Managers commonly analyze financial and non-financial metrics in order to approximate the value of their and their competitors’ organizations. Financial metrics consist of tangible and intangible resources. Tangible resources include buildings, land, and equipment. Intangible resources are categorized in three ways: 1) registered intellectual property, 2) unregistered but codified intellectual property, and 3) uncodified human and organizational capital such as corporate knowledge, organizational culture, customer satisfaction, corporate reputation, personal and organizational networks, social capital, and trust and legitimacy. This third classification of intangible assets is known as “non-financial metrics.” This article explores a relationship between cultural values and corporations’ disclosure of non-financial metrics.
There are national differences in the disclosure of non-financial metrics. Although U.S. companies and regulatory agencies do not routinely value and disclose non-financial metrics, Indian and Continental European Multinational Corporations (MNCs) frequently disclose these data as part of their valuation measures. Such disclosure provides investors more information on the companies, perhaps leading to more accurate valuation of the worth of the organizations. The absence of such disclosure makes valuing U.S. corporations more challenging.
Varying national regulatory systems may account for some of these differences. In the U.S. the Securities and Exchange Commission (SEC) determines disclosure and financial measurement systems and standards. Indian companies and European MNCs determine disclosure and financial measurement using either the International Financial Reporting Standards (IFRS) or local Generally Accepted Accounting Principles (GAAP), which are closely aligned to the IFRS.
The corporate and accounting professionals who form the U.S. Financial Accounting Standards Board (FASB) can influence the SEC’s releases and accounting standards on non-financial metrics; however, they have yet to do so. Thus, U.S. corporate analysts and accounting professionals continue to use short-term measures that leave certain intangible assets (i.e., human assets, customer service, brand name, and vendor relationships) undisclosed and therefore unaccounted for in the valuing of organizations.
However, in response to competition and dissatisfaction with such short-term approaches, some Indian and European MNCs give investors a longer-term perspective by embracing supplemental disclosure of the value of these intangible assets. Indian organizations such as Infosys, BHEL, and Satyam have disclosed these intangible assets since the early 1970’s. While recently addressing the reconciliation process between the IFRS and U.S. GAAP standards, Christopher Cox, SEC Chairman, suggested that the two standards will eventually converge, giving rise to one standard for foreign and domestic issuers, analysts, managers, and investors to use.
The Indian and European MNC companies’ strategies are based primarily upon the Lev & Schwartz and Balanced Scorecard models for classifying non-financial aspects of corporate performance. These models identify several factors that impact disclosure of non-financial information: size, industry, multi-nationality, profitability, and nationality. This article posits that national culture impacts corporations’ disclosure decisions. It argues that national culture shapes and reflects societal and individual value systems, which are manifested in societies’ institutions, including their corporations. More specifically, national cultural value differences impact corporations’ non-financial metric disclosure, particularly those articulated by the Balanced Scorecard’s Learning and Growth Perspective.
Following a summary of the Learning and Growth Perspective is a presentation of factors influencing corporate refusal to disclose non-financial metrics. Next comes a discussion of culture’s impact on organizations’ valuation and disclosure decisions followed by an analysis of Danish, Indian, and Swedish companies that disclose non-financial metrics. A relationship between disclosure decisions and cultural values is explored, followed by implications for creating organizational cultures that sustain learning and growth.
The Balanced Scorecard
In order to achieve performance goals, managers need to simultaneously consider a variety of measures (financial and non-financial; tangible and intangible). The Balanced Scorecard, recommends four perspectives on organizational valuation: Financial, Customer, Internal Business Process, and Learning and Growth. (See Table 1 for a description of each.)
Table 1: Balanced Scorecard Summary
|Financial||Analyzes data and sets objectives relevant to how the company’s strategy, implementation, and execution contribute to bottom-line improvement in the long-term goal of the organization-to provide superior returns on the investments of shareholders; measures the traditional goals of profitability, growth, and shareholder value.|
|Customer||Focuses on how customers see the organization: time, quality, performance and service, and cost.  |
|Internal Business||Emphasizes what needs to be done within the organization to meet and exceed customer expectations. Leaders determine most impactful business processes and core competencies for increasing customer satisfaction (i.e., cycle time, quality, employee skills, productivity); measures internally determined.|
|Learning and Growth||Analyzes how company can continuously innovate, improve, and learn as it creates and launches new products, delivers increased value to customers, and improves operating efficiencies;  |
The Learning and Growth Perspective
The Learning and Growth Perspective is emphasized because an organization’s ability to continuously learn, innovate, and grow is the basis for meeting its “ambitious targets for financial, customer, and internal business process objectives.” While the other three perspectives are necessary, they are insufficient unless the organization values, nurtures, and continuously improves its learning capability. Maximizing the value of this human capital is critical because it differentiates organizations and creates competitive advantage. Furthermore, the Learning and Growth Perspective is comprised of future-oriented non-financial metrics, which address managers’ complaints of short-term financial measurement systems.
Why Companies Do Not Disclose Their Non-Financial Metrics
Most organizational leaders value non-financial metrics which include knowledge capital and human capital. One might expect knowledge-based companies such as consulting, technology, and research firms to lead the valuation and disclosure of these assets. Yet annual reports in the world’s largest knowledge-based companies including Microsoft, EDS, and CAP Gemini Sogeti, “provide no more than a few hints that they employ human beings.” Some suspect this indicates an unsophisticated grasp of “the economics of knowledge and competence.”
Although corporate spokespersons publicly tout the importance of non-financial metrics, why do they not disclose this value in their reports? There are at least four reasons.
- Companies see no internal or external reason to report these data because financial analysts ignore the data due to unclear data interpretation methods.
- Though they see the data’s value, companies fear that disclosure might provide too much information on their customers’ identities and thoughts. They also fear disclosing keys to competitive advantage.
- Companies seldom disclose non-financial metrics due to the difficulty of measurement. Rigorous theoretical models and accounting systems do not yet exist to support such reporting, which makes gathering these data difficult and expensive.
- Finally, companies are scared of being held accountable to “fuzzy” predictions. The recent Nike vs. Kasky case possibly set a legal precedent for accuracy in reporting intangible assets such as corporate social responsibility. In this case, California resident Marc Kasky sued Nike for unfair and deceptive practices alleging that Nike made false statements about working conditions in Nike’s production environments in order to increase or maintain sales.
Though there are likely other reasons, these four reasons combined create a disincentive for corporate disclosure of such data.
Companies That Disclose The Value Of Non-Financial Metrics
Table 2 introduces six companies from Denmark, India, and Sweden that report their non-financial metrics. These companies were chosen because they were among the first to disclose non-financial metrics.
Table 2: International Exemplars of Non-Financial Metric Disclosure
|Country of Origin||Company Name||Company Summary|
|Denmark||PLS-Consult A/S||Established in 1968, PLS-Consult is a management consulting firm with clients primarily in the service industries. As part of the Rambøll group, they also provide IT consulting and research consulting to the global market. They initially focused on organizational development in connection with local government reform.|
|India||Bharat Heavy Electronics Ltd (BHEL)||Established in 1962, BHEL is the largest engineering and manufacturing enterprise in India’s energy-related/infrastructure sector. They have a strong track record of performance. They list as their greatest strength their “highly skilled and committed 42,600 employees.”|
|India||Stell Authority of India Ltd (SAIL)||Established in 1954, SAIL is India’s leading steel-maker. Formed while a newly independent India emerged, they envisioned contributing to India’s rapid industrialization. Initially, the president of India held shares of the company on behalf of the people of India. Presently, the government of India owns about 86 percent of SAIL’s equity and retains voting control of the Company. Both BHEL and SAIL began reporting their human assets as non-financial metrics in the 1970s.|
|India||Infosys Technologies Ltd||Established in 1981, Infosys provides consulting and information technology services to clients embarking upon technology-driven business quality transformations. With 69,000 employees worldwide, Infosys pioneered strategic offshore outsourcing of software services. Wired magazine recently applauded the company for their unique offshore outsourcing strategy, which debunked the outsourcing myth and brought jobs back to the U.S.|
|Sweden||Skandia AFS||Established in 1855 as part of Swedish modernization, Skandia leads global independent long-term savings providers. Their core competencies are fund selection, concept development, and market support and service.|
|Sweden||WM-Data AB||Established in 1969 in Stockholm, Wm-Data provides IT-related services and solutions to help customers in the Nordic region increase their competitive edge by integrating IT and business processes.|
Hofstede’s Cultural Dimensions
Indian and European MNC’s value the Learning and Growth Perspective enough to disclose these non-financial metrics in their financial statements. U.S. companies, as discussed above, make no such routine disclosures. Because of the human-centered nature of the Learning and Growth Perspective, an organization’s level of innovation and learning are impacted by its organizational culture. Because organizations occur within a national context, national culture greatly impacts organizational culture.
National culture impacts the value systems of organizational members. In a study of IBM employees in 64 countries Hofstede determined four value dimensions along which countries varied: Power Distance (PDI), Individualism versus Collectivism (IDV), Masculinity versus Femininity (MAS), and Uncertainty Avoidance (UAI). Subsequent research on 23 countries yielded a fifth dimension: Confucian Dynamism (LTO). In both studies, countries were scored on a scale ranging from zero to just over 100. The authors describe each dimension (Table 3) and compare the scores of the Group of Eight (G-8) countries and the four countries relevant to this article: Denmark, India, Sweden, and the U.S.
Table 3: Danish, Indian, Swedish and U.S. Scores on Hofstede’s Cultural Dimensions 
*Nations with asterisks are members of the Group of Eight (G-8).
**Global Average is calculated based on all 56 countries analyzed by Geert Hofstede.
Power Distance (PDI) measures how comfortable individuals in a culture are with inequality in the power structure. It also measures how much less powerful organizational members accept the unequal distribution of power. The U.S. values of freedom and social mobility indicate a relatively low power distance. Predictably, the U.S. scored lower (52) than the global average (56.5) on this dimension. While the G-8 countries widely vary on this dimension, their average power distance (51.75) is higher than the U.S., yet lower than the global average (56.5). In India, however, power distance was the highest scoring dimension, far above the global average. Sweden scored lower (31) than the U.S., with Denmark scoring the lowest at 18.
There are two types of power: personal power and position power, which sub-divide into five power sources. Most relevant to the Learning and Growth Perspective is expert power: special knowledge, information, or expertise. Three of the four countries, particularly Denmark scored well below the global average on this dimension. All members of the G-8 scored lower than the Global Average except France (68) and Russia (93), which was only recently added to the former G-7. India also scored well above the global average. However, while traditional Indian culture is high in power distance, there is reason to believe that increased off-shoring by western companies likely reduces the actual power distance within India’s organizations, thus disrupting the traditional distribution of wealth, which in a knowledge-based economy is information.
Individualism versus Collectivism
Individualism versus Collectivism (IDV) measures group cohesiveness. A culture is individualistic if there is low cohesiveness between individuals; a culture is collectivist if there are tight bonds between individuals. In collectivist societies people are integrated from birth into strong cohesive in-groups which provide a lifetime of protection in exchange for unconditional loyalty. Individualism was the highest dimension scored for U.S. culture (91), which more than tripled the global average (24). While most G-8 countries were highly individualistic, the average individualism score for the G-8 (69.88) was lower because Japan (46) and Russia (39) remain highly collectivist cultures. Sweden (71) and Denmark (74) scored lower than the U.S. India scored much lower (48), indicating that fewer but closer ties exist between members of that society compared to a larger number of distant ties in the U.S., Denmark, and Sweden.
This cultural dimension was equivocal. Although India was more collectivistic than the U.S., Denmark and Sweden were less so. Furthermore, all four countries were more than twice the global average, meaning that all four countries were quite individualistic. Though no firm patterns along this dimension were found, the authors suspect that less concern with satisfying the demands of the collective may enable more creativity, thus resulting in more highly valued human assets and more attention to non-financial metrics.
Masculinity versus Femininity
Masculinity versus Femininity (MAS) measures how much assertiveness and competition are highly valued. In feminine cultures values of caring and modesty are more highly valued. In the U.S. masculinity was the second highest scoring cultural dimension (62), above the global average (51); individualism was first. While India (56) was also above the global average, Sweden and Denmark were drastically lower than the U.S. and India with scores of 5 and 16, respectively. Both India and the U.S. have masculine values, meaning they value assertiveness, competitiveness, and different roles for men and women. Denmark and Sweden were strikingly more “feminine” cultures than the U.S. India was marginally more feminine than the U.S. While the G-8 average score on masculinity (61.25) was slightly higher than the global average and comparable to the U.S. and the U.K., France (43) and Russia (36) were outliers, scoring within the range of Denmark, India, and Sweden.
This dimension becomes relevant when considering the reasons why companies may choose not to disclose the value of human assets. Specifically, some companies chose not to disclose for fear of losing their competitive advantage. Since competition is highly correlated with masculine cultures, the authors posit that increased value on competitiveness may predispose a company not to disclose their non-financial metrics.
Uncertainty Avoidance (UAI) measures how much individuals feel threatened by uncertain situations. Countries with low uncertainty avoidance have a high tolerance for ambiguity and expect their members to feel comfortable in unstructured situations. Societies such as this have fewer rules. While the U.S., known for being highly litigious, ranked low (46) on uncertainty avoidance, two of the remaining three countries ranked even lower. India’s score was 52, while Sweden (29), which led other countries in the disclosure of non-financial metrics, and Denmark (23) scored still lower. This leads us to conjecture that highly valuing and disclosing human assets (which is, admittedly, a “slippery” construct) and non-financial metrics may require an increased comfort level with uncertainty. India, still less avoidant of uncertainty than the U.S., scores relatively high, similar to our argument regarding power distance. The authors suspect that the high level of offshoring and outsourcing may lessen the impact of the wider culture’s uncertainty avoidance upon organizations.
While all four countries are more tolerant of uncertainty than the global average (65), India, Sweden, and Denmark are far more tolerant of ambiguity than the G-8 countries on average (67.75) and the U.S. Interestingly, of the G-8 countries, only Canada (48) and the U.K. (35) had relatively low scores like the U.S. Again, Russia (95), Japan (92), and France (86) were the outliers with extremely high uncertainty avoidance.
Confucian Dynamism/Long-Term Orientation
Confucian Dynamism (LTO) measures long-term or short-term orientation. The U.S. (29) scored far below the global average (48), meaning that U.S. society values short-term values (i.e., meeting its obligations and appreciating cultural traditions) more than it values long-term ones (i.e., thrift and perseverance). Interestingly, with the exception of Japan (80), members of the G-8 were on average (37.6) more short-term oriented with scores ranging from 23 (Canada) to 29 (U.S.). India (61) and Sweden (33) out-scored the U.S. U.S. strategists distinguish tactical goals (one-to-two-year window) from strategic goals (three-to-five-year window). The strategic planning window is shorter-term than comparative windows for long-term-oriented cultures that focus on virtue and ancestry. Encouraging an organizational culture that expands this short-sightedness and focuses on the long-term contributions of the organization seems more likely outside of the U.S.
Implications for Organizational Culture
Certain cultural values are conducive to organizational learning and growth. These values are low power distance, low masculinity, low uncertainty avoidance and high long-term orientation. By impacting organizational symbols, jargon, stories, rituals, values, and practices, leaders can maximize learning and growth potential by:
- Decreasing Power Distance. Encouraging vertical and horizontal collaboration and communication creates human-centered organizational cultures, thus improving efficiency and effectiveness. Though many view power as positional, senior managers give power to individuals upon whom they depend, effectively decreasing power distance. By disclosing their non-financial metrics, the organizations above demonstrated their value of human assets.
- Decreasing Uncertainty Avoidance. By developing employees’ critical thinking skills, managers can provide employees opportunities to impose their own problem frames, thus increasing learning. , which not only indicates low uncertainty avoidance, but the ability to thrive in the midst of chaos.
- Decreasing Masculinity. While competitiveness and assertiveness are valuable traits, in excess they can harm the organization. Encourage “win-win” over “zero-sum-game” thinking, wherever appropriate. Companies that disclosed human assets viewed innovation as an abundant resource, not a scarce one.
- Increasing Long-Term Orientation. By articulating a broader reason for organizational success. Most of the companies above embraced socially beneficial goals such as industrialization, modernization, and regional commitment.
F. J. Contractor. “Valuing Corporate Knowledge and Intangible Assets: Some General Principles,” Knowledge and Process Management, 7, (2000).
A. J. Culpepper. “The Effect of Disclosure of Human Assets on Publicly Traded Companies in India,” (Doctoral Dissertation: Pepperdine University, 2005, Dissertation Abstracts Online] (2004).
G. Hofstede, B. Neuijen, D. D. Ohayv, G. Sanders. “Measuring Organizational Cultures: A Qualitative and Quantitative Study Across Twenty Cases,” Administrative Science Quarterly, 35, no. 2, (1990).
G. K. Meek, S. J. Gray. “Globalization of Stock Markets and Foreign Listing Requirements: Voluntary Disclosure by Continental European Companies Listed on the London Stock Exchange,” Journal of International Business Studies, 20, no. 2, (1989).
M. Porter. Competitive Strategy: Techniques for Analyzing Industries and Competitors, (New York: The Free Press, 1980).
K. E. Sveiby. The Invisible Balance Sheet, (Stockholm: Affärsvarlden/Ledärskap, 1989).
 A.A Said, H.R HassabElnaby, B. Wier. “An Empirical Investigation of the Performance Consequences of Nonfinancial Measures,” Journal of Management Accounting Research, 15, (2003): 193-224. C. Ittner, D.F. Larcker. “Are Nonfinancial Measures Leading Indicators of Financial Performance?” Journal of Accounting Research, 36, (1998):1-35. C. Ittner, D.F. Larcker. “Assessing Empirical Research in Managerial Accounting: A value-based management perspective,” Journal of Accounting and Economics, 32, (2001/12): 349-410. C. Ittner, D.F. Larcker, and M.V. Rajan. “The Choice of Performance Measures in Annual Bonus Contracts,” The Accounting Review, 72, no. 2, (1997/4): 231-255. S. Keating. “Determinants of Divisional Performance Evaluation Practices,” Journal of Accounting and Economics, 24, no. 3 (1997/12): 243-273. B.P. Strives, T.J. Covin, N.G Hall, S.W. Smalt. “How Nonfinancial Performance Measures are Used: Survey of Fortune 500 and Canadian Post 300 Executives,” Management Accounting, 79, no. 8 (1998/02): 44.
 N.A Gardberg, C.J.Fombrun. “Corporate Citizenship: Creating Intangible Assets Across Institutional Environments,” Academy of Management Review, 31, no. 2, (2006): 329-346.
 C.J. Fombrun. Reputation: Realizing Value from the Corporate Image. (Massachusetts: Harvard Business School Press, 1996). R. Hall. “The Strategic Analysis of Intangible Resources,” Strategic Management Journal, 13, no. 2, (1992/2): 135-144.
 Hall, (1992).
 Fukuyama, (1994). Paul Adler, Seok-Woo, Kwon. “Social Capital: Prospects for a New Concept,” Academy of Management Review, 27, no. 1 (2002): 27-52. Francis Fukuyama. Trust: The Social Virtues and the Creation of Prosperity. (New York: Free Press, 1995).
 H. Rao. “The Social Construction of Reputation: Certification Contests, Legitimation, and the Survival of Organizations in the American Automobile Industry: 1895-1912,” Strategic Management Journal, 15, (1994): 29-44.
 G.K. Meek, C.B. Roberts, S.J. Gray. “Factors Influencing Voluntary Annual Report Disclosures by U.S., U.K. and Continental European Multinational Corporations,” Journal of International Business Studies, 26, no. 3, (1995).
 The Institute Of Chartered Accountants in India. “Preface to the Statement of Accounting Standards,” Accounting Standards, (2004). Retrieved July 2, 2007 from http://www.icai.org/icairoot/departments/asb/acc_bodies_preface_AS_revised04.pdf. (no longer accessible).
 Said, HassabElnaby, Wier. (2003).
 P. Chandran. “Human Resources Accounting In Infosys,” ICFAI Center for Management Research, 2003.
 R. Dzinkowski. “Saying Goodbye to U.S. GAAP,” Strategic Finance. (2007/6): 46-49.
 B. Lev, A. Schwartz. “On the Use of Economic Concepts of Human Capital in Financial Statements,” Accounting Review, 71, (1974): 103-112. Also see www.accountingforpeople.gov.uk/downloads/judge_literature_review.pdf. (no longer accessible).
 R.S. Kaplan, D.P. Norton. “The Balanced Scorecard-Measures that Drive Performance,” Harvard Business Review, 70, no. 1 (1992): 71-79.
 G. Foster. Financial Statement Analysis. (New Jersey: Prentice Hall, 1986).
 T.E. Cooke. “An Assessment of Voluntary Disclosure in the Annual Reports of Japanese Corporations,” International Journal of Accounting, 26, no. 3, (1991).
 F.D.S. Choi, G.G. Mueller. International Accounting, (New Jersey: Prentice Hall, 1992).
 G.A. Akerlof. “The Market for Lemons: Quality Uncertainty and the Market Mechanism,” Quarterly Journal of Economics, 84, no. 3, (1970/8): 448-500.
 Meek, Roberts, Gray, (1995). S.J. Gray, C.B. Roberts. “Corporate Social and Nonfinancial Disclosures,” in Frederick Choi (Ed.), Handbook of International Accounting, (New York: John Wiley, 1991). G.K. Meek, S.M. Saudagaran. A survey of research on financial reporting in a transnational context. Journal of Accounting Literature, 9, (1990): 145-182.
 R.S. Kaplan, D.P. Norton. The Balanced Scorecard. (Massachusetts: Harvard Business School Press, 1996).
 Kaplan, Norton, (1992).
 Kaplan, Norton, (1992). Kaplan, Norton, (1996).
 Kaplan, Norton, (1992).
 Kaplan, Norton, (1996).
 Kaplan, Norton, (1996).
 Kaplan, Norton, (1992).
 Kaplan, Norton, (1996).
 D.R. Hansen, M.M. Mowen. Management Accounting, 7th edition, (Ohio: South-Western, 2005): 524.
 Kaplan, Norton, (1996): 146.
 K. E. Sveiby. The New Organizational Wealth. (California: Berrett-Koehler Publishers, Inc., 1997).
 Sveiby, (1997): 185.
 D. Hess, T.W. Dunfee. “The Kasky-Nike Threat to Corporate Social Reporting: Implementing a standard of optimal truthful disclosure as a solution,” Business Ethics Quarterly, 17, no. 1, (2007).
 Ramboll Management. About Us, http://www.ramboll-management.com/eng/sites/about_us/company+history.htm. (no longer accessible).
 Kaplan, Norton, (1992). Steel Authority of India, Ltd. (SAIL), About Us, http://www.sail.co.in/about-us.asp. (no longer accessible).
 Kaplan, Norton, (1992). Infosys, Overview, http://www.infosys.com/about/default.asp. (no longer accessible).
 G. Hofstede. Culture’s Consequences: International Differences in Work-Related Values. (California: Sage, 1980).
 G. Hofstede, M.H.Bond. “The Confucius Connection: From Cultural Roots to Economic Growth,” Organizational Dynamics, 16, no. 4, (1988).
 ITIM International. Geert HofstedeTM Cultural Dimensions, Resources, http://www.geert-hofstede.com/geert_hofstede_resources.shtml.
 ITIM International. Geert HofstedeTM Cultural Dimensions, United States, http://www.geert-hofstede.com/hofstede_united_states.shtml.
 J.R.P. French, B.H. Raven. “The Bases of Social Power,” in D. Cartwright (Ed.), Studies in Social Power, (Michigan: Research Center for Group Dynamics, Institute for Social Research, The University of Michigan, (1959): 150-157).
 Because Hofstede added this dimension later in his research, Long Term Orientation data for some countries, including Denmark and the Scandinavian countries, are not available.
 Likert, (1967).
 K.K. Reardon. “Courage as a Skill,” Harvard Business Review, 85, no. 1 (2007): 61.
Wolff-Michael Roth. “Knowledge Diffusion in a Grade 4-5 Classroom during a Unit on Civil Engineering: An Analysis of a Classroom Community in Terms of Its Changing Resources and Practices,” Cognition and Instruction, 14, no. 2. (1996): 170-220. J. Savery, T. Duffy, “Problem-Based Learning: An Instructional model and Its Constructivist Framework,” in B. Wilson (Ed.), Constructivist Learning Environments: Case Studies in Instructional Design, (New Jersey: Educational Technology Publications, 1995): 135-148).
 S.D. Carr, D.Rippey. “Growth Leaders: Making Movies,” Batten Briefings, 6, no. 1 (2007): 4.