| Surprisingly, CFOs often admit how ignorant they are of their companies' financial positions on a day-to-day basis, which they say inhibits good decision making. Often, and rightly, they attribute this to a failure of their IT systems. Consolidating information across operations and rolling up the data into one significant number trackable on an analytics dashboard is not easy, especially when acquired subsidiaries are not running the same software as the parent organization. It might be achievable with days of manual intervention, but definitely not upon request. The problem is real in many companies, which is why consultants constantly claim that business-intelligence and data-analytics systems can lead executive management to a promised land of better decision making.
But every now and then a case comes along that gives us deeper insight into the issue -- like the lawsuit filed Thursday by New York Attorney General Andrew Cuomo against former Bank of America CFO Joe Price. Price and ex-CEO Ken Lewis are accused of failing to disclose billions of dollars in losses at acquiree Merrill Lynch during the month leading up to the BofA shareholder vote. That vote OK'd the $50 billion purchase of "the thundering herd."
Lewis and Price claim they didn't do anything wrong, but they cannot claim to have been uninformed about Merrill's deteriorating financials. Price was "intimately familiar" with Merrill's deteriorating condition, the lawsuit says, "because he had a practice of reviewing and commenting on real-time reports of actual losses from Merrill's internal systems."
The suit notes that Merrill had a project, called "Accelerate the Close," whose design was to speed up Merrill's book-closing practices to align them with BofA's. As a result, management knew before the early December 2008 merger vote that Merrill had as much as $16 billion in losses coming for the fourth quarter. As one staffer said in an e-mail to the chief accounting officer at BofA, "This has gone amazingly well.... The acceleration of the P&L went as smoothly as possible."
So the IT systems worked -- and did so in a period of crisis and across companies. Amazing. But, according to the lawsuit, management didn't act on the information. Why didn't Price disclose the losses before the shareholder vote? There was enormous pressure to complete the deal, some of it by way of Treasury Secretary Henry Paulson. More important, though, the incident raises a question for all CFOs: is it the failure of information systems that needs more attention, or the failure to act on information?
The psychologist B.F. Skinner once said, "The real problem is not whether machines think but whether men do." CFOs have to ask themselves: If I had all the data I wanted, would I have the courage to act on it and disseminate it to my superiors, even if it were negative and doing so would make me unpopular?
It sounds basic, sure. Nevertheless, the real inhibitor to better business intelligence may not be in our IT systems, but in ourselves.
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