Saturday, March 10, 2012

Tough Cookies and Financial Controls

I worked for a multi-national consumer goods company for the bulk of my career.  For two thirds of that career I worked in a particular business unit.  Our CFO in that business unit was what they used to “one tough cookie.”  I am not sure what they might call him today but SOB popped into my mind when I tried to conjure the right word.  SOB is probably too severe though he could definitely become one when it suited him.
In working with the CFO our relationship evolved.  I do not think he thought much of at all the first few years I worked for the business unit.  By getting things I was able to get him to a bit north of neutral.  By the time I left, I think he might have now and then had a positive image of me.  
This CFO staffed the subsidiaries in our business units with finance VPs and Directors that were what we called in that era of Austin Powers movies:  mini-mes.  In other words, the finance team in our business unit were people that thought and acted the way the CFO did.  They were all tough cookies.  
The tough cookie view was my first impression.  As with most observational viewpoints of mine, I changed and refined it with time.  This, of course, is the mark of a world class dilettante.  I developed a theory that I believe is spot on.  The CFO and by default his minions believed that:
  1. They were smarter than everyone else.
  2. If left unchecked, everyone else was lazy.
  3. Everyone else was potentially corrupt.

These points helped me develop an operational working relationship with the finance folks.  It was all business and no nonsense.  There was little likelihood that I could ever be more than acquaintances with them.  The best I could ever be was neutral.  I also decided to involve them as much as possible in efforts and initiatives in my area which was Logistics and Customer Service.  I do believe the above points defined them perfectly.
Now, I had moderate success as a businessman.  I really never ever took business courses so everything I learned was on the job in the school of the real world.  I learned somethings but never the accounting of business or how accountants and finance people see the world.  I am just now taking my first Accounting Course.  One of the benefits of being an adjunct professor at the College of Lake County is that I can take a free class each semester.  I am taking advantage of that this Spring Term for the first time.  I am taking Financial Accounting.
I never took Accounting before because I thought I would hate it.  I love it.  I find it eye opening and fascinating.  I am gaining the language and perspective of the Finance arm of enterprises.  I should have taken this years ago.  I maybe should have even majored in the stuff.  I wonder how my career might have progressed if I had done this.
In the Accounting course, we just covered the section of Internal Controls.  This was also eye opening.  Here is purpose of Internal Control:
  1. Protect company assets
  2. Ensure reliable accounting
  3. Promote efficient operations
  4. Urge adherence to company policies
The intent and purpose of Internal Control is achieved by adopting and living the following principles:
  1. Establish responsibilities
  2. Maintain adequate records (documentation)
  3. Insure assets and bond key employees
  4. Separate record-keeping from custody of assets
  5. Divide responsibility for related transactions
  6. Apply technological controls
  7. Perform regular and independent reviews

Well this certainly explained a large part of what motivated my Finance colleagues.  But, it only partially explains their attitude and behavior.  On one hand they have their duties and responsibilities.  They should communicate these responsibilities and their methods for managing them to the organization.  In a sense, this Internal Control part of their role puts them on par with Internal Affairs of the police dramas on TV and in the movies.  They are a necessary part of the organization but not fondly thought of.  These responsibilities make them the police of the company.
We all know there are a few kinds of police officers.  There are the kind the love the power they have over Joe Average Citizen.  There are the kind that take the Serve and Protect tenet to heart and separate the good guys from the bad ones... not always as black and white as the aforementioned TV dramas make it seem.   There is no question that the Serve and Protect officer can and should be one tough cookie, however, when the opportunity calls for it.
I wonder how I would do with this responsibility?  How would I treat people?  
Based on my past record, I would probably trust people until proven otherwise i.e. innocent until there is enough evidence to conclude guilt.  Upon learning of malfeasance, theft, or other criminal/unethical activities, I would discipline, dismiss, or prosecute the offenders as company policy and the law dictates.  I would also work to put in the controls and rules according to the above mentioned seven principles, to make a bad leaning individual stay on the right and lawful side of thing i.e. to minimize temptation.  
I am not suggesting that in trusting people I do not keep my eyes and ears open.  I should be attuned to things that do not seem right or by actions that seem illogical.  I should question why things do not seem right.  What is the logic, really, behind actions that seem illogical?  I have learned in my career in logistics that if there is a little whiff of smoke, there may well be a fire blazing behind the wall.  A little whiff of smoke raises all my senses and attention toward the person or activity to determine if there is or is not a fire blazing.  
The question remaining is which approach works better the CFO who does not trust anyone or my approach in which I trust people until there is evidence not to?  I would contend, no surprise since I am asking the question, that my way is better.  I do not believe the I am smarter than everyone and everyone is a potential thief method actually helps uncover immoral and illegal activities any faster.  My old CFO did not uncover bad deeds quicker but when he learned about them, it just confirmed his view of humanity is all.  In fact most of the uncovering, came at the hands of others and often by accident.  Things smelled funny for a long while.  I knew that and voiced my concern but none of us had the evidence to do anything.  We put in better controls and that either made the bad smell go away or to uncover the evidence needed to take action.
The other negative side of believing that you are smarter than everyone else and that you believe that everyone else is lazy and potentially corrupt is that everyone will know this what you believe.  Once people sense that you have this awful view of them, their natural reaction is to avoid dealing with whenever possible and, when forced to deal with you, provide the minimal amount of information necessary to get through the meeting or review.  This natural and predictable reaction only reinforced the CFOs view of people.  This dynamic often made the CFO be the last person to learn of bad news... at which point he would react swiftly and very strongly.
One the other hand, people were more willing to share more information with me.  I encouraged the open exchange of good and bad news.  Certainly, information was withheld from me too.  After all I was from the division office and the functional leader of the people I dealt with, but I am convinced the information and details withheld were less than that withheld from the CFO.
I just think it is much better to go through life believing that the majority of folks are decent and honest.  In doing so, it is easier to create a culture of trust and openness which is the right way to run any organization (perhaps even a prison?).  This doesn’t mean you can  ignore the
Principles of Internal Control.  If you do this, you are trusting and naive.  You will eventually be fleeced.
As for the tough cookie part?  This is a skill every leader needs.  I simply you do not have to be a tough cookie all the time but just when the situation call for it.  If there is a whiff of smoke, investigate, review the controls, gather evidence, and if there is a fire... it is tough cookie time... baby.

No comments:

Post a Comment