| Strategic
Finance
By Steve Klinkerman
Reporting accuracy is vital, but
so too are strategies with solid financial grounding.
Throughout American industry, companies
are scouring the books to make sure that their financial
reports do not expose them to the crises of confidence
that have rocked the energy and telecommunications industries.
It's a sobering time, with chief executives being asked
to swear to the accuracy of their numbers.
In banking, federal regulators have
forced management changes at Pittsburgh's PNC Financial
Services Group over certain off-balance sheet activities,
while Congress probes some of the structured finance transactions
done for now-bankrupt companies by Citigroup Inc. and
J.P. Morgan Chase & Co.
Such an environment heightens the pressure
on banking companies, whose complex operations and interpretive
latitude long have made them a hotbed for reporting controversy.
As industry veterans know, earnings reports can be profoundly
impacted by the timing of the recognition of problem loans,
as well as the handling of reserves. Other gray areas
include restructuring charges, derivatives contracts and
the funding of employee pension benefits.
Just as a company cannot save its way
to prosperity, it likewise cannot comply its way to prosperity,
and that is why financial executives must keep sight of
corporate strategy even as they work through the current
crisis over financial reporting accuracy. Achieving even
a 100% confidence level on reporting accuracy with shareholders
and regulators goes only so far, because such information
is historical in nature. As companies pick their way through
a recession-scarred landscape, chief financial officers
need to stay focused on performance, in areas such as
strategy development, decision modeling and performance
monitoring and measurement.
This performance challenge is every
bit as daunting as that found on the reporting side. In
retail financial services, for example, companies are
coping with huge bets made in areas such as Internet banking,
customer relationship management and merger-driven consolidation,
and finance teams must stay abreast of these endeavors.
Especially in complex and far-flung
companies, it remains the case that much corporate knowledge
remains nestled inside the business units, somewhat hidden
from the view of the central finance team. Instead of
a partner in development, finance can wind up being a
compiler of numbers that are largely generated elsewhere
and based on decisions in which it only loosely participated.
A recent report by CFO Research Services
and Cap Gemini Ernst & Young suggests three ways that
finance can upgrade its contributions. One is to reduce
the amount of time spent processing transactions so that
staff can devote more time to planning, analysis and collaboration.
Another is to beef up decision-support capabilities, so
that finance is better connected to the business units
and equips them with better tools. A third is to align
performance metrics with strategy and the creation of
shareholder value, so the corporation can more precisely
allocate and manage its resources.
Following through will require upgrading
employee skills, refining technology and reporting standards,
strengthening relationships with the business units and
winning support from executive management, the researchers
say.
Such steps are essential to the future
of the company, especially in an era when concerns about
reporting accuracy are shoving corporate governance toward
its lowest common denominator, which is raw control. Reporting
accuracy is a perennial issue, but optimizing performance
remains the perennial goal. The best finance teams are
addressing both.
Mr.
Klinkerman is editor-in-chief of Banking
Strategies.
Copyright © 2003 by Banking
Strategies, published by BAI.
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