Analyzing Financial Scenarios for Enhanced Relationship Management

The recent Toyota automotive recalls have brought to the forefront the discussion of relationship management, the body of work which organizations use to manage the perception of their organization and their performance in the marketplace.  Key to this point in the case of Toyota’s recent recalls is the point of view of industry observers that the automaker has no more or less recall issues with its products than other global automakers.  The unfortunate high-profile accidents and the perceived reluctance of Toyota management to acknowledge and take action in the public light, however, has created what is considered to be one of the worst public relationship nightmares of 100 years of global auto sales. 

An Investor Relationship Model

Similarly, the investor relationship model used my many publicly traded organizations relies on results and projections taken from financial reporting packages and roll-ups that correspond to actual performance versus planned performance. The accurate monitoring of Key Performance Indicator (KPI) and strategic goal achievement in the organization is at the heart of this monitoring process.  In addition, many individual performance management elements linked to executive reward and recognition systems use these results to determine both direct and indirect compensation models.

The handover to operational planning and financial execution has also been a source of greater examination of both financial executives and fund portfolio managers who seek returns for their investors in publically traded enterprises.  How the enterprise performs against predicted targets, viewed from both internal and external perspectives can have a profound impact on the availability and cost of capital to execute operations and the perceived relationship of the organization in the marketplace.

The Increased Use of Governance Ratings

To determine the relative health of organizations, particularly publicly traded companies, several financial services firms and organizations offer products designed to provide financial and governance ratings for organizations. These ratings affect the cost of capital for organizations, the ease of obtaining working capital lines of credit, and other financial instruments required to fund business growth and company operations. 

In general, ratings organizations consider a variety of metrics, with a key focus on the following categories of metrics, which may differ between ratings organizations:

  • Executive and director compensation, including options plans, how these plans may be converted, and approval processes used to design and implement compensation models
  • Board structure and practices, including the composition of the board and executive management team, separation of the chair and CEO positions, profile of board members, and other factors
  • Shareholder rights and transparency, including the availability of information and timely communications to shareholders, their ability to act in the decision-making process, and oversight provisions

The challenge for financial executives and other professionals in this field is to anticipate the key groupings of metrics and the ratings companies integrate to calculate the grade, and to align with the chosen ratings system. This can become complex when considering a globally operating company that may rely on several financial institutions for various instruments and products to drive their strategic objectives. In addition, ratings firms have been shown in light of the recent financial crisis to not be fool-proof in their ability to predict downstream corporate performance. As such, financial executives must keep in mind the balance between appeasing the financial institutions with which they engage and the focused strategic objectives of the organization.

William Newman is the author of the forthcoming title, “Understanding SAP BusinessObjects Enterprise Performance Management” on sale now from #SAP Press.  He consults, writes and speaks on sustainability, governance, strategy, and compliance topics.  Twitter william_newman.

For more information and to read the entire article please visit Financials Expert online. Visit our presentations today on #sustainability and #compliance at #GRC2010 #FIN2010 or at our website.


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Filed under Enterprise Performance Management, Operations, Risk Management

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