Benchmarking the Board: Performance Accountability Audit

The Journal of Bank Cost & Management Accounting, January 1, 2003 | Go to article overview

Benchmarking the Board: Performance Accountability Audit


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These are challenging times for corporate America-particularly for top company executives and directors.

The economy is still shaky, as reflected in a steady stream of negative earnings announcements. And even more troubling, there's been a shocking spate of corporate scandals: Highly regarded CEOs have repeatedly announced to their boards and the public that they had no idea their companies were billions of dollars in the red. Industry watchdog groups and regulatory bodies are on the record as saying that investors have every reason to be suspicious.

The seeds of this landscape were the catalyst for the Sarbanes-Oxley Act of 2002, perhaps the most far-reaching piece of legislation affecting corporate governance in the past 50 years. In a different time, it might have been denounced as government intrusion; now, it's welcomed as the tonic needed to restore investor trust. SOX, as it's called, establishes a range of enhanced standards for corporate accountability, but much of the focus is on making accurate information available. This puts board members at the center of the storm. By virtue of their perch at the top of the executive heap, everyone expects them to have the answers. In fact, several provisions in Sarbanes-Oxley cite board members as having oversight responsibility. But these directors need access, visibility, and control of key information: How well is the company doing? How well does it measure up against key competitors? How accurate are those forecasts for the next year, or even the next quarter? How good are the metrics that have been set to measure company performance, and is the measuring being done reliably? And perhaps most importantly, do investors and other key stakeholders know everything they should?

To tackle these issues, the Business Performance Management (BPIS Forum has undertaken "Benchmarking the Board: The Performance Accountability Audit," the first major survey of corporate board members designed to determine their attitudes, concerns and priorities about performance accountability and business performance management. This study, which was conducted via an online survey, received over 150 responses and represents the first piece of intellectual capital from the BPM Forum, a new organization committed to acquiring, creating and sharing knowledge that advances the cause of performance accountability and continuous performance improvement.

KEYFINDINGS

Even an early glance at the survey results points to interesting trends. For example:

* The Sarbanes-Oxley Act is causing worry in boardrooms everywhere: In the wake of the new regulations, nearly 85% of the respondents say they're very or somewhat concerned about the processes, tools and methodologies used by management to track performance.

* That said, only 21% of the respondents say their company has allocated funds specifically to address Sarbanes-Oxley.

* Perhaps as a result, only 41% expect immediate compliance with Sarbanes-Oxley.

* As a sign of change, 33% say they're now more comfortable than they were two years ago with the performance expectations their company sets for Wall Street.

* More than 60% of the respondents say one crucial piece of analysis they don't get but need is performance data measured against that of key competitors.

* Nearly 40% of companies don't measure operational indicators regularly.

* 65% are not very satisfied with the accuracy of their company's financial business forecasts.

* Nearly 30% of the respondents say they don't have, or aren't sure they have, all the information they need to ensure the company discloses appropriate information.

* More than 82% report that performance management has become significantly or somewhat more important as an issue of discussion during board meetings.

CLARITYANDCOMPLIANCE

Given the storied pedigree of the survey respondents, many of the survey results arc downright startling. …

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