The Leading vs. Lagging Indicators
Recently, I read a report in the New York Times about a large real-estate conglomerate defaulting on their payments to investors – investors had “suspicions” but would not know that they would not get paid until they read the reports today.
Their suspicions were likely based on “leading indicators” of financial performance.
Between 2000 and 2001, investors in Enron watched their stock go from almost 100 dollars as a share to less than one dollar when the company filed for bankruptcy. As a result, the stock price is a “lagging indicator” of financial performance.
Leading indicators help people predict what is likely to happen.
- A fever is a leading indicator of infection.
- Vaccination is a leading indicator of health status.
- Employee satisfaction is a leading indicator of employee retention.
Lagging indicators confirm that something has indeed happened.
- A positive COVID test is a lagging indicator of infection.
- Hospitalization rates are a lagging indicator of health status for a population.
- Attrition is a lagging indicator of employee satisfaction.
Identifying Indicators is a Roadmap to Action
Great strategies create clear and direct cause-and-effect relationships between leading and lagging indicators. This explicit relationship between indicators becomes your roadmap to action as they are key performance indicators that matter. It’s essential to organize your time, energy, and money around them.
My work at Emtrain focuses on providing companies with such leading indicators of financial performance through what the SEC calls “Human Capital” disclosures – specifically the people strategy stuff that includes diversity and inclusion. In addition, we build tools that enable you to base your inclusion and diversity strategy on validated metrics. It’s called the Inclusion Scorecard.
We make the relationships between investment and outcomes tangible for inclusion and diversity programs. By using the Inclusion Scorecard, you can help your company and its shareholders understand risk and leverage value in a space that is intangible for many. Although reporting on these things can be seen as an impediment to doing the real work, history has shown that we’re vulnerable without them. So, I see this requirement as a step in the right direction for all of us and an opportunity to put real metrics-driven diversity and inclusion strategies into place.
To learn more about how your organization can get a Scorecard for Inclusion, contact us today to receive a demo!