Hit the road Positive leadership for troubled times - ICAEW

ISSUE 199 

MAY 

2012 

icaew.com/fmfac 

FINANCE & 

MANAGEMENT 

“STARTING OUT IN A DIFFICULT ENVIRONMENT IS NO BAD THING” PAGE 10 

Mission possible 

Why setting 

long-term goals is 

good for business 

Retail therapy 

Top tips from turnaround 

king Peter Williams 

Stormy weather 

Prepare your business 

for eurozone volatility 

Hit the road 

Positive leadership 

for troubled times

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“STARTING OUT IN A DIFFICULT ENVIRONMENT IS NO BAD THING” PAGE 10 

ISSUE 199 

MAY 

2012 


FINANCE & MANAGEMENT 

Contents 

Issue 199 

May 2012 

FINANCE & 

MANAGEMENT 

COVER IMAGE: ROSE BLAKE, DUANE NASIS, CORBIS, ALAMY 

22 

“Check if your sales 

contracts allow you 

to adjust prices if 

currencies experience 

large swings” 

Martin Holyoake is partner, 

business advisory services, 

Ernst & Young. 

14 

10 

32 

04 

Editor’s letter 

Leadership challenges 

in complex times 

05 

News review 

News on the 

financial front 

06 

Faculty news 

Catch up with the faculty 

07 

Events 

What’s on in May, 

June and July 

09 

Book reviews 

Two books for 

business minds 

10 

Retail therapy 

Turnaround king 

Peter Williams talks 

about running a 

business in a faltering 

economy 

14 

Weathering 

the eurozone 

storms 

Adapting and surviving 

in the region 

18 

When the 

going gets 

tough… 

Saatchi & Saatchi’s 

Bob Seelert has five 

key steps for 

business survival 

22 

The way ahead 

Stathis Gould on 

meeting changing 

expectations 

24 

Walking the 

ethical 

tightrope 

Acting ethically 

under pressure 

26 

Volunteering 

for the finance 

professional 

Paul Chan steps up and 

explains the rewards 

volunteering can bring 

28 

From the 

faculties 

What’s happening 

around the other 

faculties 

29 

Technical 

updates 

Our round up of 

changes in the law 

32 

Mission control 

The advantages of clear, 

strategic thinking 

FINANCE & MANAGEMENT MAY 2012 

3


Leadership 

challenges in 

complex times 

In today’s volatile business environment, leaders 

are facing complex and distinctive challenges. 

Globalisation, fiercely competitive markets and 

rapid technological changes are causing 

heightened uncertainties which in turn are putting 

immense pressure on existing business models. 

To cope with these increased demands, leaders 

are being challenged to develop and deliver visions which will 

lead the business through these unpredictable times. Many leaders 

are choosing to move away from traditional autocratic leadership 

styles towards a more collaborative approach that focuses on 

a shared vision which recognises and values the various viewpoints 

of its team members. 

The topic of leadership was discussed at the recent Management 

Accounting Research Group (MARG) conference which was held at 

the London School of Economics. During the panel discussion, 

Robert Hodgkinson, executive director at ICAEW, remarked that chartered accountants are 

regularly perceived by the public as capable business leaders. As our roles as finance experts 

are continually evolving, we play a great part in shaping the strategic direction of businesses. 

Consequently, we are expected to show leadership qualities and are under pressure to 

demonstrate key behavioural characteristics. In response to the public’s perception, ICAEW 

has been running a number of development programmes, which aim to assist finance 

professionals at all levels to become business leaders of the future. For further details, refer 

to icaew.com/leadership. 

Continuing on the subject of leadership, this month’s cover story focuses on leading in 

tough times. Bob Seelert, worldwide chairman of Saatchi & Saatchi (p18) provides an insight 

into his real-world experience of leadership. He shares his wisdom on some of the crucial 

lessons he learnt throughout his long career as CEO of five companies and discusses making 

some hard business decisions. Seelert also provides some practical and relevant advice on 

how to navigate your way through difficult times. 

Although leading in tough times can be a complicated process to manage, many 

organisations can gain positive benefits because leaders are being forced to re-think their 

strategic approach, which can potentially turn challenging opportunities into remarkable 

successes. 

I hope you enjoy reading this month’s issue of Finance & Management and, as always, 

I welcome any comments you may have. 

Jennifer Chong 

Technical manager 

© ICAEW 2012. All rights reserved. The views expressed in this publication are those of the contributors; ICAEW 

does not necessarily share their views. ICAEW and the author(s) will not be liable for any reliance you place on 

information in this publication. If you want to reproduce or redistribute any of the material in this publication, you 

should first get ICAEW’s permission in writing. No responsibility for loss occasioned to any person acting or 

refraining from action as a result of any material in this publication can be accepted by ICAEW, the publishers or the 

author(s). Whilst every care is taken to ensure accuracy, ICAEW, the publishers and author(s) cannot accept liability 

for errors or omissions. Details correct at time of going to press. 

To comment on your magazine, please email publishing@icaew.com 

THE TEAM 

Emma Riddell 

Acting head of faculty 

+44 (0)20 7920 8749 

emma.riddell@icaew.com 

Jennifer Chong 

Technical manager 

+44 (0)20 7920 8661 

jennifer.chong@icaew.com 

Rick Payne 

Finance direction programme 

+44 (0)20 7920 8451 

rick.payne@icaew.com 

Caroline Wigham 

Services manager 

+44 (0)20 7920 8508 

caroline.wigham@icaew.com 

THE COMMITTEE 

Carolyn Bresh 

Chairman 

Tony Powell 

Deputy chairman 

Dr Philip Smith 

Council representative 

Paul Chan, John Ferguson 

Daniel Holden, Helen Jesson 

Len Jones, Simon Jones 

Professor Bob Scapens, Graeme 

Scott, Judith Shackleton, 

Patricia Spreull Helen C Stevens, 

Michaela Talbot, Jonathan Teller, 

Rob Thompson 

SUBSCRIPTIONS 

Annual membership of the Finance & 

Management Faculty costs just £85. 

For more information and to join see 

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ISSN 1471-1818 TECPLM10907 

Printed in the UK by Stones. The paper 

used to produce this magazine is sourced 

from sustainable, managed forests. 

4 

MAY 2012 FINANCE & MANAGEMENT

NEWS 

News on the 

financial front 

COMMODITIES 

Input inflation could come 

under more control if IMF’s 

forecasts for commodity 

prices are right. In a recent 

report, it claimed: “The 

weak global economic 

outlook suggests 

commodity prices are 

unlikely to increase at the 

pace of the past decade. In 

fact, under the baseline 

World Economic Outlook 

projections, commodity 

prices are forecast to 

decline during 2012-13. 

Sizeable downside risks to 

global growth also pose 

risks of more downward 

adjustment in commodity 

prices.” Slower growth in 

China looks set to fuel this 

trend. Oil could be a major 

exception, with traders 

suggesting an average price 

above $130 a barrel for 

much of 2012. Any armed 

conflict with Iran would see 

this higher by around 20%. 

CASH 

UK corporates have cash 

worth £754bn sitting on 

their balance sheets, 

according to Ross Walker of 

the Royal Bank of Scotland’s 

economics team. According 

to KPMG, if all UK defined 

benefit schemes had a 

mark-to-market funding 

valuation at 30 September 

2011, the aggregate deficit 

was £300bn. 

But according to evidence 

to the Commons Finance 

Committee in April by 

Robert Chote, chairman of 

the Office for Budget 

Responsibility. “There is a 

fair amount of cash out 

there, but it is not clear it is 

in the hands of companies 

that might engage in capital 

investment to the extent 

the official figures suggest,” 

he said. 

FDS LEAD THE WAY ON OPTIMISM 

Judging by the pronouncements of the 

Organisation for Economic Co-operation and 

Development (OECD) over the past couple of 

months, the UK is both in a double-dip 

recession – and on the road to recovery. At 

the end of March, it’s data suggested that UK 

output declined at an annual rate of 1.2% in 

the final quarter of 2011 and 0.4% in the first 

three months of 2012. 

But just two weeks later, according to its 

composite leading indicators (CLIs), which 

reliably predict the economic outlook for the 

next six months, there was an increase in UK 

economic activity in January and February. 

The OECD might be in two minds – but its 

more upbeat data was confirmed by the 

Deloitte CFO Survey, where finance leaders 

expressed renewed optimism for their own 

businesses, albeit with some caution over 

the wider economy. 

True, on average they assign a 30% 

probability to a double-dip recession – but 

FINANCE HEADS IN THE CLOUD 

that’s down from 54% in December. And 

their aggregate confidence for their own 

companies’ finances has risen at the fastest 

rate since the survey began in 2007. For the 

first time in a year, higher numbers of CFOs 

are more optimistic about their own financial 

prospects than less so. 

That’s reflected in a new appetite – among 

the larger company CFOs, at least – for 

risk-taking, which has also risen at record 

levels. But that appetite is focused on new 

product development. CFOs remain 

conservative on balance sheet issues, still 

looking to maximise cash and minimise 

new borrowing, see chart below. 

Deloitte reckons this is at least in part a 

function of global instabilities. Weak global 

growth, eurozone unpredictability and 

volatile commodity prices make tight balance 

sheet management – and, in particular, the 

near record levels of cash being held by UK 

corporates – sensible course of action. 

Corporate priorities – percentage of CFOs who rated each of the following as a strong priority for their business 

Introducing new products/services or 

expanding into new markets 

Reducing costs 

Increasing cashflow 

Expanding by acquisition 

Increasing capital expenditure 

Reducing leverage 

Disposing of assets 

Raising dividends or share buybacks 

The increasingly strategic role for IT – 

particularly as new technologies like cloud 

computing change business models – is 

forcing finance directors to up their geek 

game. That’s the central finding of a survey 

Google conducted earlier this year into the 

strategic impact of IT. 

Nearly 67% of the senior financial 

decision-makers questioned said “cloud” has 

highlighted the IT department’s contribution 

to corporate strategy. Half the respondents 

think this will result in closer involvement in 

decisions traditionally seen as the preserve of 

the IT function or CIO. And 93 per cent said 

10 % 20 % 30 % 40 % 50 % 

2012 Q1 

2011 Q1 

that cloud computing would be important to 

the success of their company in the next year 

to 18 months. 

“Enterprise cloud adoption has been 

largely driven by the IT function,” said 

Thomas Davies, head of Google Enterprise for 

the UK and Ireland. “However, today we see 

ourselves having more discussions with 

CFOs, COOs and CEOs. The strategically 

significant role [cloud] can play within an 

organisation in terms of driving innovation 

and productivity is making it an increasingly 

attractive option for businesses that want to 

remain competitive and agile.” 


5


Faculty 

news 

TOP LINKEDIN THREADS 

Cross cultural and virtual teams 

Zero-based budgeting – alive and well? 

Purchase document scanning with OCR 

To enter the debate join our group – 

ICAEW Finance & Management Faculty 

at linkedin.com 

REVIEW TIME 

The ICAEW Annual Review 

and Financial Statements for 

2011 (icaew.com/review) are 

now online. To summarise: 

Member numbers are up, 

at over 138,000. 

Income grew by £6m to 

£82.4m. 

We delivered a net surplus 

of £4.1m which included 

one-off receipts of £2.4m 

from the AADB (Accountancy 

and Actuarial Discipline 

Board) in respect of fines and 

a contribution to past costs. 

Our net assets at 31 Dec 

2011 were £25.3m. 

We continued to increase 

student numbers, with 25% 

of the intake now from 

outside the UK. 

ANNUAL REVIEW 2011 

SOPHIA SCHORR-KON 

GET INVOLVED WITH 

YOUR FACULTY 

We are always looking for volunteers for the faculty’s 

organising committee. The committee’s role is to set the 

strategy and to ensure that the advice, events, publications 

and technical guidance we deliver is accessible and practical. 

The committee meets four times a year and works mainly 

via email – so it’s a great opportunity to get involved. 

For more information please contact Emma Riddell (pictured left) 

at emma.riddell@icaew.com 

SEE OUR LATEST WEBCAST 

Find a comfortable chair and get your 

popcorn ready! A webcast of our latest 

recorded event Using performance 

measures to drive business success and 

fact-based decision making is available 

to view on the faculty website at 

icaew.com/fmffebwebcast. At this event 

Bernard Marr (right), global enterprise 

performance expert and author of Key 

Performance Indicators (see last month’s 

book review), explained how to create a 

clear pathway to better performance data 

and more fact-based decision making. 

He also talked about the most relevant 

financial and non-financial KPI’s in use 

today; how to turn the measures into real 

insights and how leading organisations 

such as Google, Carlsberg, HSBC, 

Tesco and the NHS are using 

performance measures to drive tangible 

performance improvements. 

BUSINESS WITH CONFIDENCE 

icaew.com/review 

WEBSITE 

RESOURCES 

If you enjoy this magazine, 

then check out the faculty’s 

website – icaew.com/fmfac, 

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articles; 

special reports; and 

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You can search the archive 

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Call our client relationship manager 

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6 


Faculty 

events 

EVENTS 

Strategic decisions; 

a successful finance 

function; women in 

business and the risks 

of outsourcing 

USING DIALOGUE AND DECISION- 

MAKING IN SENIOR TEAMS 

CHARTERED ACCOUNTANTS’ HALL, 

LONDON 

22 May 2012, 08.30-10.00 

Most management teams tend to act as 

collaborative groups rather than cohesive 

teams. Siobhan Soraghan, experienced 

trainer and coach, will provide practical 

guidance on the following: What does it take 

for a management group to become a 

management team? What is the role of 

“Dialogue” as opposed to “Debate”? How 

can the CFO make a vital contribution, given 

their unique perspective and special 

relationship with the CEO? This session will 

raise the controversial subject of team 

dynamics and its impact on strategic 

decision-making. It will introduce 

pragmatic concepts and approaches to 

giving the management team an edge. 

Who should come? Senior finance 

professionals involved in decision-making. 

Why? For better decisions and more 

effective senior teams. 

More information and online booking: 

icaew.com/fmfmayevent 

TURNING AROUND A FINANCE 

FUNCTION – PANEL DISCUSSION 


LONDON 

19 June 2012, 17.30-19.00 

This event is free to faculty members. Join 

us for a lively debate on how to build a 

successful finance function. We will discuss 

issues such as: What constitutes a poorly 

performing finance function? What does 

success look like? How do you overcome the 

common pitfalls when implementing change? 

Our panel will include CFOs who have been 

there and other experts in the field. 

Who should come? Finance professionals 

with responsibility for a finance function. 

Why? For an understanding of how to 

develop your finance function. 


icaew.com/fmfjuneevent 

WOMEN IN FINANCE NETWORK: 

MANAGING YOUR PERSONAL BRAND 


LONDON 

26 June 2012, 17.30-20.00 

A personal brand is “the public projection 

of certain aspects of a person’s personality, 

skills or values that stimulate precise, 

meaningful perceptions in its audience 

about the values and qualities that person 

stands for.” Sinead Bryan, Vice President of 

Finance for Oracle UK, will discuss how she 

has taken control of her own personal 

brand in her career journey and she will 

share some practical experiences in 

developing and leveraging a personal 

brand. This session will allow you to 

take some time to reflect on your own 

personal brand and consider if it is helping 

you to achieve your own career goals 

and aspirations. 

Who should come? Women in business. 

Why? To develop your own individual 

brand and improve your personal impact. 


icaew.com/wifjuneevent 

Further information about the 

above events can be found at 

icaew.com/fmevents 

OVERCOMING THE PITFALLS OF FINANCE 

AND ACCOUNTING OUTSOURCING 


LONDON 

10 July 2012, 8.30-10.00 

Great advances have been made in the 

practice of finance and accounting (F&A) 

outsourcing in recent years. During this 

session, Simon Speirs, from Sutherland 

Global Services, will share some of the 

lessons learnt that now allow greater 

flexibility and help mitigate key risks. We 

will identify some of the key pitfalls and 

provide practical advice on how to avoid 

them. The pitfalls we will be discussing 

include: The risk of loss of control over 

your own operations, difficulties in 

managing supplier relationships, 

overcoming internal resistance to 

outsourcing, reputational risk associated 

with an underperforming supplier, and the 

risk of outsourcing something that would 

better remain in-house. This session will 

be practical with lessons from industry 

and there will be plenty of time to answer 

your questions. 

Who should come? Finance professionals 

considering, or currently implementing, 

F&A outsourcing. 

Why? For an awareness of the pitfalls in 

F&A outsourcing and how to avoid them. 


icaew.com/fmfjulyevent 

GETTY IMAGES 

FINANCE & MANAGEMENT MAY 2012 7

REVIEW 

Book 

reviews 

MAKING THINGS 

Sixty years ago, royal souvenirs were almost all 

made in Britain. Those on offer for this year’s 

jubilee are almost all Chinese. This book is the 

story about what happened and why, as former 

Labour business secretary Peter Mandelson put it; 

“We have forgotten how to make things.” 

Coming from a former Daily Telegraph reporter, 

this is no left-wing diatribe but there is plenty of 

blame to go around. The list ranges from the 

arrogance of both management and labour that 

the British public “should be grateful for what 

they were producing regardless of its quality or 

relevance” through to “treating Europe as a 

handicap rather than an opportunity”. 

One scapegoat is “sheer bad luck”. The Comet 

jet airliner is an example, where terrible new 

lessons about metal fatigue, which twice caused 

catastrophic failure to the fuselage in mid-flight, 

were learned by aero-engineers the world over 

– not least those working on the Boeing-707. The 

other is “good old fashioned incompetence”: the 

runway at the Gloster aircraft works was too short 

to allow completed aircraft to take off. 

Britain accounted for almost 40% of the world’s 

shipbuilding industry in 1950, but used methods 

Surrender: 

How British 

Industry Gave 

Up the Ghost 

1952-2012 

By Nicholas 

Comfort 

Biteback Publishing, £20 

F&M RATING 

from before the first world war. The production 

methods developed by the American shipyards in 

the 1940s were the ones adopted by countries that 

soon became our rivals. Just 13 years after the war, 

both Germany and Japan were launching more 

tonnage every year than Britain. 

In the index former minister for technology, then 

industry, then energy Tony Benn has 15 separate 

page references. Two lines down, world wide web 

inventor Tim Berners-Lee gets just one. This not 

only tells you something about the book, but a lot 

about what’s happened to British industry. 

There are success stories, too. Martin-Baker, the 

family-run manufacturer of aircraft ejection seats, 

has saved 7,630 lives. (Never mind shareholder 

value creation: how many lives has your company 

saved?) The tone of the book is one of head-shaking 

astonishment. In short, a very British book about 

a very British decline. There was something quite 

motivating about it, however. I wanted to dig out 

my old Meccano set and make something. 

READER OFFER: Save 10% with free p&p by emailing 

james.stephens@bitebackpublishing.com. Mention 

Finance & Management in your email. 

WORDS: ANDREW SAWER 

PARTY INVITATION 

Ever since the 1997 launch of CFO: Architect of 

the Corporation’s Future, the finance community 

has been well served with a succession of titles 

aimed at hauling CFOs out from behind their 

spreadsheets. Not many of those books 

manage to reach the high-water mark set 15 

years ago, but The New CFOs comes close. 

This is not a technical manual. It’s more 

readable, satisfying and more likely to drive you 

forward. Yes, it is about leadership, but it is also 

well grounded in the finance function. It talks 

about controls and communication; building a 

great “finance factory” and risk management. 

There’s a smattering of guru-isms (“Your 

respect equity”) but this is an accessible book. 

It has the right number of Venn diagrams, 

flow charts, quadrant diagrams, the compulsory 

finance function pyramid and other graphical 

paraphernalia – which is to say, not very many 

at all. For the most part, it lets the words do the 

talking, not arrows and spirals ripped off from a 

PowerPoint presentation. In fact, a lot of the 

The New CFOs 

By Liz Mellon, 

David C Nagel, 

Robert Lippert 

and Nigel Slack 

Kogan Page, £34.99 

F&M RATING 

words come from CFOs and other experts. 

Moreover, the authors – three of whom are 

US-based – deserve praise for looking beyond 

their own shores for quotes, from the likes of 

Douglas Flint, former FD and now chair of HSBC, 

London Business School Dean Sir Andrew 

Likierman, and Allister Wilson at Ernst & Young. 

Their quotes are enlightening and valuable. The 

authors clearly enjoyed meeting these people. 

One of the best bits wasn’t written by the 

authors but by Zarin Patel, CFO at the BBC, who 

wrote in the foreword that excellent finance skills 

will get you the invitation to the party: “But if you 

are to play a leader’s role in making the party 

swing, then you need to be able to deploy a wide 

range of non-financial skills too. Otherwise you’ll 

be the wallflower with the calculator at the party.” 

If this book impresses Zarin Patel as much as it 

evidently does, then that should be 

recommendation enough for many people. 

READER OFFER: Save 20% with free p&p (UK only): 

simply visit koganpage.com and enter the 

promotional code CFO20 on the checkout page. 

Offer expires 30 June 2012. 

FINANCE & MANAGEMENT MAY 2012 9


10 


TURNAROUND 

RETAIL THERAPY 

Helping revolutionise Selfridges gave 

Peter Williams a reputation as a turnaround 

expert. Christian Doherty finds there’s more 

to him than corporate paramedic – but in 

an economy that refuses to recover, his 

lessons are valuable to all FDs 

DUANE NASIS 

T 

here aren’t many FDs who are 

described as a “junkie” by a major 

newspaper. Peter Williams was, 

though he’s at pains to explain the Evening 

Standard had him down as a junkie for 

change – a reference to his habit of arriving 

at stricken companies and playing a 

significant role in their recovery. 

“It’s inevitable that people are going to 

want to pigeonhole you,” he says, pointing 

out that turnaround work forms only a part 

of a thriving portfolio of roles. He now 

combines board roles at Cineworld, 

Silverstone Holdings Ltd, the Design 

Council, fashion retailer ASOS (a serious 

success story) and football pools company 

Sportech. That’s a pretty diverse roster. 

But Williams’s most high-profile 

engagement recently was as chairman of 

Blacks Leisure, the outdoor retailer that hit 

the buffers in the middle of 2011. 

Managing that kind of decline isn’t easy. It 

takes a certain kind of resilience to take the 

helm of a company so clearly in trouble. 

(His role ended in January when JD Sports 

was secured as a buyer for the chain.) 

Still, his work with distressed businesses 

gives him particular satisfaction. “There 

are plenty of people who do this work, who 

come along to bury the dead,” he says. “My 

aim is to heal the wounded, not read the 

last rites to the dying.” 

ACT QUICKLY FOR THE PATIENT 

These “casualties” have been, for the most 

part, consumer-facing businesses. 

Following a stint as CFO and latterly chief 

executive at iconic department store 

Selfridges, Williams carved out a niche as 

something of an emergency surgeon for 

distressed retailers. In the last ten years, 

JJB, EMI and most recently Blacks have all 

had the Williams treatment. 

Taking a deliberately vague job title – 

“director of strategic development” is a 

favourite – Williams usually arrives at a 

company when the banks and investors 

have lost confidence in the incumbent 

management. His first aim? To shift the 

direction of travel away from 

administration. 

Take sportswear retailer JJB. As an 

executive director working alongside Sir 

David Jones, Williams calmed investor 

fears of an imminent collapse, then 

restored the business’s credibility with 

analysts – a crucial step. A series of strategy 

changes were announced, including the 

closure of unprofitable stores. Williams’ 

tenure was seen by many observers as 

critical to the chain’s subsequent survival. 

That decisiveness is the key: tending the 

wounded means making a series of quick 

decisions to stop the bleeding. But as 

Williams points out, there’s more to it than 

simply parachuting into a crisis, slashing 

costs and buying time with the bank. 

“You have to keep calm,” he says. 

“Whatever fires are burning in the various 

parts of the business, you have to keep 

“You’re going to need 

people to think 

clearly and act 

decisively if they’re 

going to help the 

turnaround – so you 

must reassure them” 

your head because if you, as leader of the 

turnaround process, are seen to panic in 

any way, then that’s not going to help.” 

STATE OF MIND 

The next step in Williams’s paramedic act 

is simple: reassure the workforce, from top 

to bottom. “By the time you get there, the 

business will typically have been through 

difficulties for a period of time,” he says. 

“You’re dealing with an organisation that’s 

made up of human beings, and inevitably 

their emotions and worries can further fuel 

the fear. You’re going to need people to 

think clearly and act decisively if they’re 

going to help the turnaround – so you must 

reassure them.” 

Once fears have been calmed, Williams 

wastes no time in trying to establish 

precisely how a company came to need his 

help. There are generally two kinds of 

situations that demand his help. First is 

long-term – and usually irrevocable – shifts 

in consumer behaviour. Think Kodak 

falling victim to digital photography, or 

HMV suffering as consumers migrate to 

buying music online. 

The second, and more common, issue is 

that the companies lose sight of what made 

them successful in the first place. “Take 

JJB,” Williams says. “When I got there it had 

a heritage as a specialist sports shop. But 

when you went into a store, you were faced 

with Hello Kitty and Thomas the Tank 

Engine merchandise.” 

Williams pointed out that anybody 

who’d gone there thinking it was a sports 

store would be confused. “There’s a reason 

why I focus on that: there are more shops 

than we need, there are countless retailers 

out there, and the consumer is as time- 


11


poor as ever,” he explains. “So if they go 

into a store and they’re not really clear 

what it stands for, they just walk out.” 

FIND A NON-AUSTERITY VISION 

This lack of direction and loss of focus 

usually starts at the top. “When I joined 

Selfridges in 1991 it was like Grace Brothers 

from Are You Being Served,” Williams 

recalls. “The lighting was dour, the 

escalators were 30 years old, parts of the 

store weren’t connected properly, the 

merchandise was horrible, the floor was 

covered with frayed carpet – and yet all that 

was happening in a beautiful building, 

probably one of the finest places for 

retailing anywhere in the world. We needed 

to create a raison d’être for the business.” 

Shifting Selfridges’s focus from home to 

fashion proved to be a masterstroke. 

Williams and his then chief executive 

Vittorio Radice (who later enjoyed an 

ill-fated stint at M&S) repositioned the 

Selfridges brand as a powerhouse on the 

High Street. But more importantly, 

management was able to reconnect staff 

with the business. 

“Every business needs a story,” he says. 

“When all these businesses, whether 

retailers or consumer brands or whatever, 

were first created, there was a reason why 

they existed – because there was some sort 

of opportunity or gap in the market. 

“In a turnaround, you need to stop the 

haemorrhaging and deal with money going 

out the door and all the rest of it,” he 

continues. “But you also need to build a 

story about why the business is going to be 

progressing. If you can’t do that, nobody’s 

going to invest in it and the talent will 

gradually drift away because they think all 

they’ll be doing for the next three years of 

their life is cutting costs.” 

“The CFO is 

looking at the bank 

statements, at the 

cash flows, he’s 

the poor guy who 

knows something 

has got to be done” 

MR MOTIVATOR 

However, given the urgency of most 

turnaround situations – creditors making 

ominous noises and the like – is there ever 

really time to truly inspire staff? Is fear 

of oblivion not a more effective 

motivational tool than vague hopes of 

revitalising a brand concept? 

“Well, you have to provide hope because 

people can’t forever live in fear – that’s 

extremely debilitating,” Williams says. 

“And hope is a positive thing by definition, 

it provides people with a future. Fear is 

different. They’ll say, ‘Well, I’ll put up with 

this for another couple of months and then 

I’m off’. So I think hope is more important 

– although you sometimes have to use the 

fear factor to get the urgency.” 

And of course, there’s a crucial role for 

the finance function. Williams’s strong 

financial background – he joined Andersen 

after qualifying in the mid-1970s, then had 

financial controller stints at Aiwa UK and 

Freemans before the Selfridges post came 

up – must give him an insight into the 

unique position the CFO has in a 

turnaround scenario. 

“It’s difficult, because the chances are 

the CFO is the one who’s having to blow 

the whistle,” he says. “Some CEOs are slow 

to own up to a problem because they don’t 

believe it – or rather they don’t want to 

believe it – or they don’t want to admit 

they actually caused it. Yet the CFO 

is looking at the bank statements, at the 

cash flows, he’s the poor guy who knows 

something has got to be done.” 

So what advice can he offer any 

fellow finance professionals who find 

themselves on the wrong end of an 

emerging turnaround situation? The 

answer is simple: be even more honest 

and straightforward than you’ve ever 

been before. Just so long as you don’t 

go overboard. 

“There’s a danger that you go completely 

‘sackcloth and ashes’ and say, ‘well, let’s 

assume we’re never going to make another 

sale ever in the store’,” Williams says. “And 

that, of course, is not true. Having a CFO 

who is controlling the cash and giving an 

accurate report as to where the business 

stands is the most important thing.” But 

without hope – even in the finance 

function – all is lost. 

“I think hope is more 

important – although 

you sometimes have 

to use the fear factor 

to get the urgency” 

12 


TURNAROUND 

TURNAROUND: NEW NORMAL? 

The skills that Williams turbo-charges for 

his turnaround work have become a basic 

buy-in for any CFO these days. Harsher 

market conditions, long-term throttling 

of finance and a faster pace of business 

mean the approach you’d typically see 

only in tough times is the “new normal”. 

And Williams is hopeful that the new 

generation of finance professionals, 

forged in a much harsher economic 

climate, will be able to rise to the 

challenge of affecting change within 

struggling businesses. “Starting out in a 

difficult environment is no bad thing 

because you learn early on in your career 

that it’s not always a bed of roses – and it 

rarely is,” he says. “Getting exposed to 

difficult situations more quickly and 

often will be good experience if and 

when things get really tough later on.” 

That type of experience now makes 

Williams an effective elder statesman in 

his non-exec roles. Having recovered 

from his stint at Blacks (“it was pretty 

intense for four months,” he admits), 

Williams is now focused on passing on 

his wisdom to the next generation of 

retailers, most of whom will need some 

advice on how to cope with the 

continuing downturn and more secular 

shifts in the way people buy. 

And he admits he fears for the industry. 

“It’s going to continue to be difficult 

throughout this year,” Williams says. 

“Retailers are now much more cognisant 

of the fact that they’ve got to do 

something about the number of stores 

that they have and how they run 

themselves in a slow economy.” 

The ones that survive, in Williams’s 

view, will be those companies willing to 

listen to dissenting voices. The best 

businesses, he says, “are very open to new 

ideas – all through the organisation. They 

are very prepared to listen to anybody 

who’s got a smart idea” he concludes. 

“That’s very refreshing because it means 

they will absorb new approaches.” 

And that openness means there will be 

fewer casualties for him to tend. 

Christian Doherty is a freelance writer and 

former editor of Real FD, a magazine for 

FDs of small UK companies. 

MOUNTING A 

SUCCESSFUL RESCUE 

Peter Williams eschews 

the turnaround tag. But 

he knows the important 

ingredients for bringing 

a company back to life. 

Advisers are key. “Make 

sure you’ve got a strong 

set of advisers. Turnarounds 

are unusual situations, they 

can get quite technical. 

You probably have a 

banking syndicate or a 

covenant that’s causing 

problems, so you need 

people to provide legal 

and debt advice. You might 

also need accountants who 

provide things like going 

concern help or reviews. 

Those people need to be 

very well versed in 

turnaround, too.” 

Seeing is believing. “Just 

being there in the head 

office, and walking round 

the building with a smile 

on your face – not looking 

as though Armageddon is 

nigh – that’s important.” 

Don’t panic! “Whatever 

fires are burning in various 

parts of the business you 

have to keep calm because 

if the leader of the 

turnaround process is seen 

to panic then that’s not 

helpful at all.” 

Work on your acting skills. 

“Even if you don’t know on 

day one what the answer 

to the problem is – which 

you probably won’t – you’ve 

got to pretend that either 

you do know or that you’re 

going to get there quickly.” 

A quick, less-than-perfect 

decision is better than no 

decision. “Sometimes you 

just have to say it’s not 

perfect, but it’s 80% there 

so we can refine it later. 

We do need to decide 

what we’re doing.” 


13


14 


FINANCIAL STRATEGY 

Weathering the 

eurozone storms 

The UK is far from reaching the sunlit 

uplands, economically speaking. But 

for its biggest trading partner – the 

eurozone – the outlook remains 

particularly unsettled. What can FDs 

do to adjust their strategy and 

minimise risk exposure in the region? 

Martin Holyoake has some advice… 

U 

ncertainty continues 

to produce heavy 

economic weather 

in Europe. Markets are volatile 

and even seemingly minor 

events can cause a storm. 

Nobody can be sure if the 

risk of one or more countries 

leaving the eurozone will 

materialise, but in any scenario, 

growth in Europe is likely to be 

lower than was the norm in the 

pre-crisis decade. 

Across Europe, governments 

are working to reduce their 

budget deficits. Public 

expenditure is being cut. At the 

same time credit availability is 

reduced as the banking sector 

strives to meet new regulatory 

targets. As a result there will be 

lower demand for goods and 

services and restricted liquidity 

for the corporate sector. 

NOT BUSINESS AS USUAL 

There are a range of scenarios 

for the future development of 

the eurozone economy. These 

scenarios will be characterised, 

among other factors, by: 

different rates of economic 

growth; 

varying levels of intervention 

by fiscal and monetary bodies; 

disparate views on exits from 

the currency zone; and 

contrasting levels of liquidity 

in the capital markets. 

As governments, businesses, 

financial institutions and 

consumers adapt, there’s a risk 

of severe disruptions to normal 

patterns of economic activity. 

Business as usual is not an option. 

IMPACT ON THE CFO 

How does this changed 

eurozone environment affect 

the CFO? Shareholders, boards, 

analysts and banks are asking 

increasingly detailed questions 

about executives’ preparations 

for operating in this new 

environment. They want to 

know the contingency plans 

that are in place and whether 

firms have thought through the 

longer term consequences for 

their business model. And they 

will look to the CFO to provide 

guidance on the impact for cash, 

cost management and working 

capital and modelling for 

managing the potential scenarios. 

So how should you approach 

the task of revising business 

strategy, so your company is 

ready to deal with the realities 

of the eurozone and the effects 

of unexpected shocks, while 

making the most of the new 

opportunities that emerge? 

Research for Ernst & Young 

shows that high-performing 

organisations are taking 

distinctive action around four 

drivers of competitive success: 

cost competitiveness; 

operational agility; 

customer reach; and 

stakeholder management. 

When preparing their 

business for the eurozone 

scenarios, the CFO can take a 

series of actions in these areas. 

1. COST COMPETITIVENESS 

First, consider cost 

competitiveness. You need to: 

assess cashflow projections 

and consider how various 

economic scenarios would 

affect your company’s cashflow. 

Determine whether liquidity 

will be sufficient to withstand a 

sustained period of below-trend 

economic growth. If you have 

significant interests in a country 

on the periphery of the eurozone, 

consider how cashflow would 

be affected if that country were 

to exit the currency; 

develop rigorous plans that 

help you to forecast with 

confidence, while remaining 

agile. Prepare for fluctuations 

in demand. Consider, for 

example, how a fast moving 

consumer goods (FMCG) 

company would be exposed to 

the effects of uncertainty. If 

such a company exports to the 

eurozone, sales are likely to be 

sensitive to economic policy 

decisions in the respective 

countries. Tighter austerity 

measures would bring 

increasing pricing pressure, 

slackening customer demand 


15


for certain goods and erosion 

of margins. While the total 

volume of goods sold is likely 

to remain fairly stable for core 

consumables, price pressure 

would arise from reduced 

disposable income coupled 

with increased competition 

from other suppliers. Unless 

the company can alter its cost 

base, there will be a negative 

impact on profitability. The 

impact of tighter austerity 

measures on the demand for 

discretionary products will be 

even more severe as both volume 

and price is likely to be affected; 

determine how your future 

funding model would be 

affected by various economic 

scenarios. How would your 

company’s capital structure 

withstand stress? Does it 

include government bonds 

from eurozone countries? If so, 

is the value of these material 

to your business? Consider the 

extent to which you need to 

restructure your balance sheet 

and your access to short-term 

funding flows; 

assess your current currency 

hedging strategy. Were the 

eurozone to break up, how 

would you hedge your currency 

exposure if underlying assets 

are denominated in a new 

currency? Determine how 

your hedging strategy for 

non-currency risk will be 

affected by continued economic 

uncertainty; establish how the 

valuations of your company’s 

assets would be affected by the 

various scenarios – for 

example determining the 

likely impact on goodwill; 

think about how the value of 

your company’s liabilities 

would be affected. Make sure 

you are clear about the 

accounting and disclosure 

implications for impacted 

legal entities and transactions 

in the event of a break-up of 

the eurozone. 

Establish a cogent 

plan to disclose to 

investors and 

regulators; and 

consider how the breakup 

of the eurozone would 

affect your transfer pricing. 

Ensure that your approach is 

robust enough to cope with 

continued European currency 

fluctuations. To do this you 

Check if your 

sales contracts 

allow you to 

adjust prices 

if currencies 

experience 

large swings 

will need to model likely 

scenarios to test the sensitivity 

of the current approach. 

2. IMPROVE AGILITY 

CFOs should also take 

measures to improve 

operational agility. So: 

make it your business to 

understand your suppliers’ 

financial status. As a result of 

globalisation, supply chains 

have become increasingly 

complex across most industry 

sectors. Identify where the 

products that you sell in 

eurozone countries are 

sourced. Understanding the 

end-to-end supply chain 

implications resulting from 

uncertainty and potential 

denominations within the 

eurozone is critical, as their 

impacts may be profound. 

Are any of your suppliers 

vulnerable to default should 

conditions worsen? Establish 

whether you may need to 

provide direct support to 

shore-up your supply chain to 

weather the storm; 

model how your supply 

chain would be affected under 

the different scenarios. Explore 

alternative sources of supply. 

Remember, a supplier could 

fail as a direct result of 

economic conditions or credit 

constraints due to currency 

devaluation; 

ensure you maximise 

contractual flexibility – from 

both supply and demand sides. 

Can you change your supply 

chain to rapidly de-risk your 

exposure or seek out new 

suppliers to capitalise on the 

opportunity? Check the 

currency in which contracts 

are denominated. Check the 

duration of the contracts and 

the basis for price setting. Do 

your purchase contracts make 

provisions for a denomination 

and, if not, can they be amended 

to cover this? Establish 

whether your purchase 

contracts allow you or the 

suppliers to adjust prices if 

currencies experience large 

swings. Again, find out if you 

can amend to make provisions 

for this. Similarly check the 

extent to which your sales 

contracts allow you to adjust 

WHAT SHOULD YOU BE DOING NOW? 

prices if currencies experience 

large swings. Can these be 

amended to make provisions 

for such changes? Establish 

what scope the terms in your 

sales contracts give you to 

recover revenue in the event 

of customer payment default. 

Think about whether you are 

prepared to renegotiate 

customer price terms, currency 

terms or break contracts to 

seize other revenuegenerating 

opportunities in 

more stable markets; 

consider, also, questions 

over ethical obligations, and 

the reputational damage that 

can be caused should you 

choose not to fulfil them. For 

example, if a company exports 

medicine to a government 

hospital located in a troubled 

eurozone country, it may have 

an ethical obligation to 

continue to supply life-saving 

medicines even when 

payments are uncertain. 

Whilst this may not represent 

a risk from a legal standpoint, 

discontinuing the supply due 

to revenue erosion risk – often 

in circumstances where 

generic supply options are 

unavailable – could cause 

1. Create a team with the necessary skills and knowledge 

of the business and issues. 

2. Define the potential scenarios and analyse the potential 

impact of these on the business. 

3. On the basis of the above analysis, develop the appropriate 

contingency plans. 

4. Update the business strategy in the key areas as appropriate. 

5. Document and communicate the contingency plans and 

governance structure. 

6. Prepare stakeholder communications. 

7. Agree a process to adjust the plans as the market changes. 

8. Overhaul planning and reporting processes to increase 

transparency to trends and agility in understanding 

new scenarios. 

AMY CARTER 

16 


FINANCIAL STRATEGY 

substantial reputational 

damage. The potential 

financial implications may be 

even more severe in the event 

that the respective country 

exits the eurozone and 

denominates its currency; and 

explore the impact of austerity 

measures on the risk of credit 

default by key customers. To 

this end, strengthen the 

management and monitoring 

of credit – for example, revisit 

credit checks and searches on 

established customers to 

ensure their circumstances 

haven’t changed. 

3. CUSTOMER REACH 

The third key growth driver to 

consider is customer reach. 

You need to: 

determine how your 

stakeholders are likely to be 

affected by the various scenarios. 

Establish the extent of your 

dependency on joint ventures, 

alliances or other major 

relationships with third parties 

within the eurozone countries; 

update your previous 

analysis of acquisition targets. 

If you are in the process of 

planning or executing any 

mergers or acquisitions in 

Europe, ensure that risk 

considerations are factored 

into price decisions. The 

current economic situation may 

give rise to new acquisition 

opportunities. Be aware of 

them and ready to act; 

assess the positioning of 

your competitors. Study their 

sourcing, supply, demand and 

manufacturing profiles. Would 

they be able to strengthen their 

competitive positions under 

any of the possible scenarios? 

Establish how you can move 

quickly to capitalise if a 

situation arises that favours 

you over your competitors. 

Work to negate any exposure 

that you may face; and 

widen your scope to acquire, 

to grow, to consolidate or to 

take out competitors. Update 

your approach to identify and 

evaluate such opportunities. 

4. STAKEHOLDER FAITH 

The CFO is increasingly seen 

as the public face of the 

organisation. Their unique 

overview of business 

fundamentals, their role as 

conscience of the organisation 

Martin Holyoake 

is partner, business 

advisory services, 

Ernst & Young. 

mholyoake@uk.ey.com 

The CFO is 

increasingly 

seen as the 

public face of 

the organisation 

and their fact-based training 

means that a diverse group of 

stakeholders is increasingly 

looking to them for the answers. 

The CFO is best placed to deal 

with the fourth key growthdriver: 

stakeholder confidence. 

Investors and analysts want 

broader communications than 

the annual or interim reports, 

and the opportunity to 

question the CFO directly 

about the strategy. And with 

finance now a big story, you 

have more opportunities to 

make an impact in the media. 

Getting your investor 

communications right will give 

you a distinctive competitive 

advantage. So: 

focus on extending reporting 

beyond financial, regulatory 

and compliance requirements, 

and increase the frequency of 

your corporate performance 

communication. With the 

uncertain outlook making 

competition for capital fierce, 

it is even more important to 

ensure you can tell a compelling 

growth story to investors; and 

think about how you will use 

media opportunities to reassure 

customers, clients, investors 

and suppliers that your 

organisation has identified 

and assessed the potential 

impacts of the various eurozone 

scenarios, and is prepared to 

address the risks and seize the 

opportunities. The more volatile 

the conditions, the greater the 

need for reassurance. However, 

a note of caution here. 

Remember that investors look 

to a CFO to present them with 

an honest, objective picture 

– not a sales pitch. Hence it is 

important to also: 

retain investors’ confidence 

by being open and transparent. 

This transparency can stretch 

to providing investors with 

direct access to local 

management. You can 

demonstrate to investors that 

you have the right team in place 

that understands the nuances 

and risks of a particular 

business environment. 

RIDING OUT THE STORM 

By scenario mapping and 

boosting your planning in 

the key areas of cost 

competitiveness, operational 

agility, customer reach and 

stakeholder management as 

outlined, you can face the 

unsettled eurozone outlook 

with confidence. (See box, left, 

for an eight-point action plan.) 

Performing a robust overhaul 

of your organisation’s business 

strategy should leave it better 

prepared to cope with the 

underlying conditions in 

Europe and withstand any 

storms ahead. Organisations 

which understand the 

implications of the eurozone 

issues will not only be better 

placed to avoid the pitfalls and 

risks ahead, but also be in the 

lead position for growth 

opportunities as they arise. 


17


When the going 

gets tough… 

Difficult times demand a specific 

kind of leadership. Here Bob Seelert 

of Saatchi & Saatchi describes the 

five key steps for business success 

in the current climate 

I 

n 2009 I wrote a book comprising 

94 business stories and the 

lessons they had taught me in my 

career as chief executive of companies in 

three separate industries. 

The book, Start With The 

Answer (John Wiley & 

Sons, £16.99, 

startwiththeanswer.com), 

came out as the economy 

was being gripped by 

a financial crisis and 

slipping into recession. 

Accordingly, I swiftly 

reviewed the 94 stories, 

and based on their 

collective input, I wrote 

what could have been the 95th story – 

entitled Ten Things To Do When Leading 

in Tough Times. These ‘ten things’ 

represented a road map for navigating 

through the troubled waters, and we put 

them to good use at Saatchi & Saatchi. 

Now, three years later, there has been 

some improvement in certain aspects of 

the worldwide economy, but there has 

been deterioration in other factors. 

Today’s environment is characterised by 

low growth, high unemployment, 

unsustainable entitlement programmes, 

suffocating levels of debt, dysfunctional 

“We believe we 

are living in a 

VUCA world 

– Volatile, 

Uncertain, 

Complex, and 

Ambiguous” 

governments, concerns about currency, 

and continuing volatility in the Middle 

East. At Saatchi & Saatchi, we believe we 

are living in a VUCA world – Volatile, 

Uncertain, Complex, and 

Ambiguous. What one sees, 

hears, and thinks today 

could turn out to be 

dramatically different 

tomorrow. These are times 

when companies have to be 

prepared for anything. 

Simply put, five of the ‘ten 

things’ that were appropriate 

following the financial crisis 

remain highly relevant for 

managers today. They are: 

1 GET THE UGLY TRUTH OUT ON 

THE TABLE 

It’s essential that companies ‘get the ugly 

truth out on the table’. The order of the 

day described above represents a factual 

assessment. Economies in most of the 

western world are not buoyant, and 

significant negative issues have the 

potential to make things even worse. 

Anyone who thinks they can predict the 

next 12 months with certainty is simply 

deluding themselves. Therefore, it is a 

time when one needs to be prepared to ‘go 

18 


COVER STORY 

ROSE BLAKE 


19


both ways’. You therefore need to ask 

yourself, the following two questions: 

‘What will I do if the environment 

improves?’; and 

‘How will I behave if things get worse?’ 

CFOs are accountable for the quality and 

internal integrity of the financial plan, as 

well as its achievement in the real world. 

Analysing any plan as to how it will 

perform in alternative environments, and 

being prepared to shift gears before one 

gets unduly strung out, is a necessary 

condition of the VUCA world. 

2 ESTABLISH STANDARDS FOR 

THE NEW REALITY 

Second, one has to establish standards for 

the new reality. In this environment, 

budgets should be established using 

coldly realistic assumptions. It is always 

easier to add resources when one is ahead 

of plan than it is to cut back when one falls 

behind. At the same time you want your 

company to be ambitious and reach for 

the stars. The way we address this at 

Saatchi & Saatchi is to set a performance 

standard relative to the market, wherever 

it may end up, rather than just measuring 

performance versus the annual plan. We 

set realistic goals in the annual budget, 

but our on-going ambition is to 

outperform the market by 50%. This sets 

a very high standard and means we 

want continuous improvements in 

share of market. 

3 THINK LONG-TERM, WHILE 

ACTING SHORT-TERM 

In the VUCA world, it is good to think 

long-term while acting short-term. At 

Saatchi & Saatchi, we have a ‘purpose’ 

document which tells our people 

everything they need to know about 

long-term strategy, beginning with 

our ‘Inspirational Dream’ which is: 

to be revered as the hothouse for 

world-changing creative ideas that 

transform our clients’ 

businesses, brands, 

and reputations. 

This has been our 

purpose for 15 years and 

is formally reviewed 

every year. Our words 

and long-term intentions 

have travelled well. 

However, our daily 

behaviour is governed by 

what we call ‘100-day 

plans’. These are the six 

to 10 things we want to accomplish in the 

next 100 days on the path to long-term 

progress. We cascade these plans across 

the company, and update them three 

times per year. In the VUCA world, one 

can only see so far out, and without a 

short-term, there is no long-term. 

It is always easier 

to add resources 

when one is 

ahead of plan 

than it is to cut 

back when one 

falls behind 

4 EVERY TIME YOU THINK ‘ADD’, 

ALSO THINK ‘REDUCE’; AND 

EVERY TIME YOU THINK 

‘CREATE’, ALSO THINK 

‘ELIMINATE’ 

Another essential lesson is that every time 

you think ‘add’ you should also 

simultaneously think ‘reduce’ and, 

similarly, every time you think ‘create’ you 

should at the same time think ‘eliminate’. 

This is a basic tenet of Blue Ocean 

Strategy by W Chan Kim and Renee 

Mauborgne (co-directors of the INSEAD 

Blue Ocean Strategy Institute), and is a 

priceless exercise. 

Despite the state of the economy, it’s 

likely that your company will need to add 

some new positions and create some new 

capabilities in order to meet the demands 

of the marketplace. You should press 

ahead in these areas, but at the same time, 

you must have the organisation 

simultaneously thinking 

about how it can reduce and 

eliminate things as well. 

This refers not so much to 

headcount as to eliminating 

inefficiency, ineffectiveness, 

bad practices and decisions, 

and self-destructive 

organisational behaviour. 

The reality is that tough 

times force trade-offs, as do 

the competitive demands of 

global competition. In our 

business at Saatchi & Saatchi, we now live 

in the hyper-connected digital age. Steve 

Jobs and others changed the way people 

get access to information, connect with 

each other, and make purchasing 

decisions. In this world, we need people 

who are digitally savvy and are in touch 

with the dizzying array of new media 

alternatives. By the same token, there’s 

not the historical level of demand for 

other types of advertising. So as we think 

about adding or creating over here, we 

simultaneously have to be prepared to 

reduce or eliminate over there. 

5 SET TIGHT PRIORITIES 

Finally, in the VUCA world, companies 

need to be sure to set tight priorities. In 

tough times it is more important than ever 

to decide what is core to your business, 

and what is non-core, and to focus time 

and attention on the critical few things 

that will make a difference. 

When I started with Saatchi & Saatchi in 

1995, the founding Saatchi brothers had 

20 


COVER STORY 

IF THIS IS THE ANSWER, WHY DO SO FEW 

COMPANIES BEHAVE THIS WAY? 

been ousted by their board and gone 

across town to open a rival agency. Six 

percent of the revenue had walked out of 

the door with them, the company was 

losing money, it had too much debt at too 

high an interest rate, and it was all 

coming due too soon. Additionally, every 

client and every employee was asking, 

‘Should I stay or leave?’ 

Talk about tough times! This was an 

early preview of what has become the 

VUCA world. For the first six months I 

was there I devoted 100% of my energies 

to two things: stabilising clients and staff, 

and refinancing the company. The reality 

was that if I didn’t get those two things 

done, nothing else would have mattered. 

Looked at in a positive way, given that we 

were successful on both fronts, 

accomplishing those goals set up all the 

good things that have happened to the 

company ever since. 

Bob Seelert is worldwide 

chairman of Saatchi & Saatchi. 

He is a graduate of Harvard 

Business School, has been 

CEO of five companies, built 

megabrands, been party to 

two megamergers, and 

enacted numerous 

turnarounds. 

bob.seelert@saatchiny.com 

You might be reading this article 

and thinking these five things 

make a good deal of sense. 

By the same token you might 

be asking yourself, ‘If that’s the 

case, why is it that so few 

companies and leaders behave 

this way?’ I believe there are 

three fundamental answers to 

this dilemma. 

1. Failure TO EXPOSE the ugly truth 

The first stumbling block is that 

many companies and leaders 

demonstrate a consistent inability 

to take the first step. They simply 

fail to ‘get the ugly truth up on 

the table’. 

At General Motors, for example, 

this problem became systemic over 

a very long period of time, 

ultimately forcing the company 

into the position of requiring 

a government bailout to continue 

operations. During the Auto 

Hearings, GM management 

revealed they were losing money, 

burning cash, and that liabilities 

exceeded assets. They attributed 

all this to unduly expensive union 

contracts, excess capacity, bad 

acquisitions, too many trademarks, 

runaway health care costs, foreign 

competition, and the need for 

employee layoffs. However, 

management at the time failed to 

mention the ‘ugly truth’ – namely 

that for over a period of fifty years 

the company had consecutively 

lost 34 share points of the US auto 

market. What should this severe 

and consistent loss of market share 

have been telling management 

over these many years? 

Specifically, it was a tell-tale sign 

that the company was failing to 

design, build, and sell cars 

Americans wanted to buy, as 

evidenced by the fact that every 

time consumers voted with their 

chequebook, they consistently 

voted less and less for GM. Issues 

like excess capacity and the need 

for layoffs were symptoms of a 

deeper problem. Now with the 

government bailout behind it and 

under new management, GM is 

getting a second lease of life. It 

has successfully launched an IPO, 

there are signs of success in China, 

and it has regained the title of 

the world’s largest automaker. 

It is working to put the ‘ugly truth’ 

behind it. 

2. Obsession with an unduly 

short time frame 

The second reason why is that 

people and companies become 

obsessed with an unduly short time 

frame. For political leaders, it’s all 

about the next election. For 

companies it’s the results for 

the current quarter. This shortsightedness 

often precludes taking 

the next logical step on the path 

to long-term progress. My belief 

is that this is a self-imposed 

problem. Political constituents in 

truth want sustainable solutions, 

and investors and analysts can 

always be convinced to support 

actions that have long-term merit. 

Leaders need to act accordingly. 

3. Too much management, 

not enough leadership 

Finally, the biggest barrier of all 

is that today we have too much 

management and not enough 

leadership. Management is all 

about planning, directing, 

measuring, and controlling. 

Leadership, on the other hand, is 

all about standing for something, 

and then going into the fray under 

that banner. A leader has to know 

the values, beliefs, principles, and 

practices he or she stands for, and 

then adhere to them. For me, those 

things have always been a belief in 

the long-term, in growth, in 

continuous improvement, and in 

ensuring the organizations of 

which I am a part consistently are 

in a position to out-compete their 

peer group. Knowing who I am and 

having these kinds of guideposts 

are the things that have helped 

ensure I take the right actions 

when leading in tough times, and 

they are the things that let my 

people know where I am coming 

from and what they can expect. 

It’s a VUCA world. You may 

not like it, but that’s the reality. 

Get going, with passion and 

a wanting-to-win spirit. 


21


The way ahead 

Accountants in business 

must adapt to the changing 

expectations of organisations, says 

Stathis Gould, with some pertinent 

advice on where to focus now 

T 

he International 

Federation of 

Accountants (IFAC) 

is working hard to support the 

global profession as it 

responds to the changing 

expectations of society, 

financial markets and 

organisations, and to promote 

the value of professional 

accountants to businesses. 

In the recently published 

Competent and Versatile: How 

Professional Accountants in 

Business Drive Sustainable 

Organisational Success, IFAC 

identifies eight drivers of 

sustainable organisational 

success. Those eight drivers 

– specified in the box, right 

– are those areas in which 

organisations need to excel in 

order to achieve and sustain 

high performance. 

They should also be the 

focus of businesses striving 

for lasting success, which is 

why they are key areas of 

competency for accountants. 

TIPS FOR INDIVIDUAL 

ACCOUNTANTS 

The publication, dubbed 

C&V, takes an employer- 

driven approach primarily 

intended to help the 

accountancy profession – 

including IFAC member 

organisations – facilitate 

sustainable success through 

the education, training, 

and development of 

professional accountants. 

C&V and an accompanying 

brochure aimed at employers 

also help IFAC member 

professional bodies to 

understand and promote the 

diverse contribution of 

professional accountants as 

creators, enablers, preservers, 

and reporters of sustainable 

value in leadership, 

management, analyst, and 

controller roles. 

However, individual 

professional accountants 

can glean helpful advice from 

the publications too. The 

brochure encourages those 

running organisations to 

support the development of 

finance and accounting. It 

recommends making them 

more effective by moving 

them into different and more 

value-added roles inside and 

outside of finance. These 

THE EIGHT DRIVERS 

OF SUSTAINABLE 

ORGANISATIONAL 

SUCCESS 

A customer and 

stakeholder focus. 

Effective leadership and 

strategy. 

Integrated governance and 

risk and control. 

Innovative and adaptive 

capability. 

Financial management. 

People and talent 

management. 

Operational excellence. 

Effective and transparent 

communication. 

goals, it argues, can be 

achieved by ensuring that 

professional accountants gain 

exposure to key areas of the 

organisation, such as sales, 

customer services, marketing, 

operations, and research and 

development. 

The brochure can be used 

to promote the roles and 

competencies of professional 

accountants to their employer 

and colleagues. 

C&V’s overview of the key 

areas of competency that are 

expected is also a very useful 

tool to help accountants 

determine the relevant 

education and training needed 

to support their personal 

career aims. The diagram 

above right, The Roles and 

Domain of the Professional 

Accountant in Business, sets 

out this overview more clearly. 

THE RIGHT MINDSET 

FOR ACCOUNTANTS 

IN BUSINESS 

According to C&V, to remain 

relevant the professional 

accountant needs a mindset 

embracing the following five 

key areas: 

CORBIS 

22 


GENERAL STRATEGY 

THE ROLES AND DOMAIN OF THE 

PROFESSIONAL ACCOUNTANT IN BUSINESS 

PERFORMANCE 

PAIB AS 

CREATOR 

OF VALUE 

PAIB AS 

ENABLER 

OF VALUE 

CFO/FD, 

CONTROLLER, 

MANAGEMENT 

ACCOUNTANT, 

BUSINESS 

ANALYST 

PAIB AS 

REPORTER 

OF VALUE 

PAIB AS 

PRESERVER 

OF VALUE 

CONFORMANCE 

1. PROFESSIONALISM 

AND ETHICAL 

BEHAVIOUR 

Professional accountants 

should uphold high ethical 

standards in accordance with 

the Code of Ethics for 

Professional Accountants and, 

for ICAEW members, the code 

of ethics which can be found 

at icaew.com/en/technical/ 

ethics/icaew-code-of-ethics. 

They also have an important 

role in driving and supporting 

a high standard of ethics 

across the business and 

fostering a values-based 

organisation, such as that 

outlined in IFAC’s guidance 

Defining and Developing an 

Effective Code of Conduct for 

Organisations. 

2. PROFESSIONAL 

JUDGEMENT 

This is a differentiating factor 

for high-performing 

professional accountants. 

This includes balancing 

organisational nimbleness 

and quick and intuitive 

decision making with a need 

for making decisions based 

upon evidence. 

3. ORGANISATIONAL 

AND ENVIRONMENTAL 

AWARENESS 

Professional accountants can 

be expected to perform as 

integrators and navigators by 

linking functional disciplines 

and organisational units, as 

well as facilitating a common 

and unifying view on business 

models and key success 

factors. Organisational and 

environmental awareness and 

understanding are critical in 

helping them to perform 

these roles and to reconcile 

the detailed aspects of 

operational performance with 

the strategic aims. 

4. INVESTOR AND WIDER 

STAKEHOLDER FOCUS 

Professional accountants, 

particularly those in CFO/FD 

roles, can be expected to lead in 

managing relationships with 

investors, other funders, and 

regulators. They can also 

bring a wider stakeholder 

perspective into the organisation 

and challenge managers to 

ensure risk and performance are 

managed in the long-term 

interests of various stakeholders. 

5. ADAPTABILITY TO 

CHANGE, UNCERTAINTY, 

AND COMPLEXITY 

Professional accountants have 

to be able to adapt to changing 

circumstances and apply 

professional skills and 

judgement to often 

ambiguous and imperfect 

information. Whether creating, 

enabling, preserving, or 

reporting sustainable value, 

the role of a professional 

accountant at all levels has 

evolved into one focused on 

managing uncertainty, 

complexity and strategic 

decision-making, within an 

overall context of heightened 

focus on implementing 

effective governance, risk 

and control. 

Stathis Gould 

is head of Professional 

Accountants in Business 

(PAIB) service delivery at 

IFAC stathisgould@ifac.org 

IFAC AND THE PAIB 

IFAC is the global body for 

the accountancy profession, 

dedicated to serving the 

public interest by 

strengthening the profession 

and contributing to the 

development of strong 

international economies. IFAC 

comprises 167 members and 

associates in 127 countries 

and jurisdictions, representing 

roughly 2.5m accountants in 

public practice, education, 

government service, industry, 

and commerce. 

The PAIB Committee 

serves IFAC member bodies 

and professional accountants 

worldwide who work in 

commerce, industry, financial 

services, education, and the 

public and not-for-profit 

sectors. Its aim is to promote 

and contribute to the value of 

professional accountants in 

business by increasing 

awareness of the important 

roles professional accountants 

play, supporting member 

bodies in enhancing the 

competence of their 

members, and facilitating the 

communication and sharing 

of good practices and ideas. 


23


Finance professionals must act 

ethically, but how should they 

react when under pressure to do 

otherwise? This CCAB case study 

outlines one hypothetical ethical 

dilemma any FD might face, and 

offers advice on how to resolve it 

Walking the ethical tightrope 

CORBIS 

Y 

ou have been the finance 

director (FD) of a clothing 

retailer for 10 years. The 

company’s year end is 31 March, and you 

are finalising the year end accounts. 

You have recently been advised by the 

warehouse manager of a significant level 

of slow-moving stock. The stock in 

question is now more than nine months 

old and would normally have been 

written down some months previously. 

The shareholders are trying to sell the 

company, and the managing director 

(MD) – who is the majority shareholder – 

has told you that it is not necessary to 

write down the stock in the year end 

accounts. You are sure that the MD wants 

the financial statements to carry an 

inflated stock valuation because he has 

found a prospective buyer. The MD has 

indicated to you that, if the proposed deal 

is successful, all employees will keep their 

jobs and you will receive a pay increase. 

You think you are being asked to behave 

unethically. What should you do? 

FUNDAMENTAL PRINCIPLES 

The key thing is to ensure that you abide 

by four fundamental principles, namely: 

1. Integrity: In the light of the information 

you have, you must ensure that you act 

honestly, and that you are open and 

straightforward towards those with whom 

you come into contact. 

2. Objectivity: Can you act without bias, 

despite the significant threats in the form 

of self-interest and intimidation? 

3. Professional competence and due care: 

You must act diligently. Do you have 

sufficient information to be able to 

determine the appropriate value of the 

stock to be included in the accounts? 

4. Professional behaviour: You are 

required to account for the stock in 

accordance with relevant accounting 

standards. Would any of the actions you 

are considering discredit the profession in 

the opinion of an informed third party? 

24 


ETHICS 

Resignation 

would only be 

an option to 

be exercised, as 

a last resort, in 

the most extreme 

circumstances 

While observing those four principles, 

you need to do some research in order to: 

Identify the relevant facts – You are 

receiving conflicting information from the 

warehouse manager and the MD. The MD 

is putting you under pressure to account 

for stock at a higher value than that with 

which you feel comfortable. He proposes 

misrepresenting information about the 

company in the financial statements, 

which would be contrary to the 

fundamental principle of integrity. A 

self-interest threat to your objectivity 

arises from the financial benefit that you 

are likely to receive if the company is sold 

under the proposed deal. You are also 

feeling intimidated by the MD. He 

appears to be suggesting that the future 

employment of other employees depends 

upon the proposed deal being successful 

and, therefore, upon the results shown by 

the financial statements. 

Identify the affected parties – The key 

affected parties are you, the MD (and the 

other shareholders) and the potential 

purchaser of the company. Other 

employees of the company may also 

be affected, as it has been implied that 

their jobs are at risk if the proposed 

deal is unsuccessful. 

Decide who should be involved in the 

resolution – You should involve the 

warehouse manager, the MD and, if 

necessary, your fellow board members. 

WHAT SHOULD YOU DO? 

You cannot simply do what has been 

asked of you, because the principle of 

integrity requires a professional 

accountant not to be associated with 

information that they believe to be false 

or misleading. Relying on the potential 

buyer’s due diligence to identify the 

overvaluation is not appropriate. You are 

responsible for the honest presentation of 

the accounts, and you should not transfer 

that responsibility to either the buyer or 

the auditors. 

The first step is to ensure that you have 

sufficient information. This would include 

establishing the basis of valuation of the 

company’s stock, investigating the system 

for counting and evaluating stock, and 

discussing with the warehouse manager 

the reason why the stock is slow-moving. 

You may also need to discuss the 

realisable value with someone else, such 

as the sales director. 

Once you are sure of the facts, you 

should discuss the matter with the MD. If, 

in your opinion, the MD continues to 

insist on an inflated stock valuation being 

incorporated into the financial 

statements, you should consider how best 

to raise the issue with the other board 

members. Initially, you could suggest that 

both you and the MD raise the matter with 

the other board members. If you feel it 

appropriate to discuss the matter with 

anyone else within the company, you 

must bear in mind the need for 

appropriate confidentiality and be clear 

about your reasons for raising the matter. 

Discussions with the MD may be made 

easier by reference to the company’s own 

code of ethics, if it has one. If it does not, 

you should make the MD aware of the 

ethical requirements of your professional 

body. You could suggest that the company 

engages an independent expert to value 

the stock. 

At each stage, you should consider the 

need to follow meetings with email or 

other written correspondence to record 

your points of view. This would be 

particularly appropriate if you are of the 

opinion that the MD or the board has not 

been sympathetic to your concerns. 

You might have to consider raising the 

issue externally, for example alerting the 

auditors to the existence of the slowmoving 

stock, or seeking advice from your 

professional body. If the situation remains 

unresolved, you may have to remove 

yourself from the conflict. The clearest 

way to disassociate yourself from 

misleading financial accounts would be to 

resign. However, this would only be an 

option to be exercised, as a last resort, in 

the most extreme circumstances. 

Resignation alone would not help to 

resolve the situation. It would be 

advisable to take legal advice before 

considering resignation. 

You should document, in detail, the 

steps that you take in resolving your 

dilemma, in case your ethical judgement 

is challenged in the future. 

ETHICAL GUIDANCE 

CCAB provides a forum for its member 

groups – ICAEW, ACCA, CIPFA, ICAS and 

Chartered Accountants Ireland – to meet 

and act collectively on behalf of the 

accountancy profession in the UK. 

The CCAB Ethics Group co-ordinates 

activities between the member bodies 

relating to ethical guidance, and liaises 

with relevant Financial Reporting Council 

standard setting and oversight boards in 

respect of ethical issues. Its full set of 

ethical case studies can be found at 

ccab.org.uk/ethics.php 

ICAEW members can call its ethics 

helpline on +44 (0) 1908 248250. For 

general guidance, visit icaew.com/ethics 


25


How volunteering 

enriches the 

finance professional 

Taking on finance-related voluntary work 

doesn’t only benefit the organisation concerned. 

As Paul Chan explains, volunteering can be a 

good way for finance professionals to develop 

existing skills and acquire new ones 

H 

ow do you develop 

executive skills when 

your current position 

offers few opportunities to 

operate at that level? Maybe 

you want to improve your 

promotion prospects, or feel 

your current role could benefit 

from a bigger picture 

governance perspective. 

One way to broaden your 

experience and develop these 

abilities is to see how others 

do things (or don’t do things) 

at that level, then put them 

into practice. And an effective 

way to do that is to volunteer 

for a trustee board or 

committee role in the ‘third 

sector’. This term is used to 

describe organisations that are 

neither public nor private 

sector. It includes voluntary 

and community organisations 

(both registered charities and 

other organisations such as 

associations, self-help groups 

and community groups), 

social enterprises, mutuals 

and co-operatives. 

Yet another route is to 

volunteer for roles within 

professional bodies – for 

example within one of 

ICAEW’s committees. These 

are practical ways to expand 

your knowledge and to 

develop essential 

competencies for your career. 

BROAD HORIZONS 

You will invariably be very 

familiar with your company’s 

business, structure, people 

and norms. However, that very 

familiarity can make it difficult 

to escape ingrained habits and 

understand different 

perspectives. Just as travel 

broadens the mind, exposure 

to other organisations 

broadens your horizons. 

A trustee or committee 

member role focuses on 

the big picture and the 

organisation’s direction, 

offering ample opportunity to 

compare and contrast your 

prior experience with 

practices within a different 

organisation, in such areas as: 

understanding key 

issues and challenges 

the organisation faces that 

you may not have encountered 

before, for example fund 

raising and tendering for 

government contracts; 

understanding different 

organisational cultures and 

ways of working; 

applying existing skills to 

new situations, managing 

working capital and 

investment appraisals for 

example; 

working within a high-level, 

multi-disciplinary team, 

with no functional interests 

to defend; 

learning new ‘insights’ – 

good and bad – from the 

organisation’s managers or 

your fellow trustee/committee 

members; and 

gaining exposure to legal 

and financial compliance 

responsibilities specific 

to the 

charity 

sector. 

To complement the fresh 

insights from the expanded 

experience, a trustee or 

committee member role also 

provides the opportunity to 

further your skills and to put 

them into practice. 

DEVELOP YOUR SKILLS 

Even if your current full-time 

role calls for strategic 

thinking, the bulk of your 

focus will be operational 

in nature, which affords 

little opportunity for 

extended debate at 

a strategic level. 

All too often 

discussions get 

into the detail 

very quickly, 

sometimes even before the 

strategic goal is clear. 

However, trustees or 

committee members have 

no functional or operational 

responsibilities, meaning that 

debate can stay at the strategic 

level. Furthermore, in a 

different organisation you’re 

less likely to have enough 

specific detailed operational 

knowledge to be able to get 

very detailed. 

So with its main focus on 

governance and strategy, a 

trustee/committee role offers 

the chance to practise useful 

leadership, strategic thinking 

and communication skills. 

CORBIS 

26 


VOLUNTEERING 

LEADING BEYOND 

AUTHORITY 

In this sort of role – without 

budget, department, or 

resources – you can’t wield 

power by telling everyone 

what to do (never an effective 

approach, anyway, except in 

emergencies). Instead, skills 

of persuasion are called for. 

Influencing decisions, and 

making sure they are 

implemented, calls for 

sensitive probing questions 

to test and challenge 

proposals. 

If reaching a decision is 

difficult, follow up calls for 

perseverance. You and your 

fellow trustees or committee 

members need to keep the 

senior management of the 

organisation accountable by 

building in periodic progress 

reporting or, alternatively, by 

having the self-discipline to 

follow up yourselves. 

MOVING FROM 

OPERATIONAL TO 

STRATEGIC 

Having no operational 

responsibilities or career 

interest in the organisation 

clears the way for you to 

address strategy and 

governance issues without any 

organisational baggage. The 

multi-disciplinary make-up of 

trustee teams or committees 

also brings a diverse mix of 

backgrounds and expertise 

to bear on the issues. This 

wide variety of experience and 

Just as travel 

broadens the 

mind, exposure 

to other 

organisations 

broadens your 

horizons 

Paul Chan FCA serves 

on finance, audit and 

risk committees of a 

large charity and is 

also a member of the 

faculty committee. 

chanpa@hotmail.com 

the detachment from day-today 

operations, makes a 

valuable forum to express your 

own analysis of the issue being 

considered and to listen to 

alternative perspectives or 

critiques offered by others. 

COMMUNICATION 

Many of your fellow trustees 

will rely on you to bring 

financial expertise to the 

discussion to help them reach 

a well-thought-through 

conclusion, collectively. Such 

situations push you to work on 

explaining financial concepts 

in a clear, jargon-free, and 

to-the-point manner. 

PUTTING IT ALL 

TOGETHER 

Meetings have packed and 

varied agendas so reaching a 

good decision within the time 

constraint allocated to the 

topic isn’t always easy. It 

means drawing on collective 

experience, and applying 

discipline, to identify the core 

issues quickly and deal with 

them comprehensively and 

authoritatively, without getting 

side-tracked by unimportant 

details. Precisely the skills you 

need now and in the future. 

Of course there is a cost to 

volunteering – namely, the 

time spent preparing for and 

attending meetings. But these 

are not usually onerous 

undertakings if you are 

interested in, or share, the 

organisation’s goals. Often 

meetings are scheduled in 

the evenings to avoid clashing 

with volunteers’ work 

commitments. If using 

recruitment organisations 

to find your trustee role, you 

can specify what kind of time 

commitment you’re prepared 

to give, types of organisations 

you are interested in, and even 

their location. It may also be 

a route to getting exposure to 

different industry sectors. 

There is no more effective 

way to gain experience or 

develop skills than by just 

‘doing it’. So why not invest 

a little time in an undertaking 

that could improve your own 

prospects, as well as help out 

a worthwhile organisation? 

Getting started 

Further information on 

volunteering roles and 

responsibilities can be found 

at icaew.com/volunteering 

Volunteering roles are also 

publicised on icaewjobs.com 

Charity and Voluntary Sector 

Group provides technical 

updates, practice guidance, 

networking opportunities, and 

coordinated sector-wide 

responses to policy and 

legislative changes. Visit 

icaew.com/charity 

Talk Charity is an online 

community for people working 

for, volunteering in, or advising 

charities. Check out icaew.com/ 

talkcharity 


27

MAY 2012 CORPORATE FINANCIER 


From the 

Faculties 

CORPORATE FINANCIER 

COVER STORY 

Keep in touch with 

our selection from the 

ICAEW other faculty 

magazines 

ACQUIRED 

TASTE 

It’s one of the most quoted 

statistics in business: 80% of 

acquisitions fail to create value 

for shareholders. But new and 

comprehensive research by 

Cass Business School, carried 

out in the wake of Kraft’s hostile 

takeover of Cadbury, has 

highlighted positive aspects 

of M&A. By Marc Mullen 

I 

n September 2009, Kraft Foods made an indicative 

£10.2bn bid for Cadbury. With a UK general election 

just around the corner, the fact that Cadbury was a 

confectionary company with precious little strategic importance 

to UK plc did not negate the opportunity for political point 

scoring. Jobs were at stake and the hostile takeover, successfully 

completed for £11.5bn in February 2010, became the subject of 

chatter in the Westminster bubble. 

In June 2010, MP Vince Cable, one month into his role as 

Business Secretary in the newly-formed UK coalition 

government, spoke at the Cass Business School. He said, “Too 

many takeovers in the UK fail even by the limited criterion of 

shareholder value – and often with serious implications for the 

people who work for the firms on both sides. 

“For me this is not about foreign or domestic ownership – it 

draws no distinction between the two. It is not about 

protectionism or strategic industries. It is certainly not about 

protecting bad management by blocking takeovers. It is about 

changing the way in which unfettered short-term speculation can 

have damaging long-term consequences.” 

16 17 

AUDIT & BEYOND 

BE PREPARED 

The latter stages of any audit can be a 

fraught affair – for both auditors and 

clients. But in the Audit & Assurance 

Faculty’s external audit lecture in March, 

Chris Elliott from Mercia Group explained 

how a bit of enhanced preparation can 

make the process of “Wrapping up the 

audit” much easier. 

It starts with smart planning – including 

outlining the timetable for the key 

personnel and flagging up areas that have 

affected previous client audits. Getting the 

fieldwork right first time – which means 

sharp communication skills as much as it 

does attention to detail on site – is key. 

Auditors should also consider relevant 

standards as they go, rather than 

retrofitting the audit towards completion. 

Equally, testing management’s accounting 

estimates is better done as and when 

potential issues arise – often in the face of 

a team actively trying to avoid fleshing 

them out until near completion. 

Elliott had several other tips – but the 

overall message was to be ready for 

trip-wires, think about curing typical 

completion headaches along the way 

and constantly review performance to 

ensure lessons are learned for each 

subsequent audit. 

For more from the Audit & Assurance Faculty, 

visit icaew.com/aaf 

CORPORATE 

FINANCIER 

ACQUIRED TASTE 

It’s one of the most frequently quoted 

statistics in business: the majority of M&A 

deals fail to create value for shareholders 

or their businesses. Worse, they can be 

highly controversial: Kraft’s hostile 

takeover of Cadbury in 2010 became 

a national scandal. Cass Business School 

used that as a jumping-off point for a new 

piece of research into the value of M&A. 

And Corporate Financier also asked seven 

leading figures in national business how 

they looked at the thrill of the deal. 

Cass saw pros and cons. Domestic M&A 

activity comes out relatively well in terms 

of shareholder value; deals tend to boost 

employment; and sensible ones bump an 

acquirer’s share price. But long term, the 

picture is murkier, and it’s hard to stand up 

the claim that deals contribute to overall 

economic activity. Post-deal integration, 

as expected, remains a tough sell, too. 

The views of CF’s vox pops are similarly 

mixed – although, again, they mostly point 

out that deals with a lot of research and 

post-merger planning do best. Sample? 

“M&A can get overly complex,” admits 

MITIE CEO Ruby McGregor-Smith CBE. 

“More needs to be done to weed out bids 

that are based solely on extracting value… 

by cutting workforce, pensions and terms 

and conditions,” says TUC general 

secretary Brendan Barber. 

For more from the Corporate Finance Faculty, 

visit icaew.com/cff 

TAXLINE 

LET ME ENTERTAIN YOU… 

Forget pasty-gate: VAT – and tax generally 

– on food and drink (especially when it 

comes to expenses) has always been a bit 

of a nightmare. For example you can’t 

make an input tax deduction for client 

sustenance (which comes under 

“hospitality”) unless the client is an 

overseas customer. 

The key point is whether an employee 

incurred an expense “acting as a host” – in 

which case input tax is blocked. But if the 

employee is buying lunch just because 

they’re away from the office on business, 

input tax can be claimed – just as it can 

be for their hotel accommodation, 

a Christmas lunch or a meal rewarding 

a team for good performance. 

It gets more confusing when events 

are mixed – a box at the football, say, half 

to reward employees and half to entertain 

clients. That would mean 50% of input 

taxes are blocked – unless the employees 

are also wining and dining the clients, 

which would make them “hosts”. Even 

more complex rules apply to subsistence 

for business owners. 

And 2011 legislation changing the rules 

on claiming input tax for entertaining 

overseas customers also allows businesses 

to make claims backdated four years. But 

beware: the output tax effects are also 

nightmarishly complex. And then there are 

the subcontractor rules… 

For more from the Tax Faculty, visit icaew. 

com/taxfac 

28 


TECHNICAL 

Technical 

updates 

Our regular round-up of legal 

and regulatory changes 

TAX 

News and updates from the 

Tax Faculty weekly newswire. 

Subscribe free: visit ion.icaew. 

com/TaxFaculty and click the 

sign-up link on the right. 

FINANCE BILL 2013 

CONSULTATIONS 

The Tax Faculty is maintaining a 

list of the many consultations 

announced in the 2012 budget for 

inclusion in the Finance Bill 2013 

(FB 2013) at icaew.com/ 

consultFB2012. One of particular 

interest to business relates to 

research and development. 

The consultation is on the 

design of an above-the-line R&D 

tax credit for large businesses to 

be introduced from April 2013. 

The rate will be 9.1%, as 

announced in Budget 2012. The 

consultation is at snipurl.com/ 

ATLcredit and you can submit 

responses to Tim Power at ATL. 

credit@hmtreasury.gsi.gov.uk by 

29 June 2012, or via Ian Young at 

the Faculty. 

Separately, HMRC is in the 

process of publishing additional 

documents supporting other 

consultations for FB2013, 

including: 

Transfer of assets abroad and 

gains on assets held by foreign 

companies. 

Information powers to enable 

compliance with the US FATCA 

(Foreign Account Tax 

Compliance Act). This will be 

done in conjunction with France, 

Germany, Italy and Spain and 

with the financial institutions that 

are covered by FATCA. 

Real Time Information – 

including PAYE late payment and 

filing penalties. 

Capital gains rules where 

companies use a non-sterling 

functional currency – 

consultation on simplification 

of the rules. 

Corporation tax reliefs for the 

creative sector. 

These consultations will be 

updated periodically in HMT’s 

own tracker, visit hm-treasury. 

gov.uk/tax_updates.htm. 

P35 PENALTIES: THE DETAIL 

Earlier in the spring HMRC 

announced significant 

improvements to the P35 

employers end-of-year return 

process. The changes represent 

the first fruit of the joint initiative 

between HMRC, ICAEW and 

other tax professional bodies and 

charities launched late last year. 

HMRC has now clarified the 

detail of the changes: 

It will change the date when 

it issues the “Notification to 

complete form P35 Employer 

Annual Return 2011/12” from 

mid-February to mid-March 

2012, so employers will receive 

it much nearer to the end of the 

tax year. 

From 28 April 2012, where 

it believes a 2011/12 P35 remains 

outstanding, it will issue an 

“Employer Annual Return 

Reminder”. 

From 31 May 2012, it will 

introduce a “P35 Interim Penalty 

Letter” which will be issued over a 

five-day period, so that it reaches 

employers within a month of the 

filing deadline. The letter will state 

that the employer has incurred a 

late return penalty and explain 

what to do to avoid it increasing. 

Improve the online guidance 

for submitting P35s online, 

including specific advice about 

the test-in-live service. The 

on-screen messages will also 

make it much clearer that even 

when a successful test 

transmission has been made, 

a live transmission is still 

required. We would encourage 

those using commercial payroll 

software (where the text of test/ 

live messages may vary) to sign 

up for HMRC’s email alert facility 

to help them avoid this problem. 

Instruct Employer Helpline 

staff to tell employers about filing 

dates when setting up new 

employer schemes, to help them 

avoid a penalty. 

For next year, improve the 

information on the P35 and the 

reminders to include a warning 

that the first penalty notice will 

cover four months. 

“Taken together, these 

measures should help employers 

to avoid incurring unnecessary 

penalties and significantly reduce 

the number of cases where 

penalties in excess of £100 are 

charged,” explained HMRC. 

TAX RATES AND FILING 

As announced in the Budget, 

corporation tax will fall this year 

by an additional 1% and further 

decrease by 1% a year until it 

reaches 22% from April 2014. The 

small profits rate remains at 20%. 

Readers may recall the 

difficulties companies had 

filing some corporation tax 

returns last year. This followed 

the Chancellor’s surprise 

amendment to the expected 

rate of corporation tax for the 

financial year 2011, announced 

in his 2011 Budget statement. 

Companies with years ended 

after 31 March 2011 were unable 

to file returns until HMRC had 

updated its computer system for 

the 26% main rate (we had 

expected it to be 27%). This meant 

waiting until October 2011 to file 

returns online. 

This time, HMRC prepared 

a work-around in case a surprise 

rate change happened again – as 

it has. The Tax Faculty was told 

that the necessary changes 

should be implemented by July 

2012. This will mean a short delay 

for some companies, which like 

to file soon after their year ends, 

but it is unavoidable. The risks 

of fiddling with the IT system 

without considerable testing 

are just too great. Expect further 

updates in the Tax Faculty weekly 

newswire. 


29


FINANCIAL 

REPORTING 

You can find out more on the 

latest from the Financial 

Reporting Faculty, including UK 

GAAP and IFRS standards and 

consultations, at icaew.com/frf 

THE FUTURE OF UK GAAP 

The consultation on the future of 

UK GAAP closed on 30 April. The 

ASB will be working their way 

through their extensive mailbag 

and gradually moving towards 

issuing the final standards that 

will replace much of existing UK 

GAAP. It is hoped that these new 

standards will be published 

before the end of the year. If they 

are, entities with calendar 

year-ends will be able to adopt 

them for accounting periods 

beginning on or after 1 January 

2013; however the new standards 

will not be mandatory until 2015. 

To find out more about the 

ASB’s proposals and to read 

ICAEW’s response to them visit 

icaew.com/FutureOfUKGaap. 

This page also contains a host of 

other useful information 

including the Financial Reporting 

Faculty’s FAQs on the proposed 

changes and recordings of recent 

faculty events and webinars. 

ON-GOING IASB PROJECTS 

The long-awaited, new IFRSs on 

leasing, revenue recognition and 

financial instruments are unlikely 

to arrive any time soon. According 

to the latest IASB work plan, all we 

can expect in the first half of 2012 

is a “review draft” of its general 

hedge accounting standard. 

New exposure drafts on leasing; 

impairment of financial assets; 

classification and measurement 

of financial assets; and macro 

hedging are now not expected 

THE BIG UPDATE 

The Tax Faculty has issued TAXGUIDE 2/12, its latest memorandum of bilateral 

meetings and correspondence with HMRC, with particular emphasis on 

employment taxes and NICs. Coverage includes: 

Policy and technical areas – around cars, both conventional and electric, used for 

business; readily convertible assets (RCAs); company directors’ SSP; and mariners. 

Cross border issues – including NIC matters arising from changes to EU 

regulations on 1 May 2010; short trips overseas; forms E101/A1; voluntary 

payment of Class 2 NIC; concurrent employment and self-employment in 

different countries; and self-employment abroad. 

Administrative and operational matter – including P11D; nil/ annual/ quarterly 

PAYE schemes; NIC arrears; requests for lists of PAYE/NIC payments; NIC 

technical inquiries to HMRC; copy code numbers; and slow post and email issues. 

The TAXGUIDE is available at ion.icaew.com/TaxFaculty/24293 

until the second half of the year. 

This means that new standards 

on each of these topics – and 

revenue recognition – are now 

not expected before 2013. 

WHERE NEXT FOR IASB? 

The IASB is currently working its 

way through the 250 or so 

comment letters that it received 

in response to its recent 

consultation on its future agenda. 

The consultation has yet to 

conclude, but in a number of 

recent speeches IASB chairman 

Hans Hoogervorst has alluded to 

some common themes that are 

emerging. While nothing is 

certain at this stage, the direction 

of travel is becoming clearer. 

While there have been 

widespread calls for a period of 

calm after the rapid change of 

recent years, many respondents 

urged the IASB to prioritise 

completing its on-going projects 

on revenue recognition, leases 

and financial instruments and 

to finalise revisions to the 

conceptual framework. 

Other common themes include 

a desire to tackle what many see 

as “disclosure overload” and 

a feeling that the IASB must 

decide on a firmer theoretical 

underpinning of the concept of 

other comprehensive income. 

So the overriding message 

seems to be that the IASB should 

finish the important projects in 

progress – then take their foot off 

the accelerator for a little while, 

only attending to the issues that 

need fixing and no more. 

A number of smaller projects – 

such as agriculture, business 

combinations under common 

control, hyperinflation and 

rate-regulated industries – also 

featured highly on many 

respondents’ wish lists. These 

projects may well be on the 

IASB’s future agenda. 

IFRS UPDATE WEBINAR 

On 27 June the Financial 

Reporting Faculty will host 

an IFRS update webinar. It will 

give an overview of recent IFRS 

developments and details on 

the outcome of the IASB’s recent 

consultation on its future work 

programme. The webinar is free 

for Financial Reporting Faculty 

members; non-faculty members 

pay £25. 

EMPLOYMENT LAW 

This section is an extract from 

the monthly bulletin of law firm 

Herbert Smith – but does not 

constitute legal advice and 

should not be relied upon as 

such. See herbertsmith.com 

REDUNDANCY 

SELECTION POOLS 

Employers should take extra care 

when deciding whether a 

redundancy selection pool of just 

one person is appropriate. The 

EAT has confirmed that, where 

the employer has genuinely 

applied its mind to the issue, it is 

difficult but not impossible for an 

employee to challenge a selection 

pool as unfair. 

Tribunals will scrutinise more 

closely the use of a selection pool 

that is the same size as the 

number of roles to be made 

redundant, so employers will 

need to have strong reasons for 

not using a wider pool. 

In Capita Hartshead v Byard 

the employer employed four 

actuaries – but the selection pool 

only included the actuary whose 

clients had defected, on the 

grounds that there was a risk of 

losing more clients if they were 

transferred between actuaries. 

The EAT upheld the Employment 

Tribunal’s (ET) ruling that the 

selection pool of one was unfair, 

given that the risk of client 

departure was slight, the other 

actuaries did similar work and the 

claimant’s work had been 

praised. Employers should take 

care not to exaggerate the 

commercial risks in selecting 

from a wider pool. 

In contrast, in Halpin v 

Sandpiper Books the EAT ruled 

that it was not unfair to use a 

selection pool of just one 

30 MAY 2012 FINANCE & MANAGEMENT

TECHNICAL 

RED TAPE UPDATE 

The new financial year on 6 April 

brought changes to employment red 

tape. Here are some of the new rules. 

employee when it was ceasing its 

operations in China and the 

claimant was the only individual 

employed in China. 

CONSULTATIONS: 

FLEXIBILITY IN THE 

PIPELINE? 

Under EU-derived law, 

employers are required to 

consult in good time about ways 

of avoiding or minimising 

collective redundancies and 

mitigating the consequences. 

But in USA v Nolan the 

European Court of Justice (ECJ) 

has been asked to decide 

whether consultation is 

required before an employer 

makes a strategic business 

decision that may lead to 

redundancies or only once the 

employer has made that 

decision (so that consultation 

only covers the redundancy 

proposals themselves). Current 

UK law takes the former, more 

onerous approach, at least 

where there is a business closure 

(UK Coal Mining v NUM). 

The ECJ’s judgment is 

expected this Summer, and the 

Advocate-General’s Opinion 

(which is not binding on the ECJ 

but is often followed) has just 

been published. If adopted by 

the Court, it would be good 

news for employers. 

The Opinion rejects the 

suggestion that consultation is 

necessarily required prior to a 

strategic business decision to 

Unfair dismissal 

Employees whose period of 

continuous employment starts on 

or after 6 April 2012 will have to 

accrue two years’ service, instead of 

one, to be eligible for unfair 

dismissal, unless they have prior 

continuous service – for example, if 

they’ve been transferred under TUPE. 

Tribunals 

The maximum deposit order 

a tribunal can make if a party 

wishes to proceed with a weak case 

has increased from £500 to £1,000. 

The maximum costs a tribunal can 

award without detailed assessment 

has risen from £10,000 to £20,000. 

Witness statements are now to 

be taken as read unless the tribunal 

judge directs otherwise. 

Witness expenses are no longer 

state-funded. The tribunal will have 

power to direct parties to pay and 

order the losing party to reimburse 

the successful party for these costs. 

Unfair dismissal cases are being 

heard by a judge alone unless the 

judge directs lay members should 

also sit. 

Statutory benefits 

The flat rate of statutory maternity 

pay, paternity pay and adoption pay 

has increased from £128.73 to £135.45. 

Statutory sick pay has gone from 

£81.60 to £85.85. The weekly earnings 

threshold is now £107 (from £102). 

Apprenticeships 

Under the Apprenticeships, Skills, 

Children and Learning Act 2009 

employers can now use an 

apprenticeship agreement (a contract 

of service rather than a common 

law contract of apprenticeship) 

provided it includes the information 

prescribed by the Apprenticeships 

Regulations 2012. These require the 

agreement to contain the basic terms 

of employment given to employees 

under section 1 of the Employment 

Rights Act 1996 and to include a 

statement of the skill, trade or 

occupation for which the apprentice 

is being trained. 

close a workplace, even if in 

practice this means that 

consultation would be limited 

to ways of mitigating the 

consequences. However, an 

employer could still be in breach 

of the obligation to consult if a 

strategic decision (for example a 

closure decision by a parent 

company) were made without 

leaving the employer any time in 

which to contemplate 

redundancies and genuinely 

consult. This suggests a slightly 

different focus – on whether the 

consultation has been effective 

rather than on issues of timing. It 

will be interesting to see whether 

the ECJ agrees. 

CONSULTATIONS AND 

CONSIDERATIONS 

Board gender diversity 

The European Commission 

is consulting on possible action 

at EU level, including legislative 

measures, to redress the 

continuing gender imbalance 

on corporate boards in Europe. 

It is expected to take a decision 

on further action later in 2012. 

In the UK, Lord Davies’s 

first annual progress report 

following his independent review 

shows that last year saw the 

largest ever annual increase in 

the number of women on boards. 

Women now account for 15.6% 

of all FTSE 100 directorships, 

up from 12.5%. 

Executive remuneration 

A Government consultation 

paper on proposals to increase 

shareholder voting rights in 

relation to executive 

remuneration for UK 

incorporated listed companies 

includes four key measures: 

An annual binding vote on 

future remuneration policy. 

The possibility of requiring 

a higher than 50% majority to 

approve future remuneration 

policy. 

An annual advisory vote on 

the implementation of the 

remuneration policy over the 

previous year. 

A binding vote on exit 

payments of more than one 

year’s base salary. 

The Government expects 

legislation on the new 

shareholder voting rights to 

come into force in spring 2013, 

with the provisions applying to 

reporting years ending after 1 

October 2013. 


31


Mission 

control 

True strategic thinking can only exist 

where a company has clear principles 

and is able to articulate them, says 

Morgen Witzel. So it’s a shame many 

companies lapse into vague mission 

statements and bland values 

ALAMY 

32 


STRATEGIC THINKING 

W 

hat is the purpose of 

strategy? Textbooks 

tell us that strategy is 

the means by which an 

organisation attempts to 

achieve its goals. We decide 

where we want to be – more 

market share, higher profits, 

expansion into new markets, 

new products, and so on. Then 

we map out a strategy that will 

help us to achieve these goals. 

That seems simple enough. 

But problems start at the outset, 

with the setting of those goals. 

Do we always set the right ones? 

Do we remember, when talking 

about profits or market share, 

what the company is actually 

there to do? Are goals congruent 

with the company’s mission? 

All too often they are not. The 

mission and purpose that sustain 

the company are set aside in 

favour of a short-term pursuit 

of quick profits or growth. 

In the 1990s the supermarket 

chain Royal Ahold was a 

household name in the 

Netherlands. The company had 

been trading for more than 100 

years and had a reputation for 

quality food and service. It had 

built a close relationship with 

its customers. By some accounts, 

one in ten Dutch people owned 

shares in the company. 

Then in the late 1990s, CEO 

Cees van der Hoeven embarked 

on a new strategy. The new goal 

was rapid growth – through 

acquisitions and geographical 

expansion. Royal Ahold 

embarked on a buying spree, 

acquiring supermarket chains 

around the world. It entered 

tough markets in areas such as 

the USA and Latin America, 

where it had no experience. 

Debts mounted as some of 

the new acquisitions ran into 

trouble and did not perform as 

expected. In 2003 the bubble 

burst. Royal Ahold teetered on 

the brink of collapse, van der 

Hoeven lost his job and the 

value of their shares dropped 

to almost nothing. 

Royal Ahold forgot what it 

was for. It chased short-term 

growth and neglected the 

things that made the company 

great in the first place. The same 

thing has happened, before 

and since, to Marconi, Ratner, 

Woolworths, Royal Bank of 

Scotland... The list goes on. 

MISSION AND VISION 

Any large and successful 

company was founded with a 

particular purpose or guiding 

idea in mind. Nearly always, 

that purpose is not just “to 

make money”. 

“Profit is a by-product of 

what we do,” says R 

Gopalakrishnan, executive 

director of Tata Sons, the 

holding company for India’s 

largest business group. Tata 

was founded in the 1860s to 

provide goods and services for 

the Indian people, to create 

jobs and spread prosperity 

among a largely impoverished 

population. “What comes from 

the people, goes back to the 

people” has been one of Tata’s 

guiding principles. 

Sony and Matsushita were 

established in post-war Japan 

with the explicit purpose of 

providing goods that people 

needed to make their lives 

better. Henry Heinz, founder of 

the Heinz food group, believed 

that his products were safer 

than other processed foods and 

thus contributed to public 

health. Nestlé marketed the 

first milk chocolate as a way of 

providing a clean and safe milk 

product for children. Our big 

national banks were founded 

not to make money for their 

shareholders, but to provide 

secure credit and lending 

facilities, which would enable 

entrepreneurs to grow their 

businesses and drive national 

prosperity. How easily these 

principles are forgotten. 

Most companies of any size 

articulate these principles 

as a mission statement – often, 

sadly, a collection of mere 

platitudes. A good mission 

statement should pull together 

the underlying reasons why a 

company exists. More than a 

hundred years ago, business 

historian John Davis pointed out 

that every business exists to fill 

a need, and in doing so it makes 

sales and earns profits. This is 

axiomatic – yet, says Davis, 

many companies forget this. 

And when they forget the 

need they were meant to fulfil, 

companies start to lose their 

way. The same theme can be 

found in writings on strategy 

today. Stewart Hamilton and 

Alicia Micklethwait, in their 

study of corporate collapses, 

have shown how easy it is for 

companies like Royal Ahold to 

be seduced into chasing 

short-term profits or growth 

and forgetting the reasons why 

they exist in the first place. 

Closely related to mission is 

vision. If mission explains why 

the company exists, vision 

describes how it will fulfil that 

purpose. Vision tells us who the 

company thinks its customers 

are, how it will serve them, and 

where and when. Vision does 

not just react to customer needs, 

it also tries to anticipate them. 

Sony is regarded as one of 

the world’s most visionary 

companies, creating a string 

of new products such as the 

Walkman and the video 

recorder. Sometimes Sony fails; 

for example, it lost out in the 

video recorder market to its 

rival Matsushita, which 

produced a cheaper and 


33

15-20years 

years 

the average strategic 

horizon of Chinese 

and other Asian 

companies 

simpler product. But the 

company is not afraid to fail. 

Its vision and commitment to 

innovation remain undimmed. 

PEOPLE POWER 

Note the central role customers 

play when these successful 

companies are formulating 

both their mission and their 

vision. The customer must be 

at the heart of strategic thinking 

– or as late business guru Peter 

Drucker said, “business has 

only one valid purpose: to 

create a customer”. When 

businesses lose sight of this, 

problems begin. One of the 

most famous business articles 

of all time, Theodore Levitt’s 

Marketing Myopia, describes 

how easily it can happen: 

Another big danger to a firm’s 

continued growth arises when 

top management is wholly 

transfixed by the profit 

possibilities of technical research 

and development... What gets 

shortchanged are the realities of 

the market. Consumers are 

unpredictable, varied, fickle, 

stupid, shortsighted, stubborn 

and generally bothersome. This 

isn’t what the engineer-managers 

say, but deep down in their 

consciousness, it is what they 

believe. And this accounts for 

their concentrating on what 

they know and what they can 

control, namely product research, 

engineering and production. 

The emphasis on production 

becomes particularly attractive 

when the product can be made 

at declining unit costs. There is 

no more inviting way of making 

money than by running the 

plant full blast. 

So an obsession with 

technical efficiency, or with 

profit and growth, can lead to 

a similarly myopic view. When 

both happen at once, things get 

ugly. In the 1990s, Delta was 

one of the most popular airlines 

in America, regularly coming 

in the top three for customer 

satisfaction. Its ground staff 

and aircrew were famous for 

their smiles. It prided itself on 

the quality of its service, and 

was happy to spend money on 

staff training and support staff. 

A new CEO arrived and 

profitability was declared the 

new goal. Staff wages, benefits 

and training were frozen or cut. 

Delta’s staff stopped smiling. 

Their unhappiness and low 

morale quickly communicated 

itself to customers, who 

switched to other airlines. 

Within three years, Delta had 

declared bankruptcy. Today 

the airline is slowly recovering, 

but has not regained its former 

position. The process has been 

slow, painful – and expensive. 

FIVE YEARS TOO SHORT 

To paraphrase Benjamin 

Franklin, it takes years to build 

a reputation, but only a few 

minutes to lose it. Companies 

need to remember decisions 

have consequences, often 

unintended. If customers think 

a company is turning its back 

on them in pursuit of its own 

selfish ends, they will leave. 

So any short-term approach 

to strategy is a company-killer, 

as Delta and many others have 

found. Companies need to do 

more than just survive for a few 

years; they need to build 

platforms for growth that will 

sustain them into the future. 

And yet in the west we are in 

danger of losing sight of the 

long term. Research has shown 

that Chinese and other east 

Asian companies typically have 

a strategic horizon of 15 to 20 

years. They try to anticipate the 

future and set targets for where 

they want to be in that time 

frame. British and American 

companies typically have a 

strategic horizon of two or 

three years – if that. Speaking at 

a conference some years ago, I 

lamented the fact that many 

companies plan their strategy 

only a year in advance. “At our 

firm,” said one delegate, “the 

planning horizon is one week.” 

That’s not strategy, it’s 

managing by focusing only on 

staying alive and snatching 

opportunities as they arise. But 

what happens on the day when 

there are no opportunities? 

Successful strategy demands 

long-term thinking. Those 

successful companies – Tata, 

Nestlé, Sony – are like the 

Roman god Janus, presenting 

two faces to the world. They 

look back to where they have 

come from, remembering their 

purpose, their mission, the 

reasons why they exist. And 

they look forward to the future, 

fashioning their own vision of 

the future and establishing 

where they want to be in a 

manner consistent with that 

mission and purpose. 

They align where they have 

come from with where they are 

going. In this way, they build 

on existing relationships with 

customers and continue to 

fashion new ones. They, and 

their shareholders, prosper 

over the long term because 

they are also helping their 

customers to prosper. 

STRATEGIC INTENT 

Strategy and short-termism are 

fundamentally incompatible, 

strategic thinking that is not 

focused on the long term is not 

strategic thinking. Strategy is 

not about merely reacting to 

circumstances, it is about 

setting goals and charting a 

way forward. 

Short-term plans that show 

how the company will deal 

with the challenges it faces in 

the here and now are always 

necessary. But there must also 

be a degree of strategic intent. 

Even if we do not have 

detailed plans for 15 and 20 

years hence – and few if any of 

the east Asian firms mentioned 

above do so – there must still 

be a general agreement on 

where the company wants to 

be and how it will fulfil its 

mission. Companies like this 

can ignore, or at least ride out, 

short-term shocks like the 

current downturn, and keep 

their eyes focused on the end 

game. Taking this kind of 

approach requires vision and 

courage. But the results speak 

for themselves. Winners think 

long-term. 

Further reading 

Bala Chakravarthy and Peter 

Lorange, Profit or Growth? Why 

You Don’t Have to Choose, 

Engelwood Cliffs: Wharton 

School Publishing, 2007. 

John P. Davis, Corporations, 

New York: Putnam, 1905. 

Yves Doz and Mikko Kosonen, 

Fast Strategy, Harlow: Pearson 

Education, 2008. 

Peter Drucker, The Effective 

Executive, New York: Harper & 

Row, 1967. 

Stewart Hamilton and Alicia 

Micklethwait, Greed and 

Corporate Failure: Lessons From 

Recent Disasters, Basingstoke: 

Palgrave Macmillan, 2006. 

Theodore Levitt, Marketing 

Myopia, Harvard Business 

Review, 1960. 

Mark Prendergrast, For God, 

Country and Coca-Cola, London: 

Phoenix, 1993. 

Morgen Witzel, Tata: The 

Evolution of a Corporate Brand, 

New Delhi: Penguin, 2010. 

ALAMY 

34 MAY 2012 FINANCE & MANAGEMENT

DAILY INSIGHT AND FRESH ANALYSIS ONLINE 

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– our range makes the perfect investment for business or pleasure. Call or visit our website to claim your members–only offer or 

discover what we can do for your fl eet today. 

TO FIND OUT MORE Call 0845 051 7879 or 

visit corporate.sytner.co.uk/icaew 

Fuel consumption and CO2 fi gures for the Volvo range in mpg (l/100 km): Urban 18.6 (15.2) – 65.7 (4.3), Extra Urban 34.9 (8.1) – 80.7 (3.5), 

Combined 26.4 (10.7) – 74.3 (3.8). CO2 emissions 249 g/km – 99 g/km. 

COMPANY CAR DRIVER INFO: Benefit in kind rates for the 2012/2013 tax year on the Volvo range are from 13% to 35%. By way 

of example, company car tax payable being £39.41 to £251.65 per month for a 20% taxpayer and £78.82 to £503.30 per month for 

a 40% taxpayer. Monthly amounts are a guide only. Final car tax payable may be lower or higher and will depend on other factors including final list price of car with accessories and 

options and any employee capital contributions or payments made towards private use. Excludes private fuel. Advice should be taken. 

*Savings from 8% available on the Volvo C30 DRIVe/D2 ES; up to 20.5% available on the Volvo S80 range. Free metallic paint worth up to £640 dependent on model. 

**Figure taken from the All-New Volvo V40. 

Discounts are off Basic List Price before VAT, at participating UK Volvo dealers. Offer valid on cars ordered between 01/01/12 and 31/12/12 and registered by 31/03/13. Proof 

of membership required at time of order. Promotion per person limited to two new Volvo cars per year. Vehicles must be retained for a minimum of 12 months. Promotion applies 

to all brand new vehicles, supplied by Volvo Car UK Limited, including factory fi tted options before VAT. It does not apply to dealer fi tted options. This promotion is only available 

at time of purchase and cannot be claimed retrospectively or combined with any other incentive or promotion from Volvo Car UK or Volvo Car Credit. Not transferable. There is no 

alternative cash offer. The R-DESIGN models shown are for illustration purposes only.

Hit the road Positive leadership for troubled times - ICAEW

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