Fearsome financial illiteracy among employees about their companies!

The level of ignorance and extent of unwillingness to learn, even among middle-management employees, is frightening. And while some companies may frown on this, it is critical that employees are made aware of the financial health of the institution, so it motivates them to improve 

During many of the corporate training programmes that I conduct, we ask the participants if they ever read their company's financial statements and whether they are aware of the company's financial status. Most say they don't. Most also say that they do not understand these statements anyway, so what's the point of reading them! Even in well known companies, employees have no understanding of financial status.

I am bewildered by this behavior of educated people. I keep asking them if it is not necessary for them to know the financial position of their own company. Even when we conduct management programmes running into four semesters, the participants have the same attitude. How can an employee who is in middle management choose to be so ignorant?

In many programmes we make an effort to acquaint participants with their company's financials as a part of the training. In good companies, this initiative is welcomed wholeheartedly. In some others it is frowned upon-if one passes an adverse comment on the company's financials, we are often questioned as to why this was discussed with the participants! This is the case even with listed companies, and we obviously do not have access to financial information of unlisted companies.  

In one instance, when a comment was made that the company's track record in project execution is poor, it was objected to as bad-mouthing the company! The employees in the particular training programme themselves agreed that this was indeed the case! In another reputed company, when we discussed the weaknesses of the company's financials, a very senior manager who attended the session told us afterwards that this was exactly what his staff required to hear so they would strive to improve!

I firmly believe that companies must inform and educate their entire management cadre about the financial health of the organisation and its operations. Many people in finance and HR are completely oblivious of the company's business and operations. How can such people be worthy of running the companies in future? And to think that many of them will get promoted in due course and will become decision makers.

We have sometimes conducted small experiments in our corporate training programmes. We discuss and analyse the financials in simple terms and tell participants where their role is. We then suggest areas in which they can make positive contribution to improve the profitability. For instance, we told one group that it could reduce the inventory and receivables period by five days each in one year; their reaction was that they certainly could, since they now knew why it was important to do so. We showed them if everyone in the company were to work towards this goal, the company could save Rs400 crores in interest! They were amazed to discover this. The group promised to implement it in their area of responsibility and pass on this message to their juniors as well. What they like best is when we suggest that if they bring about substantial savings for the company, they can ask the company to share these savings with them and that most companies will have no objection to this.

Our experience has been that if people understand the importance and benefits of certain actions, they are more willing to work at it, and they are more motivated if it is likely to lead to benefits for them in future. Companies routinely tell employees that they must control inventory and receivables, without educating them about the broader picture. In such interactions, at times, they also talk about a disconnect between various departments of the company and this is a great way for the managements to learn the weaknesses and address them for the betterment of the company. The ignorance levels and the levels of unwillingness to learn these things are frightening. Corporate India is doing a great disservice to itself, its stakeholders and the nation at large, by not looking at this issue with the seriousness that it so deserves.

I think it is the responsibility of the HR departments to inform their decision makers about the financial health of the company. But many HR professionals themselves do not make an effort, or are completely ignorant about it. They believe that they need not know all the numbers. This is strange and we have noticed that even if these people themselves are management graduates they do not understand the importance of this.

In conference after conference it is said that a business has to strive for profits, because that is the main reason for doing business. But when it comes to educating employees about these aspects, nothing is done. The top managements wish to hide facts, instead of discussing them openly, so that awareness increases and may lead to better performance. They expect the employees to follow what they say without empowering them with vital information that can lead them to make their own judgment. The top management does not want to be questioned by the juniors. In spite of this they tom-tom how they conduct 360-degree performance evaluation systems in their companies.

Employees at all levels, who have the ambition to rise, must make an effort to know the financial position, not only of their own company but also of their competitors. Smart ones do this and are thus more suitable for promotions. If we are really in a knowledge economy, as we claim to be, then this state of affairs is unacceptable, both on the part of managements as well as employees.

(Prof Anil Agashe teaches at Symbiosis and other management schools in Pune.)



Nagesh KiniFCA

5 years ago

Immediately after qualifying I worked at Voltas. The Training Dept. asked us from Accounts to educate others on Finance for Non-Finance people.It served the purpose.
Now we have the Whitsle Blower and CSR It is the company managements that are at fault and in their heart of hearts frowning on them to retain their lily white public space. They'd prefer the dark deeds under the carpet. This is more to do with companies' financials.

Consumer price index rose marginally to 106 points in March

While the CPI, according to the new series unveiled in January this year, has increased to 106 in March against the base of 100 in 2010, the exact inflation figures would only be released from next year, the ministry of statistics and programme implementation said

New Delhi: The new Consumer Price Index (CPI), introduced earlier this year, rose marginally by 1 point in March against 105 points in February this year, reports PTI.

While the CPI, according to the new series unveiled in January this year, has increased to 106 in March against the base of 100 in 2010, the exact inflation figures would only be released from next year.

As per the data released by the government today, the general indices for rural and urban stood at 107 and 104 points, respectively, in March.

In February, CPI overall had stood at 105, while the indices for rural and urban were reported at 107 and 104.

"The General Indices for rural, urban and combined...are more or less the same level of February 2011," the ministry of statistics and programme implementation said.

Meanwhile, the combined index for January has been maintained at 106 points.

The new CPI is intended to reflect the actual movement of prices at the micro-level and help policymakers like the Reserve Bank of India (RBI) in better framing of decisions.

Releasing the new series, the government had earlier said it would continue for one year the practice of giving figures in the present form without quoting the inflation rate "till the series gets stabilised" and adequate timely receipt of price data was achieved.

The new consumer indices cover five major groups-food, beverages and tobacco; fuel and light; housing; clothing, bedding and footwear; and miscellaneous items.


Caution is the buzzword as IMF warns of persistent risks

The IMF says growth and recovery is taking root in global markets, but it advises financial policymakers to be cautious as high unemployment, rising commodity prices, inflation and increasing oil prices could slow growth in the medium term

The International Monetary Fund (IMF) in its annual World Economic Outlook (WEO) report has asserted that the global economy is indeed on a path of recovery, but it has cautioned about the gathering clouds on the horizon that could likely dampen progress. The IMF expects an economic growth rate of 4.5% for both 2011 and 2012. While the developed economies are growing at 2.5%, it estimated that the developing world has picked up pace to reach an average rate of 6.5%.

However, there are many concerns that threaten the recovery -

  •   Political turmoil in the Middle East and North Africa has caused disruptions to the supply of oil, pushing oil prices northward.
  •   Inflation, especially in emerging economies, remains high, forcing policymakers to tighten money supply at the expense of growth.
  •    Unemployment, a legacy of the financial crisis in 2008, continues to remain high across the developed economies.
  •     The banking system is struggling to meet capital adequacy norms, thanks largely due to significant levels of non-performing assets.
  •   Rising commodity prices are pushing industry to go slow on capacity utilisation and expansion.
  •   High interest rates and limited credit lines are adding to the woes, ensuring that industrial growth remains subdued.

Reserve Bank of India (RBI) governor Duvvuri Subbarao expressed just as much during his recent visit to Washington, for the spring meetings of IMF and World Bank. "The global recovery may be jeopardised by a sustained rise in oil prices," he said. "Speculative movements in commodity derivative markets are also causing volatility in prices." Whether the G-7 and OPEC heed his warning by addressing the supply-side economics remains to be seen, but the mood on the street remains far from optimistic.

Dalal Street is waiting to see the final quarter results from India Inc. before pushing up the sails. Infosys has set off disappointment in the market and much will be made out of the numbers that Tata Consultancy Services presents on 21st April. Equally important, if not more, will be the performance of the manufacturing industry, as they will be a more precise indicator of domestic economic health. Also, the impact of high oil and commodity prices will be captured in these performance numbers.

There are signs of concern in the just-released inflation estimate for March. Inflation rose to 8.98% from 8.31% in February, on the back of increasing manufacturing and fuel costs. With inflation rooted above 8% over the past 14 months, pricing pressures are ensuring that inflation remains high-recently car and garment manufacturers passed on price hikes to consumers, affirming this trend.

It is widely believed that revised inflation figures for March might edge into double figures after the rate for January was revised from 8.23% to 9.35%. With the RBI's efforts to fight inflation not yielding the desired results, markets are gearing up for a 0.5% increase in the inter-bank rate when the central bank issues its monetary guidance in the first week of May.

In a persistent bid to fight inflation, the RBI has already changed the rate eight times in the last 13 months, amounting to a 3.5% hike. "Underlying inflationary pressure is a concern and inflation is the most important problem in the short term," said the deputy chairman of the Planning Commission, Montek Singh Ahluwalia. "They (RBI) have all the flexibility and they should use all the flexibility to control inflation," he added, clearly suggesting that the bank ought to raise rates.

Monetary tightening is a pan Asia trend-China's inflation hit a 32-month high in March, ensuring that the People's Bank of China will continue to squeeze money supply. All of these actions are likely to slow down overall growth in the region as public policy battles rising prices. The IMF's outlook also acknowledged the role of foreign investment funds in the emerging Asian markets that is causing the overheating.

The delay in structural reforms has meant that most of the capital flows to the East have come in the form of portfolio investments, while FDI has declined. Inherently, this is a situation that lends itself to volatility. With oil likely to remain above $100 per barrel, markets may be dealing with more instability through the rest of 2011.

(The writer is a business consultant to large clients on financial processes, process re-engineering and improvement.)


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