Stakeholder value disclosures: anchoring on primacy and importance of financial and nonfinancial performance measures

In the growing debate about stakeholder values, there has been little discussion about information overload or whether the requested disclosures can be effectively used. Stakeholder advocates call for complicated and massive environmental and related social disclosures while not considering how information overload might affect the discourse about corporate performance. Stakeholders, including shareholders, plead for more transparency in financial statements, management discussion and analysis (MDA), and other corporate disclosures. As we know, shareholders and boards of directors are most concerned with the ‘Holy Trinity’ of earnings per share, dividends and market value changes. We believe that managers and stakeholders involved in performance evaluations have multiple interests that extend beyond traditional shareholder value measures. We note that the Balanced Scorecard (BSC) was developed as one tool to reflect and communicate these multiple measures. We test how managers use (or ignore) multiple performance measures and we posit that stakeholders will face many of the same constraints when using and processing multiple disclosures including Corporate Social Reports (CSR), environmental, or similar disclosures. While we do not directly test a wide variety of stakeholder disclosures, we examine eight (four for a single subject) shareholder values (financial measures) and four stakeholder values (nonfinancial measures). The eight measures included in our research instruments serve as proxies for the multiple concerns that might be of interest to many stakeholders. Note that stakeholders are likely to be extremely interested in nonfinancial performance measures, while many shareholders will likely concentrate on financial performance measures. Field research has reported managers tend to favor financial measures while discounting or ignoring nonfinancial measures when evaluating subordinates, making it difficult to align performance evaluations and incentives with corporate strategies (Ittner et al. Account Rev 78:725–758, 2003). In this study, we find the relative weights managers place on financial and nonfinancial performance measures are influenced by both (1) presentation order and (2) the relative importance of specific measures. When financial measures are presented first, the manager who performs better on financial measures is rated higher than the manager who performs better on nonfinancial measures. However, when nonfinancial measures are presented first, managers who excel on nonfinancial measures are rated higher. Reports that include financial measures that are relatively more (less) important also produce higher (lower) ratings for the manager who excels on financial measures. Thus, the relative weights that superiors place on financial and nonfinancial measures in evaluating corporate managers’ performance are substantially anchored both by the order in which measures are presented as well as by the importance of the specific performance measures employed. Other stakeholder disclosures are likely to be similarly anchored, perhaps biased, by primacy and a priori importance rankings.