Gap in corporate governance monitoring, claims survey
executives believe that their companies are proficient at
monitoring critical non-financial indicators of corporate
performance, according to a new report.
According to the new survey conducted on behalf of Deloitte Touche Tohmatsu by the Economist Intelligence Unit (EIU), the majority of board directors and senior executives surveyed for the study - called "In the Dark: What Boards and Executives Don't Know about the Health of Their Businesses" - 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.
By contrast, the study indicates that 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 unethical behaviour by a small number of executives is not the only critical issue in corporate governance," said William G. Parrett, global chief executive 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 cross-industry survey of 249 executives worldwide was conducted in March and April 2004. Most of the firms were large, with 71 per cent having annual revenue of more than $500 million.
Survey data was collected from an online questionnaire and telephone interviews.
The survey found that most board directors and executives need more non-financial information on how well their companies are satisfying customers, delivering quality products and services, operating with efficient processes, and developing new products and services.
Almost 75 per cent said their companies were under increasing pressure to monitor non-financial performance indicators. And 92 per cent said their board directors were responsible for monitoring both the financial and non-financial measures of their companies' performance.
However, Robert Go, a co-author of the study and a Deloitte senior principal, believes that such non- typical performance measures, like a physical exam, provide a necessary snapshot of the health of an organisation.
"The financial numbers in the quarterly or annual report often tell you too late that something is amiss," he said.
"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."
Asked why board members and senior managers lacked information on the many of the vital signs of their businesses, respondents identified two barriers more than any others: the absence of developed tools for analysing non-financial measures, and scepticism that such measures directly impact the bottom line.
The Economist Intelligence Unit, the business information arm of The Economist Group, publisher of The Economist, is a global provider of country intelligence, with over 500,000 customers in corporations, banks, universities and government institutions.
Deloitte Touche Tohmatsu is a Swiss-based Verein (association) of member firms that specialise in audit, tax, consulting, and financial advisory services. It claims to serve more than one-half of the world's largest companies.
