The Governance of KPIs

Why hitting the numbers can mean missing the point

Key Performance Indicators (KPIs) are now deeply embedded in the practice of corporate governance. Board packs are organized around them. Executive performance is assessed through them. Strategy is articulated and sometimes reduced to a set of numerical targets. For many organizations, KPIs have become the primary lens through which performance is understood and judged.

This reliance is, to a degree, understandable. KPIs impose order on complexity. They create a shared language for accountability and performance, and they give boards something tangible to oversee.

Yet many experienced board members recognize an underlying paradox. An organization can meet its KPIs and still feel as though it is drifting. Progress appears strong on paper, while strategic momentum is weak. Dashboards remain reassuringly green even as risks accumulate beneath the surface. The organization is compliant, but not necessarily flourishing.

The answer is not to abandon KPIs, but to recognize their limitations and place their use in proper perspective. Governance failure begins when a KPI - designed to signal progress on a specific dimension of performance - is treated as a direct proxy for the achievement of the organization’s underlying purpose. Corporate history provides stark illustrations of the consequences when this confusion takes hold.

At Wells Fargo, aggressive cross-selling targets incentivized employees to open millions of unauthorized accounts, masking ethical breakdown behind apparently strong performance. At Boeing, intense pressure to meet production and cost targets is widely seen as having crowded out safety considerations in the 737 MAX program. Volkswagen’s emissions scandal similarly reflected an obsession with compliance metrics and market share, leading to manipulation rather than genuine performance.

Together, these cases show how organizations can deliver against their KPIs while simultaneously undermining trust, resilience, and long-term value-when metrics displace judgement rather than support it.

The same patterns are still widely observed. Cost targets are met by cutting capabilities that cannot easily be rebuilt. Growth targets are achieved by accepting less commercially viable customers or higher levels of risk. Projects are delivered “on time and on budget” long after their strategic relevance has faded. The KPI is achieved, but value - and progress toward the organization’s mission - is quietly eroded.

It is often said that what gets measured gets managed. That is true, but incomplete. What gets measured is not always what matters most.

Many of the factors that drive long-term performance are difficult to quantify. Culture, leadership quality, judgement, resilience, and learning capacity do not sit comfortably in a spreadsheet. As a result, they tend to receive less attention in formal reporting, even though boards know they are critical to sustainable success.

KPIs can also create a false sense of control. A detailed dashboard suggests that performance is being comprehensively managed. In reality, most board-level KPIs are backward-looking. They describe outcomes, not causes; what has happened, not what is likely to happen next.

This matters because boards are required to govern looking forward, not backward. By the time a problem becomes visible in the numbers, options are often constrained. Talent loss, ethical drift, and cultural erosion usually develop well before they appear in headline metrics.

Boards are expected to approve KPIs, monitor them closely, and link them to executive remuneration. These practices can encourage discipline, but they also risk narrowing attention. Discussion shifts toward whether targets were met, rather than whether the targets themselves remain appropriate in a changing strategic context.

Over time, KPIs can work against strategy by anchoring decision-making in the short term. Strategy requires judgement, trade-offs, and sustained engagement with uncertainty, whereas KPIs privilege precision, comparability, and short reporting cycles.

This tension is particularly evident in the use of functional KPIs. Departments may meet their individual targets even as overall value creation weakens. While such measures often make sense when viewed in isolation, their coherence at the level of the organization as a whole is rarely tested. As a result, functions can legitimately succeed against their own scorecards while collectively pulling the organization in different and sometimes opposing directions.

The excessive targeting of KPIs may also discourage openness. When the consequences of missing a KPI are severe, bad news is more likely to be delayed, softened, or omitted. Emerging risks are downplayed. Boards receive reassuring reports precisely when they most need frank and uncomfortable conversations.

Boards that use KPIs well tend to be selective. Rather than long scorecards, they focus on a small number of metrics that are clearly linked to strategy and long-term success. They also accept that not everything that matters can be measured.

Effective boards distinguish carefully between outcomes and drivers. Financial results matter, but so do the conditions that shape future performance. Board time is deliberately devoted to capability, talent, culture, and risk-even when these require qualitative judgement rather than numerical precision.

Crucially, high-performing boards use KPIs to open conversations, not to close them. A missed target prompts inquiry rather than blame. A target that has been achieved invites reflection: at what cost was this achieved, and with what longer-term implications? Often, the most valuable boardroom discussions begin only after the numbers have been reviewed.

Used in this way, KPIs support good governance rather than substitute for it. They inform judgement, but they do not replace it. For boards navigating complexity and change, that distinction matters more than whether the dashboard is perfectly green.

Dr. Roger Barker

Chief Research and Thought Leadership Officer

Center for Governance

Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the opinion or position of the Center for Governance.