The art of transparency

Businesses the world over are grappling with a burgeoning demand for transparency. Digital technology and new legislation are among the forces driving the march for more openness. In a CGMA survey of CEOs from 21 countries, 87% of respondents said they view transparency as an opportunity. The CEOs sharing more information could help burnish a business’s reputation with customers, improve decision making and lead to greater innovation. Still 13% of CEOs said they view transparency as a threat.

Three senior finance professionals talked with CGMA Magazine about what transparency means to them, and how they aim to improve it at their organisations.

Mark Taylor, ACMA, CGMA, is vice president – finance, North America, for Orica Mining Services

With Sarbanes-Oxley firmly embedded in the US, CFOs are focused on corporate governance, internal control assessment and enhanced financial disclosure. The legislation has led to a greater engagement by CEOs and those outside the finance function in understanding legislated standards.

As head of the finance function, you cannot rely on legislation alone. It’s important that the cost of compliance does not distract us from supplementing standards with a culture that promotes transparency. The finance leader’s role is to create a climate where transparency is rewarded, both internal and external to the finance function.

We create this climate by embedding the finance team as a true business partner and an enabler in the organisation. One way we've made it work is by having a finance team that is part of the commercial area. For example, the commercial finance manager has started joining the account managers in visiting customers at negotiations, and throughout the life of the contract.

As part of this process, a broader spectrum of information is gathered as finance will talk to the customer about their payment compliance history, future capital spend, expansions within the region and other areas that may impact their cash flows.

The aim is for the finance team to understand trends across market segments. This gives the management team greater transparency into customer credit risk and allows an open conversation about managing risk by segment. Five years ago, this conversation would have only been in the domain of the account manager – it would not have covered such a broad fact base and would not have been as transparent to management. Now the conversation involves an educated commercial team, commercial finance managers and the head of accounts receivable. Data quality has also improved.

Embedding the finance team required us to recruit finance staff and measure their performance based on behavioural competencies, where collaborating and influencing are as important and better rewarded than technical competences. For example, our short-term incentive payment has individual objectives aligned to “working together”. These objectives will work across functions to break down silos.

This goes a long way towards achieving internal financial transparency, where the goal is “much is known by many”.

Murtaza Abbas, ACMA, CGMA, is CFO of Siemens Pakistan

At Siemens, transparency is an attitude. We step ahead of the classic definition of financial transparency – which are timely, meaningful and reliable disclosures about financial performance. We try to create a shared vision for a bigger concept of compliant and ethical behaviour and cascade the message down to the lowest level. Transparency is not only required by management, but is a way of life for all employees.

Siemens Pakistan doesn’t stop at standard reports and the use of enterprise resource planning, because for us, financial figures are trailing indicators and can suggest the direction of the company. We also focus on the leading non-financial indicators.

At business unit and division level, transparency plays an important role in making informed decisions.

We continuously look to uphold shareholders’ interests and try to assure effective transparency and controls, fair and meaningful audits, continuous training and education of employees, and strict disciplinary measures for unethical or incompetent conduct.

In today’s cut-throat market, trying to regulate for every possibility can and will hamper growth. I see a limited role for regulators – the process has to be owned internally for it to be effective and sustainable. We promote a culture of openness in our organisation, because transparency doesn’t only mean greater disclosure to regulators or shareholders; it also means that risk should be known and understood by management and employees.

We are sure that, by being transparent, we attract talent and foster better client relationships. A more compliant company has a better brand image and that is what makes big companies become great companies.

Wim Kromhout, CPA, is managing partner at consultancy firm Finambition, based in the Netherlands. He has been a CFO for several companies and is author of Running A Company Is That Simple, about avoiding a focus on revenue growth at the expense of behaviour, structure, transparency and control.

The keys to financial transparency are simplicity and consistency of systems and structures. Transparency only works if people from the shop floor to top management support the system. There are many sophisticated and complicated management reporting systems. These can decrease transparency if the workforce does not understand them, or finds them too cumbersome. The Balanced Scorecard, for example, is great for managing your business, based on financial or non-financial indicators, but you have to make it simple and transparent.

Also, if a business unit’s reporting data starts to deviate from that of top management – for example, if it starts to count revenue using a different format or principles – it becomes hard to reconcile those numbers. Then they end up talking about the numbers and not the business issues.

In one company I worked for, I found that transparency had completely disappeared. There was no formal review process and no proper budgeting process; some people didn’t even know who they were reporting to. Regarding legal structures, it was like a Christmas tree of little companies – that created a messy management structure.

You have to attack a situation like that in all directions, but one of the first things is to break that company up into logical units, then make people responsible for the business in their unit. Make a business plan and budget for the unit to report against. This empowers the people in each unit.

I believe in delegation and decentralisation in bigger companies. Headquarters should be as small as possible. HQ should review and control the units, give them the framework, then let them run their business as best they can.

Being more transparent – opportunities and obstacles

Source: Rebooting business: Valuing the human dimension