Corporate Boards, Sr. Executives See Shortcomings in Monitoring & Reporting

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According to a new survey conducted on behalf of Deloitte Touche Tohmatsu by the Economist Intelligence Unit (EIU), 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.

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 organizational performance. By contrast, the study indicates that 86 percent of executives believe their companies are excellent or good at measuring and tracking the performance indicators necessary for financial reporting purposes.

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"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 G. 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 cross-industry survey of 249 executives worldwide was conducted in March and April 2004. Most of the firms were large, with 71 percent having annual revenue of more than US$500 million. Survey data was collected from an online questionnaire and telephone interviews. The survey is part of a larger Deloitte study that is currently underway focusing on best-practices of companies around the world that are superior at providing their boards and senior executives with valuable information on firm performance, both financial and non-financial.

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 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.

However, says Robert Go, a co-author of the study and a Deloitte Senior Principal, such non- typical performance measures, like a physical exam, provide a necessary snapshot of the health of an organization. "The financial numbers in the quarterly or annual report often tell you too late that something is amiss," Go says. "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:

  • The company's impact on society and the environment (27%)
  • Employee commitment (35%)
  • Relations with suppliers and other external "stakeholders" (39%)
  • Product/service innovation (43%)
  • Customer satisfaction (50%)
  • Brand strength (51%)
  • Product/service quality (52%)
  • The quality of corporate governance and management processes (56%)

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 analyzing non-financial measures, and skepticism that such measures directly impact the bottom line.

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