Organization’s Health-Unawareness Among CEOs

According to survey, “In the Dark: What many boards and executives still don’t know about the health of their businesses”, lack of high-quality non-financial information has caused many board members and senior executives to be unaware of the overall health of their organization.

The second edition of survey, released on Tuesday, is developed by Deloitte Touche Tohmatsu in conjunction with the Economist Intelligence Unit. The 78% of the CEOs surveyed say that just financial indicators do not adequately capture their company’s strengths and weaknesses.

Deloitte CEO, William G. Parrett said, “The survey reveals a critical disconnect between rhetoric and reality in the boardrooms and management circles of some of the world’s leading companies. The attitudes of CEOs towards understanding the value of non-financial indicators and measuring performance against them are more positive now compared to the last survey, but it seems executives and boards are not yet prepared to take the next step and act. The majority of companies said they are under increasing pressure to measure these indicators, but the quality of non-financial performance information they receive is inadequate to meet their needs.”

The survey also pointed out that 57% of the surveyed companies are under mounting pressure to evaluate non-financial indicators, and that a growing number of companies are indeed creating significant value for their organizations by realizing their basic performance drivers by using non-financial measurements.

Also, 83% of CEOs and senior executives say that the market itself is increasingly emphasizing non-financial performance measures, whereas, 87% express their ability to track financial performance as excellent or good, and 29% portray their non-financial record as excellent or good.

Increasing risk to reputation, increasing customer influence, increasing global competition, increasing regulatory emphasis on non-financial measures, accelerating innovation, greater scrutiny of non-financial performance measures by the media, and increasing power of NGOs, lobbyists, and civic organizations are found as the most important non-financial drivers of corporate performance, whereas, customer satisfaction, innovation, and employee commitment are recognized as key drivers of performance.

Parrett said, “This report clearly shows a disconnect between demand and supply. Boards and management teams by their own admission see that the information they need is not the information they are receiving. So as this latest report on the state of non-financial reporting reveals, there is much more work to be done.”

To get over the obstacles to monitoring non-financial performance require major changes in corporate governance. The 80% of the CEOs feels that the board and management should share responsibility in terms of monitoring the financial results of the company, and with non-financial indicators, the monitoring should be done by senior managers.

Underdeveloped tools, organizational skepticism, unclear accountability, time constraints, and the concern that such metrics may reveal too much information to competitors etc. obstructs the use of non-financial performance metrics.

According to the survey, 37% of the respondents say that company’s performance is decided more by insubstantial assets and capabilities than by hard assets.