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NON-FINANCIAL METRICS. “NON-FINANCIAL PERFORMANCE MEASURES ARE CRITICAL IN THE GROWING MANDATE FOR BETTER OVERSIGHT OF CORPORATE GOVERNANCE” IN THE DARK.

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Presentation on theme: "NON-FINANCIAL METRICS. “NON-FINANCIAL PERFORMANCE MEASURES ARE CRITICAL IN THE GROWING MANDATE FOR BETTER OVERSIGHT OF CORPORATE GOVERNANCE” IN THE DARK."— Presentation transcript:

1 NON-FINANCIAL METRICS

2 “NON-FINANCIAL PERFORMANCE MEASURES ARE CRITICAL IN THE GROWING MANDATE FOR BETTER OVERSIGHT OF CORPORATE GOVERNANCE” IN THE DARK. WHAT BOARDS AND EXECUTIVES DON’T KNOW ABOUT THE HEALTH OF THEIR BUSINESS … 2004 SURVEY CONDUCTED BY DELOITTE AND THE ECONOMIST INTELLIGENT UNIT

3 73% said increasing pressure to measure non-financial metrics 90% said number of areas of business health that can’t be measured in monetary terms are “critical” or “important” 86% said companies are “excellent” or “good” at measuring and monitoring “traditional” financial performance measures 40% said average and 23% said “fair” or “poor” at measuring and monitoring non-financial performance measures IN THE DARK. WHAT BOARDS AND EXECUTIVES DON’T KNOW ABOUT THE HEALTH OF THEIR BUSINESS … 2004 SURVEY CONDUCTED BY DELOITTE AND THE ECONOMIST INTELLIGENT UNIT Key “In The Dark” survey results

4 DRIVING FORCES Increased global competition Growing customer influence –Power of the internet –“If Dell changes prices on its website, its customers’ buying patterns change literally within a minute” (The Economist April 2 nd 2005) Accelerated product innovation Increased pressures on resources Sarbanes Oxley –Increased interest in risk management –Increased emphasis on corporate governance

5 Financial vs. Non-Financial “traditional” financial metrics while critical in measuring financial performance fail on many fronts –Don’t capture relationships with customers, employees, suppliers and other stakeholders –Don’t provide information on future revenues and profits –Don’t provide information on the status of product innovation –Don’t provide information on the efficacy of governance and management processes IN THE DARK. WHAT BOARDS AND EXECUTIVES DON’T KNOW ABOUT THE HEALTH OF THEIR BUSINESS … 2004 SURVEY CONDUCTED BY DELOITTE AND THE ECONOMIST INTELLIGENT UNIT

6 Non financial measurements “critical” or “important” drivers of company success –Customer satisfaction –Product/service quality –Operational performance –Employee commitment –Governance and management issues –Brand strength –Environmental issues IN THE DARK. WHAT BOARDS AND EXECUTIVES DON’T KNOW ABOUT THE HEALTH OF THEIR BUSINESS … 2004 SURVEY CONDUCTED BY DELOITTE AND THE ECONOMIST INTELLIGENT UNIT Financial vs. Non-Financial

7 Hard to measure –Lack of data –Undeveloped tools to measure non-financial metrics Lack of familiarity Lack of understanding of bottom line impact Lack of accountability –This is changing as “growing emphasis on non-financial measurements in compensation packages Lack of time to focus on a new set of metrics IN THE DARK. WHAT BOARDS AND EXECUTIVES DON’T KNOW ABOUT THE HEALTH OF THEIR BUSINESS … 2004 SURVEY CONDUCTED BY DELOITTE AND THE ECONOMIST INTELLIGENT UNIT Barriers to Non-financial metrics

8 Environmental metrics Demand for environmental responsible behavior beyond regulation Fiduciary responsibility over society’s economic resources Hard to quantify dillard, J. etal,(2005) An Environmentally Enlightened Accounting, Accounting Forum, (29)

9 Environmental metrics Complex ecosystem

10 Environmental Sustainability & Sustainability Reporting What is environmental sustainability? What is Sustainability Reporting? –Process for publicly disclosing Economic performance Environmental performance Social performance –“Triple Bottom Line” –Financial metrics PLUS non-financial metrics

11 Sustainability and the bottom line – revenue generation Potlatch Corp. sells conservation easements Properly managed riparian areas in these easements get a premium The easements are recorded as sales revenue Potential for beneficial tax implications

12 Ecological Services of the Riparian Area What is a riparian area? –Ground immediately adjacent to streams, rivers and lakes Ecological Services Provided –ground water recharge, –pollutant trapping and nutrient cycling, –reducing soil erosion, –increasing stream flows in the summer, and –providing food and habitat for fish and other wildlife. *

13 Sustainability and the bottom line – cost savings New York City gets its water from the Delaware/Catskills and Crosta Watersheds In 1997 faced decision –Construct filtration plant at $6 to $8 billion with yearly expenses of $300-$500 million –Repair largely natural filtration system (add Fl and Cl at end) by protecting upstate watershed at a cost of $1.3 billion. EPA still grants (as of 2004) filtration avoidance of New York City’s tap water Daily, G. C., Ellison, K 2002 The New Economy of Nature

14 Global Reporting Initiative –Higher standards of accountability –Rooted in inclusiveness, transparency, neutrality, auditability, and continual enhancement Benefits of Reporting –Sharpen competitiveness in a globalizing world –Useful in linking insulated and isolated corporate functions in a more strategic manner –Privilege to list on the Dow Jones Sustainability Index –http://www.globalreporting.org/guidelines/2002/gri_2002_guidelines.pdf Sustainability Reports

15 Global Reporting Initiative Key Trends driving the GRI –Expanding globalization –Reform of corporate governance –Global role of emerging economics –Rising visibility and expectations for organizations –Governments’ interest in sustainability reporting –Financial Markets’ interest in sustainability reporting A few GRI Reporters in the USA –Starbucks –Weyerhaeuser –Ford Motor Company –Newport Mining


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