Insight - Listen and Learn

The government is running out of money. This was a disturbing finding presented by HSBC chief economist Dennis Turner at this magazine’s first ever Financial Director Summit, held at the grove, Hertfordshire, in mid-June. After 51 successive quarters of growth – the first 19 of which Chancellor Brown ought to credit to his Conservative predecessor Ken Clarke – the Treasury now finds itself living on borrowed time, Turner argued, as government expenditure starts to outstrip taxation receipts and the growth in the economy itself. Moreover consumers, too, are borrowing heavily, Turner warned the delegate FDs in attendance, and the economy is sucking in imports. GDP growth is set to slow down and tax increases are needed to fund the budget gap, he concluded.

Stuart Stephen, pensions and benefits director at Barclays, presented a case study on how the banking group changed its £13bn staff pension scheme. The emphasis was on reducing risk rather than cost, as the switch from a defined benefit scheme to a defined contribution scheme was designed to generate a pension equivalent to about 50-60% of final salary. The structure provided for various ratchet effects that would minimise the downside risk for staff members. “It’s like a with-profits policy, but without the minimum guarantees of Equitable Life,” Stephen explained.

When times get tough, it often comes as a surprise to top management. It shouldn’t, not with proper forecasting tools that take the emotion out of tracking performance, generating objective projections of possible outcomes. Robert Bittlestone, managing director of Metapraxis, demonstrated a model that calculated four different scenarios: 

- The rest of the year will be on budget;
- The year-to-date percentage variance from budget will continue for the rest of the year; 
- The rest of the year will be the same as it was last year; and
- The year-to-date percentage change on last year will continue for the rest of the year.

“By applying these risk scenarios to the trend of incoming data, we can take the emotion out of the process of challenging subsidiary forecasts and budgets,” Bittlestone said.

Ian Ailles, managing director of specialist businesses at Thomas Cook, gave a presentation on his company’s experience of outsourcing and offshoring. He made an interesting Sarbanes-Oxley comment when he pointed out that Thomas Cook had no need to be Sarbox-compliant, but its outsourcing partner, Accenture, did.

From PricewaterhouseCoopers, Ian Dilks highlighted the communications issues that many companies have still to resolve properly in their preparations for international financial reporting standards. “It is still possible to gain some advantage through strong communications,” he said, “relative to your peers in your sector and by providing forward-looking analysis.”

Sarbanes-Oxley featured in a presentation by Alex Cohen, a partner at law firm Latham & Watkins. Focusing on the section 404 internal controls requirements of the legislation, Cohen drew attention to a particularly onerous definition within the act which says that a significant control deficiency is one in which there is “more than a remote likelihood that a misstatement… that is more than inconsequential will not be prevented or detected”. Cohen warned: “That’s a pretty low trigger.”

Senior executives from two Scandinavian businesses, Ahlsell of Sweden and Statoil of Norway, discussed how they have managed to scrap the budgeting process, working instead with key performance indicators while introducing better information systems and better reward schemes. “If you buy anything expensive, that will hit your wallet,” explained Ahlsell’s Bengt Colmander. “That is the best internal control we can have.”

A news scoop at the Financial Director Summit, as Financial Reporting Council chief executive Paul Boyle revealed the findings of the Turnbull review committee. He announced that the committee’s research project found that the Turnbull guidance is very highly regarded by companies and investors, and so is remaining largely unchanged.

Want to destroy shareholder value? Usually, the easiest way is to undertake a badly planned, badly executed acquisition. Stuart Duncan, head of integration at consultancy Collinson Grant, presented a number of interesting case studies of acquisitions that have gone badly wrong, and a few that have worked well.

Ironically, in the later category was the recent acquisition success at building products group Hanson which, back in the 1980s, was an unfocused buyer of businesses that ultimately succeeded in creating shareholder value only when it demerged itself.

Finally, the winner of the 9-hole golf challenge was John Duckworth, FD of KGA Fragrance Distributors. In second place was Paul Hart, FD of Microsoft UK.

For information on next year’s Financial Director Summit, please contact VNU Exhibitions on 020 7316 9000.

Like this story? Spread the news by clicking below:

 del.icio.us     Digg this     reddit!