Category: CFO Folklore

Anyone Can Be in Accounting?


There were times not long ago when in order to "work in Accounting"  you had to have some formal knowledge of, at the very least, bookkeeping principles.  When one dealt with manual cash receipts and disbursements journals, subsidiary and general ledgers, payroll transaction recording, at minimum she or he had to understand the principles of double-bookkeeping. 

The technological advancements and computerization changed all that.  Now, anyone who knows some Excel, quick enough to grasp menu-driven applications and doesn't suck at basic math is good enough to work in Accounting.

Don't get me wrong, I am a technology freak.  Some people who know me long enough say that Technology is my middle name.  Moreover, we, accountants, were some of the early beneficiaries of the computer coding: the first business data analysis compiler was written in 1957.  Truth be told handling all those books manually was getting out of control.

However, hiding all the double entries behind the computer's screen, allowed for the situation we currently have, especially in small business environment: people without any accounting and/or finance foundation are allowed to mechanically perform important functions. 

Here is a true story shared with me by one of my correspondent.  Let's call her Lisa.  When she took a CFO position in a law firm that employed over 500 people, the composition of her "Accounting & Finance" department was as follows: AP Manager (no accounting degree, 20 years of strictly AP experience), PR Manager (BS in General Business, prior experience in HR & Benefits), Staff Accountant 1 (BA in Psychology who was a daughter of a partner's friend), Staff Accountant 2 (BA in Child Psychology who started as a part-time office clerk when she was in HS and just stayed on), Financial Analyst (BS in Business Administration with above average Excel). 

Is it surprising that the firm had a turnover of Controllers and CFOs at the rate of 4 per year in the past few years?  They had great ideas what the company's record-keeping, analytical and reporting functions should be, but no one to whom to delegate the actual implementation.  Is it surprising that the company never had audited financial statements?

At the first meeting with the Staff Accountant 2 (let's call her Sam), Lisa was told that Sam was "an accounting genius."  Sam said, that she was so good at it, she got everything in a split second.  A week later Lisa has discovered that all Bank Accounts in the Asset section of GL had reversed entries: receipts as credits and disbursements as debits.  In other words, it replicated the bank statements instead of reflecting the company's transactions.

You think this law firm's accounting staff is unique?  Nope, it happens everywhere.  Look at the people responsible for financial functions in this young and hip company Quirky.  I am sure these four women are bright and wonderful, but none of them have neither accounting nor serious financial background. 

If this problem has affected you as well, please, do not hesitate to email me and share.

Big Picture and Staff Training


Closely-held entrepreneurial companies always have some flair of secrecy.  The Owners' lives are intertwined with the businesses and because of that they apply personal privacy rights to everything, including the company's commercial and organizational matters.  This frequently leads to "need-to-know-only" modus operandi when dealing with employees. 

CFOs, Controllers, Directors of Finance are expected to act in the same secretive manner.  And I am not talking about non-disclosure of commercial secrets, compensation details, or owners withholdings – these matters are confidential by definition.  I am talking about organizational structure, commercial partnerships, new financial relationships, transactional details, new venture plans, etc.

The owners who insist on such covertness make a mistake of disregarding the natural human instinct of their employees to fill in the blanks.  In the absence of actual information they will cook up their own assumptions about concealed matters. 

You wouldn't believe what kind of wild baseless fantasies I sometimes uncover: non-existing silent partners, astronomical sales volumes, mythical lines of side business.  In one of my previous employments people even assumed that I was a member of the owner's family on account of my loyalty and strict work ethics. 

That's just laughable, but there are far more serious impacts of secretiveness: people don't understand the mission of the organization, the commercial scope, the structure, the value chain.  Most importantly, they cannot grasp their own place and relevance in the system.       

The unfortunate effect of this disconnect is mechanistic disinterested performance instead of meaningful work.  On one hand, the bosses insist that their employees are kept in the dark, and on the other hand, they would like to see high efficiency and productivity – impossible to coexist.

I have managed to convince most of bosses that while keeping the actual confidential information secret, it is absolutely crucial to provide my subordinates with the Big Picture and their place in it.  I consider this to be the most important step in staff training and development.  You will be wasting your time trying to teach your employees how to apply their expertise and education to the tasks you need them to perform if they don't know why these tasks are important for the company's, and consequently, their own prosperity.

When explaining their role and place in the Big Picture, I frequently tell the employees that the company doesn't employ them to pay salaries.  It is actually other way around: if the company could operate without the employees jobs done, we would gladly do so and save the money we pay as compensation . But it is crucial for the company that the jobs are done well and that is why the employees are retained and paid.  You will be surprised: it is not as clear to most people as you could expect.

CFO Folklore: Frustrating and Demeaning Mistrust


The “Hands-Off Micromanagement” style  so prominent in many business owners— and defined in my September 21, 2010 post —has a lot of implications in daily lives of CFO’s and Controllers.  One of the most frustrating facets has to do with petty mistrust. 

I’ve got volumes of stories illustrating this particular trait of a CFO vs Owner relationship.  Here is a compiled rendition of a rather frequently recurring Tale of Mistrust from the CFO Folklore.

AlphaOmega Inc. is a treasury-intense company and its CFO devotes big chunk of his time managing it.  He personally decides on daily basis whether the company needs to borrow to cover operational deficit or invest the excess of available funds.  He is singly responsible for signing financial instruments, including multimillion-dollar letters of credits and commercial loans paid directly to suppliers.  He electronically hedges foreign currencies, sometimes  as much as $1 million per transaction.  His discounting customers’ trade documents  on London Forfeiting Market frequently reaches $20 million per tranche.

Carrying all these monetary responsibilities makes him especially meticulous about the separation of duties and internal controls.  None of the transactions he personally conducts are recorded by him.  He deliberately never cuts any checks.  He has a designated treasury operator setting up all the wire transfers.  The companies books and records are regularly audited by lenders.  And his quarterly and annual accounting audits are always clean and produce unqualified opinions.

And yet…  he has no authority to sign a $1 check or execute a $10 wire transfer release.  Only the Boss can do that. 

And this Boss is not available for you whenever you need him: the business frequently takes him abroad; May through September he is in his summer house; he has to spend holidays with his kids; and he has a girlfriend (you know, afternoon delight and all that). 

Moreover, he hates signing checks and keeps ignoring that thick folder the AP manager put into his in-box two days ago.  And every time the CFO sends a “pleeeease-release-wires” email, the Boss acts like he is asked to grant a personal favor.  And it is the CFO who has to deal with the frustration of vendors and suppliers waiting for their payments. 

The situation drives him crazy and causes perpetual frustration and anxiety.  Swallowing his pride and ignoring the insulting pettiness of such mistrust, the CFO addressed the issue many times, sticking strictly to the damage the situation causes the business.  He explained on numerous occasions that the way his internal controls are set up, it would require his entire stuff to be part of a scheme to steal even a dollar from the company.  He also explained that their treasury systems allow to set up limits of execution authority and that the Boss shouldn’t be bothered with $2,000 wire transfers.  

All falls on deaf ears.   So, the poor CFO still chases his boss somewhere in Hong Kong, begging him to release today’s wires before the banks’ cutoff time of 5 pm EST, which is 6 AM tomorrow over there.


Remote Boss: CFOs & Controllers’ Dream


Don't get me wrong, I don't like global generalizations.  There is nothing wrong with logical patterns and trends, but it doesn't mean that they encompass ALL people and ALL situations.  So, when I talk about, for example, entrepreneurs or financial execs in general terms I don't mean "every single one."  I mean, the majority of the group.   The majority of entrepreneurs are brilliant, but some of them are just lucky.  The majority of small business CFO's are pedants, but some of them are slobs, and so on.

There are entrepreneurs who are very conscious of their breed's tendencies to squash and frustrate their subordinate execs.  They go out of the way to engage in counter-measures and employ the best of managerial techniques.  Therefore, there are CFO's out there who truly enjoy constant interactions with their CEO's.  Throughout my career I myself have experienced long stretches of time when my boss's personal traveling seemed like a disruption in the work flow, occasional frustration notwithstanding.

However, even those who enjoy the most amicable of relationships, cannot deny that they feel more relaxed and efficient, less frustrated doing their jobs, when the bosses are away, or when financial execs are traveling on business themselves. 

Thus, my correspondent J. has the best job in the world.  It was not set out to be such a fortunate arrangement, but various factors played their roles in shaping the way things are right now.  J, who is an asset-based finance specialist, works by herself on the East Coast, running all operational and administrative functions of a small but very profitable private equity fund, while the founding partners are based on the West Coast.

On an average day J. is in the office by herself, doing her job in completely undisturbed environment.  And she is one of the most balanced and upbeat persons I've ever met altogether, let alone the financial professionals. 

She speaks to one of the partners only on the rarest occasions, when there is something wrong with one or another investment.  The other partner is more hands on: he is responsible for due diligence process of all portfolio prospects.  He also comes to the East Coast office once a quarter when their lender's audit is finalized to have a wrap-up lunch with J. and the  lender's representative. 

A perfect dream set up.  How do I know?  Because J. is never frustrated with her bosses.  I tell her, "It would not be the same, if they were here in the same office with you."  And she agrees – it wouldn't.

Business Owners’ Favorite Style of Management


Some people are born with incredible natural aptitude for managing people.  Many years ago I observed a girl on a playground.  She was about 5 years old playing with a group of children the same age.  At one point some play rules, or another important issue, needed to be established, and I was amazed not only by the assertion of authority, but also by the uncanny logic exhibited by this extraordinary little person.  She started with a commanding, "Children, listen to me!" and continued laying out a proposal that nobody has any inclination to dispute.  I remember thinking to myself, "That's a naturally born leader!"

Unfortunately, people like that constitute a small percentage of general population and, strangely enough, they are even rarer among business owners.  Just because someone had a great idea and entrepreneurial drive to establish their own business doesn't mean that they also have sufficient managerial aptitude.  Only few of them had formal business management education and most of them never worked for anybody else long enough to gain on-the-job expertise.  

This pretty much leaves their leadership skills at intuitive level at best.  And if the sixth sense fails them… well, all kind of sad things occur: they cannot see the difference between a pompous phony with an impressive voice spewing well formulated lies and genuinely knowledgeable, but quiet workaholic; they have very little or no understanding of delegation of duties; frequently they cannot even figure out their own roles in the company.  

The most common executive management conundrum such Presidents/CEO's (especially first generation of business ownership) encounter after the enterprise reaches the "established" stage of development can be described as follows.  Their entrepreneurial talents draw their minds to further commercial improvements, to generation of new ideas that will help to expand and strengthen the business.  At the same time, the wonderful feeling of accomplishment plays dirty tricks on them: subconsciously they want to rest on their laurels – they feel that they deserve to work less, to take summers off, etc. etc.  Moreover, since the business is their child that they have born and reared applying their own talents and titanic efforts, they have incredible aversion to the idea of letting other people to completely take over vital tasks of the company's ongoing functionality and maintenance.   

(Side note: I am really tempted to state here that the majority of them are control freaks.  However, I don't have scientific evidence for that, just my own and my colleagues experience. More importantly, it does not make a difference, both obsessive and perfectly balanced CEO's display the same symptoms.) 

You have to agree that this position is absolutely psychotic.  What do they do?  They resort to their favorite style of management – what I personally coined several years ago as "Hands-Off Micromanagement."  

Let me show with this example how this control style may manifest itself. On one hand, the CEO can completely forget that you are working on establishing a $10 million credit line with a new bank, or that you have just upgraded your accounting system to a new version that basically made the entire budgeting function automatic.  But on the other hand, he keeps asking without a fail every month why the Federal Express bill is $2,000 – when he was starting the business it was never more than $100.

I am sure a lot of my fellow CFO's and Controllers have recognized the disease as they have to deal with it and the frustration it causes on daily basis.