These days, boring is back. And don’t get confused: We don’t mean boring in the sense of invisible (see sign number two). Rather, we mean boring in another sense: “Come to think of it, we never get any nasty surprises from finance — no problems with revenue recognition, no restatements, no Wells noticesÂ ”
While it may seem obvious, it bears mentioning that a good finance department has a strong handle on its internal financial controls (considering Section 404 of Sarbanes-Oxley, it had better). That means no errors, no discoveries of fraud, no earth-shattering restatements — in short, no emergencies. “When there’s a crisis, you get a lot of attention,” notes Johnsson, whose consultancy advises Fortune 500 companies on finance and accounting issues. “If you’re doing your job well, there ought not be any surprise.”
That doesn’t mean the news from finance always has to be good. Far from it. But when the news is not good, a good finance department knows — and lets the CEO know — well ahead of time.
6. Finance Employees Think Strategically
While sound internal controls are the bedrock of a finance department, don’t underestimate the value of adding value. “Finance ought to be leading glimpses into the future,” says Johnsson. “It should be ready to seize opportunities and turn perceived downfalls into advantages.” And, of course, avert potential disaster.
Our experts insist that great finance teams assess situations and analyze them strategically. Casey of Buck Consultants says that first-rate finance staffers ask three essential questions when analyzing data. First, what are the strategy assumptions that can be made from these numbers? Second, what do these numbers say about potential pitfalls, and what recommendations can we make based on them? And finally, do these numbers ring true — that is, do they support the company’s decisions?
Finance department staffers don’t always ask these tough questions, however. Take mergers and acquisitions. By most accounts, the M&A failure rate is somewhere between 70 to 80 percent. In fact, a recent article in the Harvard Business Review puts these stats in harrowing perspective. According to authors Larry Selden and Geoff Colvin, the M&A spree of 1995 to 2000 cost shareholders more money than the entire dot-com meltdown.
This raises the obvious: Where were the finance departments when these dog deals were being done? Not asking the right questions — or, possibly, being ignored.
Consultant Johnsson says the best finance departments are heavily involved in potential deals and always ask the prickly questions. For example: “Finance might notice the acquisition target has severe balance-sheet issues,” offers Johnsson, and ask what the company might do to correct that Other inquiries run in the due-diligence vein. What exactly is the goal of the acquisition? Given that goal, is this acquisition the most cost-effective way of achieving our objective? Do we have an integration strategy — including a headcount plan and estimated integration costs?
While mergers and acquisitions tend to be the pet projects of hard-charging — and often egomaniacal — CEOs, finance departments represent the interests of the owners. According to our panelists, the very best finance staffers aren’t afraid to go speak out against a bad deal, or a bad chief executive.