financial management financial

November 2007 November 14 16 24 The descent to Terminal situation: “Yes, please, minister”: Avernus is easy: the economic impact why companies’ how small issues of the global shipping corporate lobbying easily grow into big industry’s impending activities are coming ethical dilemmas capacity crisis under the microscope

www.cimaglobal.com November 2007 £4.50 financialmanagement

Five-star accommodation Laurence Yuen, of Shanghai Jin Jiang International Hotels, on China’s tourism boom

Technical matters Customer profitability Transforming finance Performance measurement Finance business partnering

Study notes Paper P1 Management Accounting – Performance Evaluation Paper P3 Management Accounting – Risk and Control Strategy Gordon Grant >inbusiness CIMA president

collaborative projects around the world keep cima at the cutting edge of innovation

The global business community simply educate people to precisely what changes are is well aware of the seismic shifts become technical accounting taking place within the finance that are transforming how and experts. We advocate a much function and what this means where we do business. More wider role for the finance for management accountants crucially for CIMA, these shifts professional in supporting other over the long term. In this way are highlighting the scope and parts of the organisation. CIMA will remain at the intensity of competition around Employers expect us to forefront of innovation in the The institute is the world in the war for talent. anticipate the skills required to profession’s development. delighted to CIMA, which was develop their finance I was delighted to represent commissioned last month by professionals of the future. UK accountants in business announce the the World Bank to lead a project The institute is delighted, last month at the first of three launch of the to strengthen the capabilities of therefore, to announce the global forums for management “ the main accountancy body in launch of the CIMA Centre of accountants. The 2007 CIMA Centre of Bangladesh, is playing an Excellence at the University of International Financial increasingly important role in Bath School of Management. Executives’ Leadership Forum in Excellence at the helping developing nations to Uniquely, the centre will conduct Montreal was jointly hosted by University of Bath improve their financial and longitudinal, independent, the Society of Management business management skills. international research into the Accountants of Canada (CMA School of It’s vital that enterprises in these knowledge and skills needs of Canada), the American Institute Management expanding economies can finance professionals. It will of Certified Public Accountants operate with confidence and investigate how these (AICPA) and CIMA under the integrity in the global requirements change over their theme “The future role of business around the globe. marketplace. The institute will be careers and how to develop best finance”. Delegates from all over We also work together to host the sole expert supplier to the practice in order to meet them. the world attended this powerful infocasts, which allow members Ministry of Commerce and the The objective is to maximise the and inspiring event. Next year’s of all three bodies to listen to Institute of Cost and value that financial managers add forum will take place in expert presentations online. Management Accountants in to their organisations. Washington DC and 2009’s will These innovative Bangladesh. The project, funded As far as we’re aware, this is be hosted by CIMA in London. collaborations raise the profile of by the World Bank, will provide a the first time that a leading We work in partnership with the profession globally and model for CIMA to collaborate on professional body and academic AICPA and CMA Canada provide exclusive intellectual similar programmes for other institution have come together to because of our shared focus on property to the three bodies’ developing nations in future. investigate these issues with a management accountancy. We memberships and, in turn, their Part of CIMA’s recognised sole focus on finance have already co-operated to employers. The MAGs and value to employers, regardless professionals. Although produce highly topical infocasts can be accessed in of whether they operate in anecdotal evidence is available, management accounting your My CIMA section of the web developed or developing the centre will use rigorous guidelines (MAGs) that are site, under “CIMA Professional

Pho t o g r ap h: Ch a lie H pkins n economies, is that we don’t academic research to find out relevant to accountants in Development Centre”.

CIMA is the Chartered Institute of Management Accountants, 26 Chapter Street, London SW1P 4NP. Tel: +44 (0)20 7663 5441 President Gordon Grant FCMA Deputy president Glynn Lowth FCMA Vice-president Aubrey Joachim FCMA Chief executive Charles Tilley FCA

financial management  CIMA, 26 Chapter Street, London SW1P 4NP +44 (0)20 7663 5441 www.cimaglobal.com Contents Editorial and production Caspian Publishing 198 King’s Road, London SW3 5XP 08 One2one T: +44 (0)20 7368 7170 F: +44 (0)20 7368 7201 Laurence Yuen, E: [email protected] 08 Editor Ruth Prickett joint company Chief sub-editor Neil Cole Creative director Nick Dixon secretary at Art director Erroll Jones Shanghai Jin Jiang Art editor Clare Meredith Account manager Tina Franz International Hotels Publishing director Jules Rastelli (Group), on the Advertising T: +44 (0)20 7368 7117 unique challenges F: +44 (0)20 7368 7112 E: [email protected] of being a CIMA Advertisement manager Ellen Pagliarulo member in China.

Subscriptions E: [email protected] T: +44 (0)20 7368 7200 £45 (UK), £54 (Europe), £72 (rest of world). Back issues: £5.50 including postage, subject to availability. All payments should be in sterling drawn on a UK bank.

For the USA FM (ISSN 1471 9185) is published ten times a year for $60 by Caspian Publishing, 198 King’s Road, London SW3 5XP. Periodicals postage paid at Rahway, NJ Postmaster. Send address 16 changes to: Financial Management, c/o BTB Mailflight Ltd, 365 Blair Road, Avenel, NJ 07001. 16 Shipping 04 Letters 47 Study notes forecast Caspian Publishing Pensions; changing CIMA’s name; Your guide to entering, taking and Chief executive Mike Bokaie FM’s new design and UK focus. passing the CIMA qualification. Ports worldwide are Finance director Kate Andrews Financial controller Desmond Heggie 47 Student one2one: suffering a capacity Editorial director Stuart Rock 06 First in… Ozgur Kilic, head of oncology Communications director crisis. Could this Matthew Rock All the latest news affecting finance, Novartis, Milan. Commercial director Justin Khaksar accountants in business, 48 Exam tips: paper P1 seriously weaken including regulations updates. Management Accounting – Reproduction Zebra your supply chain? Printing Headley Brothers Performance Evaluation. 12 Opinion 54 Exam tips: paper P3 CIMA reserves the right to grant 12 Northern Rock’s trial by media. Management Accounting – permission to reproduce articles. 24 Lobby Opinions expressed in FM are the 14 A real-life ethical dilemma. Risk and Control Strategy. authors’ own and do not necessarily 58 Exam notice: important correspondence represent the policies of their information for candidates employers or CIMA council. Caspian 29 Career Why investors and Publishing and CIMA accept no and passed finalists. analysts want to responsibility for views expressed by development contributors. The publisher reserves the right to refuse, cancel, amend or Change programmes: how to lead, 61 Institute update know what your suspend any advert or insert. how to follow and how to survive. CIMA news and a diary of events. No liability is accepted for loss arising firm’s doing to win from non-publication, incorrect or late friends and influence publication of any item. The inclusion of any advertising material does not imply 33 Technical 65 So you want policy-makers. that CIMA endorses the product, service etc advertised. matters to be… Delving into the detail of What a job as front-office business management accounting. and project manager entails. 33 Customer profitability. 36 Transforming finance. 72 …Last out

Total average 38 Finance business partnering. Bizarre communications from net circulation 43 Performance measurement. the wonderful world of business. (Feb 2007): 155,665. 54 >letters Please send letters to: Financial Management, Caspian Publishing, 198 King’s Road, London SW3 5XP. E-mail: [email protected]

Penalty zone the buy-out approach to valuation as well as No more. Please may we return to a Your news item “Pension penalty” (First in, the IAS19 method. professional journal that’s worthy of CIMA? October) indicates how accounting standards The institute is not a standard-setter, but Alan Orme FCMA that apply to pension schemes seem to have it does respond to consultations from the a misleading and, sometimes, damaging International Accounting Standards Board Keeping it clean effect on company accounts without and the Accounting Standards Board (ASB). The new-style FM looks like a first-rate providing any benefit either to shareholders It also seeks members’ views on these newsstand magazine. If I were buying the or – a more important factor to me – to matters via the consultations database Economist and Management Today, I’d pick members of occupational pension schemes. (www.cimaglobal.com/cdb). Your letter raises up FM, too. The features are interesting and As I understand it, FRS17 requires some complex issues that are high on the challenging, while the design is clean and companies to value their pension scheme ASB’s agenda. It’s planning research that it modern without being distracting. I assets as if they were all in class-A bonds. says “will reconsider the fundamental particularly like the “Last out” section. This has actually influenced the investment principles of pensions accounting”. Name and address supplied policy of some schemes, which is surely not Richard Mallett FCMA what accounting standards are about. Director of technical development, CIMA British bias Now we learn that IAS19, when I support the idea of modernising FM to make combined with IFRIC14, could cause Alliance Quack shot it more interesting to all members, but the Boots to take a £418m “hit” on its balance Jeremy Ash asks in his letter (October) if September issue falls short of the mark. While sheet. (I’m not sure what the opposite entry renaming CIMA the Chartered Institute of there is some content, it generally seems to on the balance sheet would be.) Surely there Finance and Strategic Management would be have degenerated into a mass of UK-centric is something wrong with the logic of our a step too far. My answer? Yes, it would. advertising, while the articles fail to appeal to standard-setters, one of which is presumably In the 20 years or so that I have been in those members worldwide who are not UK our own institute? the profession, about half of these as a focused. It’s time to go back to the drawing Has CIMA, or any of its members who CIMA member, virtually all my work has board and realise that CIMA is now global. may be experts in this field, any comment to concerned solid, old-fashioned accountancy, Peter Murray FCMA make? As far as members of pension funds tax and audit. I would hazard a guess that are concerned, the only sensible way to value this applies to most of the institute’s Editor’s response a fund properly is at a buy-out valuation. members and students. The FM team is well aware that CIMA’s Bernard Potter FCMA It may well sound cool and sexy to refer to membership spans more than 150 nations, Secretary of the Royal Ordnance Pension oneself as a “strategic financial manager”, although the largest group of members Scheme and treasurer of the Occupational but the ordinary man on the street will not based in one country is still in the UK. Pensioners’ Alliance understand. I go by the adage that if it looks We aim, wherever possible, to include articles like a duck and quacks like a duck, then it that are relevant across borders and we’re CIMA’s response: probably is a duck. And this means that, always happy to consider proposals for The institute published “The pension whatever we may call ourselves, we are articles from members and students liability – managing the corporate risk” accountants. Quack, quack! anywhere in the world. We believe, for (www.cimaglobal.com/pensions) under Mark Jones ACMA example, that articles in the September issue the guidance of CIMA’s Pension Advisory on public speaking, Islamic finance and Group. This report acknowledges that Tabloid taste strategic audits have international relevance. there are several approaches to What has happened? Although The student one2one featured a Pakistani valuation, including accounting; most of FM’s articles are student working in Dubai, while the feature on buy-out; pension protection fund; reasonable, the most appalling the CIMA difference covered the institute’s and ongoing. layout has been global promotional campaign. CIMA has also been involved perpetrated. It would Publishing adverts is necessary in order to in the Report Leadership project disgrace a tabloid reduce the cost of the magazine to the (www.reportleadership.com), comic.And the piece institute. We would, of course, be happy to which features a entitled “Mates’ accept adverts from around the world, but best-practice example of rates” (September) FM’s key advertisers tend to target CIMA’s

P hotograph : Ge tty I mag e s disclosure that includes is sheer feminism. largest national membership.

 financial management All the latest news affecting accountants in business, including regulations updates www.cimaglobal.com

Freestyling fcma Shortlist conquers channel announced for CIMA members are known for their persistence in pursuit of a goal, CIMA Financial … but few go to the physical extremes of Jim Boucher FCMA, who on August Management >firstUnconsciousin decision-making strategies, 12 swam solo across the English Channel in 15 hours and 28 minutes. It based on experience and information was his second attempt, after bad weather forced him to give up on July 10. Awards 2007 accumulated over many years, are central to Boucher, the Northern Ireland record-holder for the 100m and 50m Why Gut how the best-performing people in any field breaststroke in his age group, had swum part of the Channel before in a n Kerry Group. make decisions, according to Malcolm topspin forehand, how can a housewife tell relay team, but the full crossing proved a far more serious challenge. He n Morgan Stanley. reactions Gladwell, author of Blink and The Tipping you why she likes a tie?” began training in November 2006 and was taking dips in London’s n Reuters. Point. But developing this kind of expertise But studies suggest that it takes 10,000 Serpentine in January before starting in the sea in May in temperatures of takes far longer than most of us believe and hours of practice to learn how to make a 11˚C. “The average temperature on my two crossing attempts was about Finance team of the year – rule our instincts are easily confused by external good instinctive decision. That’s about ten 16˚C, but I can honestly say that I wasn’t cold,” said Boucher, who is public sector, sponsored influences, he warned. years practising for three hours a day – far operations director of consultancy Esys. “But the tides led me a merry TOPCIMA success award by Insight MSC: “Some of the wisest decisions we make longer than most employers would expect. dance. The shortest distance to France is 21 miles. I ended up travelling sponsored by Witan n Her Majesty’s cannot, by definition, come with an explanation We should also be aware that instinct is 36 or 37 miles because of the strong currents.” Jardine: to be announced Court Service. and it’s important that we recognise this,” said easily subverted. US police have found that The Channel is world’s busiest shipping lane and Boucher’s safety on the night. n Leeds City Council. Gladwell (pictured, right). He pointed out that armed officers are more likely to start firing depended on the navigational skills of the captain of his support boat. n Oldham Primary “experts” from investors to surgeons to their guns if they have just been in a high- “Ferries were more of a problem than the biggest ships, which we could see Tutor of the year: Care Trust. sporting champions based many good speed car chase or if they are in groups of coming from a long way off,” he said. “But there’s no way the big boys can n Senaka Kakiriwaragodage, n Skills for Health. decisions on instinct. two or more, largely because of adrenaline stop. You just have to keep out of their way.” Achievers Lanka Business When US tennis coach Vic Braden asked and peer pressure, Gladwell said. Similarly, About a mile from France he reached “the graveyard of dreams – you can School. Finance team of the year – several leading players how they hit a topspin the illustrious Getty Museum made a serious see the shore, but you can’t break through the current. You just have to take n Sarah McHenry, Kaplan private sector, sponsored shot, they all told him that they rolled their mistake when it bought a Greek statue now your time, keep swimming and go with it. The crucial thing is not to panic.” Financial. by Badenoch & Clark: wrists at the moment of impact, yet, when he widely believed to be a fake. Its experts were Fortunately, the good weather held. “The crew had spotted a dolphin n Stuart Pedley-Smith, n O2 UK. filmed them, none of them did this, Gladwell probably influenced by their desire for the following the boat, so they didn’t get bored,” Boucher said. Kaplan Financial. n Procter & Gamble said. Braden worked out that they played piece to be genuine. External art historians, French laws prevented the boat from landing, so he had to clamber up n M M Clancy Peiris, Financial Solutions Team. instinctively – ie, with no conscious idea of however, immediately “felt” that the statue the rocks unaided and then swim another Wisdom Business School. n Royal Bank of how they did it. He came to the conclusion was not right when it was displayed. 300m back to it for the return journey. n Hasitha Premaratne, Scotland Insurance. Trigger happy? Research that there was “nothing to be learned about Malcolm Gladwell was speaking with He is now planning a relay swim from Wisdom Business School. has found that US police tennis by talking to top tennis players”. Steven Levitt at a conference entitled “Tipping Scotland to Northern Ireland – a similar Recruitment consultancy are more likely to fire their This has implications for many business point strategies in the age of freakonomics”, distance but an even tougher prospect. Part-qualified of the year, of the year: guns if they work in pairs. areas, including marketing, Gladwell said. held in London by Benchmark for Business “It’s very cold and inhabited by terror sponsored by FSS: n Hays Accountancy “If Andre Agassi can’t tell you how he hits a (www.benchmarkforbusiness.com). jellyfish the size of manhole covers. n David Beare, Needlemans. & Finance. There have been only 16 successful n Richard Dove, n Michael Page. solo crossings,” Boucher said. Sainsbury’s Supermarkets. n Robert Half. “My story goes along the lines of n Thanushka Jayasundera, CIMA has warned that companies Visit www.cimaglobal.com/ taken full-time, part-time or via www.york.ac.uk/enterprise/eio/cpd ‘if at first you don’t succeed…’,” he HSBC Sri Lanka. The Financial Management around the world are putting their decisionmaking for details. For the e‑learning and will include more than for information on CPD. added. “It has an awful lot of parallels n Helen Johnson, Procter award for corporate competitive position at risk by failing background story, see page 36. 20 online CPD units, with modules with the lessons you learn in business.” & Gamble. social responsibility: to transform their finance functions on globalisation, the environment, Learning how to value a company n Mark Kula, Mars UK. n Drivers Jonas. to improve decision-making at every The University of York is to offer economics, public service reform or appraise a capital expenditure are n Warren Jia-En Leow, n Ford Motor Company. level. According to a new report accelerated masters degrees for and managing change. just two subjects in CIMA’s new BP Oil UK. n MAS Intimates Division. Start 10.38pm: tide published by the institute, CIMA members, aiming particularly CIMA members receive a 15 per range of online courses. These were sweeping north east. 6 hours: tide accountants must develop a broad at those working in the public cent discount on fees for e‑masters developed in response to research turns to south west. Employer of the year, Innovation in management range of business skills to remain sector or healthcare. This is the courses and a ten per cent discount showing that members wanted a sponsored by Hays accounting, sponsored by relevant in the evolving marketplace. university’s first collaboration with a on the masters in health sciences. functional and flexible CPD tool. Time and tide: a chart of Accountancy & Finance: EM Finance: The report, “Improving decision professional organisation. Fast-track options are available, Courses are open to all finance Boucher’s epic crossing. n Amba Research Lanka. n Npower. making in organisations”, was The partnership aims to help depending on previous qualifications and business professionals, but 15 hours 28 minutes: n AstraZeneca. n Punch Taverns. developed using information members advance their careers and and experience CIMA members receive a discount. on the beach. n B&Q.

: corbis / photo library provided by member bodies of fulfil their CPD requirements. For admissions advice, contact Each provides unlimited access for 10 hours: current pushes n Barclays. Outstanding contribution CIMA’s Improving Decision Making Programmes will include online Caroline Carfrae at poli-postgrad- three months and a certificate is Boucher past Cap Gris Nez. n British American Tobacco. to business performance, in Organisations Forum. They masters courses in public policy and [email protected]; or, for issued on completion. n Capgemini UK. sponsored by Hewitson include Kimberly-Clark, The Linde management, public administration the health sciences course, contact For further information visit 12 hours: tide turns n  back to north east. Ford Motor Company. Walker: to be announced on

photography Group, Rolls-Royce and Tesco. and health sciences. They can be [email protected]. Visit www.cimaonlinecourses.com. n HBOS. the night.

 financial management financial management   Hotels (Group) Jin Jiang International secretary, Shanghai and jointcompany Authorised representative Laurence Yuen financial management financial 1990 to2004.China willbetheworld’s mostpopularholiday recorded acompoundedaverage growth rateof10.4percentfrom arrivals isgrowingThe numberofinternational rapidly–we What are thekeytrends inChina’s hotelindustry? the accountingandfinancedepartment hasabout 950employees. rooms (53,552)lastyear. We haveaworkforce of about 18,000and hotel companiesintheworld,wehad17th-largestnumber of According to How bigisyourorganisation? store watchbrands. forinternational to renovate thePeacePalaceHotelasanartscentre andflagship building, thePeaceHotel,andwithSwatchGroup (HongKong) agreements withFairmonttoco-manageitslandmarkheritage Other projects thatI’verecently beeninvolvedinincludesigning reorganisations, non-competitionagreements andduediligence. auditors. Itgivesmethechancetoparticipateinprocesses such as professionals, suchasourcomplianceadviser, lawyersand investor relations. and interimreports andaccounts.I’m alsopartlyresponsible for corporate notificationsandoverseethecompilationofourannual the listedsubsidiaryhavetobepublishedinHongKong.Ieditall stock exchange.Allnotices,results announcementsandcirculars of jurisdictions with asubsidiarylistedseparatelyontheShanghai responsibilities, becausewehaveapresence indifferent recognised forthesepurposes. appointee mustobtaintheappropriate professional memberships reporting procedures, controls internal andcompliance.The a memberoftheseniormanagementteamtooverseefinancial issuer toappointacompanysecretary andqualifiedaccountantas distinct from thatoftherest ofChina.Itslistingrulesrequire the operates underwhat’s knownasthecommon-lawsystem,whichis Administration CommissionoftheStateCouncil.HongKong by theShanghaistate-ownedAssetsSupervisionand principal shareholderwhichiscontrolled isJinJiangInternational, mainland companyontheHongKongstockexchange.The when itwaspreparing foranH-share listing–ie,theflotationofa Hotels(Group)I joinedShanghaiJinJiangInternational lastyear agenda atthemoment? What doesyourjobinvolveandwhat’s atthetopofyour

Much ofmytimeistakenupwithourmanycompliance My role isfairlyautonomousandIco-operatewithexternal Hotels magazine’s latestrankingofthe300biggest FCMA

Photographs: Kevin Lee “ of 8.6 per cent a market share Organisation, with to the World Tourism 2020, according holiday destinationby world’s most popular China willbethe “ financial management financial >

 One2ONE China’s new business “ accounting standards are being implemented this year

destination by 2020, according to the World Why did you study for the CIMA specific plans to undertake further studies. Tourism Organisation, becoming the largest qualification and how has it helped you I was recently invited to be an editorial board single destination with a market share of in your career? member of the Shanghai Academy of Social 8.6 per cent. In addition, our National Tourism I decided 20 years ago to take CIMA Science. I now plan to spend some time Administration reported that the income of because it was so focused on business. communicating through published articles “both star-rated and budget hotels increased My big personal interest is economics, but I instead of private research. at a faster rate than the economy from 2000 realise that market, demand and supply are to 2004. abstract concepts. The substance relies on Next year Beijing will be hosting the industries and individual companies. In Olympic Games and in 2010 there’s the particular, CIMA membership helps you to Quick CV World Expo in Shanghai. I see the World deal with the practical issues facing these Expo as a big national event. It will certainly enterprises, which are the organs of the attract many visitors to the Yangtze delta economy. The institute’s qualification is 1991-98 region. In 1970 the Osaka World Expo regarded as world class and a passport to Having qualified with both CIMA attracted 64 million visitors. China has a exemptions for many overseas examining and the Institute of Chartered population of 1.3 billion – almost ten times accountancy bodies. Secretaries and Administrators, that of Japan – so, if only five per cent of our Qualifying with CIMA also helped me to Yuen joins the corporate office of population were to come, that would still start my career in a managerial role. It Shangri-La Hotels as a financial mean 65 million visitors. shortened the time it took me to learn how analyst. He gains an MBA with to operate in management and allowed me to Brunel University and moves to the What are the unique challenges of being develop experience in corporate planning, Island Shangri-La in Hong Kong as a CIMA member in China? control and capital maintenance in order to assistant financial controller. Regulatory compliance, taxation and further my career. language are the main issues here. CIMA exams operate under the common-law 1998-2001 What changes do you hope to see in The company transfers him to the system and western countries allow China and your industry over the next five Liaoning province of mainland China organisations a certain degree of self- to ten years? as a financial controller in Shenyang. determination over how they run their According to the 2006 world politics and The municipal government honours businesses. But there are many delegated security report published by the China him with a “rose award” for his legislations and administrative codes in China Academy of Social Science, the top five services to the local economy. that don’t apply to the wider market. It’s not nations in terms of national power are the surprising, therefore, that most professional US, the UK, Russia, France and Germany. firms have to run in-house research China is sixth on the list. With our consistent 2001-06 departments to ensure that policies and annual economic growth of between eight The Marriott Company recruits him directives are available for their clients. and 11 per cent since 2001, compared with as director of finance for two of its For example, loans and advances can a world average growth rate of 3.6 to five per managed properties in Shanghai. He be effected only through financial institutions cent over the same period, we should move takes a research degree in industrial in China, so our group has an authorised up the list within a decade – as long as the economics at Fudan University. finance company playing a treasury role to current peace and economic development cater for the funds requirements among continues. If so, Chinese consumers will group companies. definitely demand more and more 2006- China’s new business accounting opportunities for leisure, business and Joins the Shanghai Jin Jiang standards, which aim to introduce personal travel, and holiday facilities. International Hotels (Group) as the convergence with international accounting company’s qualified accountant, standards, are being implemented this year. What was the subject of your doctoral authorised representative and joint They are known as 1+38 (one basic standard thesis and do you have plans for further company secretary for listing rules plus 38 specific standards). research projects? compliance. He is responsible for And language also remains a big barrier My PhD focused on China’s national compliance with accounting, finance to overseas CIMA members, of course, economies and policies. I have spent too and listing regulations. In early 2007 because almost all government documents many sleepless nights preparing articles for he gains his PhD in economics. are published exclusively in Chinese. academic journals, so I don’t have any

10 financial management >opinion Director debit Northern Rock’s board has been portrayed as the villain of the piece, but it’s unfair to blame it for everything and accuse it of immorality, writes Ruth Prickett. If anything, it was guilty of underestimating the media’s ability to whip up a panic.

I may be alone here, but I found myself Politicians were no better, criticising the questions to be asked about the criteria on feeling sorry for Adam Applegarth, CEO of “fat cats” who’d jeopardised the life savings which banks base lending decisions. Some of Northern Rock, as he repeatedly told reporters of hard-working voters. Some even compared these have already proved flawed, with dire that the bank’s customers wouldn’t lose any the non-collapse of Northern Rock to the results for debtors. There are also questions money. Why were people so willing to equate demise of the Farepak Christmas savings about Northern Rock’s dependence on Northern Rock’s acceptance of a Bank of club. The people who probably had most to continual growth to service its current liabilities. England (BoE) loan to imminent penury? complain about were the shareholders, but But mixing legitimate business concerns The British may be renowned for their love few politicians had much to say about them. with moralistic judgments about increasing of queuing, but it would take a lot to make Vince Cable, shadow chancellor for the personal debt is unhelpful. Rising levels of debt me stand in line overnight for anything. Those Liberal Democrats, was quick to see a moral are not intrinsically bad. They are what you’d queuing eventually got what they wanted, dimension. The bank’s “near-collapse” was, expect in an increasingly wealthy society. withdrawing sums running into hundreds of he said, a product of “greed and reckless Nor are they necessarily risky. And borrowers thousands. I’d have expected more faith in gambling by overpaid executives, lax, aren’t victims: while banks may have been the UK’s financial system. Surely, the fact that indulgent bank regulation and a complacent too willing to let people go deep into debt, the BoE deemed Northern Rock worthy of government. What will be done about those borrowers must accept their responsibilities. the loan should have suggested that their irresponsible managers who led Northern Tragic stories of individuals who took out loans savings were safer than they’d been on the Rock into its current problems?” Cable never for good reasons and then suffered a series of day before the deal was agreed? went as far as saying that the managers had unforeseen financial blows should not obscure There has been much debate on whether acted illegally, but his hint that heads should the fact that many people get into trouble the crisis was caused by the way in which roll indicated a moral judgment. Somehow, because they consistently overspend on trivial Northern Rock broke the news. Maybe it he implied, they had acted immorally, growing items. It’s harsh to call banks immoral for could have done it better. Maybe the queuers rich by making others poor. This is nothing getting rich by lending to people with more all had a good understanding of its exposure new. As H L Mencken said: “The theory seems designer clothes than their salaries permit. In to the US sub‑prime mortgage market and to be that as long as a man is a failure he is such cases the seven deadly sins seem evenly had made more accurate calculations about one of God’s children, but that as soon as he distributed. It just seems hard to kick someone the bank’s solvency than the BoE had done. succeeds he is taken over by the Devil.” when they’re down – unless they’re a banker. Maybe they had nothing better to do in the The banks do not seem to have learned The Northern Rock affair has raised many early hours of a September morning. much from history, either. In 1929 Bernard issues that should concern us and only one But I can’t help feeling that the media did Baruch explained his reasons for getting out of these involves the international financial them no favours. Within a few hours of the of Wall Street before the crash: “When markets. If they learn nothing more from it, announcement that accounts were being beggars and shoeshine boys, barbers and business leaders should take note that in any closed, the BBC’s web site ran a poll asking: beauticians can tell you how to get rich, it is media pantomime the customer is the “Northern Rock – are you worried?” If people time to remind yourself that there is no more princess and the CEO is the wicked weren’t worried before they read that, they dangerous illusion than the belief that one stepmother. And in any political morality tale would have been afterwards. Item after item can get something for nothing.” the voter is the virtuous widow and the banker on the radio and TV featured queueing The problem nearly 90 years later seems is, of course, the grasping money-lender. customers telling reporters how dire the to be that lenders have encouraged would-be situation was and that “‘they’ ought to do homeowners to believe that property can be something about it”. Most of them admitted had for next to nothing. There are clearly they were withdrawing their money because everyone else was. It was a classic panic – no different from people hoarding sugar because someone had said

P hotograph : G ett y images that there might be a shortage. >ethics Going downhill fast Danielle Cohen shares the true story of a CIMA member who contacted the institute’s ethics helpline for advice. His problem stemmed from allowing what seemed, on the face of it, a minor issue to snowball into a job-threatening situation.

Andrew was the management accountant level. He arranged a meeting through a of a small firm that was part of a plc. His trusted colleague in order to minimise the boss, Chris, was the firm’s CEO. Several chances of discovery by Chris. months ago Chris had approached him with We suggested that Andrew should speak a query about the month-end figures that to the institute’s legal advice line for expert Andrew had produced, saying that they must guidance on his legal obligations and be wrong. At the time there was a certain employment rights, and also to the whistle- amount of confusion, because their firm had blowing advice line for free, confidential, just taken over another small company, so independent advice on raising his concerns. Andrew adjusted them as instructed. Andrew spoke to the financial controller Next month Chris questioned the numbers and Chris was eventually forced to resign. again, and Andrew duly changed them But Andrew’s ongoing compliance with his once more. This happened at several more boss’s wishes was enough to have tarnished month-ends until he began to suspect that his reputation. A few months later he Chris’s reasons for changing the numbers resigned of his own accord. might not be valid – and that the business Andrew’s case is a reminder of how crucial was simply not performing. He raised the it is to use your professional judgment, heed issue with his boss, who assured him that he the warning signs and establish the facts at would sort everything out. Relieved that Chris the first sign of an ethical dilemma. Armed had recognised that the matter needed to be with these and CIMA’s code of ethics, you dealt with, Andrew dropped it. the possible repercussions of doing this, can decide whether or not you need to act At the end of the firm’s financial year, Chris particularly because Chris was well respected and, if so, what that action should be. announced that he had, as promised, found in the group, and he was worried that his So how exactly do you know when an a solution to the problem of the ongoing version of events would not be believed. ethical dilemma is an ethical dilemma? adjustments. Unfortunately, this was very The lack of an internal grievance or whistle- As Oscar Wilde observed: “Morality, like art, different from what Andrew was expecting. blowing procedure made it hard for him to means drawing a line someplace.” When the Chris proposed that he own up to the predict how his case would be handled. amount of money is not material, the report is discrepancies, admit that they were the result Given all these factors, Andrew questioned only for internal purposes or when no one of a simple error and then resign to prevent whether quitting was an acceptable solution. else seems to think there’s an issue, how can any further questions from being asked. In A good reference had been promised, but you be sure where that line is? return for carrying the can, Andrew would was this pledge worth anything coming from Taking time to consider the situation receive a glowing reference – on the Chris? And how would he explain to any from all angles will help you to know for sure. understanding, of course, that he kept quiet future employer why he had left? And what In the code of ethics, the line is where a about the whole affair. would happen if a colleague were to threat to our fundamental principles is Shocked and unsure about what to do, complain to CIMA about his lack of anything more than trivial. Although the Andrew contacted CIMA’s ethics helpline. competence? If this were to happen, he changes that Andrew made to the numbers He had gone from accepting a small month- could potentially lose his membership. Even in that first month might not have been end adjustment to his figures to finding worse, lying to accept responsibility that material, the pattern that they established himself about to lose a job. Our guidance to wasn’t his would be another breach of CIMA’s was. If he had stood up to Chris the first time Andrew was that he should consider taking code of ethics. If discovered, this would also he was asked to adjust the figures, the the problem to more senior people in the have consequences for his membership. situation might never have developed. group, since raising it with Chris wasn’t an After further discussion, Andrew identified option. Andrew had some concerns about a potential ally (a financial controller) at group Danielle Cohen is CIMA’s ethics manager.

Further information CIMA’s code of ethics can be viewed at www.cimaglobal.com/codeofethics. For details about the institute’s full ethics support package, visit www.cimaglobal.com/helplines. p hotogra h : GETTY I mages

14 financial management Shipping forecast As East Asian factories multiply and more ports worldwide reach capacity, Charles Orton-Jones spots a storm brewing. How will your business I can see fare if it has to wait for its ship to come in? a crisis

World leaders don’t seem to be worried. The BBC is unperturbed. with a potentially As for Joe Punter, reading the Daily Sport on the Clapham Omnibus or the Lanka Sun on the Colombo commute, everything is tickety-boo. devastating But Andrew Linington, editor of the seafarer’s journal Nautilus, has words impact for to shiver the timbers of complacent landlubbers. “I can see a crisis with a potentially devastating impact for everyone,” everyone. It could he says. “It could start with a slight disruption but become a major global problem. In a worst-case scenario we are talking about a complete start with a slight meltdown.” And the timescale? “Soon: three to four years.” Linington is talking about an impending disaster in world shipping. disruption but Demand is rocketing and we are inches from full capacity. The global supply chain is already showing the strain. In the world’s busiest coal port, become a major Newcastle, New South Wales, 60 ships are queuing to load up. Some have been waiting for four weeks. In Long Beach, Los Angeles, capacity global problem has hit 100 per cent. Ships remain at anchor outside the harbour, awaiting the call to dock. British ports are at crisis point, too. All it would take is a small spike in demand – just the sort that you see at Christmas – and they’d be overwhelmed. In one category, shipping has already hit crisis point. Dry bulk is defined as cargo that can’t be containerised and isn’t a liquid: predominantly iron ore, coal and steel. The Baltic Dry Index (see panel, page 18) is a measure of the cost of shipping these materials. Unlike the FTSE or Nasdaq it is not affected by market sentiment, reflecting only the price of transporting cargo by ship. Since 2000 it has risen fivefold – up 40 per cent this year alone. “This is what happens when demand rises faster than supply. Suddenly the industry can’t cope” says Linington, who warns that other categories of cargo may follow. “Worldwide shipping capacity is running at 90 to 95 per cent. There are forecasts that capacity won’t be able to

16 financial management financial management 17 Big berther: the Emma Maersk

Launched in August 2006, Emma Maersk is the world’s largest container vessel. She is 50m longer than the USS Enterprise, America’s largest aircraft carrier, and only a fraction shorter than Exxon’s two longest oil tankers. Capable of handling twice the amount of cargo of a standard Panamax vessel (see panel, page 22), Emma Maersk has the world’s largest diesel engine and reaches a top speed of 29 knots. She is so wide that many ports have needed to reprogramme their computerised cargo- handling equipment to unload her. Despite her size, she has a core crew of only 13. They enjoy an IT café for using the internet and playing computer games, a library, an extensive collection of DVDs, a gym and even a small swimming pool. Freight’s rates: the Baltic Dry Index Emma Maersk is owned by the world’s largest shipping firm, AP Moller-Maersk. Economists often refer to the Baltic Dry Index (BDI) as their best-kept trade secret. Her regular route is between Rotterdam The index is provided by the Baltic Exchange, a 250-year-old company based in the and Ningbo in China, via Xiamen, Hong City of London, which supplies shipping data to the world’s shipbrokers. Kong, Yantian, Tanjung Pelepas in Malaysia The BDI is regarded as a guide to current levels of global economic activity. It reveals and Algeciras in Spain. Nicknamed the SS the price of moving important raw materials such as coal, iron ore and grain by sea. Santa last year, her pre-Christmas voyage Taking in 40 shipping routes, the index is a composite of the Baltic Handymax, Panamax brought a significant percentage of all the and Capesize indexes, which measure the cost of shipping goods using vessels of toys imported from China to the UK just in various sizes. These indexes are calculated using professional assessments made by a time for the Yuletide rush. panel of international shipbroking companies. Other indexes supplied by the Baltic Exchange include the Baltic Dirty Tanker Index and the Baltic Clean Tanker Index (“dirty” tankers carry crude oil and fuels that leave a handle demand. When there is no slack in the the reason that dry bulk shipping costs have at shipping consultancy Drewry. “It can take 29 tonne anchor and a fuel tank big enough residue, whereas “clean” tankers contain diesel, gasoline and jet fuel). But the BDI is the system, you get gridlock.” spiralled. And the country’s prodigious three years to get approval for an to take it around the world without a refill, the one valued by economists and central bankers as the surest guide to world trade activity. He’s not scaremongering. The Bain manufacturing industry is likely to have the infrastructure expansion project. Then it takes 400m-long Emma Maersk can carry 11,400 Consulting Group published a report in May same effect on container shipping. China 18 months to build.” TEU (see panel, above). 8,000 detailing the choking of world ports and recently overtook the US to become the Shipbuilding is an equally time-consuming Should the ship ever sink, its insurers BDI 7,000 lamenting that “few executives at retail or world’s number-one exporter of process. The dockyards of South Korea, would have to pay out £1.5bn. As the world’s durable-goods companies understand the manufactured goods. Its neighbours are Japan and China are full and the number of largest container vessel, this leviathan is 6,000 magnitude of the challenge being forced on contributing to the problem. Vietnam’s orders has tripled in three years. shipping’s closest thing to a celebrity, them”. It warned of a “riptide effect” that economy has been posting seven per cent “If you want to order a ship of any type, attracting crowds wherever she berths. Yet 5,000 would turn outsourced operations in China growth since 2000, while Malaysia, Thailand the earliest you’ll see the finished product is AP Moller-Maersk’s shipyard in Odense- into a “strategic trap”. The situation was and Indonesia are close behind. The effect of 2010,” says Peter Norfolk, research director Lindo, Denmark, is building eight larger ones. 4,000 becoming so bad, it said, that companies this boom has been to increase demand for at Simpson, Spence & Young shipbrokers. The trouble is that, even when these are 3,000 should consider shifting their East Asian shipping as much as 20 per cent a quarter. “Even with this high level of construction, all afloat, the industry still won’t be able to cope operations back closer to home. This is a serious problem when the supply the new ships won’t be enough to bring the with demand. And, although they may 2,000 China is at the heart of this story. In 2000 takes years to catch up. cost of shipping down.” alleviate some of the pressure, other factors its ports handled 1.4bn tonnes of cargo. Port construction is normally a slow Given the size of the vessels under will hamper progress. 1,000 Last year they handled 5.6bn tonnes and the process and planning delays often hold up construction, this is surprising. Container A shortage of crews is one such problem. figure will rise by about 20 per cent this year. crucial developments. “The lead time for ships used to be limited to a capacity of “There is a crisis of personnel,” Linington 0 January 2002 May 2003 January 2004 March 2006 August 2007 China’s insatiable appetite for raw materials expanding capacity is getting longer and 5,200 containers, known in the trade as 20ft says. “A study in 2005 suggested that the such as iron ore, coal, oil, asphalt and tin is longer,” says Neil Davidson, research director equivalent units (TEU). Not any more: with a industry was short of 10,000 officers. A

18 financial management financial management 19 Case study

EAST ASIA’s BIG THREE

Hong Kong hopes to increase total recent study indicated that the problem could container traffic to 40.2m TEU by 2020 be between twice and five times worse.” and has planned a number of schemes to Pay for crews is rocketing as a result. achieve this growth, including: increasing Employers are renegotiating contracts every the efficiency of boundary crossings; six months, but new recruits still aren’t improving turnaround of empty containers; coming though. “It’s not attractive to go to reviewing licences and fees; improving sea,” says Ted Sangster, chairman of the barge services; improving its electronic British Ports Association. “We have a culture document system; enhancing its transport of blaming seamen when something goes infrastructure; and expanding the port wrong. The issue of criminalising seafarers is while minimising its environmental impact. damaging the supply of crews.” Dubai Port World Other factors don’t help. “Silly things, such (www.dpworld.com) Singapore as being unable to go ashore when in dock, Shanghai (www.mpa.gov.sg) are putting people off,” he says. “The US has Everything in Dubai seems the largest, tallest Moore believes that such growth is vital. will be watching where their key exporters (www.portshanghai.com) n 24.8m TEU in 2006. rules to stop crews disembarking for reasons or most impressive in one way or another. About half the global volume of containers choose to manufacture. They are also trying n 21.7m TEU in 2006 (a 20 per cent n 449m tonnes of cargo in 2006 of national security.” Competition for superlatives is so fierce that comes from Asia and it’s increasing fast. But to see whether changes in international increase on 2005). n 140,000 ships visit the port every year, For businesses the lack of capacity means the city won’t even reveal the planned height it takes about 11 years for a container port politics, such as an improvement in Iraq’s n 537m tonnes of cargo in 2006. with 1,000 berthed at any one time. delays, extra costs and, potentially, a global of the skyscraper it’s intending to be the project to get started in the west. “A tsunami situation, will create new opportunities. n 55,000 ships, including 23,000 Singapore is at the crossroads of some of economic slowdown. Embarrassingly, UK tallest in the world, just in case another city in terminal-handling is coming and we need “It takes a long time to develop a container ships, berthed in 2006. the world’s major trade routes. The ports could be the worst part of the problem. decides to pip it to the post. So it’s not to cope with this,” he warns. “For 15 to 20 terminal, so timing is important,” she says. Shanghai claimed to have overtaken maritime industry contributes about seven “Our big ports realised a few years back surprising that its Jebel Ali port is the largest years there has been spare capacity in the “You need to be there at the start, but it’s Singapore to become the world’s largest per cent of Singapore’s GDP and employs that they would need to expand,” Davidson container terminal between Rotterdam European and US ports. Not any more.” much harder to expand capacity when cargo port in 2005 when it handled 443m 100,000 people. It offers easy access to says. The government also knew it, but didn’t and Singapore. This is why Moore is keen for DP you’re working with existing facilities than it tonnes of cargo, according to the more than 67 cities and a regional market help. “The ports are on their own,” he says. Jebel Ali has been voted “best Dubai Ports World, which is the world’s is to develop in new markets. It’s a very Shanghai Port Management Department. of 2.8bn people within seven hours’ flight. “Felixstowe has had to pay to upgrade its rail seaport in the Middle East” for Authority fourth-largest port operator, to long-term investment.” Ruth Prickett It doubled its cargo-handling capacity from Singapore has double tax agreements link up to 100 miles away. It funds roadworks, 13 consecutive years in the Dubai Ports was the grow faster than its main 200m tonnes to 400m tonnes in five years, with more than 45 countries, bilateral too. The port authorities have had to levy a Asia freight and supply chain world’s eighth-largest rivals. “The big four will DP World’s big deals but it still trails Singapore and Hong Kong shipping deals with China, Germany, India, charge on port users to cover the investment.” awards, and has also been container terminal in 2006. outpace the growth of the February 2006: The company acquired P&O in the container-handling stakes. Myanmar, South Korea and Vietnam, plus Southampton is also struggling. As one of named “the Lloyd’s List port rest and it will be increasingly for £3.3bn to gain a foothold in North Containers handled in The first phase of its new deep-water free-trade accords with Australia, the only three UK ports capable of handling operator of the year” in the hard to be a smaller player. America and complete its global chain. That 2006: 8.92m TEU. terminal at Yangshan Isles went operational European Free Trade Association, Japan, deep-water container ships, it had an Middle East logistics awards. One reason why we bought move gave the combined group a capacity of in December 2005. This development is Jordan, New Zealand and the US. It offers ambitious plan to create a new super-terminal This is even more impressive Forecast capacity by P&O was that it was the only 50m TEU across 51 terminals, including six in ongoing and is intended to have an annual an established shipbuilding industry and at nearby Dibden Bay. The facility would have given that, like most of the rest 2030: 55m TEU. one on the market,” he says. the US. But it later had to sell the US ports handling capacity of 25m TEU by 2020. The vessels can call at either the oil terminals been one-third of the size of Heathrow airport of Dubai, it’s still under construction. But it hasn’t all been plain after a political outcry about the security risks Gudrun Maersk was able to dock there for run by oil companies or at those run by and cost £600m. But it won’t be built Owned by the city’s government, sailing. “We had a presence in created by non-US ownership. the first time in April 2007. The 367m ship is PSA Singapore and Jurong Port. It has because of environmental concerns. Dubai Ports comprises the Dubai Ports the US until March last year when DP World May 2007: DP World gained the largest ever to visit Shanghai and is developed a petrochemical complex on “The government needs to assess its Authority and Dubai Ports World (DP World). we had a bit of a problem and permission to turn 600 hectares 42 terminals scheduled to stop there every two months. Jurong Island in a bid to become the Asia- priorities,” Sangster warns. “If our ports can’t It is part of one of the world’s largest had to sell,” says Sarah of land into the London owned worldwide. Pacific region’s hub for this industry. By meet demand, the effects will hurt the entire conglomerate holding companies. Lockie, vice-president of Gateway development. It Hong Kong 2010 it predicts that this will accommodate economy. When there is uncertainty, retailers “The Dubai national bird used to be the corporate communications. New developments: plans to invest £1.5bn over (www.pdc.gov.hk/eng/home) five refining plants and 150 companies. increase inventory to avoid shortfalls, which falcon; now it’s the crane,” jokes Michael “We won’t have a presence 13 in 27 countries. ten to 15 years to create a n 23.5m TEU in 2006. With more than 12,000 oil tankers and reduces profitability. The rest of the country Moore, head of commercial for DP World. there again for about two or Combined throughput in deep-water port capable of n 80 international shipping lines. 3,000 chemical tankers docking every will notice quickly when the ports experience The whole of the city is shifting sideways on three years at least.” 2006: 42m TEU. taking the largest ships n 500 container services a week. year, safety and security is a big issue. capacity problems.” to a colossal new site. New hotel complexes This problem occurred Forecast capacity by alongside one of Europe’s n 231,000 ships (including both ocean Singapore was the first Asian country to The man who vetoed the expansion was in the shape of palms have hit the headlines, when a political storm broke 2017: 90m TEU. largest logistics and business and river vessels for cargo and sign up to the US container security the then deputy prime minister, John but these are only part of the plan. A high- out in the US about security parks. The facility should be passengers) visit the port each year. initiative. It also adopted the international Prescott. “Politicians simply don’t understand security road will lead from the seaport to the issues following DP World’s operational from 2010. Known as the fragrant harbour, Hong Kong ship and port facility security code, which the industry,” Sangster complains. “We could vast new airport so that goods can pass acquisition of P&O, which brought with it six October 2007: DP World’s most recent deal has been a container port for more than took effect in 2004. PSA Singapore be in the daft position of having to knock through for re-exporting without further US ports. The case highlighted two types of secured the right to develop Senegal’s busiest 30 years. It is one of the few big Terminals, which operates four container down houses that have been built too close checks. The Jebel Ali free zone allows firms threats to port operators: security concerns international container port. It will take over the international ports where the facilities are terminals and two multi-purpose terminals to ports when it becomes clear that the to operate warehouses close to both and vulnerability to international politics. Dakar terminal later this year and plans to financed, owned and operated by the in Singapore, handles a fifth of the world’s nation needs more capacity.” transport hubs. And Dubai Ports Authority is Other obvious risks include the weather and double its capacity to 550,000 TEU. The next private sector, although the government is total container transhipment throughput: If British ports can’t expand fast enough, also building massive facilities at its other exposure to global recession. phase of the £34m project will involve responsible for long-term development 23.98m TEU in 2006. The PSA group as a the UK may be relegated to the status of a terminals around the world, from a 3m TEU The opportunities of the future will follow designing and building a new terminal with a plans and supporting infrastructure. whole operates 25 ports in 14 countries. secondary shipping destination. This means facility in India to others in Australia, China, the largest manufacturers, such as Nike and potential capacity of 1.75m TEU, which is big ships will dock in Rotterdam and leave Turkey, Thailand, the UK and elsewhere. Wal-Mart, Lockie explains, so port authorities expected to be operational by 2011.

20 financial management financial management 21 Lobby Correspondence The investment community’s appetite for non-financial information has never been so voracious. In order to assure itself that companies’ actions match their CSR rhetoric, it now wants them to report on what they are doing to persuade legislators to act in their interests. Scott Payton explains the implications of this trend.

Investor relations used to be simple: CSR reports. This interest has arisen for two about a company’s lobbying activities is a couple of times a year, companies would reasons. First, it’s a symptom of the a natural extension of this hunger for non- update fund managers and analysts on how investment community’s increased vigilance financial information. much money they had made and how much after Enron and the scandals that followed. “Also, you’ve got an increase in the they expected to make in the near future. These made fund managers, analysts and number of vocal stakeholder networks Then, at the start of this decade, investors the financial regulators realise that they could pushing for greater transparency in reporting began demanding more information, more not take it for granted that a particular – shareholder activist groups, consumer frequently and in more detail. Corporate company would be run in either a well- groups and others,” says Julia Harrison, governance and corporate social structured or ethical way. And, as one analyst co‑author of “Coming in from the cold” and responsibility (CSR) became normal agenda says: “Soft non-financial issues have a nasty managing partner of Blueprint Partners, a items in shareholder meetings. And now habit of becoming hard financial issues.” Brussels-based public affairs consultancy. another subject is becoming a regular topic As CSR climbed the sociopolitical agenda, The second reason why corporate for discussion: corporate lobbying. particularly in the US and northern Europe, lobbying has become a hot topic is the According to a new research report, companies came under growing pressure to increase in the scale and sophistication of the “Coming in from the cold: public affairs and report more non-financial information than practice itself. In Europe, the rise of lobbying corporate responsibility”, investors are just their corporate governance policies – is a response to an increase in EU legislation becoming particularly interested in how for example, how they were treating their affecting business, according to Harrison. closely companies’ lobbying actions are suppliers or what their recycling practices “Public affairs activity has grown over the

aligned with what they are claiming in their were. The increased demand for details past 20 years or so in the UK, but it has ph o t og raph : Gett y i m a g es

24 financial management financial management 25 Record companies lobbied against the

now also taken off much more widely across “It would be remiss of companies not to company does not conflict with the interests growth of online music distribution, Europe,” she says. lobby on certain occasions if they think their of other firms in their portfolios. Seb Beloe, Commercial areas affected by new and interests are being damaged by a particular head of research and advocacy at which – as later developments such as the proposed EU regulations include mergers, policy,” says David Russell, joint head of SustainAbility, a CSR consultancy that also acquisitions and sector-specific topics such responsible investment at the Universities worked on the “Coming in from the cold” success of the iTunes Store proved – they’d as mobile phone call charges and the Superannuation Scheme, the second-largest report, says that resolving this tension licensing of chemicals. “For investors, it’s pension fund in the UK. between the lobbying interests of one have been better off embracing at the start important to know whether companies have Some investors also want assurances that company and the interests of a portfolio as a these issues under control. Otherwise, their an organisation’s lobbying activities protect whole is an ongoing challenge for all the big business model could be affected severely,” the interests of its industry as a whole. “It’s pension funds. “It’s an issue that came up and Honda – leaving the likes of Ford and transparent,” he says. “Your position precious time. EU citizens will have to wait Harrison says. impossible to have a sustainable business in during our research for the report and General Motors to play catch-up. becomes much more powerful if you are able several more years before they get effective When they evaluate a company’s an unsustainable market, so we need policies something that they are thinking about more He adds that US electricity suppliers also to build coalitions with other organisations.” lobbying transparency,” the alliance corporate lobbying activities, investors are that enable sustainable markets. Investors and more,” he says. did themselves no favours by lobbying But Beloe concedes that more covert complained when the plan was announced. looking for three things. First, they want to need to know which companies are working The investment community may want against a law to encourage alternative operations do take place on both sides of the While the debate about the impact of know that the firm is campaigning in a way for that policy change and which ones are more information about firms’ lobbying methods of energy generation. If such Atlantic. “There has, in my view, been a lot of corporate lobbying on the democratic that protects its long-term interests. hindering it,” says Oliver Greenfield, head of activities, but how can these operations, or legislation had been successful, electricity quite shady practices among the lobbying process continues, much public affairs sustainable business at the World Wide Fund their results, be measured in a meaningful firms would have then been better placed to community in the US and also in Europe. I activity is moving in what environmental for Nature, the world’s biggest conservation way? Russell points out that certain actions, cope with rising oil and gas prices. Similarly, used to work in a lobbying agency in campaigners at least would see as a more Reporting on organisation and joint publisher of “Coming in such as donations to political parties, record companies lobbied against the growth Brussels, so I’ve seen some of this in action.” morally sound direction. As Russell points from the cold”. campaign groups or trade associations, are of online music distribution, which – as later The key to keeping it wholesome is out, in the US and Europe many companies corporate lobbying: Second, investors need to be confident easy to quantify. Indeed, UK companies are developments such as the success of Apple’s ensuring that all lobby groups operate on a are no longer using their clout to shirk tighter the top four that a company’s public affairs activities obliged to give shareholders the chance to iTunes Store proved – they’d have been level playing field, according to Harrison. environmental regulations. Instead they are (and the those of any trade associations that vote on all donations to political better off embracing at the start. “This will maximise transparency because pushing for limits on carbon emissions. Last year corporate responsibility it belongs to) are consistent with its organisations. When it comes to reporting the Could corporate lobbying have similarly everyone is obliged to behave in the same “There is a general recognition that climate consultancy SustainAbility, along with communications activities. Russell cites a more intangible aspects of corporate counterproductive effects on businesses in way,” she says. change is the world’s worst market failure,” Standard & Poor’s and the United case in which a company was inconsistent in lobbying, the key is to explain to investors the EU? Russell argues that lobbying in For its part, the European Commission is says Oliver Greenfield. “From an investment Nations environment programme, ranked this respect. “A few years ago, BP indicated why you are doing it, according to Beloe. Europe differs greatly from how it’s done in trying to achieve just that through the perspective, we need to ensure that markets 50 global companies’ reporting on their that it wouldn’t lobby for access to protected “Explain how lobbying ties in with your other the US, because the region’s democratic so‑called European transparency initiative. are sustainable. Otherwise, they risk losing lobbying activities. areas such as Alaska’s Arctic national wildlife business goals. Paint a coherent picture of structures and processes are different. In March it set up a public register of all value. We believe that the companies that are The rankings were based on the refuge for oil. But the company was actually how these things connect,” he says. He points out that companies are perfectly “interest representatives” working to influence actively shaping a new sustainable market extent of lobbying and public affairs funding a lobbying group that was asking for Corporate lobbying is most established entitled to fight their corner with decisions made in EU institutions. But the will be better placed to operate within it and content in the companies’ printed CSR just that. BP resolved the issue by pulling its and widespread in the US, where the practice governments and regulators. “They have a register is voluntary, which isn’t good enough, will, therefore, be more profitable. It’s not and sustainability reports and on their funding from the lobby group,” he says. is not without its critics. For example, right to lobby in their interests, as long as according to groups such as the Alliance for about protectionism; it’s about survival.” web sites. The researchers found that, “Inconsistency creates a reputational risk that Michael Massing, a regular contributor to they are open about it and not saying one Lobbying Transparency and Ethics in general, reporting on public affairs can, if exposed, damage shareholder value.” The New York Review of Books, argues that thing to shareholders and a different thing to Regulation, which are critical of the influence Scott Payton was launch editor of Real IR, activity was a “minority pursuit”, although So what should a company do if a trade lobbying by the US automotive industry over policy-makers,” he says. of corporate lobbyists in the EU. the European investor relations magazine. the practice was slowly becoming more association that it belongs to adopts a policy the past two decades has not only damaged Harrison, meanwhile, argues that “By first trying out a voluntary lobbying He is now a freelance business journalist widespread. The top four reporters, in that’s at odds with its own stance? “It’s the environment; it has also damaged the corporate lobbying does not deserve its register, the European Commission is wasting and editor. alphabetical order, were: beholden on the corporate member to stand industry itself. As he pointed out in the cloak-and-dagger reputation. “There’s a n British American Tobacco. up and say: ‘No, we don’t agree with that,’” Financial Times earlier this year, congressional misconception that it’s all secretive, doing n BT. Russell says. proposals to raise fuel-efficiency standards deals behind the scenes. It really doesn’t n Co-operative Financial Services. The third thing that investors want is were successfully opposed by US car makers work like that in Europe,” she says. n migros. to be sure that the campaigning of one in 1990, 1995, 2000 and 2001. As a result, Beloe believes that being open about your The full results can be found in the Massing argues, the US car industry failed to lobbying activities actually increases your report “Coming in from the cold: develop the kind of environmentally friendly chances of a successful result. “In public affairs and corporate vehicles that were produced with great order to be an effective responsibility”, commercial success by Japanese lobbyist, it is produced by Blueprint companies such as Toyota sensible to be Partners, SustainAbility and the World Wide Sipper trumps Fund for Nature. The guzzler: did publication can be US car makers out-brake downloaded from themselves by http://snipurl. lobbying against com/1rpj4. legislation to improve fuel efficiency?

26 financial management financial management 27 Economic boom: widening work has begun on the Panama canal to accommodate the new generation of cargo vessels.

smaller vessels to transport the cargo to the UK. Sangster believes that we won’t end up in this embarrassing position, but there are doubters. “We at Nautilus are pessimistic,” Linington says. “Our ports’ road and rail links need to keep pace, but infrastructure takes such a long time to upgrade. We need more three of its four high-speed ferries. “It takes a investment, as there’s a danger that the UK Why Panama’s speed reduction of only three or four per cent could end up being bypassed.” to reduce capacity enough to affect global It’s not all bad news, though. Milford first cut wasn’t supply chains,” he warns. Haven and Harwich are implementing the deepest Some old vessels are already overdue for expansion plans. And there is an enormous retirement. “Ships that should have gone are development at the new London Gateway Work to expand the Panama canal will still in service,” Linington says. “This tactic by port. Situated in the Thames estuary, the be finished in 2012, removing the world’s ship owners has temporarily masked the terminal will feature two miles of harbour most significant transport bottleneck. severity of the shortage, but eventually these frontage capable of handling 3.5m TEU a Currently, only ships shorter than ships will have to go, reducing capacity.” year. Its rail link is being upgraded and will 291m can pass through, creating the The consequences of a port gridlock are handle 40 cargo trains a day by 2009 when definition of a Panamax vessel. But incalculable. “Coal shortages will send the construction work is finished. almost 40 per cent of container ships are electricity costs up,” Linington predicts. Despite these improvements, with now larger than Panamax, so last “The cost of transporting containerised goods capacity so close to full, it could take only year the Panamanian people voted in a could double, which will lead to inflation. one further problem to cause mayhem. referendum for a colossal widening World trade depends on the sea, but only The US’s new homeland security policy is one project to allow the canal to take ships of occasionally does the wider world notice this potential trigger. “President Bush has just up to 426m in length. dependence. When the Suez canal was signed a bill that requires every container to Overall capacity will double, requiring closed for a few days in 2004, for example, be X-rayed for radioactive material,” the excavation of a new channel, plus it prevented the new PlayStation from Davidson says. “This will cause serious two multi-billion-pound lock complexes. reaching the shops before Christmas, which delays that will get worse as other ports The channels will also be made deeper was disastrous for Sony. If you get logjams introduce security measures.” to allow far heavier vessels than were across the world’s ports, even consumers The cost of fuel, or “bunker”, is another envisaged at the time of the canal’s who don’t care about the sea are going to issue. “When bunker costs go up, the construction a century ago. notice. It will take only the merest disruption industry reacts by slowing ships down or President Martin Torrijos has to kick things off.” even removing them from service,” Davidson calculated that the project will reduce Worried? explains. The ferry industry has already poverty in his country by about a third reacted to high bunker costs. Stena has and generate enough wealth to turn Charles Orton-Jones is former deputy slowed down its fast services at Holyhead Panama into a first-world nation. editor of Real Business and is now a and Harwich by 40 per cent and retired freelance business journalist.

If you get logjams across the world’s ports, even consumers who don’t care about the sea are going to notice

22 financial management >careerdevelopment

Conversion course Natalie Gordon offers her plan for surviving and thriving during an organisational change programme – as both a leader and a follower.

We’ve heard it all before. In the current It’s a tall order, so where do you start? through the politics and bringing the vision to climate of M&A mania, we’re constantly Your first task should be to create a vision for life. Placing a high value on innovation will being told to embrace change. We have to the first 100, 300 or 600 days. This needs to also be vital in creating solutions to be leaner and faster; to create more growth be something that you can articulate in one apparently intractable problems – something and more profit. And we have to impress the sentence, explaining what your organisation that can be done only in a climate of trust, new owners of our organisations with ever will become and by when. And the first collaboration and creativity. As a change more ambitious plans. Does that sound question to ask yourself about the new vision leader, you need to stay focused on what familiar? More and more of us belong to is whether it inspires you or not. If it doesn’t, needs to be done. The ability to see clearly companies that have recently merged or it’s unlikely to inspire anyone else. Once you what must change and in what order is key, been bought by private equity – and that have the right vision, it’s easier to work out as is knowing what can remain the same. means new people with new ideas are at the your journey towards it, planning what the To do this, you need a robust framework in top. Whatever level you are at in your main achievements will be along the way and which to operate, with clear accountabilities, organisation, there are practical things you how you will reach them. goals and review mechanisms. can do to survive the inevitable changes that So now you have a clear vision and you Know what you are asking of your people. are on their way. know how you’re going to try to achieve it, Whatever change theory you subscribe to, If you have just been given the task of but do you and your fellow leaders have the one thing is a given: change is emotional and leading change in your organisation, the ability to lead the transformation? This people will respond to it differently at different chances are that you have a sense of requires a high level of self-awareness, as you stages. From the outset you need to consider trepidation at this stage. This is a healthy will need to face some brutal truths about how people will feel and react. Something sign. If it were an easy job, no one would yourself and your company. For example, that you can certainly influence is how you bother writing about it. As former US how connected are you to your organisation? behave. If you can alter your behaviour president John Adams said: “If your actions This is an important issue, because you will appropriately to the situation and coach inspire others to dream more, learn more, do need to empathise with its members and others to do the same, you will have a better

Ph oto gr ap h: G e tty IMA GE S more and become more, you are a leader.” mobilise them, removing barriers, seeing chance of reaching your desired outcomes.

financial management 29 >careerdevelopment

Ten common pitfalls The first question to to avoid during a ask yourself about the new change programme vision is whether it inspires Not communicating the hard messages – eg, potential job cuts. you. If it doesn’t, it’s 1 People will think that redundancies unlikely to inspire anyone else are coming anyway and blow the issue Natalie Gordon out of proportion. Not ensuring that every member of the leadership team is “on To convince people to change, find like this”), political (“what’s in it for me?”) or 2 message”. Slightest variations in the innovative ways to communicate the urgency rational (“where’s the plan?”) standpoint? information communicated will be picked of the need and alter something small but Do you believe in it, or, more crucially, do you up on and spread around the company. significant that indicates to the entire want to believe in it? If you’re unsure, the Pushing the change down from the organisation how committed you are best place to start is to seek some top, rather than involving people personally. At the same time, information. Talk to your line manager and 3from the bottom up, too. If they expect people to push back – find out when the next communication event aren’t engaged and don’t see any benefits either by blatantly refusing to is scheduled. Sort out the myths from the for them, change is unlikely to happen. co-operate or, perhaps, by facts and avoid Failing to provide space and agreeing to something but “emotional support for people to think through never quite finding the time to vampires” who will 4 the personal implications of follow it through. It could be suck you dry of change. The key to success is useful to identify who really energy by telling you understanding “what’s in it for me”. supports the change and give why this is wrong for Ignoring or fighting “troublemakers”. them a position of influence. you, the organisation and These are often crucial individuals Likewise, by identifying the most business in general. Look to 5 and, if you can win them over by influential resistors, you can find the positives. responding to them effectively, they can out why they’re against the change Get involved. Heard about become your most powerful allies. and work out how to win them over. the work groups springing up Not reviewing your progress Engage your workforce, involving people around the organisation? Find out how you regularly. You will not be able to at every level. As John Kotter, emeritus can participate in them. This change may not 6 correct your course if you plough professor of leadership at Harvard Business be for you, but you won’t be able influence it on regardless. School, argues: “Individuals alone, no matter if you disengage. Typically, any organisation Focusing on the rational at the how competent or charismatic, never have going through a big change will expect to expense of the emotional and all the assets needed to overcome tradition lose some of its workforce because they 7 political – ie, proceeding with no and inertia.” don’t fit with the new vision. Don’t let that be understanding of what people feel. If you You should create your vision with your you just because you haven’t bothered to find do this, the change won’t stick. management team, communicate it to out how to make it work for you. Focusing on the emotional and everyone and then set up small teams Whether you are asked to lead or support political at the expense of the throughout the organisation to work on the process, there comes a point when 8 rational. As with all things in life, specific problem areas. Once you have their delivering change becomes part of there needs to be a balance. initial backing, you can maintain it by ensuring everybody’s day job. To reach that stage with Thinking “it won’t happen to me”. that they have the resources they need and as little pain as possible, you will need to Ignore the change and it won’t that they’re all using the same tools to review work fast, stay focused, be flexible, cope with 9 go away, but you might get their progress and report back to you. Small the demands of ambiguity and take control of sidelined as a result. teams visibly working on change projects will your own destiny. So don’t let change Going along with the most be noticed quickly, which will help to build the happen to you – be the one making it. vocal element. Often, those momentum you need, particularly if you have The people who survive change will be 10 who make an impact through a well-structured internal communications those who embrace it, taking the lead and the change process are not the usual system in place. taking others with them so that the whole (loud) suspects, but those who have If you’re not in a leadership role, you’ll be organisation is moving in the same direction. grown in confidence by using it as an able to see something big coming down the opportunity to progress. line towards you. First, be true to yourself: Natalie Gordon is senior consultant at

are you reacting from an emotional (“I don’t Egremont Group P H OTO GR AP : A lamy

30 financial management >technicalmatters

36 Transforming finance Customer

38 profitability Finance business Liz Murby explains why a strategy of keeping every one of your partnering customers satisfied is unlikely to optimise your bottom-line results.

The goal of business is not to improve should identify the most and least profitable 43 customer or employee satisfaction at any elements of its total customer base (and cost, but rather to manage these those in between), and manage these Performance relationships and the drivers of customer relationships accordingly. Customer measurement profitability to improve corporate profitability analysis (CPA) is the first stage performance. The maximisation of profit in this process. For more articles on management and shareholder return is best achieved Although they are clearly a significant accounting, careers and development, through the effective management of a source of income to companies, customers see www.cimaglobal.com/insight. company’s relationships with each of its are equally the cause of various costs – customers. In order to do this, the company for example, marketing, delivery, after-sales service and payment collection. Where all customers not only buy a similar product but also share the total servicing costs equally, the profitability of each customer (income less Bank of America classified costs of service) is identical. In reality, of course, this is seldom the case. Companies its customers as either generally offer a range of different products and services, while their customers’ ‘preferred’ or ‘unprofitable’, and responses are similarly divergent. the level of service delivered Long-term, effective and profitable customer relationship management is an to each type could be imperative which demands that companies do the following: customised accordingly n Understand the concept of customer profitability and conduct CPA. n Maintain and improve customer profitability. n Convert unprofitable customers into profitable ones. Meeting the first of these challenges requires a clear understanding of the causes of both revenues and costs. Strategic cost management tools such as activity-based costing (ABC) facilitate this understanding. Essential components of the drive to increase customer revenues and decrease customer costs include the following: n An analysis of the cost of customer service (through ABC, for example). n The measurement of the lifetime value of a customer to the company.

financial management 33 >technicalmatters

n The development of profitable, long-term n Product and service quality must extend to higher total revenues, it was attracting the Before implementing CPA, Paging 2 Why customers are more profitable over time customer relationships for increased throughout the value chain. wrong types of new customer: older couples Network, a Dallas-based paging service corporate profits and shareholder returns. n Maximising customer value requires the and stay-at-home mothers who typically provider, had based its strategy on increasing Improvements in IT have allowed involvement of the whole organisation. signed up for costly home visits by sales market share. To this end, it had provided Profit from price premium organisations to develop closer relationships An increasing focus on customer agents and purchased one policy with a small free pagers to users. But it became evident with their customers. Companies are able to profitability has led some companies to margin. The profitability of each new from the CPA data for individual customers Profit from referrals interrogate large databases of customer change their marketing strategy. Instead of customer was low. that many were actually too costly to service information and identify groups of people with pursuing new, unprofitable customers, they First Union has also changed its profitably. Since the company had no room Profit from reduced similar attributes. By matching marketing are switching to defensive strategies, seeking strategies to increase shareholder value. for further cost reduction, it increased rates operating cost expenditure against the anticipated reaction to retain existing customers and increase While it once focused on exceeding for marginal customers and lost about of identified segments of the customer base, the volume and value of their purchases. customer expectations, the company came 138,000 of them as a result. Although Paging they can manage marketing expenditure to Federal Express, for example, reviewed how to realise that profitability was sacrosanct if Network expected to lose a further 325,000 Profit from increased optimise shareholder returns. This can lead to it managed customer relationships as the the long-term viability of the business was not (3.2 per cent of its customer base), it was purchases and higher Company profit significant operational changes. result of a CPA exercise. It now treats clients to be compromised. determined that, since the cost of servicing balances Many companies are aware that customer who spend a lot of money while demanding Delivering customer satisfaction requires a these customers was greater than the satisfaction is a prerequisite for long-term little customer service and marketing complete understanding of organisational revenue this generated, the company should Base profit corporate profitability. Although customers do investment differently from those who spend value drivers and of the causal relationships cut its losses and let them go. 0 1 2 3 4 5 6 7 not determine corporate strategy, their values just as much but are costly to maintain. among employee satisfaction, customer Accountants and marketing professionals and expectations are influential. The following FedEx no longer promotes itself aggressively satisfaction, customer profitability and have traditionally addressed different aspects Customer acquisition Year five axioms apply to most companies and to those customers who spend little and corporate profitability. Some companies have of the company-customer relationship. Where cost help to explain a customer’s value: show few signs of spending more in the used the service profit chain model (see accountants tend to focus on cost reduction, n The customer defines product or service future. These changes have substantially diagram 1) to help them understand the marketers generally consider how to increase An exhibit from “Zero defections: quality comes to services”, by F Reichheld and W Sasser (September-October 1990). Reprinted by permission of Harvard Business Review. Copyright © 1990 by the president and fellows of Harvard quality and the acceptable price. reduced the company’s costs. causal links between employees and customer satisfaction, primarily by examining College, all rights reserved. Source: Heskett, Sasser and Schlesinger, 1997. n Customers form their expectations relative Standard Life Assurance has benefited customers and their combined impact on the links between overall satisfaction and to competitive alternatives. from CPA in a similar way. The results of its revenue growth and corporate profitability. revenues. CPA attempts to bring together and valuable effects on the company’s largest source of company profit, but also the n Customer expectations change – and analysis suggested that, although the The application of CPA has proved these approaches to analyse, manage and bottom line. Word-of-mouth recommendation fastest-growing source of profit. they usually increase. company’s direct-mail campaign had led particularly profitable in the banking improve customer profitability. is important to Southwest Airlines (whose Since the advent of ABC in the eighties industry, where a range of different products As can be seen from the experiences of reservation system has never been accessible and the emergence of the balanced is offered to a varied customer base. Bank FedEx and Paging Network, “satisfied” to travel agents). It has relied on advertising scorecard some time later, managers have 1 The service profit chain of America recognised the need to balance customers can prove to be unprofitable. and customer loyalty to spread awareness of been prompted to examine closely the cause customer service and customer profitability Furthermore, individual customer satisfaction its brand. The company, which began flying of costs in the quest for increased profits. Internal External to optimise activity. It used CPA to reduce is not the sole, or even the most significant, in 1971, has consistently been profitable. The effective use of both approaches relies the number of customer defections and factor in ensuring customer profitability. Convinced that customer loyalty is a more on improved understanding of the Operating strategy and Service Target market service delivery system concept increase balances among the top ten per Customer retention, customer loyalty and important factor than market share in organisational drivers of profits. The two cent of its customers. The programme’s customer service costs are key factors, too. increasing its profitability, Southwest Airlines models rely on the identification, Loyalty Revenue launch in 1997 saw the introduction of a Customer retention describes the ongoing strives to build customer loyalty by providing measurement and understanding of the Satisfaction growth personal identification number for each relationship that yields revenues from sales of dependable, frequent services on relatively drivers and causal relationships among caller. This allowed the bank to determine additional products or services. The revenues short routes at low fares, with an emphasis employee satisfaction, customer satisfaction, Productivity Service Employees and output Satisfaction Loyalty different customers’ attributes and become more profitable as the customer on friendly service. customer profitability and corporate value quality segment the market according to their becomes easier to serve. Since the customer Analysis of the total profitability of profitability. Only with the specification and

Capability profitability rankings. It classified is buying again, it might be assumed that: customers reveals, perhaps understandably, measurement of these relationships can the Service Profitability customers as either “preferred” or n Less selling effort is required for these that it changes over time, as the benefits and costs and revenues related to improving quality “unprofitable”. As a result, their calls could additional purchases. costs of purchased offerings change, for both corporate performance be managed properly. be routed to different operators and the level n Customer service costs will decrease. organisations and individual customers. Workplace design Quality and Attractive value Lifetime value of service delivered to each type could be n The average cost of customer acquisition Diagram 2 suggests that reduced operating Liz Murby is technical issues manager productivity Job design/ Service designed Retention improvements customised accordingly. will decline. cost and referrals combined are not only the at CIMA. decision-making latitude and delivered to yield higher Repeat business meet targeted Similarly, a CPA by First Chicago The validity of such causalities can have Selection and development service quality customers’ needs Referral Corporation generated profit and loss a big impact on organisations’ strategies. and lower cost Further information Rewards and recognition statements for every client, leading it to Ford Motor Company, for example, based its Information and impose a $3 “teller fee” on some of its least corporate goal on increasing the customer communication This article is based on “Customer profitability analysis”, a Management profitable customers. Although about 30,000 retention rate from 60 per cent to 80 per Accounting Guideline written by Marc Epstein and published by Adequate “tools” to people closed their accounts as a result, cent, convinced that each additional serve customers many others became more profitable, percentage point of customer retention was CIMA, the American Institute of Certified Public Accountants and the either by increasing their balances to avoid worth $100m. Society of Management Accountants of Canada. CIMA members An exhibit from “Putting the service profit chain to work,” by J Heskett, T Jones, G Loveman, W Sasser and L Schlesinger, March-April 1994. Adapted and reprinted by permission of Harvard Business Review. Copyright © 1994 by the president and fellows the fee or by managing their money using Customer recommendations, a by-product can access the full version at www.cimaglobal.com/cpdcentre. of Harvard College, all rights reserved. Source: Heskett, Sasser and Schlesinger, 1997. ATMs only, which are cheaper to run. of loyalty and retention, can have significant

34 financial management financial management 35 >technicalmatters

accounting and business management 2 Four types of business partner management accountants needed to spend Transforming finance together, expectations of the role can on reworking figures, freeing them up to vary (see diagram 2). Although shared serve as business partners. service centres – whether in-house or Directorate It seems to their operational colleagues A CIMA forum has warned business leaders that a failure to change their outsourced, local or offshore – are that most accountants are working in their finance functions could harm their competitiveness, writesPeter Simons. becoming increasingly able to provide comfort zone, according to the forum. The regular financial reports and analysis Strategic transformation of finance gives them the 3 Expert 4 Finance (denoted as type 1 in the diagram), most services leadership chance to increase efficiency in this area The CIMA Improving Decision Making in shareholder value. Brand management is, The forum contends that any company business partners are based within the and also effectiveness in supporting value Organisations Forum is so named because therefore, the basis of Diageo’s success. not transforming its finance function to business lines to provide operational creation. Many accountants will be its members recognise that management It has outsourced many other processes – become more efficient and effective in support (type 2). As long as they can be a challenged to move out of their comfort 1 Shared 2 Financial accounting has a broad role to play in including accounts – that might once have supporting decision-making could be “constructive irritant” when necessary, this service centres support zone, becoming less of a score-keeper and supporting decision-making across been considered core activities. jeopardising its competitive position. This form of relationship seems satisfactory for more of a player alongside their team mates

organisations. As global markets give The world’s best-performing firms have opinion is supported by a number of studies. manufacturing companies with long Operational in the business. A number of forum members companies around the world access to already seized the opportunities presented by For example, research by Accenture has product life cycles – Ford and Rolls-Royce, Centralised Embedded have warned that some people from the similar resources, and as increasing finance transformation to make their accounting shown a correlation of over 70 per cent for example. Source: CIMA, September 2007. operational side, often engineers or MBAs, competition causes business processes to functions more efficient. But they have also between businesses with high performance Some business partners work more will provide stiff competition for accountants converge on similar standards, decision- developed accounting professionals to operate and the excellence of their finance functions. closely with the directorate and offer The emerging ideal type of business applying for business partner roles. making remains the crucial link in the value as business partners, helping to improve And a study by the Economist Intelligence expert support and direction from the partner, especially in the fast-moving The forum has described the chain leading to superior returns. decision-making across the organisation. Unit for KPMG has found that, relative to centre (type 3). Risk management services consumer goods industry, is someone who development of accountants as business The forum’s viewpoint is supported by the The long-discussed finance transformation is their peers, top-performing companies’ are provided in this way at the Linde Group, can collaborate empathically with partners as the process of becoming distinguished academic Thomas Davenport already a reality for these companies, giving finance departments place more emphasis for instance. operational managers (type 4). He or she “T‑shaped”. This means that they should in Harvard Business Review (“The coming them a significant competitive advantage. on decision support. speaks their language, rather than financial acquire a broad range of business and commoditization of processes”, June 2005). The blueprint for improving the efficiency Diagram 1 illustrates the decision-making jargon, but brings accounting discipline to interpersonal skills to top off the core He also suggests that this convergence of of the finance function is relatively clear, but process as discussed by the forum. From decision-making and can challenge their strengths and technical skills acquired standards will lead to the further outsourcing developing effective business partners to this it’s clear that: Forum facts assumptions – in effect, a sparring partner. through their professional training. This of non-core business processes. provide decision support is a greater n Decision-making is not the end of the The CIMA Improving Decision Making in Leading companies run training programmes requires a formal development programme Diageo is an example of a global company challenge. It requires a change management process. It extends through to achieving Organisations Forum is an assembly of to develop such professionals. Unilever, for that includes performing a range of finance that has applied this logic. It has a keen programme, starting with a shared vision results and is a continuous process. large organisations represented by senior example, has its own finance academy. roles and working closely with, or even understanding that its brands create of the future role of the function. n Accountants contribute to the finance and accounting professionals. One bank told the forum that a number within, business lines. strategic planning and enterprise Members include the BBC, Diageo, the of its accountants in business partner roles The institute has just published a report 1 The decision-making process governance framework (the CIMA Department for Work and Pensions, seemed to prefer spending time reworking based on the discussions of the forum Strategic Scorecard), which articulates Ford, Fujitsu Siemens, Kimberly-Clark, reports provided by its shared service centre, entitled “Improving decision making in the business’s competitive position the Linde Group, Pfizer, Roche, Rolls- rather than working alongside operational organisations: the opportunity to transform and objectives. Royce, Royal Mail, Tesco and Unilever. managers. The bank has since provided finance”. The publication shows how leading Strategic Strategic position options n Individuals’ personal contexts and The institute facilitates their discussions, “business performance managers” to help its organisations have engaged accounting attitudes can impair decision-making, which can provide useful insights for business partners and remove this excuse. professionals as business partners to improve but business partners can address this future-proofing the profession. Roger Tomlinson, executive vice-president decision-making. It makes a compelling case Strategic Strategic implementation risks problem by championing evidence-based The forum first met in 2000 to share of finance for Rolls-Royce’s gas turbine for accountants in business to be engaged in decision-making. experiences of implementing strategic operations, comments that enterprise such roles, providing real examples of how CIMA Strategic Scorecard n Business partners can help to “frame” enterprise management systems to resource planning (ERP) systems actually they can combine their core technical skills a decision, provide management improve decision-making. More recently, created more work for the firm’s management with an understanding of the enterprise. information, contribute insights and it has been considering a related, but accountants initially, keeping them busy with The report, which can be downloaded analyse alternatives to help the decision- more challenging, issue: how to develop spreadsheets. But there is now scope to from www.cimaglobal.com/decisionmaking, maker. They can then support risk and deploy management accountants add front-end reporting, planning and also alerts management accountants to management and performance who can partner their businesses to analysis systems to ERP systems so that developments in the finance function that “Context Feedback management to aid implementation. improve decision-making. information goes directly to operational may affect their CPD requirements. mindset” It is clear that management accountants The forum also keeps management managers in a format that they can readily have – as they’ve always had – a significant accountants abreast of developments in understand. Rolls-Royce found that this Peter Simons is a technical specialist in contribution to make at each stage of the the finance function that may affect their significantly reduced the time that its CIMA’s Innovation and Development team. decision-making process. This is good news CPD requirements. CIMA recognises that for financial managers who have technical it must continually develop its syllabus Further information know-how, understand the business and use and CPD framework to meet employers’ “Frame” Assemble Select Decision Manage Impact good communication and influencing skills. changing needs and ensure the If you would like to comment on the report or share insights from your the issue information alternatives implementation Although the term “business partner” is continuing employability of its members. own experience, please e-mail [email protected]. Source: CIMA, September 2007. widely used to describe a role that brings

36 financial management financial management 37 >technicalmatters Performance measurement Richard Bull explains the three “effs”: efficiency, effectiveness and efficacy.

Management accountants can 1 The enterprise stewardship model categorised by three “effs”: efficiency, make an important contribution effectiveness and efficacy. towards maximising the value and When we use financial metrics, they success of an enterprise. One way we Effective? tend to be quantitative by nature, so do this is by setting appropriate targets they are most appropriate as measures Efficient? Efficacious? for financial performance, translating of efficiency. The more we understand them into operating requirements and Reinvestment the processes that lie behind them, the then measuring performance against more we can use them qualitatively to Growth Stage 6 them. But there are many measures Dividends management measure the effectiveness of those of value and of success, which – like processes. But, if true success is to be Disposable beauty – are very much in the eye of profit measured by the efficacy of an the beholder and can be assessed in enterprise’s performance, we need to Tax Tax Stage 5 different ways from different viewpoints. management relate measures to the quintessential The value a company represents Profit nature of that enterprise. When can be assessed in terms of, say, the assessing the role of performance Sales Value-add Stage 4 value of the assets on its balance management measures – eg, financial ratios – in a Purchases sheet or its expected future profits. and expenses Capacity model of success for a business, it is Measures of success may include its useful to recognise their contribution in Customer Asset stock price or market share, but can requirements management Stage 3 these three dimensions. In this way we also cover other factors depending on can ask appropriate questions to the company’s particular vision and Funds assess how well a company’s strategies strategy, such as its use of natural Funding are achieving its goals. Borrowings Stage 2 resources or its contribution to society. management Having recognised the three It is important to understand how Owner’s dimensions of performance financial results can measure the investment measurement, how can we apply them different dimensions of a company’s to the full scope and complexity of a Potential Strategic Stage 1 vision and strategy. A common two- demand management business and choose the most dimensional view distinguishes appropriate measures at each step? Idea between resource-based and market- The enterprise stewardship model led strategies. The former seeks to uses the metaphor of a building (see make the most of the resources panel 1). The questions of efficiency, available; the latter seeks to meet the needs of can be. Measures of effectiveness assess the effectiveness and efficacy apply at each stage the market. But a third dimension is becoming value of output produced from a given set of of construction. This story can be told in increasingly important to the brand image resources. This subtly shifts our focus from financial terms, as it will be here, but it can and differentiation of a company. It’s the way measuring inputs to measuring outputs. encompass less tangible currencies such as we express, and live up to, our company’s With financial measures it represents a shift time, skills and reputation. purpose and vision – and the extent to which from measuring cost to measuring value. The six key stages are as follows: we achieve our own definition of success. This A success-led strategy focuses on how well a 1 The people with the original idea for the is what we might call a success-led strategy. company can achieve its vision and purpose business need to test the potential In order to measure these three as intended – the level of efficacy it achieves. demand for it before investing. dimensions we need to understand each type This is a little-used term but one that aptly 2 They’ll need financial or other backing of strategy. A resource-based strategy describes this third dimension of from elsewhere and will have to borrow. focuses on how efficiently a company’s performance. Measures of efficacy assess 3 When using these funds they should resources can be used. Measures of the degree to which the inputs produced the primarily consider the ultimate efficiency take the inputs to a process and intended result and thereby contributed to customer’s requirements. assess how economically they are used to the achievement of the enterprise’s true 4 Having established an asset base, the produce a given output. They tend, therefore, purpose. Here we venture into aspects of business then procures the bits and to focus on cost. A market-led strategy value that are often less tangible and have pieces it needs in order to produce, focuses on how well a company can respond more to do with measuring success. The sell and deliver its products and services, to demand and add value – how effective it three dimensions can, therefore, be thereby adding value.

financial management 43 >technicalmatters

2 Choosing ratios for performance measurement in the three dimensions

DIMENSION

Efficiency – Effectiveness – Efficacy – the economic use of scarce resources the production of a result or effect the production of the intended results

Growth management Dividend payout ratio Book to market value ratio Actual to plan performance

Tax management Effective tax rate Net after-tax profit rate Investment equivalent of tax paid

Value-add management Gross margin Net margin Customer loyalty PROCESS

Asset management Productivity rates Asset turnover rates Employee turnover rate

Funding management Average interest rate Debt coverage ratio Share turnover rate

3 Asking strategic questions in the three dimensions

DIMENSION

Efficiency (quantitative) Effectiveness (qualitative) Efficacy (quintessential)

How can we make best use of the How can we maximise the growth and How can we optimise the realisation of Growth management distribution and reinvestment of profits? value of the firm from the profit available? our vision from the profit available?

How can we minimise the amount of tax How can we maximise the profit How can we ensure that the tax the firm Tax management we pay? available to the firm? pays complements our vision?

How can we deliver our product or How can we maximise the value that How can we optimise the benefit that Value-add management PROCESS service at the lowest cost? people receive? our vision provides?

What is the least amount of resources What is the best quality that our How can we best use those resources to Asset management we need for what is required? resources can produce? enable our vision to be realised?

What is the cheapest method of raising What are the most secure and What sources of funding will best help Funding management the funds we need? lowest-risk sources of funds? us to sustain our firm’s vision?

5 The business takes a share of the value it chosen to measure these dimensions for the Financial results must be monitored and adds (or deducts), as profit (or loss), which more tangible stages “above ground”. From it reported for both management and statutory is then subject to tax. we can see that financial ratios are most purposes. But, by recognising the wider 6 It is able to apply the disposable profit left relevant to measures of efficiency. They can dimensions of their business, management over, either in the form of dividends or by also be applied as measures of effectiveness. accountants can participate more fully in the retaining it for future investment. But they need to be supplemented with non- wider debates that concern some of the less This six-step process can be applied to financial measures when seeking to measure tangible, but no less crucial, aspects of any business. The sub-processes have inputs the efficacy of the business. maximising value and success. They can and outputs that enable their performance to We can also use the enterprise contribute by measuring the right things and be measured using ratios of inputs to stewardship model to prompt strategic prompting the right questions. outputs. For example, funding management questions across the three dimensions of can be measured by the firm’s gearing ratio; each process in a business. Questions of Richard Bull ACMA is an award-winning its asset management by its asset turnover efficiency focus on the economic use of business writer. This article is adapted ratio; its value-add management by its profit scarce resources: how can we do things as from his latest book, Financial Ratios: margin; its tax management by the effective cheaply as possible? Questions of How to Use Financial Ratios to Maximise rate it pays; and its potential for growth by effectiveness focus on the product or service: Value and Success for Your Business the amount of retained profits it achieves. how can we maximise the value we add? (CIMA Publishing, £29.95). To order your But such ratios can be crude measures of And questions of efficacy focus on the results copy at a 20 per cent discount and with the overall performance of a process. It is intended: how can we best realise our free P&P, call +44 (0)1865 474010 quoting helpful, therefore, to look at each process corporate vision? Panel 3 sets out a range of reference code ASB5, or order online at and pick the most appropriate measure for questions prompted by examining each http://books.elsevier.com/accounting, each of the three dimensions. Panel 2 stage in the business process above the adding the same code to the box. The provides an example of ratios that can be ground and across each dimension. offer expires on December 31.

44 financial management 48 Paper P1  Management Accounting – >studynotes Performance Evaluation

54 Ozgur Kilic, Head of oncology Paper P3  Management Accounting – finance, Novartis, Milan Risk and Control Strategy

You went to university in Turkey and then Where will you go next? >student completed an MBA in Germany. How did By the time I finish in Milan I should be ready to you end up taking the CIMA qualification? go to a small to mid-sized business as CFO, I accepted a place on Novartis’s finance but I don’t know where. The programme is ONE2ONE development programme, which involves informal, but structured. One of its conditions three placements of two or three years each is that we’re flexible about jobs and locations, in different countries. An MBA isn’t essential but our mentors in Basel try to ensure that we to get on the scheme, but almost everyone gain different experience in each role. I know who’s doing it has one. I spent two years at headquarters in Basel and then What happens when you finish the scheme? started CIMA when I was sent to the UK on The programme aims to prepare me to become my first placement. I chose it because it’s a CFO, but there won’t be any immediate widely recognised there and I had access to change after finishing it except that my excellent training providers. assignments will be a bit longer. I am prepared to wander the world for the foreseeable future. You’ve just moved to Italy and you’re I’d be happy to take a placement in Turkey planning to take your last strategic paper because it’s an interesting market, but I have I am this month. How will you find the time? no plans to return there permanently. There are The UK office understood the course workload still plenty of other nations to explore. prepared to and was very supportive. The company financed my training and gave me some time What have you found most challenging wander the off. I mainly study in the morning before work about the CIMA course? and on weekends and holidays and I will follow It’s tougher than I expected. You need to be world for the the same strategy in Italy. I hope I will pass the very disciplined and exam technique is exam this month and take TOPCIMA in March important. The only way to get this right is to so that I can get my life back. It’s the first time practise, which takes time. It also depends on foreseeable I’ve studied while working full time and I would your background. I found paper P6 tough think twice before doing it again. because you have to interpret questions the future. I have right way and manage your time well. But What does your new job involve? many people had problems with P9, which is no plans to In my previous role I was head of UK group quite technical and mathematical, whereas I finance functions, covering treasury, tax and found that relatively easier. return to Turkey group accounting issues. I had to oversee the reports to HQ, as well as the statutory Has CIMA changed your outlook? permanently accounts for a number of UK operations. In many ways – besides helping me to do my My new role focuses on planning, forecasting job better. I now use my CIMA skills to analyse – there are still and business partnering. It’s more about how businesses treat me as a customer. management accounting because I’ve got to For example, I fly about once a fortnight and I plenty of support strategy by analysing data, ensure must really annoy airlines’ customer-service there’s a rigorous performance measurement staff. Whenever things go wrong I remind them other nations structure in place and monitor this effectively. about their strategy and tell them how the way The two roles should have given me all the they’re treating me undermines this. But at to explore experience I need to become a member. least I usually get my money back.

financial management 47 >studynotes PAPER P1

Management Accounting – Performance Evaluation Grahame Steven compares budgeting methods and considers whether the activity-based approach provides a basis for better financial planning.

Although a number of commentators have budgeting (ZBB) and activity-based budgeting Forecast sales were £8m and budget sales questioned the value of budgeting and (ABB). This company imports wine from were £9m. The operations manager continue to question it (see September’s China, which it then resells to off‑licences and estimated that the sales office would incur Study notes article on paper P1, for example), specialist food and drink outlets in the UK. costs of £200,000 in the current year. most companies use budgets, since they At present, its customers send their sales Conventional budgeting, which is an provide a framework for strategic direction orders by post to the sales office. The orders incremental approach, uses a company’s and operational control. For instance, a are entered into the computer system and existing operations and current cost structure CIMA-backed research project involving 41 sales confirmations are posted back to the to determine budget costs. The starting point UK companies last year revealed that only customers. The sales office often has to deal for this process is to obtain forecast costs for one of the sample didn’t use budgets. It’s with customer enquiries about orders, since the current year. The next step is to make an clear, therefore, that budgeting is still part of the sales order cycle generally takes between adjustment to forecast costs based on the lifeblood of enterprise, but the key five and ten days. budgeted output – eg, sales. The budget question concerns how to ensure that it Great Wall Cellars’ sales director recently for the sales office will be set at £225,000 remains relevant for modern organisations. produced sales figures for the annual budget – ie, £9,000,000 ÷ £8,000,000 x £200,000. Let’s look at the fictional case study of after making a detailed analysis of current The sales office budget includes an Great Wall Cellars to compare and contrast and projected demand for the company’s inflation adjustment, since the budget selling conventional budgeting, zero-based products from current and new customers. price has been increased in line with the expected rate of inflation. Conventional budgeting will provide accurate budget figures for variable costs such as direct materials, direct labour and sales commission, because these have a Zero-based budgeting will clear volume-based link with production/ sales. But this approach is unlikely to produce ensure that inappropriate accurate figures for support departments, whose costs are largely fixed and semi-fixed activities are not undertaken, since it and driven by other factors such as sales makes a full evaluation of existing orders and purchase orders. In addition, no consideration is given to the cost of providing

activities in relation to future needs existing activities, since the focus is on Pho t o g r ap h: lib a ry

48 financial management >studynotes PAPER P1

incremental change. Inappropriate business 1 First ABB analysis practices may also be perpetuated, because no evaluation of current activities is made. Cost per sales order ZBB was developed in the sixties as an Sales office forecast £200,000 alternative approach to address the Forecast sales orders ÷ 40,000 deficiencies of incremental budgeting – in Forecast cost per sales order = £5.00 particular, the non-evaluation of existing Inflation adjustment x 1.02 activities. This method asks the following key questions: Budget cost per sales order = £5.10 n Should an activity be performed? Current customers n how much of an approved activity should Forecast sales £8,000,000 be provided? Forecast sales orders ÷ 40,000 n how should the activity be undertaken? Forecast average sales order value = £200 n how well should the activity be done? Budget increase in sales order value x 1.10 n Should the activity be performed in-house or subcontracted? Budget average sales order value = £220 The ZBB approach will ensure that Budget sales orders: current customers (1) x 40,000 inappropriate activities are not undertaken, Budget sales = £8,800,000 since it makes a full evaluation of existing New customers activities in relation to future needs. The main Total budget sales £9,000,000 disadvantage of this method is that it is extremely time-consuming, since it requires Budget sales: current customers – £8,800,000 the gathering, analysis and evaluation of Budget sales: new customers = £200,000 large amounts of data. As a result, it’s used Average sales order value: new customers ÷ £160 by very few companies. Budget sales orders: new customers (2) = 1,250 The activity-based approach to budgeting Total budget sales orders is a more sophisticated version of traditional Current customers (1) 40,000 absorption costing. Activity-based costing (ABC) uses a number of different bases – New customers (2) + 1,250 sales orders, purchase orders, machine Total sales orders = 41,250 set‑ups and so on – to charge overheads to Sales office budget products, since it recognises that many Budget cost per sales order £5.10 support departments’ activities are not driven Total budget sales orders x 41,250 by volume-related measures such as sales. Budget = £210,375 ABB uses the costs drivers identified by ABC to derive budgets for support departments. In simple terms, it involves the n The average sales value received from expected to rise by ten per cent – ie, from the following stages: new customers is expected to be £160 forecast figure of £200 to £220. This will n Determine the key budget factor (sales) for per order. produce budget sales from existing customers the next budget period. n Expected rate of inflation for the next of £8,800,000 (£220 x 40,000) and £200,000 n Estimate the support activities required for budget period: two per cent. from new customers – ie, £9,000,000 minus the budget from cost drivers. n The maximum capacity of the £8,800,000. Consequently, the firm n Set the budget for the support activities. sales office is six people. will receive 40,000 sales orders The following information was obtained The first step of the ABB from existing customers, plus 1,250 from Great Wall Cellars’ ABC analysis and analysis in table 1 is to calculate from new customers, in the next used by the sales director to determine the the forecast cost of processing budget period. sales department’s budget: a single sales order – ie, £5. The The final step is to calculate n Sales office cost driver: sales orders. forecast cost is then adjusted by the total sales office budget from n Forecast number of sales orders: 40,000. the budget inflation rate of two the budget cost of processing a n The company does not expect to lose any per cent to obtain the budgeted single sales order – ie, £210,375. of its current customers, because the cost of £5.10 per sales order. It is The ABB analysis in table 1 demand for Chinese wine is increasing. then necessary to determine how many assumes that costs incurred by the n The average sales value per order sales orders will be received in the next sales office are mostly variable. In practice, received from existing customers has budget period to calculate a total budget. it would incur many fixed and semi-fixed been estimated to be ten per cent higher The average budget value of a sales costs, including rent, heating, insurance in the next budget period. order from existing customers is and salaries. The analysis must,

50 financial management PAPER P1 >studynotes

2 Second ABB analysis The time required to process budget sales orders is 41,250 orders x 0.2 hours = 8,250 Forecast hours hours. Because the firm has decided to Hours required per order 0.2 eliminate overtime, it will need to employ Forecast sales orders x 40,000 8,250 ÷ 1,500 = 5.5 people in the sales Total hours required (3) = 8,000 office to meet the projected workload. Since the extra employee will have a 50 per cent contract, the salary budget will be Contract hours per employee 1,500 £15,000 x 5.5 = £82,500. Current number of employees x 5 While overheads have been increased Total contract hours (4) 7,500 above the inflation rate to £124,000 to take account of the additional staff member, there is no need for extra office space, since the Overtime hours (3-4) 500 sales office can accommodate a team of six. Forecast cost The total budget figure for the second ABB Salaries (including overtime) £80,033 analysis is consequently £206,500. Overheads + £119,967 By focusing on staff time, the second Total sales office forecast = £200,000 ABB analysis calculates a better budget Budget figure and gives more information on the sales office’s cost structure than the first Hours required per order 0.2 analysis. It also provides an insight into the Total budget sales orders x 41,250 sales office’s cost structure. The firm will incur Total hours required = 8,250 a step increase in fixed/semi-fixed costs if it Contract hours per employee ÷ 1,500 has to employ more than six people in the Number of employees required = 5.5 sales office to handle an increase in workload. Annual salary per employee x £15,000 The second analysis may be superior, but neither addresses the fundamental issue of Total salary cost = £82,500 working practices. Although the sales office Sales office overheads + £124,000 uses an IT system, it appears to be a Total sales office budget = £206,500 computerised version of a manual system. Great Wall Cellars needs to re-engineer its therefore, be amended to determine how therefore, 8,000 hours. This includes 500 business processes to allow the digital much of the key resource – staff time – is hours of overtime, since the five-person transmission of information between itself required to process sales orders to provide a sales-office team is contracted to work only and its customers to increase efficiency and better basis for determining the budget and 7,500 hours a year. Great Wall Cellars is reduce the number of queries. Companies identifying any problems associated with the considering employing an extra person on a that implement ABB must ask the type of sales office. Table 2 contains a revised ABB part-time contract, since the current high questions inherent in ZBB to ensure that analysis focusing on staff time. level of overtime is unpopular with staff. their practices remain up to date. The firm’s recent ABC project revealed an Forecast figures in table 2 for the sales average processing and query time for a office indicate that £80,033 will be spent on Grahame Steven is a lecturer in the single sales order of 0.2 hours. The total time salaries and £119,967 on overheads in the School of Accounting, Economics and required for forecast sales orders is, current year, making a total cost of £200,000. Statistics at Napier University, Edinburgh.

P1 further reading B Scarlett, Management Accounting – Performance Evaluation CIMA Learning System (2007 edition), CIMA Publishing, 2006. L Burke and C Wilks, Management Accounting – Decision Management CIMA Learning System (2007 edition), CIMA Publishing, 2006. C Drury, Management and Cost Accounting (sixth edition), Thomson Learning, 2004. D Dugdale, T Jones and S Green, Contemporary Management Accounting Practices in UK Manufacturing, Elsevier, 2006. J Innes, F Mitchell and D Sinclair, “Activity-based costing in the UK’s largest companies”, Management Accounting Research, Vol 11, No 3, 2000.

financial management 53 >studynotes PAPER P3 Management Accounting – Risk and control strategy Steve Whittenbury casts a critical eye over recent events to highlight how business risks are created and managed – effectively or otherwise.

It was the night before the 1997 UK about its plans and took industrial action in correspondence needs to be finished by 5pm general election in the south Devon seaside July and again last month. Although Royal in order to catch the last post and so be town of Torbay. Having finished his re-election Mail and its trade union are trying to guaranteed to arrive on the recipient’s desk campaign, the constituency’s Tory MP, negotiate a way forward as FM goes to by 9am the next day. Postal services must, Rupert Allason, dined in a local restaurant. press, they have to balance two competing therefore, be aware that they risk becoming a During his meal he is reputed to have demands: keeping the company financially redundant part of business communication in insulted the staff, all of whom had been viable while ensuring that its human the 21st century. planning to vote for him. The following day, resources are properly valued. Is the real world now subject to risk as a the seven employees switched their Postcomm, the industry regulator, has result of the technology we take for granted? allegiance to the Liberal Democrat candidate. allowed private companies to compete with Telephone communications between Allason went on to lose his seat to the Royal Mail for daily postal deliveries. The Washington DC and New York were LibDems – by 12 votes. expected outcome is cheaper postal rates restricted recently when a maintenance crew If this tale is to be believed, it illustrates the and improved service through efficiencies – in New Jersey accidentally cut a fibre-optic foolishness of ignoring risks and the impact for example, through the introduction of cable and calls had to be rerouted. Thanks to that inappropriate acts can have. But surely size- as well as weight-related prices. Its its contingency arrangements, cable operator this is common sense? If you pre‑empt all “Pricing in proportion” structure is designed MCI was able to report that its long-distance your risks, you can manage them away and to match the revenue earned by transporting services hadn’t been affected. But this case minimise their impact. This theory seems printed matter with the true cost – an issue does show the potential impact that the sound and it underpins the P3 syllabus, yet that the previous system, based on weight physical environment can still have on its the following problems remain: alone, did not address. virtual counterpart. n Many employers continue to ignore some It remains to be seen how these Across the Atlantic, environmental factors of the fundamentals of changes will affect consumers. of a different type proved to be the big talking this subject (often at But both Royal Mail and its point of the summer. The wet weather their peril, as we will rivals need to address the affected the quantity and quality of produce see later). impact that the virtual grown across northern Europe to such an n Students have great world is having on the extent that it has threatened the supply of difficulty seeing how this postal business. The advent of goods to supermarkets. If retailers have to fits in with what is e-mail means that it’s no obtain more costly substitutes from required by P3, because longer the case that vital alternative sources, farmers’ revenues could many of them do not appreciate the nature of risk and control in the real world. A quick look back over the past year shows us that the real world is full of uncertainty, Postal services which must be dealt with in a variety of ways. Royal Mail, for must be aware example, has attempted to introduce new working that they risk becoming conditions to modernise its service and ensure that it’s a redundant part of able to compete in the 21st century, but change has business communication brought its own problems.

P h o t og raph : A lamy Employees were unhappy in the 21st century

54 financial management >studynotes PAPER P3

be greatly reduced and store prices could rise, hitting consumers’ pockets in turn. This is an example of unpredictable risk that isn’t easy to manage. Perhaps this is one instance where it would be better to treat the symptoms rather than the cause. As the floodwaters rose in the summer, so did mortgage interest rates, making life more difficult for UK homeowners, many of whom are now struggling with their increasing loan repayments. In an attempt to restrain the housing market, the personal credit boom and the resultant inflationary economic pressures, the Bank of England increased its base rate from 3.5 per cent in July 2003 to its current level of 5.75 per cent. As a result, the proportion of fixed-rate mortgages in the same four-year period grew from 44 per cent to 88 per cent. HM Treasury research has indicated that over the past 30 years borrowers have taken far more notice of short-term interest rates than anything else when financing a mortgage, predominantly because of the perceived benefits of competitive rates offered by A master of risk management? The precocious Ferris Bueller, ever on the alert for danger. lenders in the short term. This has inevitably led to a far more volatile market – a factor On July 13 the former chairman and chief action through the use of both proactive that longer-term fixed-rate loans are intended executive of publishing company Hollinger, and reactive measures). to address. Conrad Black, was found guilty of n Different types of control – organisational, Another economic pressure, felt by fraudulently obtaining funds from his accounting, financial, human resource, homeowners and businesses alike, is the employer, which until 2004 had included the information and even ethical. volatility of energy prices. This has been Daily Telegraph in its substantial portfolio. n The use of accounting and other systems caused by political turbulence in various The money had represented payments from as a form of control. oil-producing regions – including the Gulf, publishers that had bought titles from n Assessing these systems and other risks Venezuela and Russia – and exacerbated by Hollinger and did not want it to set up new through the use of internal audit. the huge increase in demand for energy from publications that would compete against The crucial word to consider when Asia’s booming economies. All this has them. These so-called non-compete clauses assessing both risks and controls is encouraged many consumers, both were agreed by the board and were all part of “appropriate”, as it sums up what risk commercial and domestic, to make advance the deal, according to Black, and he and his management is all about. arrangements to fix their supply price in order colleagues shared nearly £30m as a result. The eponymous hero of the 1986 to avoid unpredictable future cost increases. But the trial in the US concluded that the comedy film Ferris Bueller’s Day Off tells the Many of these economic trends have led payments had been clandestine and that audience that “life moves pretty fast. If you to more widespread uncertainty that’s best Black had not acted lawfully. don’t stop and look around once in a while, illustrated by the recent fluctuations in stock What conclusions can be drawn from you could miss it.” Admittedly, he’s saying market prices. Shareholders have seen the these events? This year has been a time of this to justify playing truant from high school, value of their investments shrink as a result of significant uncertainty, brought on by political, but managers need to take Bueller’s maxim interest rate increases, energy price inflation economic and environmental factors. Some one step further. Life does move pretty fast and the resulting threat to consumer of them are beyond control; others are being and things do change: unless you keep your spending. But they will be reassured to handled in a wide range of ways. All of these eyes open and ensure that appropriate know that, while their investments may examples are both topical and typical – very controls are in place at all times, you may fluctuate owing to factors that are mostly much the subject of P3, which aims to cover miss the danger and find yourself no longer beyond their influence, there are controls in the following areas: in business. place to ensure that the organisations they n The identification and categorisation of invest in are scrutinised by corporate risks faced by organisations. Steve Whittenbury is education team governance watchdogs. Unfortunately, n The management of such risks by an subject specialist and tutor for BPP

however, there are problems here as well. appropriate response (taking corrective Professional Education. P h o t og raph : T he Mo vie S re Co llecti n

56 financial management >study notes

Global contact details EXAM NOTICE n CIMA Contact n Poland contact point E: cima.contact@ Warsaw Financial Visit regularly for updates cimaglobal.com Centre, ul E Plater 53, www.cimaglobal.com T: +44 (0)20 8849 2251 Warsaw 00-113 F: +44 (0)20 8849 2450 T: +48 (0)22 528 6890 November 2007 exam entry in the question paper are notes and are, F: +48 (0)22 528 6701 E: thierry.lovane@ The exams will be held on Tuesday 20, therefore, not to be considered. n Australia office Level 3, The Plaza cimaglobal.com Wednesday 21 and Thursday 22. An article on how to answer section A is Building, Australia n available at www.cimaglobal.com/sectiona. Square, 95 Pitt Street, Republic of Sydney, New South Ireland Division Cancellations and changes 45-47 Pembroke Road, Wales 2000 Ballsbridge, Dublin 4 CIMA does not accept cancellations and will Question papers E: sydney@ E: dublin@ cimaglobal.com not refund fees. 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It’s assumed that all writings (see panel, right).

58 financial management >instituteupdate

Elections to council 2008 Disciplinary committee As the terms of office of the council members in electoral areas The disciplinary committee requested to supply them to 1, 2, 3, 4, 5, 6, 7, 11 and 12 expire at the end of the annual general considered allegations of the superseding accountants. meeting in June 2008, elections will be held in February. misconduct against Andrew Morgan did not have a written Nomination forms for candidates for election may be Morgan ACMA by reason of his contract with his client and, downloaded from the web site at www.cimaglobal.com/council2008, conduct during the period in therefore, he had no legal right to where further details about the ballot process and the role of a which he had been a company retain those records except member of council may also be found. The deadline for the receipt secretary. This had resulted in his where he had done work on of nominations is noon on Monday January 7. conviction under the Trade those records and rendered a fee Descriptions Act 1968 on July note in relation to that work. 29, 2004, which the institute The committee accepted considered relevant to his that Morgan had done work on Zambia hosts key event membership of CIMA. The those records, but no fee note This year’s CIMA Southern Africa regional conference took place committee accepted that the was rendered, as he admitted. in Livingstone, Zambia, with the theme of “Wealth creation: seizing facts had been proved and made The committee was concerned the region’s business opportunities”. The event attracted over a finding of misconduct. that Morgan did not seem to 300 delegates from around the world and challenged members in When considering the appreciate the seriousness of his all sectors to take commercial opportunities across the region. sanction, the committee took conduct in this case and had Rupiah Banda, Zambia’s vice-president, emphasised his into account mitigating shown a cavalier attitude to the government’s commitment to reducing poverty. He highlighted circumstances – in particular, regulations. It did not accept his the need to provide ways for people to build their assets and the fact that no client had argument that this was a wealth through home ownership, savings, higher education and suffered financial damage; that technical offence, and it social security. Morgan had expressed remorse; considered that a severe Joaquim Alberto Chissano, former president of Mozambique, and that he had found himself in reprimand was appropriate. spoke about the impact of globalisation. “Our inability to generate distressing family circumstances In relation to costs, six domestic savings forces our economies to rely on foreign capital at the time. It decided that a charges had been brought inflows for investment… Our knowledge, management skills and reprimand was an appropriate against Morgan, but only one business practices remain inadequate,” he warned, noting that sanction in this case. resulted in a finding of education was the most critical input if Africa’s business community When considering costs, the misconduct. Morgan was not was to reap the benefits of globalisation. committee took into account asked to contribute to the costs Health also remains a fundamental concern in a region where Morgan’s personal and financial of the hearing. the HIV/Aids pandemic is taking many of the best brains and circumstances, and that he had entrepreneurs. Chissano appealed to African leaders to launch a not contributed unduly to any Investigation committee campaign to convince donors to increase their support for increased costs of the hearing. The committee found a prima research into a vaccine for the disease. It ordered him to contribute facie case for Justin Isaacs approximately ten per cent of ACMA to answer concerning his the institute’s costs, amounting alleged use of foul language in Presidential engagements to £330. the course of correspondence The disciplinary committee with a client, and it made Nov 5 CCAB presidents’ group, ICAI. considered six charges against reference to CIMA’s requirements Nov 7-8 FEE group Berlin/IDW dinner, Frankfurt (deputy Morgan in connection with his in relation to professional president attending). work for a client during behaviour and upholding the Nov 8 CIMA annual conference. 2004-05: failing to exercise good standing of the institute. Nov (tbc) Honorary officers’ meeting, London. professional competence Pursuant to members’ Nov 13-16 IFAC council meeting, Mexico. and/or due care, and/or acting regulation 6.3 (iii) and council Nov 14 ACT dinner (deputy president attending). in an unprofessional manner, regulation 16, the committee Nov 17 CIMA Dublin & District dinner dance (immediate past and/or acting in a manner invited Isaacs to consent to the president attending). inconsistent with the good imposition of an admonishment Nov 19 CCAB president’s dinner with David Tweedie. reputation of the profession. by way of “consent order”, Nov 27 CIMA president’s lunch, Scotland. The committee found the without further proceedings, Nov 28 CIMA executive committee dinner. case for misconduct to be to which Isaacs agreed. Nov 29 CIMA executive committee meeting. proven in respect of one charge The committee recorded a Nov 29 Honorary officers’ meeting, London. only – namely, that Morgan had finding upholding the complaint, Nov 29 CIMA awards dinner. inappropriately retained the issuing an order for the client’s records, despite being imposition of an admonishment.

financial management 61 Forthcoming Visit www.cimaglobal.com/events for updates and a full list of events local events (all branch events are free unless otherwise stated). To book places, get in in the UK touch with the contact for the relevant area, unless otherwise stated. To book places on CIMA Biz.Net events, e-mail [email protected].

Calling past presidents of Investment vehicle? Attendees Central London December 11 Cima December 5-6 December 12 January 21-22 January 29-30 took the chance to admire the cima northern ireland many classic cars on show. And North Thames ProfessionaLiverpool Mastercourses The essential guide to Financial instruments – Persuading and Persuading and Contact: area.one@ annual carol service T: 020 8849 2489 treasury security practical application CIMA Northern Ireland invites all past presidents to influencing people influencing people, cimaglobal.com. Time: 5.30pm F: 020 8849 2460 and controls of financial come and celebrate its 60th anniversary with members Birmingham Please book online, Venue: St Nicholas Parish E: mastercourses@ reporting standards and students over a three-course Christmas lunch: January 21-22 where possible, at www. Church, Chapel Street, cimaglobal.com December 5-7 Professional January 29-30 cimaglobal.com/central Liverpool L2 8TZ The following are a The accounting December 12 December 12 presentation skills Persuading and londonandnorththames Booking is not necessary selection of events in standards masterclass, Time management CIMA Northern Ireland 60th anniversary influencing people, December, January Birmingham Christmas lunch January 22-23 Manchester December 5 North-east and February December 12 Time: 12.30 for 1pm Introduction to Wine tasting England (for the full list visit December 6 Fifteen ways to reduce Venue: The Grand Opera House, Great Victoria Street, management, Leeds January 30 Time: 6 for 6.30pm Contact: area.five@ www.cimaglobal.com). Lean finance costs, Castle Donington Belfast BT2 7HR Group accounting under Venue: CIMA, 26 Chapter cimaglobal.com. Courses are in London Cost: £10 (includes meal) January 22-23 UK Gaap – advanced, Street, London SW1P 4NP Please book online, unless otherwise stated December 6 December 12-14 Contact: [email protected] Persuading and Manchester Cost: £20 where possible, at Time management Financial modelling – (020 8849 2429). influencing people,Bristol www.cimaglobal.com/ December 3 financial planning January 30 Central Southern northeastengland Spreadsheet skills for December 6 and budgeting-based January 23 MS Excel intermediate England forecasting, planning and MS Excel intermediate case study December 20 January 10-11 Company secretarial Contact: area.eleven@ December 4 budgeting, Bristol Time management Introduction to practice for support staff January 30-31 cimaglobal.com Teesside branch December 6-7 December 13 management Corporate governance New members enjoy members’ and students’ December 3 Professional Company accounting in December 20 January 23 and risk management, vintage evening December 3 festive gathering Strategic thinking, presentation skills the USA MS Excel expert January 10-11 The art of being brilliant Dublin The recently refurbished Heritage Motor Centre in Visit to Heinz Time: 7pm influencing and Professional Gaydon, Warwickshire, played host to the second UK headquarters Venue: McQuays, 85 implementation December 7 December 13 December 21 presentation skills January 23-24 January 30-31 of CIMA’s two annual celebration events for Time: 7 for 7.30pm High Street, Yarm Understanding Budgeting basics MS Access for end Introduction to Professional new members. Venue: H J Heinz TS15 9BG December 3 commercial contracts, users – introduction January 11 management presentation skills Nearly 70 new members and their guests toasted Company, South Building, Essential business Glasgow December 13 Time management their success and then networked with CIMA Hayes Park, Hayes Scotland writing skills Report writing January 3 January 23-24 January 31 committee members and staff over canapés UB4 8AL Contact: area.seven@ December 7 for business Time management January 11 People and team MS Excel advanced and drinks. cimaglobal.com. December 3 MS Excel advanced Time management, management Next year’s celebrations will be held in London on December 4 Please book online, The art of being brilliant December 13-14 January 3-4 Birmingham February 4 July 2 and in Liverpool, European city of culture 2008, Quiz night where possible, at December 10 Financial modelling – Introduction to January 24-25 Company law update: on September 25. Time: 7 for 7.30pm www.cimaglobal.com/ December 4 Getting more value project-based case study management January 14 Project finance how the changes Diary Venue: The Raven Hotel, scotland Better management from overheads MS Excel introduction modelling affect you Station Road, Hook reporting, planning December 14 January 3-4 methodology and February 13 February 27 RG27 9HS December 6 and control December 10 Key management Persuading and January 14 techniques February 5 Understanding Dark art of budgeting Cost: £5 Membership Financial instruments for accounting techniques, influencing people Time management, Enterprise risk commercial contracts application workshop December 4 the non-financial sector Manchester Manchester January 24-25 management February 28 December 5 Time: 6 for 6.30pm Successful business January 3-4 Introduction to February 14 International financial Career profile workshop Venue: Holiday Inn plans, Edinburgh December 11 December 17 Professional January 15 management, Manchester February 6 Achieving process reporting standards: Time: 7.30 for 8pm Glasgow City Centre, Flexible planning and MS Excel introduction presentation skills MS Excel intermediate Key management excellence – comparison and update Venue: Holiday Inn (J4/ 161 West Nile Street, December 4 rolling forecasts January 24-25 accounting techniques Six Sigma process M40), Handycross, Glasgow G1 2RL Achieving process December 17 MS January 4 January 16 Management excellence improvement February 28 High Wycombe HP11 1TL excellence – Six Sigma December 11-12 Project introduction Report writing MS Excel advanced February 7 Better management South-west process improvement Update for the for business January 24-25 Commercial skills for February 15 reporting, planning and December 5 England AND accountant in industry December 17-18 January 16-18 MS Excel VBA finance professionals Smarter thinking, control, Nottingham Wine adventure at the south wales December 4 and commerce Professional January 7 Company valuations smarter working Groucho Club Contact: area.two@ Effective delegation presentation skills The art of being brilliant modelling methodology January 25 February 7 February 29 Time: 7pm cimaglobal.com. December 11-12 and techniques Time management Pricing strategies – February 19 The balanced scorecard, Venue: The Groucho Club, Please book online, December 4 Financial awareness – December 18 January 7-8 principles Funky finance – Leeds 45 Dean Street, London where possible, at www. Read faster, read smarter finance for non-financial FRSSE accounting Project finance January 17 January 28 focus on retail W10 4QB cimaglobal.com/southwest managers, Manchester modelling FRSSE accounting, Time management, February 8 (book before January 25 Cost: £29.50 englandandsouthwales December 5 December 18 methodology and Bristol Edinburgh Pricing strategies – to receive a discount) Sustaining Group accounting under techniques practice Cima North West December 6 Sarbanes-Oxley UK Gaap – refresher January 17 January 28-29 February 25 Contact: area.six@ CPD workshop January 9-10 MS Excel expert Advanced negotiation February 8 Hidden costs and cimaglobal.com Time: 6.30 for 7pm December 18 Introduction to skills for senior managers Management accounting lean accounting Venue: Room LC204, MS Excel intermediate management, January 17 – developments at December 10 University of Birmingham Time management January 28-29 the cutting edge, February 26 aunders

Annual accountants’ Gloucestershire, Park December 18 S Professional Manchester Is marketing profitable?

carol service Campus, Cheltenham MS Project advanced ob January 9-10 January 17-18 presentation skills, Bristol

Time: 12.20pm GL50 2RH /B Professional Professional February 11 February 26 Venue: St Ann’s Church, December 19 presentation skills, presentation skills, Leeds January 29 Financial management Investment appraisal St Ann’s Square Essential business Birmingham Group accounting under in SMEs Manchester M2 7LF writing skills January 21 UK Gaap – fundamentals, February 27 Booking is not necessary hotoshot January 10 MS Access – introduction Manchester February 12 Getting more value December 19 P : Making an impact to data management Spreadsheet skills for from overheads MS Excel advanced at meetings forecasting, planning and budgeting hotograph 12 P

62 financial management financial management 63 >so you want to be… Front-office business and project manager Martin Long explains what a career at the sharp end entails.

If the advert on the right looks like an opportunity you haven’t seen much before, then you’d be absolutely right. Such Role: Front-office business and project manager positions are rare – or perhaps I should say Salary: Excellent “were rare”, because over the past few Location: London years the number of job specifications Niche financial services firm seeks a qualified accountant keen centred on project-driven work, as opposed to move closer to the commercial heart of business in a strategic to more technical areas, has increased. management role. Supporting the front office, the successful What makes this type of job so appealing candidate will deliver accurate reporting, budgeting and is that it offers the chance to work right forecasting for UK- and European-based managing directors at the coalface of frenetic deal-making. across the organisation. This work will include analysing key The most typical accounting positions tend performance indicators and presenting business information to the to be located in the traditional middle office, executive management committee. so that in itself makes the advertised role The role will be extremely varied, giving plenty of scope for the fairly unusual. Unfortunately, this right individual to develop across a number of ad-hoc projects, distinctiveness can sometimes suggest a including the provision of information to improve the firm’s business certain amount of exclusivity in terms of the development and marketing efforts. It requires a qualified person required. I often receive queries from accountant with exceptionally strong communication skills and the CIMA-qualified candidates who worry that ability to think laterally. You will have a keen interest in financial roles such as these are the preserve of markets and want to move beyond the traditional accounting role. ICAEW members. This is simply not the case. What matters here is not the qualification but the added benefits that someone’s personality and business brain can bring to the employer. Given this particular vacancy’s focus on budgeting, forecasting, reporting and analysis, you their ability from previous roles to make dog many a candidate for ten years after could argue that a CIMA member would a real commercial difference. their graduation or professional exams, no in fact have an excellent head-start in the Something that isn’t immediately longer applies. For these roles and many selection stakes. evident from the advert is the type of others it is your experience and how you Some of the key phrases to pick up on experience a candidate will need in order sell this at the interview that will make the in the advert are the references to “strong to be considered. From my knowledge of difference. Indeed, as part of the final stages communication skills” and “presenting recruiting for such positions, roles at this of the interview you may even be asked to business information to the executive level in the financial services industry do present a case study to show how good management committee”. In other words, require people with experience in a similar your communication skills really are. shrinking violets and nervous speakers need institution. CIMA members from blue-chip not apply. This position requires someone companies may get an interview, but not as Martin Long is a consultant with Joslin who can present the numbers clearly, often as I think they should. Much of this Rowe’s accountancy and finance team. explain trends and stand their ground under unwritten rule is to do with the type of questioning. The personal qualities you environment and the still fairly unshakeable Need to know would need to demonstrate at interview are belief among financial services firms that that you can be assertive yet calm, and theirs is the most pressurised industry. If Job level: managerial. quick-witted yet methodical. you have a very different background, Salary: £50,000-£60,000. Another key area that the job description therefore, you would probably need to move Where: City of London. clearly focuses on is the business/project- into a more technical accounting role at a driven nature of the role. Again, you can see bank or insurance company before you Essentials: a strong personality, this in phrases such as “the ability to think could take on this type of job. an ability to add value and see laterally” and “improve the firm’s business One bit of good news is that employers’ the bigger picture. Experience development and marketing efforts”. The dreaded preoccupation with pass rates and of reporting and analysis. right person would need to demonstrate degree class/subject, which used to unfairly

financial management 65 Press release of the month: >...lastout Hacked off? Hacking kits for sale on eBay We rummage through in-box and postbag to bring you astonishing insights from the business world. If you’ve been on the receiving end of such wisdom and would like to pass it on, please send the most obvious and the most obscure in corporate communications to [email protected] clearly labelled “Last out”.

The (un)clear winner Mangled metaphors “Grant Thornton says new

Geology or meteorology? chancellor’s pre-budget “Organisations battling with report hamstrung by financial fault lines as predecessor’s promises. Francesca Lagerberg, “Tier-3, the behavioural analysis IT security business climate changes.” specialist, has warned companies that hacker Octopus Communications. head of Grant Thornton’s toolkits – previously confined to specialist national tax office, believes hidden forums on the internet – are now being All at sea that the spotlight was stolen sold openly on auction sites such as eBay. “E-bcm, the online credit by Gordon Brown in this ‘This is a serious development,’ said Geoff Sweeney, Tier-3’s CTO, who added checking and financial year’s budget when the then that, where would-be hackers previously had management service, is prime-minister-in-waiting to score brownie points to gain access to calling on the UK government flexed his muscle for the top hacker forums and source the kits, the fact to reverse its decision to job by making a raft of that they are now on open sale on eBay was very worrying. withdraw funding for the forward-looking changes, ‘It basically puts high-level hacking tools, Better Payment Practice which will hamper Darling’s including surreptitious Trojan loaders and Group, saying that its manoeuvrability in the web site hacking utilities, into the hands of dissolution will mean the UK’s almost any internet user – including novices pre-budget report.” – providing that they have an eBay and small businesses being cut PayPal account,’ Sweeney said. adrift in the fight against late Fighting “Osborne’s unfunded He went on to say that the hacker kits were payments and bad debt.” tax commitments are usually sold on eBay as ethical hacker training talk utterly feeble.” courses, but the courses also included a Vince Cable, shadow wealth of utilities for ‘educational purposes’. chancellor for the UK Liberal Democrats. For more on eBay hacker kits, visit Run that one http://snipurl.com/1s9w0.” past us again “TCS Financial Solutions, a strategic business unit of Tata Consultancy Get a grip Services (TCS), (BSE: TCS.BO, NSE: “In an effort to get small business TCS.NS), dedicated to providing business owners and their accountants closer application solutions to the banking, insurance and capital markets industries, together so that they can better announced that TCS BαNCS Corporate understand each others’ needs, Actions and TCS BαNCS Custody, accounting software company formerly branded NCS Corporate Actions KashFlow is launching a campaign and Custody, have been certified as SWIFTReady Gold Corporate Actions and to get October 25 recognised as SWIFTReady Gold Securities Settlement National Hug Your Accountant Day.” respectively for 2007.”

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