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The Negative Impact of Sarbox

Companies need to alleviate the burden of daily compliance, writes a reader. More letters to the editor: understanding your bankers; empowering your workforce; looking into leasing risk.
CFO Staff, CFO Magazine
December 1, 2005

CFO welcomes your letters. Send them to: The Editor, CFO, 253 Summer St., Boston, MA 02210, or E-mail us at JuliaHomer@cfo.com.

Please include your full name, title, company name, address, and telephone number. Letters are subject to editing for clarity and length.

You can also share your thoughts in the "readers' comments" section at the bottom of each article. We welcome comments that are constructive, informative, on point, and in good taste. Editors have the final say and reserve the right to remove comments that do not meet this standard.


Don Durfee, the author of "The Top Spot" (October), is right that more CFOs are transitioning to CEO because of a renewed emphasis on shareholder value and corporate governance. But he's wrong in suggesting that Sarbanes-Oxley is not a significant factor — for CFOs, if not for the boards that tap them for the top position. After all, CFOs already share the risk with CEOs if their companies are not in compliance.

According to the 2005 Oversight Systems Financial Executive Report on Sarbanes-Oxley, 51 percent of nonaudit financial executives responded that they wanted to be CEO. Interestingly, we also asked internal audit directors if they wanted to be CFO, and only 31 percent of audit-related financial executives said they were interested in the top financial spot.

The implication is significant because it confirms the perception that Sarbox has a negative impact on the morale of the employees responsible for compliance. Companies need to find ways to alleviate the burden of daily compliance in order to reduce employee frustration and attrition and to keep good employees in the pipeline for senior positions, whether CFO or CEO.

Patrick Taylor
Chief Executive Officer
Oversight Systems Inc.
Via E-mail


Inside Your Banker's Head

Thanks for the great article on understanding the banker's profitability models ("Inside Your Banker's Head," CFO Banking & Finance Special Issue, October). Companies should also be aware of the heavy orientation toward credit and investment-banking services by the major banks. The gap in the banker's model is in the profitability contributed by services that involve noncredit risk. For example, what is the appropriate return for treasury-management services? Is it based on some allocation of capital, and how would that allocation be made? Each service may have different profitability thresholds reflecting the risk, capital, and other resources associated with the service.

Eric Bowles
Via E-mail


The idea of being important to those banks that are important to you is often a foreign concept to a CFO/treasurer who never spent time on the bank side. The other issue arises when the balance of power shifts from buyers of credit to sellers of credit. That can be a hard shift to make. A broad relationship approach is one that works for all seasons.

Bankers rate relationship value. Why don't corporations? Bankers keep call notes. Why do so few corporations? Bankers have a relationship plan. How many corporations have a formal plan for each of their banks? What happens when one of your bankers leaves? What happens when the CFO/treasurer leaves? Is there enough relationship depth?

Craig A. Jeffery
Managing Director
Strategic Treasurer LLC
Via E-mail


Empowering the Workforce

I found your article "Building a Better Workforce" (CFO IT, Fall 2005) quite interesting and helpful. As the CFO of a midsize company, I've learned that understanding how to do more with less is critical. In my experience, empowering the workforce is key to growth and optimization. I think the responses of CFOs in the survey you quoted are telling: while training is viewed as a way to increase the effectiveness of employees, giving people a clear idea of how their job affects the global business is the motivational additive that provides job satisfaction and increased personal performance.


If managers can ensure that employees with a personal commitment to the business are provided with appropriate tools and systems to increase their efficiency, they will use the time gained to direct greater effort toward the issues that matter to the business.

I recently read an article about how dissatisfied IT workers are with their jobs. There are many reasons cited in the article, but I can't help but wonder if part of the reason is because they feel powerless. If they can be brought into problem solving, maybe productivity will go up.

Ironically, most companies realize that IT is an asset worth investing in, but based on comparative growth figures, IT's internal growth isn't keeping up with the pace of the rest of the business. We can only invest in IT if we start to leverage the assets that already exist — and not from a technology standpoint but from a human-capital standpoint.

Workers can add value to the business if they are brought into the problem-solving process. When we show that personal contributions are meaningful, we'll see real results and achieve workforce optimization.

Robert Dietrich
Chief Financial Officer
MKS Inc.
Waterloo, Ontario, Canada


Troubles with Leasing

Great article on leasing ("Hidden in Plain Sight," August), but you are missing an interesting note. What about auto, truck, and other types of equipment dealers that sell equipment with recourse debt? They have booked the sale and booked the profits, but they have guaranteed the paper and don't count that risk on their balance sheets. You might want to check into that.

Regretfully, CFOs of some of the nation's largest companies are trapped by their leases all the time. They are trained in loans and borrow frequently, but are novices in leasing, and reap the rewards of the unsuspecting.

L.D. "Spike" Bailey
President
LD Bailey & Associates
Wilsonville, Oregon


In reference to your article "Hidden in Plain Sight," there is much that can be improved on in the area of lease accounting, in particular in the "leveraged lease" segment of FAS 13. That being said, it would be a grave mistake to undo all of the concepts and thought that went into the creation of FAS 13.

I am a CPA, and was heavily involved in the creation of FAS 13. I say this by way of apologizing for the inadequacies of the final product, in particular since very severe and untenable hidden issues have recently come to my attention regarding the entire approach to "leveraged" lease accounting. I find them to be an embarrassment to myself and to the accounting profession. These problems go well beyond the mere offsetting of debt against receivables in the balance sheet. They go to the very essence of the profit reporting, earnings per share as reported from year to year, and even fraudulent sales quotations regarding rates of return.

The very dismaying thing about these issues from my perspective is my inability to get a serious response from anyone in the industry or in the accounting profession regarding them.

At the time FAS 13 was written, leveraged leasing was a somewhat exotic subject understood by very few accountants. Further, it took a back burner to many other issues then being examined. I did not have the tools or the knowledge to see the yield-analysis fallacies at that time, and apparently no one else did either.

Philip J. Tirino
Via E-mail




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