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Twelve truisms of finance, from a CFO's perch.

Twelve truisms of finance, from a CFO's perch People in finance, known for their ability to reduce information to its essence, often discover that some fairly clear-cut rules guide them in their work. Here are a dozen of my own:

1. Event forecasts are foolhardy. Their only benefit is to teach you humility. What we need to do is understand the significance of trends, not events.

2. We must develop organization structures that allow us to adapt to rapid change on a global basis. Change is our normal environment and we must learn to profit by it.

3. We need to understand the perspective of management, which is this:

* Accounting is technical and not necessarily logical.

* Financing reporting is often confusing due to the rapid changes in rule-making. And the FASB imposes new demands upon management in an attempt to achieve through disclosure an objective that financial reporting alone cannot provide.

* Finance tends to impose restrictive conditions on management without letting it understand why. The ability to explain the problem and solution in simple terms is essential. Technical elegance is a cop-out.

* As a result, the finance department claims it "gets no respect." Shouldn't we have to earn it by making a positive contribution to corporate success?

* Finance people are finger-pointers. We must take ownership of and accountability for the business.

* Finance people are both expensive and confusing. We appear expensive because management thinks of finance as part of the indirect budget. And the complex financial terminology we often use puts in question our true value. Management needs information it can understand.

4. On the other hand, we view management as technically inept. This is particularly true in large corporations, where finance is divided into highly technical segments. We must educate corporate management. If you can't explain to your nonfinancial associates what you're doing, you don't know your job very well.

5. Finance is a nonspecific term often misapplied. There are four distinct kinds of finance: accounting, control, financial analysis, and treasury. The accountant is the bookkeeper; he tells it as it is. The scorekeeping is the job of the CPA, who also handles information systems and control. The analyst is the MBA, who provides critical analysis and problem identification. The treasurer is the cash manager, tax advisor, foreign-exchange watcher, risk manager, bill payer, credit manager, provider of borrowed funds or investor of assets, and international money jockey.

The future will demand a greater distinction in the roles of the controller and the treasurer. These are very different disciplines, and the skills associated with each are becoming more dissimilar. Financial groups need to understand and prepare for these differences.

6. The role of finance is to identify with and support management. Management runs the company. Not the accountants, not the treasurer, not even the CFO. Finance people must make management's job easier and more effective--all in order to make the business perform better. All of this must be accomplished with high ethical standards and, of course, quality and teamwork.

7. Finance must understand and accept responsibility for management's objectives. The role of finance is not a passive one. We need a team effort and team accountability.

8. Maintaining high professional standards is essential. We must protect the reputation of the company, its management, the boss, and ourselves.

9. We must recognize our obligation to the stakeholder, which includes all interdependent functions--suppliers, customers, employees, communities, and government. If we cannot meet these demands, we won't succeed. We must accept our communal responsibility.

10. We need to get out of the corporate tower and into the field where the work is being done. We need to visit the plants and get a look from the plant's perspective, not as an observer from the corporate office. And we should hang around long enough to find out what's going on.

More important, we need to get out with the customer. find out what its needs are. Find out why your salesmen are tearing out their hair everytime they talk to the credit manager. In the '90s, we have got to be where it is happening, and that's in the marketplace.

11. Many technical tools are at our disposal, and many more will be available in the future. But we must be careful that none of these tools acts as a constraint on business, whether in coordination centers, foreign-exchange management, cash sweeps, netting, financing techniques, hedging devices, global risk management, financial engineering, pension fund management, or risk management.

12. Finally, you cannot let efficiency stand in the way of profitability. Efficiency makes the clerk's job better, but it doesn't always improve the corporation's profits. True, it's a difficult concept because we mistakenly equate lower cost to profit improvement. Taking away a salesman's car might save money, but it's also likely to reduce sales and profits.
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Title Annotation:chief financial officer
Author:Engebretsen, Arden B.
Publication:Financial Executive
Date:Jul 1, 1990
Previous Article:How key is finance to corporate strategy?
Next Article:Two tangles ahead: risk management and corporate governance.

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