Boards need more focus on non-financial issues

Nov 01 2005 by Brian Amble Print This Article

Most company boards are not sufficiently systematic in their approach to non-financial issues such as customer retention, value of brands, corporate governance and CSR, according to new research.

While non-financial issues are viewed as important by board members, research by Leon Olsen and Erwin Scholtz from Ashridge Business School based on interviews with board members from a range of UK listed companies reveals that for all the talk of a new era of corporate responsibility, for many companies at least, it remains (financial) business as usual.

"Non-financial issues are more and more integral to the long term creation of business value and corporate boards therefore need robust systems to identify and deal with material non-financial issues," said Leon Olsen, lead author of the research.

"Board directors are also being held responsible for actively deciding what should be included in the new Operating and Financial Review. This is markedly different from the largely controlling and authorising roles they have with annual financial accounts."

The research, 'Board View: Dealing with material non-financial issues', identifies some key corporate governance processes in relation to boards dealing effectively with material non-financial issues.

Firstly, the full board - including the non-executive directors - should deal with them, as non-executive directors add value due to a broader perspective than the often more operationally-oriented executive directors.

The chairman and chief executive, however, play a critical role to make it happen, as they set the agenda for boardroom deliberations.

The research explores three related but distinct approaches that companies can use, illustrating them with case studies of three organisations governance and risk management at global energy group BP, performance management at Danish listed company, Coloplast (global best practice in OFR type reporting) and stakeholder engagement at UK National Lottery operator Camelot.

While respondents indicated that more systematic approaches were desirable, there was caution against over-engineering processes.

The objective is to best equip and support boards in making wise and sound business decisions. Therefore, further externally imposed rules and regulation were not considered necessary.

In addition, many respondents said that both the financial community and the current generation of directors could benefit from some form of competence development to appreciate non-financial issues better.

In the same area, further guidance in the form of a 'Chairman's checklist' or reporting framework were felt to be very useful.