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Column

Michael Flagiello and
Alex Unterkoefler, Partners
WeiserMazars LLP

What Do Boards and CFOs Really Need From Each Other in 2012?
High on the list: solid investment in the finance department’s infrastructure.

By Michael Flagiello and Alex Unterkoefler

Playing the role of GAAP-reporting expert or guru of the regulatory jungle will not be enough for CFOs in the upcoming year. The volatility of the 2012 economy is sure to require innovation and fast decision making. GAAP accounting and regulators do not run your business. Boards of directors want to see some life from their CFOs. Boards want to see a finance department that understands company strategies, not in isolation but in the context of key issues — political, environmental, and financial.

However, swift adaptability and comprehensive understanding of the economic environment cannot be based on a foundation of outdated technology or kludged-together operational structures. For a company to be competitive, boards must be willing to support their CFOs with solid investment in the finance department’s infrastructure.

It is the finance department that is charged with the critical role of quantifying operational results and assessing risks. The challenge is to convert numbers into knowledge and insights into results. The CFO can play a significant role in translating strategy into action.

Requirements for 2012
The WeiserMazars CFO Leadership Study released last summer found that CFOs in the insurance industry lack the resources needed to effectively analyze the details of their business. They had adequate staff to produce financial information but not to analyze it.

The study also found that many CFOs are hesitant to utilize shared-service models or outsourcing which, while potentially fueling efficiency and/or innovation, can also compromise confidentiality. A temporary workaround has been to utilize a myriad of interlocking Excel spreadsheets that slow down reporting and increase risk. This is a problem because inefficiencies in financial reporting, particularly to support acquired revenue streams, reduce the efficiency of a company as a whole, essentially making the company less profitable.

Patchwork Fixes
Although most CFOs know how to “fix” these problems, such fixes are temporary at best. Current fixes are patches, like duct tape on a leaky pipe. Ultimately, corporate management will face the same situation again a few years down the line, when the financial patches give way; only the magnitude of problem will be greater as successive generations of technology will make existing processes increasingly obsolete.

CFOs are aware of what needs to be changed, but are challenged by lack of support in terms of having little or no budget to make necessary improvements. Wall Street and, ultimately, boards of directors have little fact-driven evidence to support the notion that investing in the finance department will ultimately lead to better results in the form of higher revenue streams or an increase in share price. These factors leave CFOs with aging and inefficient financial, operational, and technological infrastructures. Improvements could be substantial, yet few companies can perceive a return on investment that isn’t reflected in next quarter’s earnings per share.

Here are some important points to think about.

1. Preparation for growth: Finance must have an integration strategy

As companies take on new product lines, change geographic locations, and acquire new divisions and/or new companies, it is essential to have a well-thought-out plan for integrating these new reporting events into a standardized system. The rapid growth of the past decade has left many companies with multiple systems that complicate reporting and increase the risk of errors, resulting in slow responses that weaken forecasts. A strategy for simplification/standardization is a must for 2012 to keep infrastructure meeting the needs of the growing revenue lines and business opportunities.

2. The need for data architecture planning is imperative

Data architecture describes how data is processed, stored, and utilized in a given system. This is no longer a technology problem. Finance must play a key role in ensuring that critical data is available, reliable, and accessible on a timely basis. Business Intelligence (BI) tools are available to assist and increase the effectiveness of decision making, decrease costs and increase efficiencies throughout the entire company. BI is, however, worthless without valid data. Excel spreadsheets that are patching system deficiencies need to be eliminated and systems repaired. It will ultimately cost less.

3. Looking for the magic bullet? Sorry — it’s back to basics in 2012

Companies are looking to reduce head count without impacting customer service and productivity, to improve infrastructure while allocating little money, and to handle a myriad of new tasks while maintaining current responsibilities. They are finding that there is no quick and easy solution. The only answer is to get back to basics. Break projects into smaller pieces. Organize and run efforts using a prescribed methodology. Have a plan and follow it. Fund projects with savings achieved on completed projects.

The financial benefits of infrastructure improvement can be difficult to define. But in today’s volatile economic environment, it is imperative that CFOs and boards begin to communicate more effectively about the needs of their companies, and that boards look beyond quarterly earnings statements when making budget allocation decisions. Improved internal processes benefit the entire company, top to bottom.

Michael Flagiello and Alex Unterkoefler are partners in the Financial Services Consulting Group at WeiserMazars LLP, an accounting and consulting firm operating throughout the U.S. and internationally.

Flagiello has more than 25 years of experience building financial infrastructure and improving financial systems for businesses of all sizes. He can be reached at michael.flagiello@weisermazars.com.

Unterkoefler has more than 20 years of experience focusing on clients within the financial services industry, specializing in insurance and reinsurance organizations. He can be reached at alex.unterkoefler@weisermazars.com.