CEOs Admit There Is Room for Improvement in the Measurement of Non-Financial Value

Kimberly Watson, Editor in Chief
February 02, 2012 /

In the wake of the financial crisis, three-quarters of the world’s CEOs say more emphasis should be placed on measuring the value of non-financial assets such as intellectual capital and customer relationships to drive long-term performance, according to research from the American Institute of CPAs and Chartered Institute of Management Accountants.

But just 51 percent of nearly 300 CEOs surveyed in 21 countries say their organizations currently measure the value of non-financial assets well or very well. And only 12 percent now turn to their finance teams for help with the task.

“Businesses are facing unprecedented challenges. One of the key struggles faced by CEOs is building sustainably for the future in the face of a fixation on financial, short-term gains,” said Charles Tilley, FCMA, CGMA Chief Executive of CIMA.

“Our research shows there is an unmet need in the measuring of non-financial information within organizations. Management accountants, who have the depth and breadth to understand the business from multiple perspectives, can help businesses succeed in troubled times and create long-term sustainability.”

The survey conducted for AICPA and CIMA by Oxford Economics and an accompanying paper – “Rebooting Business: Valuing the Human Dimension” – are the first in a series of thought leadership from the accounting organizations highlighting the opportunities and challenges business leaders face in this age of complexity, uncertainty and change.

AICPA and CIMA have partnered to elevate the discipline of management accounting, which sits at the intersection of finance and strategy, and establish a global quality standard through the CGMA designation.

“It is crucial that the challenges senior executives face and the decisions they make are supported by strategic, forward-looking guidance based on sound insights that drive strong performance,” said Barry Melancon, CPA, CGMA and CEO of the AICPA.

“Powered by the global resources and expertise of AICPA and CIMA, the CGMA signals a combination of financial and managerial prowess that will be recognized around the world.”

Offering the perspective of a global executive, Douglas Flint, Group Chairman, HSBC Group Holdings, said, “I think from the board’s perspective, management accounting is the most important aspect of the finance function. Because I think boards, investors, management want to know why the numbers are what they are, not what are the numbers.”

The AICPA and CIMA are hosting a transcontinental, satellite-linked event to launch the CGMA in New York and London today featuring a panel discussion on the global business environment that includes Douglas Flint; Angelo Messina, Vice President and CFO of Otis Elevator Company; Roger Tomlinson, Finance Director, Business Partnering of Rolls-Royce plc; Helen Weir, Non-Executive Director on SAB Miller Board; Chris Stanley, Vice President and CFO, Global Network Services Americas of American Express and Gary Kabureck, Vice President and Chief Accounting Officer of Xerox Corporation.

The Oxford Economics research will guide the conversation as will the findings from interviews with 17 global business leaders whose organizations collectively employ 2.1 million and have market capitalization of $1 trillion.

CEOs say that customers and employees contribute most to the value of the company. Approximately 85 percent say that customer relationships contribute significantly and customers will be their most important stakeholders going forward; 81 percent say that knowledge and human capital contribute significantly to the overall value of the business. These should therefore be the primary areas of focus for developing measures of value and it is crucial that companies are able to report this value effectively.

There is widespread feeling that investor and shareholder demands are inconsistent with growing a sustainable business, with 60 percent of CEOs agreeing to this statement. Furthermore, 76 percent agree that the current financial reporting system promotes excessive focus on financials and does not allow them to demonstrate the broader value of their business. More than two-thirds of CEOs, or 69 percent, think investors’ focus on short-term rewards makes it difficult to plan for the long term.

According to 87 percent of respondents, transparency is an opportunity — but also a juggling act. Approximately 70 percent agree that it is difficult to find the right balance between being open and protecting commercially sensitive information.

Executive collaboration. Leading CEOs believe that new ways of working are required and expect new levels of collaboration between executive teams, external experts and other stakeholders. CEOs want help in pulling things together – connecting the dots – and are clear that they need the right people to help them do this.

 

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