Wal-Mart’s Michael Fung: Why Internal Auditors Make Good CFOs

To really know what drives value for a company and understand its business processes, Fung says, there may be no better training ground than intern...
David McCannMay 20, 2008 was researching an article on the evolving role of internal auditors when an opportunity arose to interview Michael Fung, who since 2006 has been senior vice president of finance for Wal-Mart Stores and CFO of the company’s U.S. Wal-Mart-branded stores. He credits a mid-career detour into internal audit, which could have been seen as a backward move, as a key to landing and succeeding at his current job.

Was a career in finance always planned?

Actually, no. I was at the University of Illinois, and I was going to be an electrical engineer. It was a lot tougher than I thought. I would have flunked out of school if I’d stayed in engineering. So I migrated to accounting and found my career and my calling.

What did your father do for a living?

My dad was a waiter in a restaurant his entire life. My mother worked in a shoe factory. She was a seamstress. I was the first one in my family to go to college. We were a very mid-to-lower, working-class type family.

Was there a career move you made early on that made a big difference?

I was in public accounting with Deloitte for four years, and I left for a job in internal auditing with Beatrice, which was one of the largest diversified food companies in the world back then. I was able to excel in a lot of different things, and my last job there was corporate vice president and corporate controller. But it all started in internal auditing; that was one of the keys to my career.

The other thing that was worthwhile was going back to school and getting an MBA [at the University of Chicago]. That was in 1986, 13 years after [graduating from college]. I was in one of those career crises — I was 34 and the youngest vice president in the history of Beatrice, and everyone else was in their 50s and 60s. Grad school changed my perspective. As an undergrad, you just sort of memorize things and spit them back out. Grad school was much more of a learning mode. The quality of students I worked with, after more than 10 years of [corporate] experience, made it very enriching.

Walmart Fung2Wal-Mart divisional CFO Michael Fung didn’t campaign for a four-year stint in internal audit, but it ended up being a godsend for both him and the company.

You left Beatrice to take a CFO job. How did that come about?

Beatrice was a conglomerate that used to buy up a variety of companies. I led an acquisition team that was looking at Bass Pro Shops. The entrepreneur there thought I knew more about the company in two weeks than his existing people did. And so he offered me the [CFO] job. It was a chance to build a company and do an IPO.

Beatrice had gone through an LBO, and my claim to fame as a corporate controller was that the company had, say, $15 billion in revenue when I got there and $1 billion when I left, because we sold everything off.

[After four years at Bass Pro Shops] I was recruited by a company called Vanstar, which is a computer reseller and network integrator. I was there three years. My next CFO job was with Universal Foods, a diversified multinational manufacturer. Vanstar was a $3.5 billion company and Universal only $1 billion, but I wanted the chance to be a CEO with top-line and bottom-line responsibility, so I was willing to go to a smaller company.

But before that happened, you went to one of the largest companies of all. Why?

I was recruited to Wal-Mart as vice president and CFO over the global procurement division. I helped create and establish that. I was probably the third associate in the division, and there’s about a couple thousand now. I helped put in place the systems and strategy for how we source from around the world. Then I went into internal audit for four years.

Did you feel like that was taking a step backward in your career?

I was in internal audit with Beatrice way back when, and [at the time I was offered the chief internal audit role with Wal-Mart] I had been in a lot of financial leadership positions and I wanted to keep doing that. I was very happy in global procurement. But the CEO said, Mike, I think it will be a good move for the following reasons: You have a chance to help improve the business. You have a chance to build relationships with the board of directors and our major business leaders. You have a chance to move internal audit to more value-added processes and improve our controls. You have a chance to improve the development of the associates there. And you will build your own ability to manage relationships, work with cross-functional teams, and manage people overall.

After spending four years in internal audit, I can say he was absolutely correct. It really worked out. Internal audit offers a deep understanding of the value drivers of the business and the underlying business processes, whether in merchandising, store operations, the supply chain — all those things were worthwhile. [I saw that I had] minimized truly appreciating the decision-making process within the company, and our culture and how it permeates our decisions and how we operate. I gained those things in audit.

Sarbanes-Oxley came along when you were in internal audit. How did you handle that?
Everybody sort of wanted to run away from it. But [for me] Sox came at an opportune time. You had to learn to use your business judgment to understand the risk to the company, satisfy the legal requirements, and still in the end make sure value was added to the company. To this day both our outside accountants and other peer groups that we work with marvel at our ability to implement it as seamlessly as we did on a worldwide basis without a lot of rework.

Is internal audit more respected in corporations because of Sarbanes-Oxley?

If as a result of Sox internal or outside auditors spend all of their time just auditing for Sox, then it will hurt the profession and the development of people. I think my success, both in internal auditing and my career generally, is trying to really understand what drives the value for the business, whether that’s in sales, in margins, our competitive edge with customers, or how we compete in our markets. So I prefer the operational auditing approach.

What Sarbanes-Oxley does is get you more into processes that drive financial statements. But ultimately as a finance officer, you have to be a business person. That is the key to success, rather than a focus on Sarbanes-Oxley itself.

You never did become a CEO. Is that still in the game plan?

I recognize that I work with some great operating people who have in-depth knowledge about what it takes to run a business. I can support them and be a great CFO and satisfy my desire to help make an impact on the business and drive it to greater profitability. I don’t need to be the CEO just to have the title.

What makes for a successful CFO?

First, you have to have relationships with your business partners in which you’re trying to add value to the business. Second, it is useful to understand the business drivers.

Retail on the surface doesn’t appear to be a very complicated business. But you need insights into, or the ability to learn, what it take to increase your basket of customers; how to change the margin mix of anything; what it takes to operate a $150 million store with 500 associates; how to make sure associates are appropriately motivated and taken care of; how to find the goods to display and merchandise in the store; and the competitive advantages of Wal-Mart in our supply chain.

I got that from internal audit. Is internal audit good development for a CFO? Absolutely yes. Is it a good career path for people coming out of school? Absolutely yes. And certainly it has been helpful in my career, because my last name is not Walton.

I came in late, but I have a chance to be the finance officer for the largest operating division within the company, and make an impact. I’m just happy to have that opportunity.

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