No sound decisions are possible in a business setting without relevant information being available to the decision-maker. This axiom applies to all types of decision situations, whether large or small. The value creating company has established information sources and access to this information to enable persons at all levels to make rational trade-offs, whenever faced with an issue to be decided. This requires several supportive management practices:

• Sharing of relevant information.

• Decision support by financial staff.

• Distinction between accounting and economic data.

Sharing. The first practice is a deliberate management attitude of sharing. Too often old economy companies have fostered a climate in which information and knowledge is limited to those “in the know,” while new economy companies often have been too busy to even develop appropriate information flows. The principle here is one of delegation, of entrusting people at all levels with relevant data that will help them make sound decisions in the interest of value creation. This fits well with the modern management concepts of flat organizations and empowered employees. Empowerment begins with knowledge and is expanded by targeted training, which includes understanding the nature and relevance of financial/economic data, and is reinforced by a climate of trust.

Decision support. The second practice defines the support role of financial staffs in the organization. If sharing of information and its appropriate use is to succeed, the financial staffs must be proactive, because they are the basic supervisors of transactions and data collection, sponsors of internal information and accounting systems, and guardians of financial information. Again we’re describing a mind set, a shifting away from the primary attitude of control and stewardship—which historically has been the orientation of accounting professionals— to an attitude of business advisor and facilitator of decision support. The significance of this shift cannot be overemphasized. The value creating company looks upon its qualified financial staffs as business consultants, working closely with the line managers—our economic managers—and bringing to bear their insights and access to information in order to empower the decisionmakers up and down the line to make appropriate trade-offs. This is an educational function as well as a support role, because even when information is shared, it’s necessary to explain the meaning and relevance of the financial/ economic data, and to assist the non-financial personnel in the appropriate use of decision criteria and tools. At the same time, as we observed earlier, nonfinancial managers must not simply delegate the analytical aspects of their economic decisions to the experts, because understanding the principles involved as well as being clear about the nature of the trade-offs is part of the overall effectiveness of the enlightened modern manager.

Accounting versus cash. The value creating company has managed to draw a clear distinction between the two points of view with which financial information is gathered and interpreted, namely, the accounting viewpoint and the economic decision viewpoint. The blurring between these two, which is too often found in financial analysts’ commentary and security analysts’ reports, can lead senior management to pursue results in accounting terms, such as managing quarterly earnings results and expectations, when in fact cash flows are increasingly being recognized as the real key to building value. The value creating company encourages internal decision-making on the basis of managerial economics and cash flow data, tasking the financial staffs to develop decision rules and decision information, and provide support that clarifies the economic trade-offs to be made. In this process, such a company certainly doesn’t ignore the requirements of financial accounting and reporting, which are still the mainstay of published financial information. But the company actively promotes, in parallel fashion, the view of its performance in cash flow terms, and embraces appropriate shareholder value techniques. As it sends clear signals to its personnel that decision-making must be economic and cash trade-off oriented, it also requires that the accounting implications are to be recognized as a separate view. At times, divergent near-term accounting impacts might have to be explained in external communications, if a strategic move is at stake which could depress near-term reported earnings but promises strong cash flow results over time. The value creating company does this as a matter of course, confident in the integrity of its decision-making processes, and communicating clearly why financial accounting cannot express the true economic results, given its different orientation. In short, the value creating company has established a corporate climate in which all decisions and all actions are viewed as economic trade-offs, and which fosters access to and sharing of carefully developed, relevant information, decision rules, and tools in a collaborative fashion. Because the common objective is value creation for the long term, such a supportive climate for decision-making is the vital underpinning of success.