Category Archives: Business

Up the silo

Finance managers are human

CFO.com has brought to my attention a survey conducted by the CEB of finance managers. They asked finance managers whether they believe their direct reports are “effective in the behaviors and skills that drive excellent perfor­mance by the finance function.” The title of CFO.com’s article gave away the answer: Finance Leaders Bemoan Talent Shortage. Not only that, but they’re good at the stuff that sucks and suck at the stuff that’s good:

And on average, finance workers are more skilled in the areas that have the least positive impact on value creation.

You know how everyone likes to think they’re above average? Above average driver, above average intel­li­gence, etc.? This is that. Finance managers believe they’re above average at their jobs, therefore those around them are likely below them, and possibly even below average. It’s OK. They’re human.

I also think there’s an element of confir­mation bias at play. They’re finance managers, so they must be above average and have the skills and behav­iours that the survey indicates is important.

But back to those hapless direct reports: First, who hired them? If it was those selfsame finance managers, shouldn’t that reflect poorly on their ability to assess compe­tence and develop talent? Whose respon­si­bility is it to put in place succession and training plans? (HR’s, they’d probably say, if surveyed about it.)

Overall, finance managers appear quite dissat­isfied with the talent levels on their teams. [The CEB] acknowl­edges as much. “We weren’t partic­u­larly surprised that the ratings were so low,” she says. In fact, she adds, one reason CEB did a report on talent is that when it conducted its annual inter­views with CFOs last year, 85 percent said talent was a major concern.

I’m not surprised either. This is never going to stop, until robots run companies completely. Even then we’ll probably sneak a “dissat­isfied with direct report talent levels” easter egg into the code, just so robot CEB surveyors can have something to write about. What a chilling dystopian vision; I think the living will envy the dead.

Merci­lessly, it continues:

Effective delegating is a capability many finance depart­ments sorely need. “After the financial crisis, finance is overwhelmed with ad-hoc requests,” the report states.

If you’re delegating to staff that you don’t have (because they were all downsized during the recession), it isn’t going to be very effective. Perhaps that’s the reason they’re feeling overwhelmed?

There’s a reason why great people are hard to find: they’re scarce. And once found, smart managers do every­thing they can to keep them. As well, it’s highly likely those yearned-for “persuaders, strate­gists and builders” recognize a good situation when they have it. Perhaps that’s the most important takeaway here for finance managers. Build it, and they will come.

Hawaiian cardinal

Light’s effect on integrity and honesty

Following an earlier post about how clean smells were corre­lated with more ethically minded decision making is this HBR post about good lighting encour­aging the same thing:

In one laboratory exper­iment, we placed partic­i­pants in a dimly or well-lit room and asked them to complete 20 math problems under time pressure. The partic­i­pants received a cash bonus for every correct answer. Since we were inter­ested in whether darkness affects cheating rates, we left it up to the partic­i­pants to score their own work and to pay themselves from a supply of money they had received at the beginning of the study. While there was no difference in actual perfor­mance on the math problems, almost 61 percent of the partic­i­pants in the slightly dim room cheated while “only” 24 percent of those in a well-lit room did. Eight additional fluorescent lights in the room where the study took place reduced dishonesty by about 37 percent.

They also performed the test based on the perception of lighting levels using sunglasses, and had similar results.

I anxiously await the results of a combi­nation of smell and lighting!

But why stop there? What else in the sensory-ethics world can we adjust and test? Sounds? Tastes? Should we all be chewing mint gum every day and listening to waves crashing onto the shore?

The question is: could this be taken too far? How brutally honest do we want our co-workers to be with us? At least in the interests of getting along, perhaps some things are better left in the dark.

Slow down for better ethics

Inter­esting tidbit (and relevant for internal audit) from an article in the latest Economist on how taking time to make decisions results in getting the ethics right:

Slowing down makes us more ethical. When confronted with a clear choice between right and wrong, people are five times more likely to do the right thing if they have time to think about it than if they are forced to make a snap decision. Organi­za­tions with a “fast pulse” (such as banks) are more likely to suffer from ethical problems than those that move more slowly… The authors suggest that companies should make greater use of “cooling-off periods” or introduce several levels of approval for important decisions.

Several levels of approval for important decisions sounds like a fantastic idea to me. What I find is that too many decisions are made or approvals given orally in meetings, with scant evidence to support their existence later, in case of an audit. Surely intro­ducing more rigor around this aspect of approvals would further improve ethical behaviour!

Delay even works in fields where time might seem to be of the essence. Doctors and pilots can profit from following a checklist, even when doing things they have done many times before. A list slows them down and makes them more methodical, as Atul Gawande describes in “The Checklist Manifesto”.

Now you’re beginning to see why this article prompted me to write a blog post for the first time in umpteen weeks! Not just levels of approval, but check­lists too? Be still my beating heart!

Auditors have been employing check­lists to improve quality for eons. It’s great to see articles like this extolling their virtues to all people and for all tasks.

Mystery payments at Canadian construction company

This is inter­esting: An internal review at Canadian construction company SNC-Lavalin of certain payments approved by the CEO has resulted in that executive’s departure from the company.

The payments in question were approved directly by the CEO after the CFO rejected them. Documen­tation was appar­ently sketchy, as the review revealed that the projects they were attributed to were incorrect.

[The review] reveals payments to contracts that didn’t exist, myste­rious agents whose identity “is without substance,” and staffers using emails and password-protected devices that the company couldn’t access.

They can’t be sure that the payments in question weren’t related to their contro­versial involvement with the former Gaddafi regime in Libya, since the recip­ients appear to be ficti­tious. They believe they weren’t, but there’s really no basis for that belief since the report is inconclusive.

SNC-Lavalin has opera­tions in over 100 countries and earned over $7-billion in revenue last year.

The company said improper payments are a result of “management override, flawed design or ineffective enforcement of controls” in relation to hiring agents for two of its projects.

Design is one aspect of internal control, and operating effec­tiveness is the other. Add to that management’s ability override them, and they’ve pretty much covered all their bases!

Some former employees have conducted company affairs using non-corporate email addresses or had password protected devices to which the company does not have access.

This is incredibly suspi­cious, as what good reason could there be for using non-corporate email to conduct company business? Always a red flag, but tough to uncover. The article doesn’t discuss how it was in this case, unfortunately.

The original inves­ti­gation, which was reported at the end of February, was over $35-million in payments which were undoc­u­mented. The reporting of this infor­mation resulted in a 20% decline in the company’s stock, which has since recovered only about ⅓ of the drop. Clearly, controls at the company are not strong enough and the market believes the environment may be such that more of these types of situa­tions exist.

Now, with these recent devel­op­ments, it seems that the “tone at the top,” a critical component of a strong control environment (see COSO Internal Control Framework), was not one of uncom­pro­mising integrity.

Depending on the nature of the payments, if it is ever deter­mined satis­fac­torily, this could have impli­ca­tions related to the Corruption of Foreign Public Officials Act, Canada’s version of the Foreign Corrupt Practices Act in the US.

E&Y: Internal Audit should drive strategy

BusinessDay, a South African business news website, published a recent article refer­encing an E&Y study involving “more than 100 industry analysts from more than 20 disciplines”:

Organ­i­sa­tions need to break out of the compliance cocoon and evolve into a fully fledged leadership role that delivers real value to the business. In the current economic climate, the biggest risk for most companies is not a failure to meet compliance require­ments, but a failure to meet strategic targets.

The study also assessed last year’s top 10 business risks. In it, the analysts ranked the after­shocks of the credit crunch and the deepening global recession as the most important business risks, displacing regulation and compliance from the top spot.

Still more evidence that the Internal Audit profession demands an expanding skill set and well-rounded people with experience in more varied aspects of business. Auditors are going to have to continue to push themselves outside of their comfort zone in order to provide the greater value that share­holders require of the function.

How does your IA department stack up?