In 2010, Asia’s finance executives were riveted by what we termed as “potential seismic changes involving the accounting profession.” The single most read article posed the question: Will Ernst & Young Survive the Lehman Scandal?
(It did, by the way; the Big Four firm looks as strong as ever today.)
Last year you, our readers, could not get enough of another scandal, this time involving Japanese camera-and-medical-equipment giant Olympus. The single most read CFO Innovation
story in 2011 was The Olympus Scandal: When a Foreign CEO Rebels
, published days after the rebel referred to, British-born Michael Woodford, was sacked by his Japanese overlords for probing questionable deals.
After settling his wrongful termination suit against Olympus for an undisclosed amount in May this year (and seeing his tormentors arrested for fraud – they have pleaded guilty and now await sentencing), Woodford published Exposure: Inside the Olympus Scandal: How I Went from CEO to Whistleblower
last month. (Read an excerpt by clicking here.)
Olympus now has a new chairman in former Sumitomo Mitsui executive Yasuyuki Kimoto, a new CEO in Olympus veteran Hiroyuki Sasa, and a new set of board directors. In September, the new-look company announced a pact with Sony to form a business and capital alliance. Sony has paid an initial 19 trillion yen (US$227 million) for a 4.6% stake in Olympus and has the right to buy more shares for 30.9 trillion yen (US$368.8 million) until February next year.
School for Scandal
And so we come to 2012, and surprise! The hottest story this year is yet another scandal – in fact two of them: IT giant HP’s allegation that Autonomy, which it bought for US$11 billion, committed accounting tricks to inflate its valuation, and US short seller Muddy Waters branding of Singapore commodities trader Olam as insolvent and dishonest and/or incompetent with its accounting.
At that point, it seemed that Olam had been able to withstand the onslaught. Major shareholders Temasek, owned by the Singapore government, and private enterprise Kewalram Singapore have both said they support Olam and its proposed US$1.2 billion rights issue.
Olam’s stock price in Singapore closed at S$1.56 on 20 December, after Temasek bought shares on the open market to raise its stake from 16.3% to 17%. That’s higher than where it was – S$1.46 – when we published the article, though still lower than S$1.74, the stock price before the Muddy Waters attack.
“It is safe to say that short-sellers like Muddy Waters will continue to target what they see as ruinous business models and practices,” we wrote. “Companies laden with debt and those with complex models may be especially vulnerable. They should include a Muddy Waters-like attack into their risk management stress-testing and scenario-setting.”
We concluded: “Every company should be ready to explain and fight back – and make sure their finances and everything else are ship-shape and defensible, to begin with.”
Also a hot read was Sun Hung Kai Scandal: Testing the Mettle of the CFO
, which delved into the arrest of the Hong Kong property giant’s joint chairmen and managing directors, brothers Thomas and Raymond Kwok, for allegedly violating the city’s Prevention of Bribery Ordinance.
We looked at the challenges for CFO Patrick Chan post-arrest – the alleged offences happened before he joined the company – as the public face of the company in interfacing with investors, banks, credit-rating agencies, regulators and the media.
This story elicited a couple of thoughtful comments. “As for Patrick Chan, good luck and perhaps he can share with all of us how all the payments to Raphael Hui [the former Hong Kong official allegedly bribed] were booked in the SHK Group accounting system,” wrote Stanley Wong. “As an ex-banker myself, I would like to know how these payments were expensed and whether auditors had raised any concerns.”
“A truly enlightened Board may very well use this crisis to bring in outsiders to help run the company [and] to make sure the interest of all shareholders is protected,” Wong said. “Instead, [Thomas and Raymond] appointed their two sons to perpetuate the dynasty . . . SHK can be a much better company if they have the courage to bring in professional management.”
For his part, fellow commenter Vincent Liew wrote that “in any major corporation, be it family-dominated like SHK or any major group with a strong Chairman or CEO, the CFO will still need to be able to juggle between the appropriate corporate governance and the inherent culture of some strong characters driving the business.”
"Regardless of whether you are on the hot seat in Sun Hung Kai or you are on the board of GE, what is required is “this balancing act from the CFO team.”
And the Winner Is . . .
On the brighter side, the second most popular article in 2012 was CFO Innovation Awards 2012: And the CFO of the Year Is . . .
, a report about CFO Innovation’s first inaugural awards. On 28 November in Singapore, we honoured the CFO of the Year and the Finance Team of the Year – and recognised the outstanding services extended to the finance function by various partners including banks, accounting firms, technology providers and recruiters.
The CFO of the Year is S Mahalingam of Tata Consultancy Services, who was asked to head the finance function in 2003 when the Indian company (2011 revenues: US$9 billion) was listed. He is due to retire in March next year, but has already been grooming his successor for some time.
Maha, as he is known, was chosen for the honour by our board of judges for, among other things, helping increase revenue by 30% and profit by 15%, reducing the cost of the finance function to 0.37% of revenue, and improving operating margin by 344 basis points.
readers were also deeply interested in The Big Four: Who’s Winning the Accounting Race?
, which looked at the 2011 billings of PwC, Deloitte, Ernst & Young and KPMG. PwC topped the league table with US$29.2 million in revenues, 1.5% larger than that of Deloitte, which was No. 1 in 2010.
Does it matter? “In terms of reputation,” we wrote, “the top revenue earner can be regarded as the world’s accounting firm of choice, and as such, is perceived to be the leader in terms of resources, experience and expertise.” For fiscal year 2012, PwC is once again No. 1 with US$31.5 billion in revenue, but Deloitte is not far behind with US31.3 billion.
The third most read article in 2012 has to do with cutting-edge finance expertise: IBM’s Forecasting ‘Secret’: It’s All in the Analytics.
This story is based on a presentation by Scott Goodwin, the Shanghai-based CFO of IBM’s Software Group, Growth Markets Unit, at the recent ACCA Forum in Hong Kong.
The challenge for IBM, we wrote, “is to leverage the company’s powerful set of data and reporting capabilities for predictive analysis, enhance the integration of financial and non-financial data, and evangelise the use of analytics tools and applications across all the functions, not just finance.”
To hear Goodwin tell it, IBM is already well on the way. Finance, for example, uses an analytics-infused tool called STAR (for Statistical Tracking and Assessment of Revenue) to do quarterly forecasts. Among other things, it automatically extracts data such as forecasts by sales leaders, applies weights on those forecasts based on how accurate the sales person had been in the past and examines the sales pipeline yield factors.
STAR generates a weekly report that contains the outlook for the current and next quarters. “The accuracy from STAR varies by brand,” said Goodwin, “but universally better than the forecasts we pulled together in the past.” The reports can be loaded onto Cognos, IBM’s business intelligence arm, for ad hoc analysis and also onto dashboards for management review.
Financial Planning & Analysis: How to Fix the Problems
is in the same leading-edge vein. Based on an interview with Michael Griffin, head of global global research for the finance and strategy division of US-listed research and advisory firm CEB, this article delved into the reasons why many FP&A teams are deemed ineffective by CFOs and what can be done to change this state of affairs.
Salaries and Talent Management
In Salary Benchmarks: Meet Asia’s Millionaire CFOs
, we even identified the region’s best-paid listed-company finance chiefs – among them Peter Kenneth Allen of Australia’s Westfield Group, Frank John Sixt of Hong Kong’s Hutchison Whampoa, Paul Read of Singapore’s Flextronics and Sam Yu of China’s Yongye International.
“If you aim to become a million-dollar CFO,” we wrote, “it helps to be a man in a major company in financial services, real estate, oil and gas, mining, retail and telecommunications. Make sure as well that your compensation package is structured to link to the company’s financial results, rather than based primarily on straight salary. And the preference should be for cash bonuses rather than stock or option awards.”
Click on the stories highlighted above to get a flavour of what it meant to be a finance executive in Asia in 2012. And rest assured that in 2013, CFO Innovation will continue to track and analyse the scandals, achievements, innovations, talent management and other issues that make finance such an exciting and rewarding field.
About the Author
Cesar Bacani is Editor-in-Chief of CFO Innovation.
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