Paul Holmes 26 Feb 2005 // 12:00AM GMT
Only about one third (34 percent) of board members and top executives polled say their companies are proficient at monitoring critical non-financial indicators of corporate performance, according to a new survey conducted on behalf of Deloitte Touche Tohmatsu by the Economist Intelligence Unit.
The majority of board directors and senior executives surveyed for the study¡Xcalled ¡§In the Dark: What Boards and Executives Don¡¦t Know about the Health of Their Businesses¡¨¡Xagreed that factors such as customer satisfaction, innovation, supplier relations and employee commitment are critical to corporate success. But they admitted there were difficulties in measuring their performance on such non-financial criteria. By contrast, the study says 86 percent of executives believe their companies are excellent or good at measuring and tracking the performance indicators necessary for financial reporting purposes.
The findings are a warning sign that unethical behavior by a small number of executives is not the only critical issue in corporate governance,¡¨ says William Parrett, global CEO of Deloitte. ¡§It takes more than tracking financial performance to properly mind the store. And most board members and executives acknowledge that the tools and systems to monitor non-financial performance are either underdeveloped or are missing altogether.¡¨
The survey found that most board directors and executives need more information on how well their companies are non-financial criteria. Almost 75 percent said their companies were under increasing pressure to monitor non-financial performance indicators. And 92 percent said their board directors were responsible for monitoring both the financial and non-financial measures of their companies¡¦ performance.
¡§The financial numbers in the quarterly or annual report often tell you too late that something is amiss,¡¨ says Robert Go, a co-author of the study and a Deloitte senior principal. ¡§At a time when corporate boards are being asked to more closely watch the whole company, many directors and managers lack valuable information that would tell them whether their companies are on course.¡¨
The survey revealed that the minority or only a slight majority of the companies said their board directors are given excellent or good information in key areas including:
„X The company¡¦s impact on society and the environment (27 percent)
„X Employee commitment (35 percent)
„X Relations with suppliers and other external ¡§stakeholders¡¨ (39 percent)
„X Product/service innovation (43 percent)
„X Customer satisfaction (50 percent)
„X Brand strength (51 percent)
„X Product/service quality (52 percent)
„X The quality of corporate governance and management processes (56 percent)
Asked why board members and senior managers lacked information on the many of the vital signs of their businesses, respondents identified two barriers: the absence of developed tools for analyzing non-financial measures, and skepticism that such measures directly impact the bottom line.