ONLY ONE-THIRD of board members and top executives believe their companies are proficient at monitoring critical non-financial indicators of corporate performance, according to recent research
ONLY ONE-THIRD of board members and top executives believe their companies are proficient at monitoring critical non-financial indicators of corporate performance, according to recent research.
Conducted on behalf of Deloitte Touche Tohmatsu by the Economist Intelligence Unit (EIU), the survey found that the majority of board directors and senior executives said that factors such as customer satisfaction, innovation, supplier relations and employee commitment are critical to corporate success. But they admitted that there were difficulties in monitoring these drivers of organisational performance.
In contrast, 86 per cent 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 directors are overly focused on meeting regulatory compliance, however this is not the only critical issue in modern governance practice,”said Annette Watson, leader of the Governance Advisory Services of Deloitte Australia.
“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 of 249 executives worldwide found 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 the quality of corporate governance and management processes (56 per cent), brand strength (51 per cent), employee commitment (35 per cent) and the company’s impact on society and the environment (27 per cent).
Asked why board members and senior managers lacked information on many of the vital signs of their businesses, respondents identified two main barriers: the absence of developed tools for analysing non-financial measures and scepticism that such measures directly impact the bottom line.
The solution, according to Watson is that it’s “essential to an organisation’s well-being and effectiveness to think aspirationally, and act practically through an ethical and analytical filter. Boards and management teams must decide where they want to go, and construct and execute a blue print that is unambiguous for success,” she said.
“The message for boards is about information, both financial and non-financial. It’s information from a number of sources that has always driven decisions, and decisions drive behaviour. Tracking non financial data is the key to delivery of the blue print.”
Almost 75 per cent said their companies were under increasing pressure to monitor non-financial performance indicators.
