The power of rampant financial literacy
Collisions between the Finance Department and… well, everyone, are the stuff of legends. In most companies, business teams are as likely to voluntarily ask Finance for help as a Russian citizen would ask the KGB for help. Instead, teams develop strategies to keep finance at arms length as long as possible.
This aversion stems from finance’s seemingly random opposition to great ideas; great ideas projecting strong improvements to income or other performance metrics are inexplicably crushed when finance gets involved. Both sides are trying to create value, so why the frequent clashes?
At the root of these clashes are the conflicting measures used to determine when value is genuinely being created. We have dozens of accounting and other performance measures. However, real value creation is measured in the timing and risks of when dollars actually flow in and out of the bank account. In a word, “Finance.”
Why, then, do so few companies ensure that everyone across the company has a basic grasp of financial concepts – the language of value creation?
Harvard Business Review developed a basic financial literacy test that any CEO or junior finance person should easily ace. The results: “managers from C-level executives to supervisors scored an average of only 38%” and “a majority were unable to distinguish profit from cash.”
These folks are smart and successful. Yet for some, those basic finance classes are now only a distant (often unpleasant) memory. Many others have never been given a basic orientation to relevant finance concepts, but when they do a magical thing happens — businesses collaborate much more effectively with finance and each other on their most promising opportunities.
The reason is simple: we now have a common language for identifying and describing genuine success in terms of shareholder value rather than a variety of often imprecise or misleading operating metrics and rules of thumb.
Spreading The Word
CFOs, CEOs… all senior leaders for that matter, have a stake in widespread value creation fluency to improve financial performance.
Get a truly superb financial communicator who can share the key financial concepts and implications clearly and persuasively. Done well, people walk away with a renewed sense of enthusiasm for creating genuine value.
It’s an investment of time and money, but it’s a sound investment. Just recall the words of Derek Bok:
If you think education is expensive, try ignorance.