Manu Varma, Director of Employee Development at Sierra Wireless, seen here at the Sierra Wireless offices in Richmond, British Columbia, Wednesday, April 13, 2011. Rafal Gerszak for The Globe and MailRafal Gerszak/The Globe and Mail
One executive played the role of "operating expenses." Another, "capital expenditure." Another got the near sleep-inducing role of "EBITDA" - short for earnings before interest, taxes, depreciation and amortization.
No, this wasn't a banker's perversion of A Midsummer Night's Dream. Instead, last November, 18 directors and vice-presidents with Sierra Wireless Inc. went through a role playing exercise to make these dull finance terms mean more. Each pretended to be a number on an imaginary bakery's financial statement.
The point, says Manu Varma, director of employee development at Sierra, an international wireless technology company based in Richmond, B.C., was to bring the financial terms to life. "The workshop facilitator put various business scenarios forward, and everyone in the group thought about what steps to take and how these actions might affect certain numbers on the financial statement," she says.
It's long been thought that the more your employees know, the better your business performs. But a growing number of organizations like Sierra are taking this belief and steering it toward an area foreign to most workers: business finances.
"Financial literacy is a strategic imperative for these companies," says Karen Berman, founder of the Business Literacy Institute, a consulting firm in Woodland Hills, Calif., that helps companies such as Sierra, Electronic Arts, Visa, American Express and General Electric increase their employees' understanding of finance.
"For many of our clients, the thinking is that they're going to perform well in the long term if more people in the company understand the numbers behind the business."
Ms. Berman, co-author of Financial Intelligence: A Manager's Guide to Knowing What the Numbers Really Mean, says companies increasingly want a work force literate in finance. "I do see an interest growing, especially in larger companies, where it's typically been harder for employees to have a line of sight into how their actions impact the success of the company," she says.
In Canada, this growing interest may be driven by efforts to promote literacy in both business and personal finances. Earlier this year, the federal government's task force on financial literacy released a report recommending, among other things, a national strategy to help Canadians manage their finances.
"There's a real link between people's financial literacy and their financial well being," says Nicholas Cheung, a principal at the Toronto-based Canadian Institute of Chartered Accountants. "On the business side, having a work force with at least a general understanding of basic business finances can only be good for companies."
While the definition of financial literacy may vary from one company to another, a basic skill should be the ability to read a financial statement, says Rick Robertson, associate professor of managerial accounting and control at the University of Western Ontario's Richard Ivey School of Business in London, Ont.
It's also useful for employees to learn metrics used to monitor their organization's performance, such as the cost of getting a new customer, and the yearly value of each customer to the business, says Prof. Robertson, who leads financial literacy seminars for companies.
Many companies today may think they're doing a good job of sharing numbers with their employees. After all, with annual reports often posted online, it's easy enough for anyone to peek into their books. But few businesses take the time to explain what the numbers mean, says Don Newell, national director of IFRS (international financial reporting standards) services and partner at Deloitte & Touche LLP in Toronto.
To help create financial literacy among a company's ranks, Deloitte offers a tool on its website for assessing knowledge of financial principles, concepts and accounting practices.
"Explanations tend to happen at the managerial level but don't necessarily trickle down to the ranks," Mr. Newell says. But while he believes it's important to have financially literate workers, he says not everyone must know all of their employer's financials. Instead, companies should consider tailoring the information based on what's relevant to each department or team. And department leaders should sit down with their team to discuss how each person contributed to the results, he says.
Mr. Robertson adds that even when the numbers are relevant to them, some people may resist efforts to make them financially literate. "Let's face it, most people think of finances as dry and boring," he says. "So it helps if you can make it enjoyable and informative at the same time.'"
Beyond the financial statement
Understanding a financial statement is the first step to business literacy, but it isn't the only thing employees should be encouraged to learn. Here are other bits of information companies should share with their workers, according to Warren Coughlin, a business coach with Action Coach in Toronto, and Rick Robertson, a professor at the University of Western Ontario's Richard Ivey School of Business in London, Ont.:
Profits made
Knowing profit margins on individual projects can motivate staff. It can also improve accuracy on job estimates.
Percentage changes
Without getting into dollar figures, companies can use percentages to let employees know that last year's overhead costs went up, or that net profit went down.
Project performance
How often do projects run under or over budget, and how often are they finished on time?
Customer referrals
Sharing these numbers is as good as a pat on the back. If they're not that great, then the team knows they need to do better in the future.
Buying activity
How often do your customers buy over the course of the year? How loyal are they to your brand? This information can serve as a good motivator.
Cost of acquiring customers
Employees may not realize that losing customers means more than losing future sales. Give them insight into the costs of attracting new ones.
Competitors' performance
Sharing your competitors' results provides a bigger picture of your market and your company's place in it.