The Opportunity to Transform Finance

by Charles B. Tilley, Chief Executive, CIMA, 04 July 2010

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Human Capital Management Management

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Chartered Institute of Management Accountants CIMA finance transformation management accountants

Almost two years after the collapse of Lehman Brothers and the violent financial storm that ensued, it appears we are in calmer waters. Some people are even daring to mention the green shoots of recovery.

These might turn out to be fragile, and it would be dangerous to assume that there are no further crises to come. But we do have valuable breathing space in which to review the story so far.

It’s no surprise that the policy debate is moving into full swing and that various new ideas are being suggested — for example, introducing separate risk committees for banking institutions. In one sense, we have returned to a situation like the one we found ourselves in following the collapses of Enron and WorldCom, which saw the introduction of the Sarbanes-Oxley Act 2002 (SOX) in the U.S., and a host of new corporate governance codes around the globe.

Although there is evidence to show that many organisations have found SOX useful, and that the adoption of best-practice governance frameworks has helped non-financial companies to weather the storm, we should be mindful that codes and legislation will get us only so far.

What really matters is getting behind the codes of corporate governance to ensure that the right behaviour and processes are truly ingrained in the organisational DNA. Remember that even Enron ticked all the right boxes as far as governance was concerned.

During one of the breakfast seminars organised by CIMA and attended by senior management accountants to discuss board effectiveness, they were in no doubt about this requirement. Participants who were executive or non-executive directors in the FTSE 350 recognised the importance of embedding the right culture throughout their companies.

As you might expect from a group of financial managers, they took a highly practical approach when it came to questions such as, "How does a company resolve the information gap between non-executives and executives?" What underpins this is the power of management accounting to provide the information that continually drives the business.

Financial accounting certainly has its place and a company’s financial results will mirror how its performance has been managed. But although stakeholders want to know what has happened, they also need an idea of what the future holds.

Rather than just studying how an organisation has performed in the past, chartered management accountants are geared towards analysing performance, assessing business possibilities, grasping opportunities and shaping the future. Management accounting, with its predictive potential, has much to offer here.

Enlightened companies are already well on the way to transforming their finance functions to be more efficient and to better support decision making. This has included developing finance professionals and deploying them as finance business partners across the business. This gives organisations a competitive advantage. Any organisation not taking the opportunity to transform its finance function in this way could be putting its competitive position at risk.

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