KPIs or greater proximity: it’s a trade-off

I found Bruce Sievers’ article in the June issue of Alliance very interesting. I am a director of Danone, one of the top five food companies globally by sales, having served as CFO for six years, and I’m therefore acquainted with the issue of measurability, KPIs (key performance indicators), etc.

KPIs are tempting for NPOs because they are trying to diversify their financing base and to attract more donors to their cause. While NPOs pursue the goal of diminishing their financing cost and increasing liquidity, some of us believe that a social capital market could be created. In that case, there is no doubt that strong KPIs with audited standards would be necessary.

But the risk is that this would result in the same thing that has happened in the private sector: as a result of a search for full transaction costs efficiency, most ultimate shareholders are now completely anonymous for big businesses. The consequence is that things like KPIs are necessary to supplement the lack of personal engagement of shareholders with the business (and by the way, in these circumstances, basic financial KPIs tend to become – or remain - the common benchmark for investment decision-making).

I feel the only other solution is to establish direct connections – or greater proximity – between NPOs and their donors. This would bring with it an increased level of confidence that their money is being used as they would wish, and would probably obviate the need for undue KPIs.

That goes for the corporate sector, too. If we were able to re-create the social link that has disappeared between most ultimate shareholders and the businesses they finance, it would do much to restore flagging confidence in the corporate world. But in both cases it’s a trade-off. Proximity means more frequent and tangible connections, hence increased financing costs and complexity.

Interestingly, internet communication, which did not exist even ten years ago, offers the possibility of creating greater proximity, for both business and NPOs.

Emmanuel Faber Senior Executive Vice President, Danone