October 2004

Business failures in recent years have made it clear that financial statements do not provide a complete picture of the soundness of a company. "Traditional" financial measures are not well designed to capture the quality of the company's relationships with such crucial constituencies as customers, employees and suppliers. They shed little light on the key source of future revenue and profit in a firm: The state of product innovation. And they provide scant evidence of the effectiveness of the board and top management — that is, the efficacy of governance and management processes.
While governments and regulators have tightened the rules to enhance disclosure and oversight at public companies, a broader question — are board members, senior managers and investors really monitoring the right indicators of long-term corporate health? — has remained largely unanswered.
Because of the importance of this issue, Deloitte worked with the Economist Intelligence Unit in 2004 to produce "In the Dark: What Boards and Executives Don't Know About the Health of Their Businesses," a survey of some 250 executives and board directors of large companies in North America, Europe, the Asia-Pacific region and other parts of the world. We wanted answers to key questions such as: How well are they monitoring the non-financial and financial vital signs of their businesses — all of the factors that truly drive success? How are they using this information to monitor progress and redirect their organizations? What are the barriers to doing so?
The results are sobering. While the overwhelming majority of board members and senior executives said they need incisive information on their companies' key non-financial drivers of success, they generally find such data lacking. When non-financial information is available, it is often of mediocre or poor value.
This survey casts fresh light on these issues, indicating that businesses are continuing to focus largely on financial indicators. Achieving a better balance between financial and non-financial oversight does not entail paying less attention to the former — it requires proper attention to both.

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