Archive for December 2016

Checklist for a better negotiation

Checklist for a better negotiation

Checklist for a better negotiation

Taking a fresh approach to negotiation can help you cut costs and increase profit for your organisation. On a personal level, it could also help you earn more, have more free time, and enjoy better relationships, said Derek Arden, a UK-based author and specialist trainer in negotiation skills.

Expert negotiators draw on a raft of skills, pitching to rapport-building and influencing, conflict management, and most importantly, listening. But thorough preparation builds confidence and is the foundation of a successful negotiation.

Key calculations

Many people fail to make three crucial calculations in advance of any deal talks, Arden said. For a clear picture of what you want to achieve from the negotiation, calculate your ideal price for the product or service, your realistic target price (which would give you a nice profit but is market-based and covers all your costs), and your walkaway position.

As the vendor, you also need to consider what would happen if you fail to come to an agreement. What are you going to do with the people and resources that would otherwise have gone into this project? For instance, any layoff costs resulting from a lost bid could change your marginal costs. Analysing the costs of this alternative scenario is a good way of checking your walkaway position, Arden said.

You also need to calculate what the other party’s best, target, and walkaway positions might be, so you can identify the zone where a potential agreement could be reached. Try to understand any constraints that might affect the negotiation, such as whether the other party is under pressure to complete the project in a particular time frame.

Knowing your industry, what the competition charges, the competition’s standards of service, and so on can help you make that judgement. The company website and social media feeds, annual reports, and financial statements all provide an insight into its strategy, pressures, and priorities.

While the background provides a helpful guide, Arden’s No. 1 piece of advice is, “Never assume where the other side is coming from.” Ask the right questions during the meeting – What do you want out of this deal? What offers have you had from the competition? – and listen carefully to the answers.

Know your negotiable variables. The key rule of haggling is trading concessions, Arden said. To do this successfully, you need to have identified your negotiable variables in advance. These are items that cost very little to concede but are valuable to the other side. They might include different payment terms, advice, or expertise you could provide on a problem the organisation is facing, or guarantees on service response, for example.

Know who you are negotiating with. Before the meeting, find out who will be attending and learn what you can about them (you could look them up on LinkedIn, for example). That information can help you build rapport with them or give you a sense of what to expect.

Set the agenda. Setting a meeting agenda and sending it to the other side in advance can help you gain control of the situation, Arden suggested. By asking your counterparts to flag any points they would like to add, you can identify their priorities and prepare accordingly. The first couple of points on the agenda should be things both parties are likely to agree on. This builds trust and momentum.

During the negotiation

Body language. Always try to conduct negotiations face to face, as you can pick up on vital clues in your counterpart’s body language. This shows what the person is thinking, which is not necessarily the same as what they are saying. Your body language also provides clues to the other party, beginning with your handshake when you greet them at the start of the meeting. Adopt a neutral, confident pose, keep your hands open on the table, sit up straight, look interested, listen and nod. In his coaching practice, Arden films participants as they role-play a negotiation, to show them how their gestures come across to others and what they may reveal. If you do have to negotiate over the phone, give the conversation your full attention; switch off any potential distractions such as email alerts.

Take a colleague with you. When faced with an important negotiation, take a colleague to the meeting with you. They may notice something you missed and can provide an excuse to take a break from long or intense discussions and clear your head. Arden suggested the following phrase: “We’ve made a lot of progress here. Do you mind if we take a few minutes out to have a chat?” Step out of the room, and ask your colleague what they observed. For example, “When we asked them if they had received a better offer, did you notice any clues in the other party’s body language?”

Don’t accept unrealistic deadlines. If, during the talks, you need to discuss with your CEO the potential implications of a particular scenario being proposed, you could opt for a “soft walkaway”. For instance, saying “that’s the best I can do today” buys you time. A soft walkaway can also give you time to recalculate figures.

Show enthusiasm. Demonstrate to the other party that you are keen to work with them. If there is little separating rival bids, “people are going to buy from the most enthusiastic person who wants their business, rather than the cheapest,” Arden said. “It comes down to who they trust, who they like, who has given them their mobile number so they can get in touch immediately if any issues crop up.”

Look for a win-win outcome. Helping the other party meet their objectives for the deal helps build long and fruitful relationships, Arden said. Existing customers take much less effort to sell to than new prospects, and if you help them get what they want and they trust you, they will be willing to buy from you in the future, and at premium prices. They will also be more inclined to refer their contacts to you.

Source : GCMA

How to reassure your staff in times of uncertainty

How to reassure your staff in times of uncertainty

How to reassure your staff in times of uncertainty

The UK’s vote to exit the EU has left UK employees with numerous concerns, from job security to migration status. Although the terms of the UK’s withdrawal from the EU are beyond their control and concrete information upon which to build their response is scarce, business leaders still need to communicate with staff.

However great the unknowns, reassuring concerned staff and being available to respond to their questions is vital to maintaining morale.

Steve Bustin, the founder of Vada Media and a regular speaker on business communications topics, provided the following insight and advice:

Prepare. “The first mistake leaders tend to make when there’s been a period of uncertainty or trouble is to just blunder in regardless. They don’t actually stop and think about how best to approach it before they start. And that is the worst thing you can do in this situation,” Bustin said. “In times of trouble, you’ve actually got to be preparing twice as hard [for a speech or presentation] as you might do when things are going well.”

Be consistent.  Before you deliver your speech, sit down with your senior team and agree on what you are going to say because the message has to be consistent.

“Talk to all of your senior team before you go into each of their individual team meetings, so the senior manager knows what’s going to be said, and they can be forearmed and forewarned,” Bustin said. “Then you’re also more likely to bring them along.”

If unresolved dissent becomes public, it will undermine your message, so if there are any dissenters, sit down with them and understand their objections. It may be that they have a point and there is something you need to take on board.

Communicate in person. Particularly in bad times it is important to talk to people face to face. Don’t just issue an email. If you are a leader across several teams, go into each of their meetings separately.

“Don’t just drop in, make a statement, and then leave,” Bustin said. “You become very distant if you do that. Go in and tell them what you know, what you don’t know, and then allow time for questions. Stay for the rest of the meeting, it shows that you’re interested in what they’re doing and you value what they’re up to.”

Show empathy. Another common mistake leaders make is to instruct staff not to worry. It provides no meaningful reassurance. “With Brexit, for instance, we are in a period where it’s completely out of our control, so we all have worries,” Bustin said. “A good leader displays empathy. They will acknowledge those worries and point out that they share them. That will often do a lot to reassure staff that ‘we are all in this together.’ ”

Be honest. Lay your cards on the table. Tell your team what you do and don’t know. If there are variables or unknowns, you should acknowledge those. Chances are the team will know they are there anyway, but it’s good to hear them vocalised by their leader.

Going back to the Brexit example, getting feedback from clients as a gauge of what might happen is hugely valuable. It enables leaders to go into a staff meeting and say either: “We’ve already spoken to our overseas clients, and it’s business as usual.” Or, “We have spoken to our overseas clients, and some are, understandably, a bit jittery. We need to look after them and reassure them as much as possible.”

Don’t make promises you can’t keep. It is important to acknowledge new information that comes to light in a developing situation, such as the immigration status of EU nationals in the UK after the referendum. “But don’t make promises you don’t know you’ll be able to keep,” Bustin said. “If a promise falls through, it really undermines you as a leader.”

He suggested the following approach:

“We all heard the Home Secretary’s comments at the weekend, and we realise that they could cause greater uncertainty. But we value all our members of staff, and we are going to do everything in our power to make sure that they can all stay and work with us for as long as possible.”

Draw on past experience. Back up your statements with as much evidence as you can. Draw on past experience to highlight how the company has previously dealt with similar challenges, or talk about the lessons you have learned from the way the situation has played out elsewhere, or for other companies.

You can also talk through the options available in each of the various scenarios that might come up.

“The problem with Brexit is that it’s very hard to find parallels to draw,” Bustin said. “In this case, you are better off saying, ‘At the moment, we don’t know how this is going to play out. We will tell you as much as we know as soon as we know it.’ In the current circumstances, staff will accept that.

“Don’t just say what you think staff want to hear. You have to be honest with them, even if it’s something they don’t want to hear or that doesn’t fully answer their question.”

Keep communicating. The more people are kept informed, the less space there is for rumour, gossip, and scaremongering. Communication has to be a continuous process. Update staff as often as you can, whenever there is news.

Invite people to ask questions, and set up a dedicated channel for the questions that arise. This could be an FAQ section on your intranet or a hashtag on internal social media platforms such as Yammer or Slack to create a group discussion. Staff can log in and see existing questions on that subject and the answers given. If someone has missed a meeting in which you spoke, they know where they can look for the information.

Convey bad news in simple terms. If you have to convey bad news, keep it simple and straightforward. Use plain English so there is as little room for misunderstanding as possible, and make sure there’s no jargon in there.

“Keep it human, and don’t try to hide behind the corporate ‘we,’ ” Bustin said. “I would always try to use ‘I.’ … At the same time, explain why this is happening in the context of the wider organisation. For instance, ‘I’m making this decision because if I don’t, the knock-on for the whole business is this.’

“If you believe in the organisation you are leading, then you will lead it through good times and bad,” Bustin added. “The bad times are when you prove your leadership skills.

Source : GCMA

5 factors to consider when designing benefits plans

5 factors to consider when designing benefits plans

5 factors to consider when designing benefits plans

When beverage giant Coca-Cola unveiled an expanded parental leave policy in the US this week, it was making a statement beyond the realm of employee welfare. The decision was in part aimed at luring and retaining talent.

“It’s the smart thing to do for our business,” Katherine Cherry, a member of a group of young Coke employees that proposed the policy change, said in an articleon the company’s website. “To remain competitive, Coca-Cola must preserve and enhance its talent pipeline. We know paid parental leave will go a long way in supporting our current associates, and it will be a great selling point for recruitment.”

Beyond traditional health-care plans and pensions, employees now expect a broader choice of benefits that reflect their changing needs and lifestyles. Meeting these expectations gives employers an opportunity to differentiate themselves in a competitive market for talent.

Well-structured benefits plans enable employers to reward and incentivise staff, promote loyalty, and boost engagement and productivity. They also alleviate some of the most common causes of stress amongst employees, such as health care and financial security.

Coke’s extended leave policy, for example, will give six weeks of paid leave to biological and adoptive parents in the US, regardless of gender, starting next year, according to the article on Coke’s website. The new policy supplements up to eight weeks of paid leave the company provides birth mothers through short-term disability, the benefits category to which such leave is ascribed by many US employers.

“It’s important for all new parents to take time off, so that when they return to work, they’re refreshed, less stressed, and at their best – focused, engaged, and productive,” Ceree Eberly, Coke’s chief people officer, said in the article.

Coke is not alone. On Wednesday, Ernst & Young LLP said it would expand its parental leave policy in the US in part for the same reasons as Coke.

Starting July 1st, EY mothers- and fathers-to-be – be it through birth, adoption, surrogacy, foster care, or legal guardianship – would be eligible for up to 16 weeks of fully paid parental leave. The outgoing policy offered 12 weeks for eligible birth mothers and six weeks for eligible fathers and adoptive parents.

EY will also offer employees financial assistance of up to $25,000 per family for adoption, advanced reproductive technology procedures including for surrogacy, and medically necessary egg and sperm freezing. These benefits, which go into effect on January 1st, would apply to same-sex and opposite-sex couples, the firm said.

Last year, EY research found that 38% of US Millennials would move to another country with better paid parental leave benefits and men were more willing to change jobs or give up a promotion, to better manage work and family than women.

“These new benefits will not only continue to attract and retain the best talent, but help us to deliver exceptional client service, while also encouraging our people to live fulfilling lives,” Carolyn Slaski, EY Americas vice chair of talent, said Wednesday in an EY news release.

What employees want

Research by Willis Towers Watson suggests that employers are increasingly aware of the need to tailor the range of benefits they offer to their employees’ needs.

In the US, for example, 92% of employers believe that voluntary benefits and services will be important to their employee value proposition over the next three to five years. This awareness is up from 73% in 2015 and 59% in 2013.

Willis Towers Watson researchers asked employees around the world to rank their top three reward preferences from a range of well-established options. Larger pay increases came top amongst respondents in all 12 countries and both age brackets (20–39 and 40+). More generous retirement benefits were in second place for respondents over the age of 40 across most of the world, as well as for 20–39-year-olds in Australia, Germany, the UK, and the US. In Brazil, Canada, China, India, and Japan, the opportunity to earn a bigger bonus came second amongst the younger group.

More generous retirement benefits were also a priority for those in their twenties and thirties, while more generous health benefits were valued by the 40+ group.

Reward preferences for UK respondents

Aged 20–3940+
1. Larger pay increasesLarger pay increases
2. More generous retirement benefitMore generous retirement benefit
3. Larger bonus opportunityMore paid time off per year
4. More paid time off per yearLarger bonus opportunity
5. Future career advancementGuaranteed retirement benefit


Reward preferences for US respondents

Aged 20–3940+
1. Larger pay increasesLarger pay increases
2. More generous retirement benefitMore generous retirement benefit
3. Larger bonus opportunityMore generous health benefits
4. More paid time off per yearLarger bonus opportunity
5. More generous health benefitsMore paid time off per year

 

Increasingly popular non-core perks

As employers begin to offer greater customisation, they are able to respond to employee demand for additional options that support their financial wellbeing. Such security is a priority shared by employees of all ages, around the world.

The 2016 Willis Towers Watson Voluntary Benefits and Services survey, which focused on US employers, suggests that the most common of such perks are set to grow significantly in popularity in the coming years:

  • Identity theft protection was offered by 35% of the organisations represented in the survey in 2015, projected to rise to nearly 70% by 2018.
  • Critical illness insurance was available to employees of 44% of the organisations polled in 2015. That figure is estimated to reach 73% by 2018.
  • Student loan repayment programmes were provided by 4% of employers last year. This could expand to 26% by 2018.
  • Pet insurance was offered by 36% in 2015. It could rise to 60% by 2018.

5 steps to update your company benefits plan

Building on the findings of these surveys, the authors of Willis Towers Watson’s The Future of Benefits report recommend employers take the following steps when considering how to develop their benefit plans:

  1. Align the benefit strategy with business objectives. Revisit the strategy regularly to ensure it evolves as regulations and employee requirements change, while still supporting business priorities.
  2. Aim for global consistency with local relevance. Cultural differences among locations can be accommodated as long as they are in keeping with the strategic commonalities that support the company’s underlying principles.
  3. Provide core security and increase employee choice. Health cover, life insurance, and a pension are among the core benefits that provide employees with financial security and should be available to all. Once these essentials are taken care of, employers can offer a selection of add-ons for individuals to choose from. The options could be tailored to the individual’s career stage, caring responsibilities, or personal aspirations.
  4. Educate employees about the benefits programme. Explain how it fits in with the company’s goals and rewards policy to boost employee appreciation and understanding and, ultimately, the value of the programme to the company.
  5. Deliver high-performing programmes. Design best practices based on research into employee behaviour. Improve administrative efficiency. Use technology to enhance cost-effective delivery of the programme. Use data and claim analytics to support decision-making. Establish quality standards for insurance products.

Source : GCMA

How to manage a short-term currency fluctuation risk

How to manage a short-term currency fluctuation risk such as Brexit

How to manage a short-term currency fluctuation risk

Strategies that mitigate short-term currency fluctuations are routinely part of a multinational company’s enterprise risk management plan. Events such as changes in interest rate policies in countries where the company does business usually trigger these ERM strategies.

Thursday’s referendum on the UK’s membership in the EU, commonly known as the Brexit vote, has been a highly unusual and powerful trigger. With a majority of voters deciding to leave the EU, uncertainties abound, and foreign exchange markets hate uncertainty. Just hours after the vote, the British pound had plummeted to a 30-year low against the US dollar.

Management accountants the world over are preparing for more uncertainty as talk of referendums similar to the Brexit pop up throughout the world.

The runup to the Brexit vote helps provide a road map, illustrating how a shifting currency landscape, if unmanaged in advance, could wreak havoc on a balance sheet. It also illustrates that, despite uncertainty, actions can be taken to defend against currency swings.

Firstly, it is difficult to make contingency plans for an unprecedented event, raising questions about the workforce, access to trade, as well as travel, legal, and import costs. Secondly, the time frame in which changes can take effect is often unknown.

How can a company protect itself?

Hedging is a best practice to manage the two types of foreign currency risk – transaction risk and translation risk. The US Financial Accounting Standards Board governs accounting for transactions and translation through Accounting Standards Codification Topic 830, Foreign Currency Matters. IAS 21, The Effects of Changes in Foreign Exchange Rates, provides guidance for foreign currency accounting under IFRS.

Risk from translations results when companies convert foreign subsidiaries’ assets and liabilities from a foreign currency into the domestic currency. In the US, for instance, according to Topic 830, the impact of fluctuating foreign currency exchange rates does not impact current income (assuming the functional currency is the local currency, which occurs in most instances). Instead, it impacts other comprehensive income on the income statement and accumulated other comprehensive income on the balance sheet. The impact of changing foreign currency rates would not impact income until the foreign investment is disposed of, and the impact would be in gain or loss.

Because there is no current income impact, most companies may not take action to mitigate foreign currency translation risk. This would be determined by a company’s risk-management strategy approved by the board of directors. If a company does take action, it is generally a natural hedge.

A natural hedge offsets a net asset denominated in the foreign currency by creating a liability in the same currency. This is the typical case where an investment in a foreign subsidiary is financed with debt by borrowing in the same currency. These risk-management actions, to be effective, need to be initiated at the inception of the investment because they hedge long-term structural risks. Thus, because of the long-term structural nature, taking action related to Brexit would not be effective.

Risk from transactions in a foreign currency results from selling goods and services in a foreign currency, which creates accounts receivable, or buying goods and services in the foreign currency, which creates accounts payable. Topic 830 requires revaluing receivables and payables denominated in a foreign currency at each balance sheet date, with the change impacting current earnings.

Companies can take immediate risk-management action by hedging transaction-based assets and liabilities for foreign currency exchange rate fluctuations. A forward contract is a common financial investment vehicle available to accomplish this hedge. A forward contract is an agreement to exchange currencies at a specified future price (exchange rate) with delivery at a specified future time.

While there are some specific differences between US GAAP and IFRS, both require entities to remeasure assets, liabilities, income, and expenses into the entities’ functional currency, which is the currency of the primary economic environment in which it operates. Assets and liabilities are translated at period-end rates, and income statement amounts are generally converted at the average rate.

How forward contracts work

If, for example, a US company purchased raw material inventory denominated in British pounds from a UK firm with terms of net 60, then the US company would need to purchase British pounds in 60 days to settle its accounts payable. Unhedged, the US company has foreign currency exchange risk until the accounts payable are settled, and today’s uncertainty due to the Brexit vote has elevated this risk.

The US company can, on the date it buys the raw material inventory, reduce this risk by entering into a forward currency contract to buy British pounds in 60 days.

Here’s how it works:

Assume the following £/$ foreign currency rates:

DateSpot rateForward rate
June 23rd£1/$1.48£1/$1.486
September 23rd£1/$1.33£1/$1.335

1. On June 23rd, the US company buys inventory from the UK company with payment due in 90 days in the amount of £100,000 when the spot rate is $1.48/£1.

2. Also on June 23rd, the US company enters into a forward contract to buy £100,000 on September 23rd at a forward rate of $1.486/£1, assuming no transaction costs.

3. The U.K. votes to leave the EU, resulting in a decrease in the pound’s value.

Solution:

Date Accounts payable valueHedge value
June 23rd£100,000 × $1.48/£1
= $148,000
£100,000 × $1.486/£1
= $148,600
September 23rd£100,000 × $1.33/£1
= $133,000
£100,000 × $1.33/£1
= $133,000
Income/
(expense)
_______________
$15,000
_______________
$(15,600)

The $600 net expense is the cost of reducing foreign currency exchange rate risk.

By establishing a risk-management policy that locks in foreign currency exchange rates at the transaction date through hedging, the company becomes financially indifferent about foreign currency exchange rate fluctuations because it has mitigated the risk.

Case study: Hedging at Isogenica

The volatility in the currency markets generated by the prospect of a referendum had been on the radar of Carolyn Rand, FCMA, CGMA, the chief executive of UK-based biotech company Isogenica, since the end of last year.

The UK-based workforce is Isogenica’s main cost, while the majority of its income comes from overseas. This makes Isogenica vulnerable to currency variations and leaves little opportunity to naturally hedge.

“We have been trading at €1.3 to the pound for a long, long time, and that’s what you based your original forecasts and budgets on. But then, when it plummets down to €1.25, that makes the purchasing of the euro very expensive. If you want to get … equipment in from Europe, that suddenly becomes massively more expensive.”

Isogenica’s strategy has been to reduce the external risk of currency movement by ensuring that current contracts with clients are hedged.

“Hedging is something that a lot of companies don’t do enough of,” Rand said.

“We tend to hedge fixed currency. If we know the customer is going to pay us at a certain rate or over a certain period – say, a year – then we forward hedge those [elements] in advance.”

The company also hedges when it knows approximately what the difference will be between its expenditure in the EU (or in any country outside the UK) and what the receipts will be. “You can hedge values so you can draw off at that fixed rate over a period of time,” Rand said.

When it comes to planning in an uncertain business environment, Rand advised: Don’t panic, and keep scanning the environment.

“You’ve really got to watch your cash flow,” regardless of whether your company trades directly with the affected region, she said.

It’s also essential to keep listening and for board members to make sure that they are very close to their companies. In the months following a major event (such as the result of the referendum), strategic plans have to be reviewed outside of the normal, possibly once-a-year, cycle.

“This is a time where you’re definitely going to have to review your horizon and ask, ‘Have we put our funds in the right place?’ You’ve got to think about your capital investment.”

A lot of companies have stopped recruitment and capital expenditures, which could damage their long-term prospects. Now is not the time for that, Rand said. Instead, ask, “ ‘What opportunity is there that I can take hold of?’

Source : GCMA

Strategies for combating payroll fraud

Strategies for combating payroll fraud

Strategies for combating payroll fraud

When a large construction organisation became a victim of payroll fraud, the organisation’s officials failed to question why the payroll clerk had begun driving a new Jaguar.

Her husband had done well at the casinos, she said, and she continued to hand-deliver paychecks at job sites.

Eventually, the company realised she had not been lucky at the slots and instead made off with $700,000 (€619,000) in paychecks made out to “ghost employees” cashed into her bank accounts, said Howard Silverstone, CPA/CFF, a New Jersey-based forensic accountant who helped the company rectify the situation. The scheme, which had gone on for three years, was uncovered when the clerk was out on sick leave and another employee realised there were issues with the payroll.

The scenario had several red flags common in payroll fraud schemes, with one person overseeing the payroll process and outward signs, like the Jaguar, of living well beyond what her salary paid.

Though no industry is immune to the risk, payroll fraud tends to occur more frequently in the construction industry as well as the not-for-profit and public works sectors, according to a 2016 analysis of fraud schemes released by the Association of Certified Fraud Examiners (ACFE). The construction industry, which has high turnover and often depends on seasonal workers, is susceptible to fraud because labourers are often at job sites far from the employer’s headquarters.

The ACFE report looked at over 2,400 instances of fraud across the world and discovered payroll fraud popped up in 8.5% of cases at a median cost of approximately $90,000 per instance. This type of scheme can occur from ghost employees who exist only on paper but whose paychecks go to the perpetrator of the fraud, or from an employee falsifying hours worked or fudging commission numbers.

Cecelia Locati, ACMA, CGMA, a London-based fraud prevention consultant, had a manufacturing client that was swindled out of €150,000 ($169,500) over five years when a temporary employee and manager conspired to have paychecks flow to the temporary worker after termination.

The two split the proceeds until a newly hired internal auditor realised there were no timecards for the long-gone employee, who was also missing from the factory’s headcount list, Locati said. The company had not been conducting internal audits before it hired the internal auditor who discovered the scheme.

With access to financial records, accountants play key roles in detecting and preventing this type of theft.

“[Accountants] should apply their professional scepticism, and if they notice any suspicious activity, they should follow up with appropriate client’s personnel,” Locati said.

Here are some tips from CPAs and CGMA designation holders who routinely advise companies on how to prevent and detect payroll fraud.

Have a system. The best way to combat payroll fraud is to have a system in place to routinely screen for it, experts say. Encouraging clients to conduct an annual forensic audit to assess fraud risk puts procedures in place to deter or identify schemes, said Amy Buben, CPA, of Yeo & Yeo, a Michigan accounting firm.

Special software can detect employees with duplicate Social Security numbers, addresses, or direct deposit accounts, a sign that a ghost employee is floating around.

Those audits should not be secret, Buben said.

“Usually just making people aware you’re doing these types of tasks is going to help deter these types of fraud,” she said.

Use data. CPAs and CGMA designation holders can help companies to crunch data and develop algorithms to compare payroll numbers and output, said Andrew Mintzer, CPA/CFF, CGMA, a Los Angeles-based forensic accountant. Outliers can be some of the first clues that a fraudulent scheme is at work, as well as a way for companies to look at overall efficiency.

For instance, a manager who knows a company’s busy season would expect a spike in overtime from hourly employees. But a similar spike in a slow month should prompt a manager to inquire more and ensure staff aren’t inappropriately claiming overtime or hours, Mintzer said.

“One good way to detect things is to know your business,” he said. “If you’re paying people on an hourly basis, the more they work, the more they get paid, and the more they should produce.”

Segregate duties. It’s the golden rule of accounting, and one that bears repeating.

Having financial and internal controls in place that segregate duties can eliminate the opportunity that must exist for fraud to occur, said David Zweighaft, CPA/CFF, a fraud detection specialist based in New York City.

“When that control breaks down, problems occur,” Zweighaft said. “That makes it susceptible.”

Zweighaft recalled an instance where a client of his, a Fortune 50 company, had an HR employee with access to the master payroll file and changed the pay rate for another employee, her boyfriend, by a factor of 10.

A routine audit soon revealed that $20,000 had gone missing in the scheme and showed that internal controls did not exist to prevent it from happening in the first place.

Check documentation. Another way to detect fraud is to implement routine checks that timecards and other payroll documentation are being filled out correctly.

Claiming excess hours and overtime can be common in jobs with large numbers of hourly employees, said Mintzer, the Los Angeles-based forensic accountant.

Companies that require supervisors and others to routinely verify timecards and other payroll documentation can discourage this from beginning.

“This sort of situation starts with people testing the waters,” Mintzer said. “They’ll test it for a half-hour or an hour. They’ll get bolder and put more down.”

Source : GCMA

What’s more important: Technical ability or soft skills?

What’s more important: Technical ability or soft skills?

What’s more important: Technical ability or soft skills?

In a business world that’s increasingly turning to technology for strategic insights, the skillsets that accounting and finance leaders need on their teams are changing.

To capitalise on new tools, CFOs are finding that they need people who:

  • Can use Big Data for predictive and prescriptive analytics.
  • Are comfortable with digital, mobile, cloud, and software-as-a-service technologies.
  • Have strong technological skills in the area of cybersecurity.

Finance leaders don’t have the luxury of waiting to add these skills to their teams, Tony Klimas, EY global finance performance improvement advisory leader, said in a new EY report on preparing for the future finance function.

“The change is so significant and the new capabilities so advantageous, that if you take a wait-and-see approach, you run the risk of being put at a severe competitive disadvantage,” Klimas said.

At the same time, finance teams need people who can see the big picture provided by the technical tools and formulate strategy – and communicate those strategic insights so the business can act upon them appropriately.

These “soft skills” may differentiate the leaders in a finance department from those who are more suited for staff-level jobs. According to the 2015 CIMA Professional Qualification Syllabus, senior roles place less emphasis on accounting and finance skills and more emphasis on business acumen, people skills, and leadership skills.

Meanwhile, entry-level roles require more focus on core accounting and finance skills and less focus on soft skills.

Skills for staff-level roles

A new survey shows that technical skills carry slightly more weight with CFOs than soft skills for staff-level positions.

More than half (54%) of 2,200 US CFOs surveyed by staffing services provider Robert Half said technical skills and soft skills are equally important for staff-level accounting and finance positions.

But amongst the remaining CFOs who stated a preference, most placed more value on technical skills. More than one-third (36%) of CFOs said they place greater weight on technical skills for staff-level positions, and just 10% said they place greater weight on soft skills.

As accounting and finance professionals rise in their organisations, soft skills may be the key to their advancement, said Paul McDonald, a senior executive director at Robert Half.

“At the senior level, these team members are expected to be able to build influence across the organisation, communicate with diverse internal and external stakeholders, and serve as a business partner,” McDonald said in a news release. “While honing their functional expertise, individuals aspiring to the management ranks cannot neglect also enhancing their soft skills.”

But as CFOs build their staffs in a competitive talent environment, finding people who can perform increasingly complex new technical tasks is a crucial objective. Technology-enabled process improvement was evaluated as a critical priority for tomorrow’s finance model by 69% of CFOs of large organisations, 53% of medium-size organisations, and 59% of small organisations, according to the EY report, based upon a global survey.

The most commonly listed top priority for the future of the finance function amongst respondents to the EY survey was improving Big Data and analytics capabilities to transform forecasting, risk management, and understanding of value drivers, listed by 23% of respondents.

The second-highest priority, selected by 22% of respondents, was meeting the need for new skills by transforming how finance talent is recruited, retained, and developed. These two CFO priorities complement each other in the important responsibility of attracting, developing, and retaining talent with the technical skills necessary to perform the tasks that are required of the finance function as technology continues to advance.

Training for soft skills

In some cases, employers are hiring employees who possess the requisite technical skills and training them in soft skills such as communication and making presentations. This is true for workers in various professions in Ghana, said Andy Mensah, ACMA, CGMA, a human resource partner with IBM Ghana and Central Africa.

“A lot of people come out of university with master’s degrees and need more skills in developing effective presentations and all those kind of soft skills,” Mensah said in an interview. “What you find at the entry level is people who do not have all these skills, so they are having to learn them. You’re having to teach them to do these kinds of things.”

But it’s often more challenging to build technical skills than soft skills. As CFOs look to the future, they have difficulty acquiring enough technical skills in an organisation to build an effective operation. The EY report suggests some ways to do it:

  • Look beyond traditional financial analysis skills to statisticians, data scientists, and even behavioural scientists to assist the finance function with using data to drive strategy.
  • Emphasise digital. Executives who are proficient in technologies such as blockchain and artificial intelligence will be key players in finance departments.
  • Create alliances with resources outside the organisation at universities, start-ups, and other third parties that possess the expertise to address business challenges in innovative ways.

These technical skills may be more difficult to acquire than soft skills, but they will be a must for organisations as they attempt to use technology to derive critical insights from data.

Source : GCMA

5 steps to strengthen internal controls at small businesses and not-for-profits

5 steps to strengthen internal controls at small businesses and not-for-profits

Internal controls may lag at smaller organisations as managers sacrifice them for the sake of service delivery, particularly at cost-conscious not-for-profits and start-up organisations.

Yet the risks are too great to ignore. Consider that the Association of Certified Fraud Examiners (ACFE) in its Report to the Nations on Occupational Fraud and Abuse: 2016 Global Fraud Study found that businesses with fewer than 100 employees are more vulnerable to occupational fraud. The median annual fraud loss for religious, charitable, or social service organisations was $82,000. This amount does not take into account the cost to the organisation’s reputation. Because charitable organisations are in the public eye, the occurrence of fraud, or even allegations of fraud, can significantly affect an entity’s ability to attract support.

There are many approaches to risk management, but the Committee of Sponsoring Organizations of the Treadway Commission’s (COSO’s) Internal Control – Integrated Framework can be used by virtually any organisation, large or small, to strengthen governance, improve the reliability of financial reporting, and deter fraud. The COSO framework emphasises that internal controls should be designed with consideration for the entity’s unique environment and its risk tolerance. It does not prescribe specific activities. Instead, it offers a structured approach to making risk-based, informed decisions. Applying the COSO framework, leaders can lend analytical abilities to identify risks and optimise controls to support critical processes.

Here are five low-cost steps to consider as a starting point:

Set a strong tone internally. Internal controls are processes affected by people and the actions they take every day in our organisations. The ACFE’s study showed that only 6.4% of fraud is discovered by external auditors. Internal controls involve everyone in an organisation, and the board and leadership team set the tone.

Provide a formal system for individuals to raise concerns without fear of retaliation. The ACFE study found that fraud is most often discovered from tips – in 29.6% of cases. The best thing managers can do is create a mechanism by which employees can report concerns. Even the smallest organisation can adopt a whistle-blower policy and incorporate that policy into employee handbooks and training for new workers. The online resource library of the American Institute of CPAs’ Not-for-Profit Section has a sample of such a policy, which can be downloaded and tailored to individual organisations.

Be attuned to what is happening within the organisation. Managers should be aware of conflicts, tensions, pressures, or incentives that could compromise decision-making, integrity, and the reliability of the entity’s financial reporting. Examples of such pressures could be aggressive growth goals, a poorly designed incentive-based compensation structure, or unbalanced workloads that lead to unfair treatment, employee resentment, and burnout. Employees who are under pressure are more prone to ignore internal controls or take advantage of control weaknesses for their own benefit.

Focus on relationship-building and open communication. It is possible to maintain an attitude of professional scepticism and, at the same time, build relationships on a foundation of trust. One way: adopting open-book managementpractices and explaining not just “how” but “why” particular processes are needed from a business perspective. Address issues of noncompliance first by identifying the behaviour you observed, then giving the employee an opportunity to voice his or her concerns. Second, acknowledge the employee’s viewpoint and then explain the business reason for the change. Finally, clearly state your expectations going forward. Use “I” instead of “you” in communication. Example: “I noticed that your supervisor did not preapprove this transaction” is better than “You didn’t get proper approval from your supervisor.” Keep interactions professional, not personal.

By establishing controls and processes that did not exist previously, you may cause an internal power struggle. An employee may perceive a new process, such as a new process for authorising transactions, for example, as a sign of distrust. Give employees a chance to express concerns before implementation, and be sure to explain the business rationale.

Consistently enforce policies across the entity to uphold fairness. Periodic, one-on-one discussions with individuals about organisational policies can be enlightening. Training new employees is a given, but some organisations fail to apprise employees of the acceptable use of the organisation’s property, including confidential and sensitive information. Check references and conduct pre-hire and periodic background checks, particularly for employees involved within the finance or accounting function and for those who have access to sensitive information. Also, review IT systems access logs. As much as possible, separate duties so that no single individual has control of all aspects of a transaction, and separate authorisation from recordkeeping.

In small organisations, unwritten policies can be effective where a process has existed for a long time and is a well-understood practice and where communications channels involve a minimum number of management levels as well as close interaction with, and supervision of, personnel. Keep in mind, though, that no matter how well designed controls are, they are not failsafe. Although managers cannot prevent all problems from occurring, the leadership tone they set by treating individuals fairly, and identifying and remedying issues, sends a strong signal about activities that are acceptable and those that are unacceptable.

The AICPA’s Not-for-Profit Section has resources on risk management and internal controls for NFPs. It recently published a new e-publication, the Controller Toolkit for Not-for-Profit Entities, that has sample polices and transaction cycle narratives to assist with design and implementation of internal controls.

Source : GCMA

How to stop expense reimbursement fraud

How to stop expense reimbursement fraud

How to stop expense reimbursement fraud

Expense reimbursement fraud schemes are among the most common types of fraud, accounting for 14% of all asset misappropriation fraud schemes, according to the 2016 Report to the Nations on Occupational Fraud and Abuse by the Association of Certified Fraud Examiners (ACFE).

The organisations that suffer most from expense reimbursement fraud are businesses with fewer than 100 employees, and cases range from a few pounds for non-work related meals to hundreds of thousands in a systematic scheme over several years. This is not surprising given the limited fraud-prevention budgets available to small and mid-size entities (SMEs). About 51.5% of large corporations have a dedicated fraud department, while only 15.7% of small businesses have them, according to the ACFE.

Case study: Expense fraud at FoodCo

I have witnessed many cases of expense reimbursement fraud in the course of my career, and the one that really stood out was an incident at a food company.

The company began as a distributor of specialty foods. Its founders brought many years of experience in the food sector to their new venture, where one became managing director and the other a sales director. The rapid growth of the business created an urgent need to scale the workforce up, too. The sales director was able to persuade some of the people he had worked with before to join his company as sales managers. The company also hired an accountant to handle its finances.

The company’s client base increased rapidly, and over a wide area, to the extent that the sales director and his team were constantly on the road. New sales employees were hired regularly to keep up with the increasing number of clients.

No specific travel and expenses policy was in place, however, the general, unwritten rule was to use common sense. Any employee who needed to claim business expenses had to fill out a paper form and submit receipts for each purchase. The report had to be authorised and signed by the employee’s line manager before being submitted to the accountant. The accountant had to check whether the report was signed, the expenses were reasonable, and the receipts for each expense were attached to the report.

One evening, one of the new junior salesmen was about to leave the office. His sales manager asked him to drop off an expense report for the past month with the accountant. He left the office and headed towards the accountant’s office. The junior salesman was just glancing through the document as he walked and noticed something very puzzling. The sales manager was making a mileage claim for a business trip that happened two months before. This struck him as being very strange because he remembered that particular day clearly; it was his first visit to a client, and he and the sales manager went to the client’s office by train.

The junior salesman pointed this out to the accountant when he submitted the report, thinking that there had been an innocent mix-up in the dates. The accountant went through the past month’s records to try to rectify the error, and she found that the sales manager had already submitted a claim for a train ticket for that same trip. She also noticed that the report included another two mileage claims made for business trips for which train tickets had been already reimbursed. She checked the past six months’ records and was astonished to discover that it was a regular practice by the sales manager.

The sales manager would submit receipts for train tickets purchased to visit a client. Then, after one or two months, he would claim mileage for that same trip. She also found something else: The meals he supposedly had with clients on weekdays actually happened on weekends, as evidenced by the dates of the original receipts.

This discovery was taken to the managing director, and he asked for a full report on expense claims made by the sales manager over the years. The report submitted by the accountant showed that the sales manager had claimed £12,000 ($15,720) in the last three years for personal weekend meals and mileage claims on trips that had already been reimbursed.

The managing director called a meeting with both the sales manager and director, and revealed the report. The accused sales manager initially denied any wrongdoing, saying that he must have mixed up a few dates and he needed to check his records. When he saw how much incriminating evidence there was against him, however, he couldn’t deny the accusations any longer. He finally admitted that he had inflated expense reimbursements by claiming more than once for the same trip and that most of the client meals were his personal expenses. He had been able to get away with it for so long because he realised that neither the sales director nor the accountant ever checked the dates on the receipts or compared claims with past records to check for duplicate expenses.

The sales director couldn’t hide his surprise – he had trusted this sales manager completely as they had worked together for many years, and he was his best salesman. He admitted that due to his frequent travel and his extremely high workload, he barely had time to do a reasonableness check of the expense claims. He was confident that this check was enough to spot fraudulent expense claims.

After the formal internal investigation was completed, the sales manager was dismissed from his job and asked to pay back the stolen money.

How can SMEs protect themselves?

This incident prompted the managing director to seek my advice on how to prevent this kind of incident from happening again. All SMEs can use these methods to prevent or detect fraud in these areas:

Travel and expenses policy. A policy plays a key role in ensuring that rules are the same for everybody and all are aware of them. Implement a formal written policy and training on these new rules and deliver it to employees. Distribute a written copy of the policy to all existing employees and include it in the welcome pack for new hires. The policy should include a section on how to handle instances of noncompliance with the policy and punitive measures to be taken in cases of fraud.

Meaningful approvals. In the case study, the sales director didn’t carry out an accurate review of the sales manager’s expenses because he trusted him. This was what gave the sales manager the confidence to perpetrate the fraud comfortably. Trust is essential but should not be a reason to disregard control measures, especially when it comes to fraud prevention. Furthermore, for approvals to be an effective anti-fraud control, approvers need to be aware of which details they have to check and why. After the case came to light, approvers at the food company were given guidelines on how proper meaningful approvals should be carried out.

Cost monitoring. To discourage and detect potential frauds, implement two controls at different stages of the expense reimbursement process. At the food company, the first control had to be carried out when the paper expense claim and the receipts were submitted to the accountant. The documents submitted had to be checked to spot any questionable expenses. In addition, at the end of every month, the accountant had to analyse the average amount spent by employee or by type of cost (eg, meals, fares, and mileage) to spot any unusual trends.

It might be best to invest in an expenses management software programme rather than handling expense reviews mannually. A number of different options on the market fit with different organisation sizes and needs. The expense management software analyses 100% of the data it is fed. This automated activity dramatically enhances control over the expenses process. This tool can also manage the approval steps required to validate the claim, store copies of the supporting documentation, and prepare customised cost analyses.

Lead by example. Controls are meaningless if the company’s management team does not follow the rules and does not take action against the policy’s offenders. When managers say one thing but do another, they lose trust and credibility and legitimise unlawful behaviours. Enforce the policies strictly – even when the sums involved are small – if you are serious about preventing fraud. This will prevent the spread of a non-compliance culture and of significant financial losses.

Source : GCMA

How to get more value out of your finance team

How to get more value out of your finance team

How to get more value out of your finance team

 The tedious and time-consuming nature of traditional accounting tasks often means that people with the ability to provide powerful insights into strategic decision-making have no place at the table.

Indeed, one-third of UK business decision-makers at medium and large enterprises believe their financial teams are an underutilised resource, according to a recent survey by accounting software company Blackline.

However, there are ways in which businesses can unlock the potential of their finance teams and ensure they contribute to high-value areas.

Finance professionals “are overworked in some areas they maybe don’t need to be working in, and not involved in other areas where maybe they could be,” said Elisabeth Saunders, ACMA, CGMA, a finance manager who oversees a team of three at Sussex Oakleaf, a health not-for-profit.

People who drive a business need the support of things like accurate invoice processing, Saunders said. “In small teams, you end up focusing on the transactional side without being able to find the time and space to go out and do the business development.”

However, Saunders points out that even the transactional finance people can add bigger-picture value. “They need to understand the implications when they are doing something of why they are doing it and what the implications are of them being behind with their work.”

Where can they add more value?

People in finance, by the very nature of what they do, can see what is going on in all aspects of the business. “The finance team is the scorekeeper but also an allocator of resources in a business. They can actually drive value,” said Joshua Azran, CPA/ABV/CFF, CGMA, founder of Azran Financial APC.

In particular, finance team members can help upper management identify the right data – and derive trends from them – from an increasing supply of information running through an organisation.

A relatively immature finance team might expend 50% of its effort on transactional processes, whereas a more mature department may expend only 20% in that area due to heavy automation, continuous finance, and other investments, said Kabir Dhawan, ACMA, CGMA, an associate director within business consulting at Grant Thornton in London.

“Most finance departments want to get to the point where most of the operational and transactional work is as low-effort as it can be,” he said. “That way you can free some resources and reallocate them” to activities that create value.

The first step is understanding where the effort is going and what the value coming out of it looks like.

Three core finance processes are easy targets for automation: procure to pay, order to cash, and record to report, Dhawan said. Driving automation at an appropriate level in transactional processing and then being diligent about investing those savings elsewhere in finance is critical, he said.

How can businesses use finance to deliver strategic insights?

Finance teams should employ a three-step process ¬– assessment, implementation, and automation – and feedback, Dhawan said. “Feedback is actually the most critical,” he said. “Once you implement automation, does the finance team actually go back and measure how long things are taking, how effective they are, how much savings are generated?”

Once this is quantified, the next step is to shift resources. But that’s where organisations typically fail. They lose, say, two heads, and since cost to finance has reduced overall, they move on to the next challenge. “When it comes to an organisation taking the next step, it is about the organisation then having the maturity to say that when we remove two heads here, we are going to invest in bringing in one to two people in a value-creation role,” he said. “But that typically does not happen.”

Saunders would have senior management, not just financial senior management, actually listen to people and recognise that people have value to add. Even “the youngest member of your team, whilst inexperienced, has a lot to offer, because they don’t know, there is no ‘business as usual’ for them. Just because we’ve always done it that way doesn’t mean it’s the right thing to carry on doing.”

How does the changing business scene offer more scope for finance talents?

Today, functionally, information is all tied together. A marketing person is now a finance person, but a finance person has always been everything. “That is a trend that people are finally waking up to,” Azran said.

There is more scope for today’s accountants to take on more commercially aware activity, and that is a consequence of changing business environments. “Pretty much every sector has a need for accountants to do more than just the accounting,” Dhawan said. Taking the example of the social housing sector in the UK, he said, “that is a sector that has tremendous regulatory change, and just being an accountant who processes numbers simply does not cut it anymore.”

Because environments are changing, organisations are looking for finance and, specifically, commercial skills. This is most evident in terms of the need for business partners as they understand how the business works operationally.

What opportunities can businesses provide to bring the finance team’s ideas forward?

Organisations can consider structured rotation of junior employees into varied roles, not just the standard entry-level ones. “There is a lot of research that indicates that diversity, whether it is gender, background, ethnicity, or even experience in terms of work experience, drives better outcomes,” Dhawan said.

Saunders believes finance teams need to be empowered to contribute and “have a forum to come out and come up with those ideas and challenge assumptions without feeling that somebody else has thought about it already.”

She also recommends one-to-one meetings. “They give people time to talk without embarrassment,” she said.

How boards can better drive long-term value creation

How boards can better drive long-term value creation

 More than ever before, corporate shareholders are taking an active role in company performance, and directors are paying attention.

Shareholder activism is not new. For more than two decades, shareholders have been exercising their ownership rights to influence corporate behaviour. And modern investors are exerting more influence on how boards and management operate now than ever before, according to the PwC’s 2016 Annual Corporate Director’s Survey.

The report shows that directors are becoming more responsive to investor pressure on a wide range of corporate governance issues, including board composition, executive compensation, and risk management, and they are addressing the tension that exists between long-term value and short-term gains.

Long-term value creation is a key responsibility for the board and management, but it can be challenging in a world of quarterly earnings reporting. Boards, especially, must be sensitive to balancing short-term results with long-term value.

“The theme of this survey is shareholder empowerment,” said Paul DeNicola, managing director of PwC’s Governance Insights Center in New York City. “Companies become targets of activist shareholders who apply pressure on boards to make modifications to long-term plans in order to achieve short-term goals.”

But as boards focus on their fiduciary responsibility to their shareholders, they are beginning to value direct engagement with them. Boards recognise that regularly communicating their long-term strategy and performance to shareholders is an effective way to relieve pressure to capitalise on short-term returns.

“This is an overall trend that didn’t exist 10 or even five years ago, and it was not common for such dialogues to take place,” DeNicola said.

Eighty per cent of directors agree, at least somewhat, that their board received valuable insights from dialogue with shareholders, the survey showed.

Incorporating management

As a result of this dialogue and engagement, board members are more involved with strategy, talent, technology, IT, cybersecurity, and other issues. They are also spending more time with management than ever before.

Corporate boards are responsible for the future of their business. Therefore, they must keep management focused on long-term strategic goals, said Nigel Davies, FCMA, CGMA, managing director of Nigel Davies Chartered Management Accountants of South Wales.

“It is the board’s duty, role, and responsibility to keep management’s eye on long-term shareholder value,” said Davies, who serves as a nonexecutive director for Thomas Carroll Group PLLC and as a member of council for the Chartered Institute of Management Accountants.

The best boards extend their fiduciary responsibilities beyond the conference room and foster strong collaboration with their top management to establish a forward-looking agenda, define performance goals, and reinforce accountability through dynamic dialogue. Boards these days rely on management to ensure their strategies are executed, and they keep their fingers on the pulse of progress in a variety of ways.

Periodic and ongoing monitoring: The survey found that the average time commitment for directors serving on their boards was about 248 hours last year. Boards are beginning to expand their areas of oversight beyond fiduciary responsibilities into strategic planning, ongoing review of investment proposals, talent wrangling, risk management, decision-making, and board education.

Senior management and boards should have a culture of information sharing, open dialogue, and constructive debate. Most boards meet quarterly to receive reports from management. But more frequent communication and monitoring are critical, Davies said. “While formal meetings every three months are important for regulation, communication between the board chair and management in between those meetings is vital to keeping the decision-making process active,” he said.

Board composition and evaluation: The days of passive boards comprised of generalist directors are fading into the past. Modern boards are striving to attract directors with specific business expertise. The PwC survey ranked financial expertise as the most important skillset directors should possess. Today’s directors must also have experience in operations, IT, and risk management. While board leaders often serve as sounding boards for their CEOs, relevant industry expertise enhances their effectiveness.

Board recruitment becomes even more critical when long-term focus comes into play. Therefore, boards should constantly assess the skills and experience of their fellow directors and fill gaps whenever they have the opportunity. The PwC survey showed that as a result of board self-evaluation, more than one-third of directors thought at least one fellow board member should be replaced, but only 8% of directors said they decided not to re-nominate someone.

In addition to a formal board appraisal system, Davies recommends ongoing communication and connecting between meetings to build a culture of openness, and points to his relationships with his own boards as an example.

“At the end of board meetings, the chairman often rings me up and asks, ‘How did I do?’ ” Davies said. “We look at the bits he did well and focus on improvement on the others. Communication between board meetings is vital to facilitate the decision-making process outside the formal meetings.’ ”

Strategic planning: Because one of the board’s primary responsibilities is strategic oversight, directors must be sufficiently expert in industry trends to effectively guide a company’s long-term strategy. At the same time, management should maintain key statistics to ensure that the company stays on its long-term strategic trajectory, and top executives should be able to clearly communicate the metrics to their boards and investors, according to DeNicola.

“Execution of strategies is a fundamental board expectation,” DeNicola said. “The board’s role is to prod and ask questions and to monitor management’s progress.”

Corporate culture: A board that merges an interest in corporate culture with its goals for achieving long-term value will result in developing an effective management team. Boards may tie incentive plans to long-term value creation, but they can also look to product quality and customer satisfaction, which also lead to long-term value creation and should be emphasised in performance assessments.

Employee engagement, morale, contribution to revenues, and retention are important. “If your employees are happy in their jobs, the monetary rewards will follow,” Davies said.

At the end of the day, the board’s role is to focus on long-term value goals and help management reach these goals using short-term objectives to reach fulfillment.

“We want sustainable growth and profit, and the journey to get there is the way of life,” Davies said. “If your goal is the destination, change the picture and enjoy the journey. Define success by hitting your targets, and focus on happiness, compliance, customer satisfaction, and best practices.” Davies also advises corporations to hone their business reputations by giving back to their communities through volunteerism, giving boards, and management. This imparts a feel-good factor in addition to bringing out the best in their organisation and employees.

Source : GCMA