifies: (1) which MCS characteristics increase their perceived fairness, and (2) how MCS perceived
justice1 reduces managers propensity to create slack and
manipulate data.
The contribution of such an endeavour is to help academics, as well as practitioners, better understand how to design and implement effective MCS.
The paper is organised as follows. In Literature review, we examine the literature to clarify what is known
to date concerning the relationships between MCS
components, MCS perceived justice and managers propensity to create budgetary slack or manipulate data. In
Designing fair MCS to reduce unethical behaviours: identifying key variables, we build a set of propositions concerning: (1) the most important MCS characteristics that are
likely to increase managers perceived MCS justice and (2)
how justice operates, that is to say, the reasons why MCS
that are perceived as fair may reduce managers propensity
to create slack or manipulate data. Finally, in Conclusions
and future directions, we conclude with an exploration of
managerial implications and suggestions for future
research.

Literature review
The unethical behaviours of budgetary slack
creation and data manipulation
Since the seminal work of Argyris (1952), research has
shown that MCS, rather than motivating managers to act
in the interests of their company, may induce them to adopt
unethical behaviours. According to Jones (1991), an ethical
decision is defined as a decision that is both legal and
acceptable to the larger community. Conversely, an unethical decision is either illegal or morally inacceptable to the
larger community (Jones, 1991, p. 367). This definition has
been used in studies looking at ethical issues in the context
of MCS (e.g., Barsky, 2008; Stevens, 2002).
This paper focuses on two types of unethical behaviours:
budgetary slack creation and data manipulation.
There is evidence that budgetary slack exists in many
organisations (Libby & Lindsay, 2010; Lowe & Shaw, 1968;
Onsi, 1973; Schiff & Lewin, 1970).
Similarly, empirical studies have shown that data management is commonplace in organisations (Bitner & Dolan,
1998; Libby & Lindsay, 2010; Umapathy, 1987).
Budgetary slack creation and data manipulation cause
two types of problems. Firstly, they have dysfunctional consequences on the organisation. Slack generates a waste of
resources. Although slack may give managers protection
from unforeseen negative economic changes, if the economic environment eventually turns out favourable, the excess resources will still have been used. As for data
manipulation, it causes bias in the information system.
1
Following social scientists, we use justice and fairness terms
interchangeably (Cropanzano & Stein, 2009, p. 194).

How can management control system fairness reduce managers unethical behaviours

211

Budgetary
slack
creation
Characteristics of the
Management control
System

Perceived
Justice
Data
manipulation

Figure 1

General framework.

Consequently, performance indicators may not be reliable.

For instance, they may not detect certain problems and this
will delay corrective actions and may result in a loss of company competitiveness in the medium or long term.
Secondly, budgetary slack as well as data manipulation
represent unethical behaviours and, as such, raise integrity,
objectivity and honesty issues. When managers create budgetary slack, they present a distorted picture of business
possibilities to their superiors by failing to disclose all the
information they have. In doing so, they increase the likelihood of meeting their objectives and of earning nondeserved performance-dependent rewards (Dunk, 1993;
Merchant, 1985; Merchant & Van der Stede, 2000; Onsi,
1973). By lying on the level of performance they say they
can achieve, managers deceive the organisation and infringe the values of integrity and objectivity.
Similarly, many forms of data manipulation can be
viewed as unethical. Those engaging in data manipulation
can obtain personal advantages through their misrepresentations, such as higher bonuses and undeserved promotions,
at the expense of the others (Merchant & Van der Stede,
2007). Data manipulation also raises objectivity, honesty
and integrity issues.
Research has demonstrated that managers propensity to
adopt such behaviours is related to the level of perceived
pressure to meet annual objectives. For instance, Onsi
(1973) found a positive relationship between managers
needs to create budgetary slack and an authoritarian top
management budgetary control system that places heavy
emphasis on achieving budget targets. Merchant (1985) confirmed that managers propensities to create budgetary
slack do appear to increase if a tight budget requires the
managers to make frequent tactical responses so as not to
incur budget overruns (Merchant, 1985, p. 207). High pressure to meet objectives seems also to encourage data
manipulation. Several studies have documented how control
systems that emphasise the achievement of objectives
motivate decisions that maximise short-run profit at the expense of long-term effectiveness and competitive strength
(Hayes & Abernathy, 1980; Laverty, 1996; Merchant, 1990;
Merchant & Bruns, 1986).
A number of the early behavioural management accounting studies started to identify how MCS should be designed
and implemented so as to reduce unethical behaviours
(Brownell & McInnes, 1986; Dunk, 1993; Merchant, 1985;
Merchant, 1990). More recently, some researchers have
started to highlight how perceived fairness may be a key
mediating variable. MCS perceived as fair may induce positive attitudes and therefore decrease managers propensity
to engage in slack creation or data manipulation.

The following sections examine the concept of perceived

organisational justice and its effects on attitudes and
behaviours.

Organisational justice: presentation

Since French coined the term Organisational Justice in
French (1964), organisational justice has become one of
the most popular areas in organisational behaviour
(Colquitt, Greenberg, & Scott, 2005). It is concerned with
peoples fairness perceptions in their employment relationship. The social science approach of organisational justice is
based on peoples perceptions, such that an act is just because someone perceives it to be just (Fortin, 2008). A common definition of fairness is the extent to which norms of
propriety or entitlement are fulfilled (Lind & Tyler, 1988,
p. 3). Research on organisational justice highlights the key
role it plays in encouraging positive attitudes and behaviours towards the organisation.
Organisational justice encompasses three dimensions: distributive, procedural and interactional justice. Distributive
justice stipulates that managers are concerned with the fairness of resource distribution, such as pay, rewards, promotions, etc. (Adams, 1963; Deutsch, 1975; Homans, 1961;
Leventhal, 1980). The dominant approach for analysing issues
of distributive justice is Adamss equity theory. According to
this theory, people determine whether they have been treated fairly at work by examining their own payoff ratio of outcomes (e.g., size of a raise) to inputs (e.g., level of
performance) and comparing that ratio with the corresponding outcome input ratio obtained by others such as their coworkers (Adams, 1963; Adams, 1965). Procedural fairness is
defined as an individuals perception of the fairness of procedural components of the social system that regulate the
allocation process. The concept focuses on the individuals
cognitive map of events that precede the distribution of rewards, and the evaluation of those events (Leventhal,
1980, p. 35). Norms that employees apply in assessing procedural fairness require, for example, that formal organisational procedures provide them with an opportunity to
voice their opinions (Thibaut & Walker, 1975) and to appeal
against unfavourable decisions (Greenberg, 1986), or that
procedures are applied consistently (Barrett-Howard & Tyler,
1986). Leventhal (1980) identified six criteria of perceived
procedural fairness. Typically, procedures are perceived to
be fair when they are consistent across people and over time,
free of bias, accurate (relying on good information), contain
mechanisms for correcting wrong decisions, adhere to prevalent conceptions of morality and are representative (i.e. take
into account opinions of all groups affected). The third

212
dimension is interactional justice. Bies and Moag (1986) explained that interpersonal treatment is conceptually distinct
from the structuring of procedures, and introduced the concept of interactional justice. By interactional justice we
mean that people are sensitive to the quality of interpersonal
treatment they receive during the enactment of organisational procedures (Bies & Moag, 1986, p. 44). Interactional
justice has been further broken down into informational justice and interpersonal justice (Greenberg, 1993). Informational justice focuses on the justifications truthfully
provided to people. Interpersonal justice deals with treating
people with respect and dignity.
Research offers two perspectives to explain why people
value procedural (and, later, interactional) justice. According to the instrumental view of justice, people do not attend
exclusively to their short-term outcomes. They are
concerned with procedural fairness because it increases
the predictability and favourability of their long-term outcomes (Greenberg, 1990; Lind & Tyler, 1988). The instrumental model focuses on material outcomes (e.g., pay,
budgetary resource distributions). According to the relational model, or group-value model, individuals care about
procedural fairness because receiving fair treatment indicates status and worth within the group. The relational
model focuses on psychological outcomes (e.g., self-esteem
stemming from high status in and respect from the organisation) (Lind & Tyler, 1988; Tyler & Blader, 2000; Tyler & Lind,
1992).
Research has also shown that interactions exist between
the three forms of organisational justice (Ambrose & Arnaud, 2005; Bies, 2005; Brockner & Wiesenfeld, 1996; Cropanzano & Ambrose, 2001). For instance, research
indicates that even when managers are unsatisfied with
their objectives, they may have less negative reactions if
they believe that the procedures used to set these objectives are fair (Magner, Welker, & Campbell, 1995). Though
this interaction can be described in different ways, the
key point is that the ill effect of injustice can be partially
mitigated if at least one component of justice is maintained
(Cropanzano, Bowen, & Gilliland, 2007).
One important debate in the justice literature concerns
the construct discrimination question (Colquitt et al.,
2001). On the one hand, some studies have revealed extremely high correlations between the different justice dimensions, suggesting that they might not be distinct in the
minds of many people. On the other hand, studies that have
examined the justice constructs separately have shown that
they have different correlates (Cohen-Charash & Spector,
2001; Colquitt et al., 2001).
Some researchers have questioned the benefits of focusing exclusively on specific types of justice, suggesting a shift
toward examining overall justice judgments (Ambrose &
Arnaud, 2005; Cropanzano & Ambrose, 2001; Lind, 2001).
For example, Greenberg (2001) argued that when individuals form impressions of justice, they are making a holistic
judgment. Lind (2001) considered that the different types
of justice individuals experience very likely combine to form
their overall fairness judgment. To
rnblom and Vermunt
(1999) contended that individuals consider fairness as a
Gestalt, that the components of fairness are meaningful
only in relation to the overall fairness of the situation.
The debate is not over. According to Colquitt et al.

P. Langevin, C. Mendoza
(2005), The best approach may be to examine specific
dimensions and overall justice in combination (p. 594).

The effects of unfairness on behaviours

Empirical research has repeatedly demonstrated that employee perceptions of fairness have a vital impact on their
attitudes and behaviours. Perceived injustice can have
many negative effects. It can provoke retaliation, lower
performance, and decrease morale (Cohen-Charash &
Spector, 2001; Colquitt et al., 2001; Viswesvaran & Ones,
2002). Indeed, one of the reasons managers may be tempted
to create slack or manipulate data is precisely because they
fear unfair treatment. Both the instrumental and relational
models of justice help understand why perceived unfairness
in the MCS might trigger unethical behaviour. The instrumental model indicates that if managers perceive the MCS
as unfair, they do not expect to receive valued material outcomes. Therefore, they might engage in budgetary slack
creation and data manipulation as alternative ways to ensure these outcomes. The relational/group engagement
model indicates that an unfair MCS will convey to managers
that they are not valued by the organisation, which would
undermine their sense of identity with the organisation,
and thereby reduce their cooperative behaviours, with budgetary slack creation and data manipulation being uncooperative behaviours. Creating budgetary slack and/or
manipulating data help managers offset perceived unfairness and increase their performance and the chances to obtain expected rewards and/or group recognition, possibly at
the detriment of the organizations interests.
Therefore, the design and implementation of fair MCS
should contribute to reduce unethical behaviours and it is
important to examine which and how MCS determinants
can be perceived as fair and can contribute to reduce unethical behaviours.

Designing fair MCS to reduce unethical

behaviours: identifying key variables
Exploring the effects of fair MCS on unethical
behaviours
Although it seems critical to better understand how MCS can
help reduce unethical behaviours through enhanced perceived fairness, very few studies have systematically investigated this issue. Little et al. (2002) conducted a first
survey of 149 managers having budget responsibilities and
employed in 96 different companies. Their results suggest
that managers propensity to create budgetary slack is reduced when they view both the formal budgetary procedures and the supervisory enactment of these procedures
as fair. Two years later, Wentzel (2004) did a survey at a
large urban hospital that was in the midst of a five-year
restructuring program involving a reduction of resources.
Respondents were area managers holding budgeting responsibilities. Her results suggest that budgetary slack in efficiency targets is lower when managers perceive both the
budgeting procedures and resource allocations to be fair.
Staley and Magner (2007) used questionnaire data from
1358 U.S. federal government unit heads to show that

How can management control system fairness reduce managers unethical behaviours
procedural and interactional budgetary fairness reduce
managers propensity to create budgetary slack by enhancing their trust in their immediate supervisor.
To our knowledge, no study has tried to identify how to
reduce the second unethical behaviour, that is to say data
manipulation. However, the results of the aforementioned
studies strongly suggest that perceived MCS justice significantly affects managers intended behaviours and in particular can reduce their propensity to manipulate data.
Further research is thus needed to improve our knowledge of how fair MCS can reduce unethical behaviours. More
specifically, two aspects need to be more deeply explored.
Firstly, we need to identify more precisely which dimensions of MCS are best able to increase their perceived
justice. Research has started to highlight a few characteristics that have been shown to affect perceived fairness positively: participation in target-setting (Lau & Tan, 2005; Lau
& Tan, 2006; Libby, 1999; Lindquist, 1995; Magner et al.,
1995), level of formality and quality of feedback (Hartmann
& Slapnic
ar, 2009) and use of multiple non-financial measures (Burney, Henle, & Widener, 2009; Lau & Moser,
2008; Lau & Sholihin, 2005). However, so far, research has
produced fragmented results. Studies have explored only
one component of the MCS at a time. In addition, when
researchers focus on participation in target setting for instance, they only consider one stage of the management
control process: the establishment of objectives. Similarly,
when they consider the use of non-financial measures to
evaluate managers performance, researchers are again
focusing on one specific stage of the management control
process, that is to say year-end performance evaluation.
Nevertheless, MCS take place throughout the year. Consequently, it is important to find out the key MCS characteristics that foster perceived fairness by considering the whole
process starting from objective setting, going through
results analysis during the year and ending up with performance evaluation when results are issued. There has been
no undertaking so far to establish a model bringing together
key MCS characteristics, which increase the perception of
fairness for the managers involved.
Secondly, the process through which MCS fairness operates deserves further investigation: we need to understand
how MCS that are perceived to be fair reduce managers propensity to create budgetary slack and manipulate data. Staley and Magners study (Staley & Magner, 2007) suggests that
the mechanism through which MCS justice operates is trust in
ones supervisor: when managers consider that the MCS is
fair, they will develop trust in their supervisors and, therefore, will be less inclined to build budgetary slack. Trust is
probably not the only attitude involved. Indeed, organisational justice literature has shown that fairness encourages
a whole range of positive attitudes towards the company,
the job, peers and supervisors. Among those attitudes
encouraged by organisational justice, we need to identify
which ones help to reduce unethical behaviours.
Adopting this two-step approach, we now combine results from both MCS and organisational justice literatures
to establish a number of propositions regarding how some
specific dimensions of MCS can enhance perception of fairness (Determinants of MCS that enhance perceived Justice) and how fair MCS reduce budgetary slack and data
manipulation through organisational commitment (Fair

213

MCS, organisational commitment and the reduction of

unethical behaviours) and trust (MCS justice, trust and
the reduction of unethical behaviours).

Determinants of MCS that enhance perceived

Justice
MCS undoubtedly have a major impact on managers perception of justice (or injustice). Firstly, MCS are at the core of
distributive justice issues since they affect the material outcomes that managers receive. This is so because MCS are
used to determine managers objectives and resource allocations, and this, in turn, affects managers opportunities
to obtain rewards. Secondly, MCS also contain procedural
justice aspects since they rely on procedures that define
how objectives are set, performance measured, and yearend rewards granted. Managers certainly pay attention to
the fairness of those procedures. Lastly, MCS can affect
interactional justice. Managers interact with their superiors
when negotiating their budget targets, analyzing intermediate results, assessing year-end performance and discussing
their rewards with their superiors and they may be sensitive
to how they are treated during these interactions.
On combining both organisational justice literature and
management accounting literature, we have identified four
characteristics of the MCS that seem to be critical. The first
one is the opportunity given to managers to participate in
the setting of their objectives; the second is the application
of the controllability principle when defining managers
objectives or evaluating their performance; the third is
quality of feedback; and the fourth is the use of multiple
performance measures. These characteristics are affected
both by the design of the MCS as well as by how supervisors
implement them. All of them represent key dimensions of
MCS: they characterise how objectives are set, results are
measured and performance is evaluated. In addition, research has recently started to explore the positive effects
of each of these features on perceived justice.
Participation in target-setting
The MCS literature traditionally defines participation as a
managers ability to exert some influence in the targetsetting process. Influence suggests that employees are
afforded a degree of control over the outcomes of a decision-making process (Brownell, 1982). However, the justice
literature adopts a broader concept since it suggests that
positive effects of participation on perceived fairness just
require that the manager believes his/her views have been
given consideration, not that s/he actually influences the
objectives set. This approach is thus less restrictive than
the usual definition used in the management control
literature.
Based on previous research, we contend that participation is significantly related to perceived procedural justice
and also affects perceived distributive justice.
Firstly, participation is a critical component of procedural justice (Folger & Greenberg, 1985; Greenberg &
Folger, 1983). It is the expression of voice in a
management control context. Budgetary participation is
likely to increase procedural justice as it contributes to
Leventhal et al. s (1980) rules of accuracy, correctability,

214
representativeness and ethicality. (1) It serves as a means of
communication between subordinates and their superiors,
enabling subordinates to exchange and seek information
from their superiors. This information-sharing role of participation may improve accuracy of the data used in the decision-making process. (2) Participation enables subordinates
to express their grievances and to correct any inappropriate
prior beliefs held by their superiors: this is consistent with
the correctability rule. (3) It enables subordinates to express their concerns and values, which favours representativeness. (4) Participation satisfies the criterion of
ethicality since it is consistent with the moral value that
individuals should have the opportunity to engage in setting
goals.
According to the relational model of organisational justice, voice is important in and of itself, regardless of
whether it actually influences the outcome (Lind & Tyler,
1988; Tyler, 1987; Tyler, Degoey, & Smith, 1996). This model assumes that people value being members of groups, such
as organisations. The opportunity to voice is a way for them
to affirm their status with the groups decision-maker and an
affirmed status acknowledges that they are valued members
of the group.
Empirically, there is considerable support for the positive association between participation and procedural fairness (Kanfer, Sawyer, Earley, & Lind, 1987; Lind,
Friedland, & Dickenberger, 1978; Tyler, Rasinski, & Spodick,
1985).
This discussion leads to our first proposition.
Proposition 1a. Participation in target setting increases
MCS perceived procedural justice.
Secondly, participation also increases perceived distributive justice. According to the instrumental model
of organisational justice, people seek involvement in
processes because they are concerned with their own
outcomes (Lind & Tyler, 1988; Tyler, 1989). People are
motivated by self-interest and they consider that the
opportunity to voice opinion will further those interests
because they believe that their views will be taken into
consideration (Barry & Shapiro, 2000; Greenberg, 2000).
During the management control process, participation
provides managers with opportunities to influence their
objectives as well as the amount of resources that will be
allocated to them. Perceptions of distributive fairness
therefore should increase as opportunities to procure more
favourable targets increase. In addition, participation gives
them the opportunity to influence the targets, which will
then be used as a reference for their assessment. Participation can thus increase managers chances of obtaining fairer
rewards since they will depend on targets that they have
helped to set. Thus:
Proposition 1b. Participation in target setting increases
MCS perceived distributive justice.
Application of the controllability principle
A second dimension that has the potential to increase the
perceived fairness of the MCS is the application of the controllability principle according to which managers should

P. Langevin, C. Mendoza
only be assessed based on what they can control (Atkinson
et al., 1997; Choudhury, 1986; McNally, 1980).
The controllability principle can be applied both when
setting managers objectives and when evaluating their performance. At the target-setting stage, it involves selecting
performance measures that include only items managers
can control or on which they may exert some influence. At
the evaluation phase, it consists in removing the effects
of uncontrollables from the performance measured. Empirical studies into the application of the controllability principle have noted a wide variety of practices and indicate that
it is not always strictly applied (Bushman, Indjejikian, &
Smith, 1995; Dent, 1987; Drury & El-Shishini, 2005; Giraud,
Langevin, & Mendoza, 2008; Merchant, 1989; Moon &
Fitzgerald, 1996; Otley, 1990; Ugras, 1994; Vancil, 1979).
Strictly applying the controllability principle appears to be
difficult, because no profit centre manager ever has
complete control over all the items included in the determination of the results for which s/he is to be held accountable (Vancil, 1979). However, setting objectives based on
items managers can at least influence is a means of increasing perceived fairness.
More specifically, we contend that the application of the
controllability principle is significantly related to perceived
distributive justice and that it also improves perceived procedural justice.
If the controllability principle is not applied, and if
uncontrollable events negatively affect managers results,
there is a risk that the benefits they receive do not compensate for the effort they made. Conversely, implementing
the controllability principle will protect managers from
uncertainty and increase their perception of distributive
justice by strengthening the relationship between their effort (inputs) and their rewards (outcomes). Indeed, the perceived ratio between outcomes to inputs is a key dimension
of distributive justice (Adams, 1965).
This leads to Proposition 2a:
Proposition 2a. The application of the controllability
principle increases MCS perceived distributive justice.
We also argue that applying the controllability principle is
consistent with most of Leventhal et al.s (Leventhal, 1980)
rules for procedural fairness. Firstly, by removing uncontrollable factors from managers objectives and evaluation, the
controllability principle increases the conviction that measured performance will be related to managers efforts and
not to unforeseeable events, thus following the accuracy
rule. Secondly, implementation of the controllability principle increases the consistency of performance evaluation
procedures. Indeed, uncontrollable factors impact differently on managers. Some may be negatively affected by factors they do not control; others may not be, or even benefit
from unforeseen circumstances. Applying the controllability
principle introduces more consistency to managers assessment. In addition, uncontrollable factors may affect a given
managers performance differently from one period to another. Thus, their neutralisation also increases the consistency of performance evaluation over time. Thirdly,
implementation of the controllability principle requires
identification and neutralisation of uncontrollable factors
that might have affected managers results. When conducted

How can management control system fairness reduce managers unethical behaviours
through discussion, this gives managers the opportunity to
appeal if they consider that some uncontrollable elements
have not been sufficiently accounted for. Fourthly, applying
the controllability principle contributes to the ethicality
criteria since it is supposedly more ethical not to penalise
managers when their results are negatively affected by
uncontrollable events (Merchant & Van der Stede, 2000).
Accuracy, consistency, possibility to appeal, and ethicality
are four of the six Leventhal et al.s (Leventhal, 1980) conditions for procedural justice. Therefore, we conclude that
applying the controllability principle should positively influence procedural justice.
Proposition 2b. The application of the controllability
principle increases MCS perceived procedural justice.
Quality of feedback
When applied to the management control process, feedback
is of two types. The first type of feedback is when superiors
provide managers with clear, timely and adequate explanations of the reasons for their decisions at the target-setting
stage (Magner, Johnson, Little, Staley, & Welker, 2006, p.
411).The second type of feedback is information received
by an individual about his or her past behaviour. It provides
some information about correctness, accuracy, or adequacy
of response. (Ilgen, Fisher, & Taylor, 1979, p. 351). Specifically, performance feedback is information provided to
subordinates as to their performance level, at different
moments during the year, including year-end (Steelman,
Levy, & Snell, 2004).
A high-quality performance feedback is significantly
related to perceived procedural justice (Cohen-Charash &
Spector, 2001; Taylor, Tracy, Renard, Harrison, & Carroll,
1995). Consistency and accuracy, two of Leventhals
(Leventhal, 1980) conditions for fair procedures, are key
traits of performance feedback quality (Hartmann &
Slapnic
ar, 2009; Landy, Barnes, & Murphy, 1978). Research
has shown that accurate feedback is perceived to be
procedurally fair (Roberson & Stewart, 2006). Hartmann
and Slapnic
ar (2009) found that higher perceived quality
of feedback results in higher trust, both directly, and
through higher perceptions of procedural justice. We can
thus propose the following:
Proposition 3a. Quality of feedback increases MCS perceived procedural justice.
Quality of feedback also affects interactional justice.
Providing feedback favours openness and fosters communication between managers and their superiors (Colquitt &
Jackson, 2006; Erdogan, 2002). Therefore, it contributes
to promoting informational justice, which is one of the
two components of interactional justice. Roberson and
Stewart (2006) showed that accurate feedback not only is
considered procedurally fair, but also fosters informational
justice. In addition, superiors who spend time discussing results during the year and at year-end with their collaborators may be perceived as being more respectful. Quality
of feedback may indicate that recipients are valued and respected members of the group. As such, it may increase
interpersonal justice, the second dimension of interactional

215

justice. Overall, quality of feedback should increase interactional justice.

Proposition 3b. Quality of feedback increases MCS perceived interactional justice.
Use of multiple and non-financial performance
measures
Traditional management control systems rely on financial
measures with objectives often expressed in terms of costs,
margins, net income, ROI, etc. (Chenhall & Langfield-Smith,
2007). Research indicates that subordinates perceive performance evaluation as fair when multiple measures are
adopted instead of solely financial measures (Burney
et al., 2009; Lau & Moser, 2008). Performance evaluation
systems that take into account both financial and nonfinancial indicators provide a more complete vision of the
managers performance (Kaplan & Norton, 1996). For example, they allow intangible assets to be valued and provide a
balance between measures of the performance that results
from past effort and leading measures that drive future
performance.
Firstly, multiple performance measures strongly affect
distributive justice by measuring more accurately the real
performance achieved. For example, if an employee exerts
efforts in managing a non-financial, yet important, dimension of organisational performance (e.g., quality), financial
indicators may not correctly reflect the actual contribution
of this employee who may thus be denied a deserved reward. Correctly measuring inputs appears to be a necessary
condition to ensure that the outcome/input ratio is perceived as fair.
Burney et al. (2009) found that multiple performance
indicators facilitate an employees comparison of inputs to
outcomes and that this comparison is associated with higher
perceptions of distributive justice.
Proposition 4a. The use of multiple and non-financial
measures increases MCS perceived distributive justice.
Secondly, the use of multiple and non-financial measures also contributes to MCS perceived procedural fairness. They ensure that managers multi-dimensional
efforts are more accurately reflected. Since information
accuracy is a fundamental criterion of procedural justice
(Leventhal, 1980), managers may perceive the use of such
multiple performance measures as procedurally fair. In
addition, as opposed to financial measures, such as budget variances that may have several causes and may thus
be difficult to understand (Fisher, 1992), non-financial
measures are able to reflect each managers personal situation better. They may also be easier to understand
since they pertain to operating aspects. For instance,
non-financial measures, such as set up time and customer
satisfaction rates, may be easier to understand than
aggregate financial measures such as efficiency variances
(Fisher, 1992). Thanks to this better understanding of appraisal criteria, subordinates may be more able to discuss
this data and to submit alternative interpretations of their
performance (Lau & Moser, 2008). Thus, such understanding of non-financial performance measures can provide

216
managers with a better sense of control over their performance appraisals; this being an essential criterion of procedural justice (Leventhal, 1980).
Empirical findings support this view. For example, Burney
et al. (2009) showed that strategic performance measurement systems based on multiple performance indicators
provide employees with relevant, and in particular accurate, information and lead to increased procedural justice.
Lau and Moser (2008) indicated that the use of non-financial
measures is associated with improvement in employee
organisational commitment and job performance, with a
substantial part of these effects being indirect through
the enhancement of employee perceptions of procedural
fairness. This leads to proposition 4b.
Proposition 4b. The use of multiple and non-financial
measures increases MCS perceived procedural justice.
After identifying which dimensions of MCS are best able
to increase their perceived fairness, we need to understand
how MCS that are perceived to be fair reduce managers
propensity to adopt unethical behaviours. Organisational
justice research has repeatedly shown the significant impact
of perceived justice on attitudinal and behavioural outcomes, such as job satisfaction, goal commitment,
organisational commitment, job-related tension, trust,
organisational citizenship behaviours and performance
(Cohen-Charash & Spector, 2001; Colquitt et al., 2001;
Viswesvaran & Ones, 2002). Among the positive effects of
the perception of justice, two seem especially useful to
explain the relationship between MCS perceived fairness
and the reduction of unethical behaviours: organisational
commitment and trust in ones supervisor.

Fair MCS, organisational commitment and the

reduction of unethical behaviours
Organisational commitment can be defined as the relative
strength of an individuals identification with and involvement in a particular organisation. It can be characterised
by at least three related factors: (1) a strong belief in and
acceptance of the organizations goals and values; (2) a willingness to exert considerable effort on behalf of the organisation; and (3) a strong desire to maintain membership in
the organisation. (Mowday, Steers, & Porter, 1979, p. 226).
According to the group engagement model, which is an
extension of the relational model of justice (Tyler & Blader,
2000), fairness communicates to employees that the group
values them, and makes them feel good about being part
of the group (Blader & Tyler, 2003, p. 111). Specifically,
the group engagement model argues that forms of procedural and interactional justice originating with supervisors
and organisations drive identity judgments (e.g., pride in
group, felt respect from group, and identification with
group). Finally, identity judgments influence engagement.
The group engagement model helps to explain why perceived MCS justice may lead to increased organisational
commitment.
Moreover, there is much empirical support indicating a
significant impact of organisational justice on organisational
commitment (Alexander & Ruderman, 1987; Folger & Bies,
1989; Kim & Mauborgne, 1993; Libby, 1999; Magner, Welker,

P. Langevin, C. Mendoza
& Johnson, 1992; Magner et al., 1995; McFarlin & Sweeney,
1992; Tang & Sarfield-Baldwin, 1996). Justice amplifies the
feeling of belonging to a company and makes the employee
more sensitive to its interests.
Although there has been some debate regarding which
justice dimensions best explain organisational commitment,
recent literature acknowledges that all three components
of perceived justice predict organisational commitment
(Ambrose & Arnaud, 2005; Cropanzano et al., 2007).
Since managers who are committed to their organisation
tend to identify with it and its goals and wish to maintain
membership (Mowday et al., 1979, p. 225), it can be assumed that a manager with a strong organisational commitment will be less inclined to make self-interested decisions
that are harmful to the company. Salancik (1977) showed
that organisational commitment encourages citizenship
behaviours, that is to say behaviours that exceed formal
and/or normative expectations. Nouri (1994) found that a
high level of manager commitment is strongly associated
with a decreased level of budgetary slack. Nouri and Parker
(1996) similarly found that managers who were highly committed did not exploit their high budgetary participation
privileges to create budgetary slack.
We may therefore hypothesise that the perceived justice
of MCS, by encouraging organisational commitment, will reduce the propensity of managers to create budgetary slack
and manipulate data to their advantage and against the
interests of their company.
Proposition 5a. MCS perceived justice reduces the propensity to create budgetary slack through increased organisational commitment.
Proposition 5b. MCS perceived justice reduces the propensity to manipulate data through increased organisational
commitment.

MCS justice, trust and the reduction of unethical

behaviours
Another positive effect of perceived organisational justice
is that it fosters trust in supervisor. Trust is a psychological
state comprising the intention to accept vulnerability based
on positive expectations of the intentions or the behaviour
of another (Rousseau, Sitkin, Burt, & Camerer, 1998, p.
385). Concepts from social exchange theory help to understand why trust in superiors should reduce budgetary slack
and data manipulation. According to social exchange theory
(Brockner, 2002; Cropanzano, Howes, Grandey, & Toth,
1997; Cropanzano, Prehar, & Chen, 2002; Cropanzano &
Rupp, 2008; Masterson, Lewis, Goldman, & Taylor, 2000),
organisations are forums of transactions and individuals
form perceptions as to the fairness of those transactions.
The experience of justice generates an obligation on the
part of employees to reciprocate and thus fosters the development and maintenance of a relationship of social exchange, with the expectation that such a relationship will
lead to the exchange of benefits between the parties. Moreover, when managers trust their supervisors, they have positive expectations that their supervisors will provide them
with valued material and psychological outcomes over the

How can management control system fairness reduce managers unethical behaviours
long run and therefore feel less need to create budgetary
slack or manipulate data. Empirically, organisational justice
has been demonstrated to enhance trust in management
(Alexander & Ruderman, 1987; Cropanzano et al., 2002;
Folger & Konovsky, 1989; Konovsky & Pugh, 1994). Research
has shown that all dimensions of justice (distributive, procedural, and interactional) are correlated with trust (Ambrose
& Arnaud, 2005; Cropanzano et al., 2007).
In addition, Colquitt et al.s meta-analysis (Colquitt,
Scott, & LePine, 2007) revealed that individuals who are
willing to trust others tend to perform more citizenship
behaviours and commit less unethical behaviour. A few
MCS studies have also demonstrated that trust mediates
the relationship between MCS perceived fairness and the
propensity to create budgetary slack. For instance, Maiga
and Jacobs (2007) show that both procedural fairness and
trust in supervisor have a significant impact on budget goal
commitment, which, in turn, negatively influences managers propensity to create budgetary slack. Similarly, Staley
and Magner (2007) found that MCS interactional fairness
and procedural fairness have an indirect and negative effect
on the propensity to create budgetary slack by way of
enhancing trust in supervisor.
One of the reasons that cause managers to create budgetary slack and manipulate data is the fear of being unfairly treated by their company, and in particular, by the
superiors who assess their performance. We can therefore
hypothesise that when managers trust their superiors, they
are less inclined to develop these behaviours, since trust
reflects an expectation or belief that the other party will
act benevolently (Whitener, Brodt, Korsgaard, & Werner,
1998, p. 513). This leads to propositions 6a and 6b:
Proposition 6a. MCS perceived justice reduces the propensity to create budgetary slack through increased trust in
supervisor.
Proposition 6b. MCS perceived justice reduces the propensity to manipulate data through increased trust in
supervisor.
Thus, we suggest that two attitudinal outcomes help to
understand why MCS justice reduces managers unethical
behaviours: organisational commitment and trust in supervisor. Perceived justice of MCS acts on two levels: firstly, it
affects the relationship between the employee and his company as a whole (organisational commitment); secondly, it
influences his relationships with his superiors (trust in supervisor). Organisational commitment and trust in supervisors
will in turn reduce employees propensity to adopt unethical
behaviours.
However, this conclusion needs to be nuanced. We can
also consider that organisational commitment might induce
unethical behaviours on behalf of the general interest of the
company. For instance, managers who are highly committed
to their organisation may be tempted to hide mistakes made
by the latter for example, the manufacture and sale of
defective products or actions that damage the environment.
Similarly, excessive trust in ones superior may remove an
individuals capacity for judgment and induce unethical
behaviour in order to follow his/her bosss directives. This
could be, for example, data manipulation to give a good

217

image of his/her supervisors division performance. Therefore, organisational commitment and trust in a supervisor
do not completely exclude all propensities towards unethical behaviour. However, it seems reasonable to posit that
a highly committed manager who trusts his supervisor will
be relatively less inclined to adopt unethical behaviours
for personal advantage, which is the main issue addressed
in this paper.
In summary, we have examined how four characteristics
of MCS may influence specific dimensions of perceived fairness, which, in turn, will influence managers organisational
commitment and trust in their supervisor and will eventually
reduce managers propensities to create budgetary slack or
to manipulate data. Figure. 2 represents this general
framework.

Conclusion and future directions

Building on management accounting literature and on
organisational justice literature, this paper has tried to develop a framework showing how fair management control
systems can reduce managers unethical behaviours. Perceived fairness is central to this framework.
The contribution of this theoretical framework is twofold. Firstly, it shows that four features play a key role in
enhancing MCS fairness: participation in target-setting;
application of the controllability principle; quality of feedback; and use of multiple performance measures. Although
some of these dimensions have already been examined in
management accounting studies, no attempt has been made
to date to link these characteristics and examine their interrelated effects on managers perception of MCS fairness. In
addition, the majority of these studies have focused on one
single dimension of organisational justice at a time. In particular, much attention has been devoted to procedural justice. However, research has shown that the different types
of justice interact to affect managers general perception of
fairness (Ambrose & Arnaud, 2005; Cropanzano & Ambrose,
2001). Our framework is in line with this multidimensional
approach of organisational justice and identifies the key
variables of a MCS best able to increase one or several
dimensions of MCS perceived justice.
Secondly, the framework identifies two key consequences of MCS perceived justice that explain how the latter can help to reduce unethical behaviours: organisational
commitment and trust in ones supervisor. The purpose of
MCS is to motivate managers to achieve their objectives.
However, when too much emphasis is put on goal achievement, managers may be tempted to create budgetary slack
and manipulate data. What our framework shows is that
attention paid to MCS fairness will affect managers attitudes both towards their company as a whole and towards
their supervisors. Being committed to their company and
trusting their superiors are two attitudes that reduce managers propensity to adopt unethical behaviours detrimental
to the organizations interests.
In terms of managerial implications, our framework provides organisations with guidelines on how to improve MCS
perceived fairness and, more particularly, indicates that
there are two aspects to pay attention to: the MCS design
and the way it is implemented. Firstly, organisations must

218

P. Langevin, C. Mendoza
MCS characteristics
Perceived justice
Participation
in
target-setting

Application of
the controllability
principle

Attitudes and Behaviors

Distributive
justice

Figure 2

Budgetary
slack
creation

Trust in
supervisor

Data
Manipulation

Procedural
justice

Use of multiple
performance
measures

Quality of
feedback

Organisational
commitment

Interactional
justice

MCSs effects on unethical behaviours through perceived justice, organisational commitment, and trust.

design their MCS carefully. For example, the objectives set

for each manager should take into account elements that s/
he can really influence (controllability principle); procedures should be defined to organise discussions between
managers and their supervisors at the target-setting stage;
similarly, there should be a formalised feedback throughout
the year and the performance evaluation system should not
include financial indicators exclusively.
Secondly, managers perception of justice will also depend on how the MCS is actually implemented. Defining procedures for discussions between a manager and his
supervisor during the target-setting stage is not enough;
the supervisor has to truly play the game and engage in honest and open communication. Similarly, when partial results
are issued during the year, discussions between the managers and their supervisors need to take place in order to analyse the situation jointly and define corrective action if
necessary. Finally, at year-end evaluation, supervisors
should carefully consider how uncontrollable factors might
have affected managers results so as to neutralise them,
specifically when they have negatively affected a managers
performance. Keeping a fair MCS alive is not only a question
of defining rules and procedures: managers must fully
appreciate the importance of fairness and be willing to involve themselves, knowing that fairness is a key dimension
of their role.
Although our theoretical framework contributes to better understand how MCS can limit unethical behaviours,
additional work remains to be done, which opens new perspectives for research.
Firstly, the model needs to be tested. Although some of
the relationships have already been empirically examined,
some others have never been investigated. Measurement
instruments exist for most variables but some need to be
adapted to a management control context. For example,
items have been developed to measure participation in budget goals (Milani, 1975; Kenis, 1979), quality of feedback
(Kenis, 1979; Steelman et al., 2004) or the use of nonfinancial measures (Lau & Moser, 2008). Recently, Burkert,
Fischer, and Scha
ffer (2011) have designed an instrument
to measure the application of the controllability principle.
Instruments developed to measure distributive justice

(Magner et al., 1992), procedural justice (Price and Muller,

1986; Colquitt et al., 2001; McFarlin & Sweeney, 1992) and
interactional justice (Bies & Moag, 1986) can be modified
slightly to be applied to a management control situation.
For instance, Hartmann and Slapnic
ar (2009) have adapted
McFarlin and Sweeneys instrument (McFarlin & Sweeney,
1992) to measure perceived procedural justice in determining targets and evaluating performance. Measuring slack
creation or data manipulation is more difficult, since people
may not want to show or say that they adopt unethical
behaviours. However, some instruments have been used in
prior studies. For instance, Merchant (1990) designed an
anonymous questionnaire in which managers were asked
how frequently they manipulated performance measures,
such as shifting funds between accounts to avoid budget
overruns or deferring a needed expenditure.
In terms of research methodology, cross-sectional surveys can of course be used. However, longitudinal studies
could also be relevant to take into account the possible delays with which perceptions appear and evolve. Experimental studies, although usually difficult to implement in
managerial contexts, would also offer the possibility to better control for contingencies. Finally, qualitative studies
based on interviews or case studies should not be disregarded as they can help better understand how perceptions
and attitudes take form.
Secondly, other dimensions can be explored in order to
refine the framework. A more systematic analysis of the
antecedents as well as the consequences of MCS fairness
is needed. For example, one can examine the impact on
perceived fairness of other MCS components that have been
shown, in past research, to influence attitudes and behaviours (e.g., goal clarity, goal achievability, subjectivity).
The same can be said regarding the consequences of MCS
fairness: how does it affect other behavioural dimensions
(e.g., motivation, job-related tension, citizenship) and
eventually performance?
One should also consider contingent or moderating effects. For example, studies have shown that national culture influences the way individuals react to MCS (e.g.,
Merchant, Van der Stede, Lin, & Yu, 2011) or form their perceptions of fairness (Beugre
, 2007) or of ethics (Ardichvili

How can management control system fairness reduce managers unethical behaviours
et al., 2012). Thus, one can assume that national culture
may moderate some of the relationships described in our
model. As an example, one could test how uncertainty
avoidance influences the effect of the controllability
principle on unethical behaviours: an individual with a high
degree of uncertainty avoidance may find the nonapplication of the controllability principle more unfair and
try to protect him/herself by creating more budgetary slack
than a person who is less risk-averse. Many other moderating variables could certainly be examined.
Another direction to explore is the dynamics between
variables over time. As the management control process
takes place over a period (usually a year) and is repeated
over time, the effects of MCS characteristics on managers
attitudes at some point may affect justice perceptions
and behaviours subsequently. For example, managers who
perceive their performance evaluation to be fair at the
end of a year may be less inclined to build budgetary slack
when negotiating their objectives for the following year.
Thus, it would be interesting to explore whether and how
MCS fairness strengthens (or weakens) over time.
Research in the management control and behavioural
accounting areas have a lot to learn from organisational justice literature. Although most of the impacts of MCS features on unethical behaviours were known, organisational
justice theory provides a better understanding of the mechanisms through which MCS may increase or decrease managers propensity to adopt those behaviours.
Similarly, researchers as well as managers can benefit
from a better knowledge of ethics literature (Cropanzano &
Stein, 2009). There is a debate about what constitutes
(un)ethical behaviours and how to ensure more ethics in
organisations. Much is still to be done in the management
accounting field on these issues (Merchant & Van der Stede,
2000). As Berry et al., underlined (2005, p. 300), Ethical perspectives on organisation seem to be markedly absent from
the majority of mainstream management control texts.
Finally, researchers in ethics and in organisational justice
should take an interest in the MCS. These are widespread
practices in many organisations, where outcomes, procedures as well as interactions between people can be studied, and where high stakes can easily motivate unethical
behaviours.

Acknowledgement
The authors thank Herve
Laroche, Thierry Nadisic, Fred Seidel, the editor and associate editor and three anonymous
reviewers whose valuable suggestions contribute to improve
this paper. The authors also thank for their helpful comments participants at the first International Workshop on
Organisational Justice and Behavioral Ethics, Lyon 2009;
the European Accounting Association 33rd Annual Congress,
Istanbul, 2010; and the MACORG workshop, Lyon 2009,
where earlier versions of this paper were presented.

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PASCAL LANGEVIN is professor of Management Accounting & Control Systems at
EMLYON business School in France. He also
served as the managing director of a small
industrial firm and as the financial director
of an outplacement company.
His primary research interests are in performance measurement and evaluation systems and their effects on decision-makers
motivation, and performance.

CARLA MENDOZA is Professor in the Management Control Department at ESCP Europe Paris Campus.
After graduating from HEC, she worked for
Bossard Consultants, a Consultancy firm
specialized in Strategy and Organization.
She holds a Ph.D. from HEC and a DHDR from
University of Sophia Antipolis.
Her research includes the links between ABC
and ABM, strategic tableaux de bord and
balanced scorecards, the implementation of the Controllability
Principle and the effects of Management control systems on
behaviours.