The Case for an Off-Balance-Sheet Controller

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The controller’s work has become too specialized. Analyzing an organization’s financial records and balance sheet, although important, does not provide management with an accurate assessment of the firm’s capabilities. In an increasingly turbulent environment, in which organizations are becoming more dependent on external constituencies for resources, the role and activities of the controller need to be reconsidered.

In a recent executive development program, sixty participants described their organizations’ top three resources.1 Only five respondents mentioned balance-sheet assets, such as cash or plants and equipment. Most of the other assets they mentioned were not only off the balance sheet, they were also intangible: the quality and experience of personnel and management, corporate culture, corporate mission, distribution channels, brand equity, technology, knowledge, and so forth. In short, what the majority of these executives considered the most valuable assets were not the kinds of assets that controllers and corporate planners usually assess.

We believe that it is time for a new kind of controller: the off-balance-sheet controller.2 Such a person would analyze and control all of the organization’s off-balance-sheet resources. Typically, responsibility for such activities is scattered throughout the organization. By assigning responsibility for these activities to one person, management can assure that adequate attention is paid to these resources.

The Nature and Scope of Resources

At the root of this change in the controller’s job is a new understanding of organizational resources.3 Resources are anything one can draw on for support or aid. They are not things but functions that things can perform. Consider these characteristics of resources:

  • They can be tangible or intangible. For example, the concept of total quality management has been one of the strongest competitive resources of the second half of the twentieth century.
  • They are not inherently valuable; they become valuable when we know what to do with them. Mineral deposits were not resources until people learned how to recover and use them.
  • They are not static but dynamic. An employee, for example, becomes more valuable with training.

Drucker has argued that knowledge “is the primary resource for individuals and for the economy overall.”4 Clearly, the traditional tools of control and the traditional work patterns of controllers do not fulfill organizations’ needs for assessing knowledge or the other intangible resources that have become so important.

In Figure 1, we have classified some business resources by tangibility and relation to the balance sheet. Although U.S. businesses have spent most of the twentieth century trying to get more productivity out of their balance-sheet resources, the resources that are not traditionally on the balance sheet — personnel, technology, the strategic plan, stockholder relations, and so forth — have come to dominate discussions of competitiveness. These resources are determining an increasing amount of the variation in firm performance.

Perhaps the only area where accountants have attempted to systematically assess off-balance-sheet resources is in the area of human resources.5 Not surprisingly, their attempts to quantify these “assets” had a strong financial overtone, and, after a decade of futile attempts, the movement to put human resources on the balance sheet was abandoned. Little has been done in the last twenty years to more accurately project the “true” asset base of the corporation in the global marketplace.


When is off-balance-sheet auditing important? The ongoing benchmarking and auditing of off-balance-sheet resources should be valuable to all companies. But, in certain situations, such auditing may be especially worthwhile:

  1. During the acquisition or sale of a company or subsidiary. When a company is worth more than book value, the implicit message is that it has off-balance-sheet resources that are undervalued.
  2. When borrowing money. An organization that is borrowing money may need to justify its future potential by pointing to resources such as new technology, access to the market, brand loyalty, and so on. This can be especially important when dealing with lenders that are not asset based.
  3. During an initial public offering (IPO). An IPO prospectus always includes discussion of the company’s intangible assets and how they position the company for future growth.
  4. When a merger is being assessed. The fit of the two companies’ off-balance-sheet assets is important here, particularly assets such as corporate culture, product lines, and distribution channels.
  5. When becoming a supplier to a firm in the European Community. The vendor certification program (ISO 9000) requires that suppliers be accredited. A third party must determine through an audit how the supplier rates relative to ISO standards. One of the primary areas of concern is the level of consumer satisfaction, which obviously is an off-balance-sheet item.


Who should conduct off-balance-sheet audits? Not the traditional controller. Traditional controllers are well trained in finance and accounting but often do not have a broad and deep understanding of other business functions and may not understand the intangible assets that have made the business successful, such as marketing, personnel, and strategy. In addition, the controllership job has already evolved into a very detailed and time-consuming position in most organizations. Most controllers would be hard-pressed to take on the larger challenges of off-balance-sheet auditing.

Al Pipkin, vice president of finance for Adolph Coors, asks controllers to consider the following scenario:

The president of your company calls you into his office and totally out of the blue gives you the following assignment. “I need someone to be concerned with looking ahead. I think you, as the controller, should be that person. All of us are busy running the business — we don’t have time to worry about next week, much less the future. You’re on your own — keep me informed.6

How would the typical controller respond? “Not me, I have too much to do already!” And even if a controller responded positively, would he or she have the staff, skills, background, perspective, and creativity to deliver?

The answer, then, to “who” should perform this new function is a new controller.

Job Description

The job of the off-balance-sheet controller would be to analyze, plan, and control all of the organization’s off-balance-sheet resources. It would involve four primary functions:

  • Analyzing and identifying the off-balance-sheet resources needed to help the firm achieve its financial objectives;
  • Planning for the creation, acquisition, and development of necessary off-balance-sheet resources and making sure these resources were factored into any strategic and operating plans;
  • Controlling, monitoring, and auditing the effective and efficient use of all off-balance-sheet resources; and
  • Reporting to management, in a user-friendly format designed for decision making, the analysis, planning, and control activities.

Background and Qualifications

Identifying potential candidates and selecting the right person would be difficult. The ideal candidate would be a Renaissance person with technical expertise who can also be creative and proactive and can communicate well. Specifically, we envision the following ideal job requirements.

  • Educational background: an undergraduate degree in accounting; strong training in managerial accounting and information systems; elective work in liberal arts, behavioral sciences, and political science; and a master’s of business administration with functional concentration in marketing or management and elective work in global and international topics.
  • Professional experience: two to four years of manufacturing experience; two to four years of field experience in sales and distribution; and two to four years of staff experience in accounting or planning.
  • Professional skills: excellent communication and presentation skills; computer literacy; team-building skills; creative problem-solving skills; and analytical skills.

Perhaps the fundamental difference between the traditional controller and the off-balance-sheet controller is the latter’s breadth of education and experience. This prepares the off-balance-sheet controller to more quickly understand and respond to changing environments.


Where in the organization should the off-balance-sheet controller be placed? Ideally, this controller would report to the vice president of finance with a solid line and to the other functional vice presidents with a dotted line. In a very large organization, each functional area would have its own off-balance-sheet controller, but ideally each controller would still have a solid line to the vice president of finance with a dotted line to the functional vice president.


Some of the off-balance-sheet controller’s work would still lend itself to the traditional quantitative and financial control tools. The advent of this position would not signal the elimination of the cumulative knowledge that has been gained in the discipline of controllership. However, the majority of the controller’s work would focus on “softer,” more qualitative areas.

In an overview of the methodology for off-balance-sheet asset control, the desired state represents how an off-balance-sheet resource should contribute to firm performance (see Figure 2).7 To achieve this desired state, the controller identifies strategic pathways by which the resource will make that contribution. To assess the firm’s progress on the strategic pathways, the controller develops a set of diagnostic questions and a scoring system to quantify the results. The “standard” and “actual” boxes represent the preferred responses to the questions and the actual responses, respectively. Control is assessed by comparing actual to standard.

Note that the standard is not a quantitative financial goal. As illustrated with an example, the standard or desired responses to the questions do not represent quantitative financial goals. Rather, the standard responses represent how the firm should interface with or behave toward the off-balance-sheet resource. Off-balance-sheet resources are not directly controllable and, indeed, are often external to the firm. The firm “controls” external resources through its interactions with them. Therefore, an organization may be considered to be in control of its off-balance-sheet resources when it can work in concert with them to effect organizational change.

Consider how we might assess a company’s board of directors, one of the organization’s greatest resources.8 First, we would identify the desired state. It might be stated as follows: The board of directors should be the major tool to make sure the organization is doing all it can to increase shareholder wealth and operate in a socially responsible manner. Of course, the desired state would need to be tailored to the particular situation. The board of directors for a privately held, family enterprise might assume a different role than one for a privately held, nonfamily enterprise or for a publicly held enterprise.

Next, we would identify strategic pathways. There are at least four major ways a desired state for a board of directors might be achieved: balanced membership, agenda setting for meetings, policy on election and reelection to the board, and operation of committees. Again, these pathways represent ideal behavior, not particular quantitative goals.

Now we formulate diagnostic questions. Table 1 lists possible questions, grouped by strategic pathway. Note that the answers range from least to most desired behavior. For instance, the first three questions assume that the greater the number of outside directors on the board, the more experience the directors have with other industries, and the wider the range of ages among them, the better that board will be.


Firms are increasingly relying on resources that are not on the balance sheet. In most organizations, these off-balance-sheet resources are taken for granted. Someone somewhere probably worries about them and perhaps even manages them, but seldom is anyone responsible for the audit and control of these resources. Certainly the traditional controller does not have the time, skills, or tools to undertake such a role. Similarly, the chief executive officer or president is often unable to attend to them. For these reasons, we espouse the development of an off-balance-sheet controller. The cost of funding such a position should not be an issue. If off-balance-sheet assets have considerable value (and they often have more value than the assets on the balance sheet), then there is value in paying to monitor them.


1. University of Oklahoma, January 1993.

2. Others have discussed changes in the controller role. See, for example: J.P. Walker and J.J. Surdick, “Controllers vs. MIS Managers: Who Should Control Corporate Information Systems?” Management Accounting, May 1988, pp. 22–25;

A.D. Crescenzi and J. Kocher, “Management Support Systems: Opportunities for Controllers,” Management Accounting, March 1984, pp. 34–37; and

R.H. Fern and M.A. Tipgos, “Controllers as Business Strategists: A Progress Report,” Management Accounting, March 1988, p. 25–29. Over twenty years ago, Sam Goodman, the controller at Nestlé, proposed the establishment of a marketing controller. However, in his concept, the controller still focused on financial analysis. Our proposal is for the controller to go beyond a strictly financial orientation to analyze those assets that are fundamentally not financial and that are therefore difficult to value. See:

S.R. Goodman, The Marketing Controller (New York: Advanced Management Research, 1972). See also:

S. Trebuss, “The Marketing Controller: Financial Support to the Marketing Function,” The Canadian Business Review, Autumn 1976, pp. 30–33.

3. The first proponent of this concept of resources was Erich Zimmerman:

E.W. Zimmerman, World Resources and Industries (New York: Harper & Row, 1933).

4. P. Drucker, “The New Society of Organizations,” Harvard Business Review, September–October 1992, p. 95.

5. See J.S. Hekimian and C.H. Jones, “Put People on Your Balance Sheet,” Harvard Business Review, January–February 1967, pp. 105–113; and

R.L. Brummet, E.G. Flamholtz, and W.C. Pyle, “Human Resource Measurement — A Challenge for Accountants,” The Accounting Review, April 1968, pp. 217–224.

6. A. Pipkin, “The Twenty-First Century Controller,” Management Accounting, February 1989, pp. 21–25.

7. Frishkoff has proposed a similar methodology. See:

P. Frishkoff, “Is Your Controllership Function Out of Control?” Management Accounting, March 1986, pp. 45–47.

8. This discussion is based on:

W.J. Salmon, “Crisis Prevention: How To Gear Up Your Board,” Harvard Business Review, January–February 1993, pp. 68–75.

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