CFO AS ADVISOR
JUNE 16, 2014
MACPA
Copyright© 2008 RIGHT ADVISORY LLC. All Rights Reserved
Instructor Background
Robert M. Tarola, CPAPresidentRight Advisory LLC
1101 30th St., NWSuite 500 Washington, DC 20007(T) 202.625.8356(W) www.rightadvisory.com(E) [email protected]
Director and Audit Committee Member: Legg Mason Mutual Funds (10 years) TeleTech Holdings, Inc. (6 years)
CFO Positions: W. R. Grace & Co. (9 years) MedStar Health, Inc. (3 years) Howard University (4 years) - Current
Former Audit Partner: Price Waterhouse LLP (12 years)
Advisory Boards: PCAOB Temple University University of Denver University of Baltimore
Professional Boards/Affiliations: AICPA MACPA Licensed CPA in DC, MD, PA, VA Chartered Global Management Accountant
Education BBA Temple University , 1973 International Who’s Who of Professionals
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Introduction
This presentation is designed to help CPAs and other finance professionals develop an understanding of the
totality of issues facing CFOs and CEOs. With this knowledge, finance professionals, in business and
public accounting, can better conduct their activities and advise their colleagues/clients to make more
informed business and financial decisions.
A Peek Into the C-Suite and Boardroom
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Presentation Outline
What You Need to Know to be a Credible Advisor How Best to Advise Your Board Advising on Value Drivers Advising on Corporate vs Business Unit Issues How to Operate the Finance Function for Advising Advising on Risk Management Advising on Economic Factors
Q&A at Any Time
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Ruminations from the C-Suite
What Keeps CEOs and CFOs up at Night? Missing expectations – investors, analysts, board,
employees Not meeting organization commitments – customer
satisfaction, sales, profits, cash, product development Not meeting personal commitments – people
development, cost improvement, stakeholder satisfaction Threats from the outside – competitors, litigators, take-
over firms, regulators
Does Your Work Cure C-Suite Insomnia?
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The Corporate Reporting Supply Chain
Where Do You Fit-In?
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Business Operations
Internal Financial Reporting
External Financial Reporting
Investment,Lending,
Regulations
Economic Policymaking
CompaniesFinancial
Publishers and Data
Aggregators
Investorsand
Creditors
CentralBanks
TradingPartners
Management Accountants
Auditors Regulators
Software Vendors
What You Need to Know – The Big Picture
Understand the View from the Outside Investors – Who are your top holders?
Customers – What are their desires and alternative options?
Analysts – Who covers you?
Media – Any special media that follow you beyond the traditional press?
Regulators – Who regulates your industry?
Understand Their “Agenda”
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The Big Picture
Understanding View from the Outside - Investors Who owns the enterprise? What is their investment thesis? What is their investment cost-basis? Who or what influences the investors? Are there any activist issues? How is your Investor Relations function perceived?
Know Your Investor Base
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The Big Picture
Understanding View from the Outside - Analysts Do you know their financial models?
Do they trust you?
What drives their advice?
What companies are your peers – in their minds?
Can you (should you) influence their view of the enterprise?
Companies Don’t Miss “Estimates” – Analysts Miss “Actuals”
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The Big Picture
Understanding View from the Outside - Regulators How many government or oversight bodies impact your
enterprise ? – you will be surprised!
How can they influence your business and industry?
Are you connected?
Can you influence?
Regulatory Surprises Can Impact Careers
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The Big Picture
Who Regulates Your Industry FDA – Food & Drug Administration
EPA – Environmental Protection Agency
FTC – Federal Trade Commission
DOL - Department of Labor
SEC – Securities and Exchange Commission
Stay close to the political factors
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Helping the Board
Management’s Role – Enlightening the Board about: Value drivers Risks Performance Compliance Perceptions
Auditor’s Role – Informing the Board about: Activities Concerns Confidence Level
Should be Protecting the Board
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Helping the Board
National Association of Corporate Directors:
Wants Boards to embrace the following principles:Sensible Executive CompensationEffective Risk OversightDemonstrated Corporate ResponsibilityOpen Transparency
Need to be Part of the Solution
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Helping the Board
Current Board Room Hot Topics:
Cybersecurity Enterprise Risk Management Regulatory Compliance Executive Compensation Succession Planning
CFO Often Needs to Lead the Discussion
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Helping the Board
Era of High Public Scrutiny and Frivolous Litigation Understand your financial and enterprise risks!
Look “beyond the balance sheet”
Comfort level of controls – assess, evaluate, conclude, communicate
Surprise quotient?
Don’t Know What You Don’t Know
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The Value Drivers
Key Value Factors Management credibility Competitive position Ability to innovate Capital structure Talent management Industry dynamics Risk profile Market perceptions
C-Suite Focus on Value Creation
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The Value Drivers
Understand How Your Business is ValuedCustomer viewEquity analyst viewDebt analyst viewRating agency viewRegulator view Investor relations view
Do You Know What They Think?
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The Value Drivers
Focus on Value Creation
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World-Class Financial Processes
Financial PlanningLong-term Mid-term
Short-term
Business vs. Corporate
C-Suite Has to Balance Often Competing Interests Compliance vs. risk taking
“Unfair?” reward systems
Should know vs. need-to-know
Business value vs. corporate value
Understand This Dynamic – Be Seen as the “Honest Broker”
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Business vs. Corporate
How to Drive Business Performance while Satisfying Corporate Governance Requirements Develop value-driven business plans
Incorporate IR and Treasury
Incorporate internal audit and risk management
Plan with analyst story in mind
Develop a Complementary Accounting Environment
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The Finance Function
How to Deliver Sophisticated Financial ServicesFinancial planning and analysisAccounting and reporting Investor relations and communicationsTreasury and taxationTransaction processing and controls Internal audit and risk management
C-Suite and Board Count on You!
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Financial Services
How to Develop a Partnering Mind-Set Focus on value drivers Be service oriented Be a team player
Why is it Important? Builds trust Enhances credibility Avoids finger pointing
Create a Value-Added Organization
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Financial Services
No-Surprises How to achieve? Why necessary? Who should be involved? How to set accountabilities?
No Missed Deadlines Part of the service culture Customers rely on commitments Help establish credibility
C-Suite Bottom Line
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Risk Management
Enterprise RiskNot just financial Look beyond the balance sheet Includes operational, reputation, legal compliance and
regulatory risks Incorporate in all plans and decisionsAssess against “Key Value Drivers”Guidelines – COSO and COBIT Frameworks
C-Suite and Board’s Primary Responsibility
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Risk Management
Questions to Ask: What Might Go Wrong? (and Why?) What Must Go Right? (and Why?)
Design Metrics to Address Both Questions Fiduciary and compliance Strategic and competitive
Develop “Metrics That Matter” to Monitor Risk
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Economic Analysis
Apply Macro- and Micro-Economic Theory and Analysis: To address the impact on investment and operating
decisions To determine proper accounting treatment for an event
or transaction To assess risk related to business cycles and value inputs To create the “story” for investors and analysts
Economics Drive - Decisions, Accounting, Disclosure
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Economic Analysis
What you Need to Know in Order to Measure and Account for the Economic Effects of Transactions: Business purpose? Desired outcome? Financial resources at risk? Who serves to gain? Who bears risk of loss? What are expected returns? Are accountabilities clear?
An Impartial Assessment is Critical to C-Suite
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Summary
Focus on Information Needs of Outsiders – Board, Investors, Analysts, Customers
Understand the Value Drivers of the Enterprise Coordinate the Interests of Corporate and Business
Objectives Create a Value-Added, Credible Financial Services Function Evaluate Risk in the Broadest, Most Complete Way Become the Owner of Impartial Economic Analysis
Credibility = Sound, Impartial Advice from Finance Professionals
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