It’s hard to know what’s most alarming about a recent global survey on corporate crime from PricewaterhouseCoopers. Is it that the 3,600 respondents found that financial misreporting, money laundering, and other economic crimes have been increasing lately? Or is it that these events don’t seem to be one-offs and that many companies have been repeated victims of such crime? And what about the discovery that half the crimes are committed by employees not outsiders, or that more than a third of the survey’s respondents said that they found out about misdemeanors by accident, rather than through a good system of controls?
Survey findings like PwC’s ought to make any CFO nervous. As companies expand and globalize, there’s continuous pressure on finance chiefs to embed more and better processes and controls throughout their organizations to manage all sorts of risks, including economic crime. The place to start, of course, is with their own finance teams. But that’s no small feat for CFOs trying to manage finance staff spread over ever more dispersed locations.
Picking Up the Signals
CFOs agree that the best, and most obvious, way to mitigate potential malfeasance is by visiting their remote sites regularly. Doing so helps a finance chief “pick up on any signals” that something — or someone — could be heading for trouble, says Michael Kutschenreuter, managing director and CFO of the real estate division of Siemens, the €75 billion ($89 billion) German conglomerate. Yet as Kutschenreuter — whose 30-year career at Siemens has taken him around the world in various finance roles (including a recent stint as CFO of the telecoms division ICN) — concedes, onsite visits have to be handled carefully. “What you don’t want to do is to give people the impression that you’re there to tell them how to do their jobs — it’s the last thing they need,” he says.
But figuring out what they need is far from easy at most companies. Remote business units and subsidiaries can be hugely diverse both culturally and organizationally, defying one-size-fits-all governance models. Many are run as autonomous fiefdoms, and resist what they see as meddling from HQ. Lack of accountability, a poor flow of information from headquarters and a sense of isolation also create tensions. “As someone at a subsidiary told me the other day, ‘To be a subsidiary is war,’” says Ulrich Steger, a professor at IMD, the Lausanne-based business school. “It’s not surprising that big corporate disasters, from Ahold to Swiss, started in subsidiaries. People in subsidiaries are driven by different interests from people in headquarters.”
That may be so, says Douglas Macdonald, but there’s plenty CFOs can do to bring those interests into closer alignment. Macdonald — the European CFO since 2001 of Yum! Restaurants, the $9 billion U.S. owner of KFC, Taco Bell, and Pizza Hut, among others — found that what was lacking within his team was a deep understanding of “the business out in the field.” So, like Kutschenreuter, he began inviting his staff along to meetings with internal customers, such as heads of marketing, and external customers and partners — in Yum!’s case in Europe that includes its 120 franchisees in 30 countries. “I wanted to do whatever was necessary to drive a commercial understanding deeper into the organization and increase people’s sense of belonging to the business,” says Macdonald, who left Yum! at the end of January after helping his group finance team relocate from the U.K. to Switzerland. “The more all of us spend time in the field, the more we are able to pick up issues — like recent concerns that one of our franchisees had about cross-border VAT invoicing — before they become a problem.”