Strategy & Operations » Governance » Insight – Tell it like it is

Business culture is changing. Better business intelligence, the need for
regulatory compliance and a greater recognition that the finance function can
play an entrepreneurial role are among the factors which are combining to alter
how organisations conduct their business.

These were just some of the conclusions drawn from two roundtable
discussions, hosted by Financial Director in association with Microsoft, in
June. The discussions brought together finance directors from a variety of
organisations, including the RAC and the NHS. The participants examined the
issues of regulation and compliance, and discussed how their internal controls
are changing, and how both their organisations and their own roles are moving
forward as a result.

FDs in heavily regulated industries, such as the former public utilities or
the state-owned Scottish Water, largely felt the regulator was only looking for
information which the company should be producing for itself. “Regulation isn’t
very intrusive or terribly time consuming,” said Alan Gow, FD of Virgin Mobile.

But the FDs were divided on whether the introduction of financial regulations
such as Sarbanes-Oxley have led to an improvement in the quality of information
in their organisations. “I think it can stop you from providing information. You
can end up removing information from your reports to shareholders because you
can’t absolutely prove it,” said Kieran McPolin from BT. “So you end up telling
shareholders less.”

But FDs broadly agreed that Sarbox has led to the understanding that a
financial structure is vital. They believe the focus has been good for
businesses and good for the finance community in general. Richard Arnold, FD of
software developer Intervoice, said: “It means people are looking for the
finance director to set the environment rather than waiting until it goes

The participating FDs agreed that, in the long run, financial regulation
might also have the effect of stifling innovation in the US because it
discourages risk. They expressed concern that it may ultimately affect
investments in the US because entrepreneurial risk-taking may be discouraged in
public companies.

Everyone agreed that the FD’s role has changed dramatically in the past 10
years, partly because of regulation and partly because of commercial pressures.
“The work we do now is more of providing an interpretation of how the business
is running, moving to more of a general COO-type operation,” said Microsoft FD
Paul Hart. “Ten or 20 years ago, how many finance directors would have driven
growth in their business?”

Lucian Bartram, CEO of IT supplier Globe Microsystems, added: “There’s
fundamental change in the way we employ people. As well as compliance issues and
legislation, it is now driven by customer demand. There’s more accountability,
more transparency, and you tend to present more of your employees to your
customers. Everyone in the business is getting a slightly different role from
what they would have had 10 or 20 years ago.”

Staff tend to ask more questions about finance than they used to, according
to the FDs, and they also see greater impetus at board level to drive statistics
– financial or otherwise – as far down the organisation as possible in order to
get staff buy-in. “The board are much more aware of what they should be pushing
their executives to achieve. This should then be disseminated throughout the
organisation so that everyone will understand why they’re doing what they’re
doing,” said Tim Waggott, FD of the Shoreham Port Authority.

Andrew Darby, FD of banking software provider Misys, said: “My biggest
challenge is to bring good management information to a business which is
changing. And I must meet the needs of the business while not spending a fortune
on the systems needed to do this.”

Digital dashboards are finding favour as a means of presenting information in
organisations, but “forecast information on the dashboard is as important as the
historical information”, according to McPolin. “In our business, could we have
predicted the growth of the internet? It’s the big disrupters in business that
can catch companies totally by surprise. There has to be expert, well-informed
forecasting input into any dashboard.”

Gow added that people are the ones who determine the key performance
indicators. “They design the framework, how it goes out and how others react to

Mike Shallow, FD of brewers Greene King, added a final note of caution: “I
think there is the risk of just so much data. In order for a business to be
successful and entrepreneurial, it should be clear what the right targets for
the different parts of the business are. And that’s the most difficult task. It
also needs to remain valid as the business develops because the task for one
year isn’t the task for another year.”