NON-FINANCIAL METRICS

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NON-FINANCIAL METRICS
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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. WHAT BOARDS AND EXECUTIVES
  DONT KNOW ABOUT THE HEALTH OF THEIR BUSINESS
  2004 SURVEY CONDUCTED BY DELOITTE AND THE
  ECONOMIST INTELLIGENT UNIT

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Key In The Dark survey results

• 73 said increasing pressure to measure
  non-financial metrics
• 90 said number of areas of business health that
  cant 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 DONT
  KNOW ABOUT THE HEALTH OF THEIR BUSINESS 2004
  SURVEY CONDUCTED BY DELOITTE AND THE ECONOMIST
  INTELLIGENT UNIT

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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 2nd 2005)
• Accelerated product innovation
• Increased pressures on resources
• Sarbanes Oxley
• Increased interest in risk management
• Increased emphasis on corporate governance

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Financial vs. Non-Financial

• traditional financial metrics while critical in
  measuring financial performance fail on many
  fronts
• Dont capture relationships with customers,
  employees, suppliers and other stakeholders
• Dont provide information on future revenues and
  profits
• Dont provide information on the status of
  product innovation
• Dont provide information on the efficacy of
  governance and management processes
• IN THE DARK. WHAT BOARDS AND EXECUTIVES DONT
  KNOW ABOUT THE HEALTH OF THEIR BUSINESS 2004
  SURVEY CONDUCTED BY DELOITTE AND THE ECONOMIST
  INTELLIGENT UNIT

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Financial vs. Non-Financial

• 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 DONT
  KNOW ABOUT THE HEALTH OF THEIR BUSINESS 2004
  SURVEY CONDUCTED BY DELOITTE AND THE ECONOMIST
  INTELLIGENT UNIT

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Barriers to Non-financial metrics

• 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 DONT
  KNOW ABOUT THE HEALTH OF THEIR BUSINESS 2004
  SURVEY CONDUCTED BY DELOITTE AND THE ECONOMIST
  INTELLIGENT UNIT

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Environmental metrics

• Demand for environmental responsible behavior
  beyond regulation
• Fiduciary responsibility over societys economic
  resources
• Hard to quantify
• dillard, J. etal,(2005) An Environmentally
  Enlightened Accounting, Accounting Forum, (29)
  77-101

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Environmental metrics
Complex ecosystem
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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

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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

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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.

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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 Citys tap water

Daily, G. C., Ellison, K 2002 The New Economy of
Nature
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Sustainability Reports

• 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

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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