Within five years, Vink predicts, 40% of IT managers will cease to work in a distinct support department, thanks to initiatives such as his effort to instil IT savvy in employees across the company. “It may sound funny,” Vink notes, “but it’s reducing my job to almost nothing.” That’s one way to avoid potential tension with the CFO.
For many CFOs, the regulatory crackdown in response to a spate of financial scandals was necessary in theory, but goes too far in practice. When, if ever, will the compliance burden stop growing?
Although Houston, Texas is a long way from Europe’s financial capitals, the 2001 collapse of local energy trader Enron did a lot to change the regulatory environment in which Europe’s CFOs now work. Having spawned the hastily written Sarbanes-Oxley Act of 2002, it has altered corporate governance “in a way that probably hasn’t taken place since the 1933 National Industrial Recovery Act was enacted [in the US] as a result of the 1929 stockmarket crash,” claims David Stulb, a partner with Ernst & Young. Now that CFOs — and their boardroom colleagues — can potentially face prison for inaccurate financial reporting, the cost and time dedicated to compliance have rocketed.
For a brief period, the absence of Enron-sized scandals in Europe seemed to prove the superiority of governance on this side of the Atlantic. In 2002, when CFO Europe spoke with Olaf Berlien, then CFO of German industrial group ThyssenKrupp, he said confidence in the US system — a beacon of best practice — was shaken. “People are thinking that the European system might not be so bad after all, and that there are some worthy practices, such as in accounting standards, that the US could benefit from adopting.” The dual-board system prevalent in continental Europe also gained new supporters as the sordid tales of domineering CEOs and pliant directors at scandal-ridden American firms like WorldCom, Tyco and Adelphia came to light.
But then, in 2003, Ahold in the Netherlands and Parmalat in Italy put an end to Europe’s smugness, causing governments and regulators across the region to redouble their efforts to introduce laws inspired by Sarbox.
At the EU level, a host of new company laws have come into force, including the Transparency and Market Abuse directives. The Statutory Audit Directive — dubbed “Europe’s Sarbox” — is due to be implemented by member states this year, though it adopts a much less prescriptive approach compared with its US counterpart.
Despite the aggressive regulatory crackdown, scandals continue to surface. Germany’s Siemens is currently embroiled in a wide-ranging bribery investigation, while Société Générale’s internal controls failed to stop an audacious rogue trader, whose recent trades lost the bank €5 billion. As a result, risk management practices and incentive structures across Europe — particularly in the financial services sector — are still being questioned, seven years on from Enron’s precipitous collapse.