Fearsome financial illiteracy among employees about their companies!
Prof Anil Agashe 18 April 2011

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.)

Comments
Nagesh KiniFCA
1 decade 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.
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