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Challenges, ConCerns, and Calls for a stronger VoiCe:
A Survey of Select Fortune 500 CFOs
ConduCted by Institute o Management Accountants in Cooperation with Caterpillar Inc.
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A Survey of Select Fortune 500 CFOs | 1
Table o Contents
i. l ic, rom David Burritt, CMA, CFO o Caterpillar Inc.
ii. sv f:
. Expectations o the CFO Team
. Internal Barriers to Success
c. View o the Current U.S. Finance and Accounting Regulatory Environment
. View o the New SEC Advisory Committee on Improvements to Financial
Reporting (CIFiR)
. Willingness to Take the Next Step
iii. t C o, by Paul A. Sharman, ACMA, President and CEO,
Institute o Management Accountants (IMA®)
about Caterpillar inC.
For more than 80 years, Caterpillar Inc. hasbeen making progress possible and driving
positive and sustainable change on every
continent. With 2007 sales and revenues o
about $45 billion, Caterpillar is the world’s
leading manuacturer o construction and
mining equipment, diesel and natural gas
engines, and industrial gas turbines. The
company also is a leading services provider
through Caterpillar Financial Services,
Caterpillar Remanuacturing Services,
Caterpillar Logistics Services, and Progress
Rail Services. More inormation is available
at www.cat.com.
about iMa®
With a worldwide network o more than60,000 proessionals, IMA is the world’s
leading association dedicated to empower-
ing accounting and nance proessionals
to drive business perormance. IMA
provides a dynamic orum or proessionals
to advance their careers through Certied
Management Accountant (CMA®)
certication, research, proessional
education, networking, and advocacy
o the highest ethical and proessional
standards. For more inormation about
IMA, please visit www.imanet.org.
To those interested in the uture o
the accountancy proession:
It’s no secret that today’s nancial climate has created a dizzying array o regulatory
and reporting requirements or U.S.-based multinational companies. Faced with
these requirements, CFOs at U.S. multinationals are charged with preparing a myriad
amount o inormation, some o which has dubious value or investors—and perhaps even
or the organizations and regulators themselves.
While many U.S. multinationals are contending with similar reporting and regulatory
challenges, what isn’t clear is whether they agree on an appropriate course o action in re-
sponse. To nd out how top nancial managers really view the current situation—
and what steps they’re willing to take to nd a solution—Caterpillar Inc. and the Institute
o Management Accountants (IMA®) conducted this study o nancial executives at some
leading U.S. multinational corporations.
More specically, this study sought to:
1. Identiy common expectations o the CFO unction and barriers to the successul
perormance o these duties.
2. Assess the state o complexity o the U.S. nancial reporting system and how it
acilitates or inhibits shareholder value creation.
3. Discover i business leaders believe they have a voice in the r egulatory arena—
or even i they want one.
4. Gauge the level o interest in securing a stronger “seat at the table” as contributory
participants in the regulatory process.
To answer these questions, 30 U.S.-based multinational public companies were targeted or
interviews, o which 17 agreed to participate. All companies except one were listed in the
most recent Fortune 500, and seven were in the Fortune 100. In terms o the size and scope
o the participants, they collectively employ 1.4 million people and reported gross revenues
o $811 billion in 2006. All interviews were conducted either in person or over the phone:
A CFO participated in 84% o the interviews directly, while the remaining 16% o inter-views were with a Chie Accountant and/or Controller.
We think you’ll nd the survey results compelling, not only rom what they reveal about
the current state o aairs, but also about the level o commitment o leading CFOs and
their willingness to take a more active role in the regulatory process.
Thank you or your interest in this study and in the evolving state
o the accountancy proession.
dv b, CMa
Chie Financial Ocer
Caterpillar Inc.
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2 | A Survey of Select Fortune 500 CFOs
Although respondents hailed rom a variety o dierent
industries—manuacturing, technology, energy, consumer
products, and others—the survey ound a striking similarity
between what top management expects rom the CFO team.
O the 17 respondents, more than 80% (14 out o 17) noted the
ollowing three primary expectations:
Enterprise Risk Management: The CFO team must demonstrate
leadership in holistically identiying and managing risk—including
nancial, operational, strategic, and environmental risk—that
aects the organization’s ability to achieve its strategic and
perormance goals.
Financial Reporting: The CFO team must ensure that nancial
disclosures, including statements, notes, and MD&A, are timely,
correct, reliable, and relevant to preserve and grow investor wealth.
Business Partner: The CFO team not only must assure integrity
in controls, risk management, and nancial reporting, but it also
must help to infuence strategy via analytics and decision support,
working closely with operations.
Other major concerns mentioned by the participants included
growing shareholder value and developing talent.
These ndings reveal that the CFO team not only oversees “the
numbers,” but it also works at the highest and most important
levels o the organization to help shape the strategic direction and
uture o the enterprise.
The survey
found a striking
similarity
between what
top management
expects fromthe CFO team.
“At the end o the day, we must make sure that all o
the company is using one version o the truth.
–thoMas hofMann, Cfo, sunoCo”
ec Cfo tm
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4 | A Survey of Select Fortune 500 CFOs A Survey of Select Fortune 500 CFOs | 5
I expectations o the CFO team include serving a valuable role
within the organization, what internal barriers hinder the
successul accomplishment o these responsibilities?
To learn the answer, respondents were asked, “What are the top
three internal challenges you ace in delivering on your organiza-
tion’s expectations o your team?”
Slightly more than 50% o respondents (9 out o 17) noted issues
around human capital. While some simply said “stang,” others
elaborated by citing challenges related to recruitment, achieving
diversity, employee development and training, and sta retention.
The human capital challenges also spurred discussion o related
internal barriers, including contending with new technology to ree
up employees to spend more time on interpretive tasks, resource
allocation, and the ability to manage change.
The results underscore a clear need within U.S. multinationals or
properly trained, motivated, and committed nance proessionals—
those that are knowledgeable about the technical aspects o the nance
unction and that have strategic and decision-support expertise.
My biggest internal challenges include hiring and retaining talentand identiying evolving technologies to ree up our team to spend more time on analytics.
–roy teMplin, Cfo, whirlpool
“ ”
top internal
barriers
to suCCess
• Stafng
• Recruitment
• Achieving diversity
• Employee development
and training
• Staff retention
• Evolving technology
• Resource allocation
• Ability to manage change
i b scc
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6 | A Survey of Select Fortune 500 CFOs A Survey of Select Fortune 500 CFOs | 7
We all know the press wields enormous power, so it’s not surprisingthat when respondents were asked i they could say one thing
or a eature in a national accounting periodical, some o their
gravest concerns emerged.
Overwhelmingly leading the list were concerns about the nance and accounting
regulatory environment’s complexity. In act, all respondents either mentioned it
individually or in conjunction with shareholder value.
Among the more notable responses:
“The current environment is complex, and with the pressure o large penalties
or technical noncompliance, what has resulted is a system that does not
produce valuable inormation or investors or board members.”
“Accounting has moved rom ocusing on guiding shareholder value to just
applying rules rigidly.”
“The things we do or compliance bog us down, and the end product is a lack
o relevant inormation.”
When asked later to quantiy the current state o complexity in U.S. nancial
reporting on a scale o 1 to 5 (with 1 being the least complex and 5 being the
most), respondents gave a staggering average rating o 4.4.
Repeatedly, respondents expressed the view that the complexity o the regula-
tory process and standards was their greatest impediment to preserving and
growing investor wealth. In act, several r espondents said that it was “unair
and wrong” to produce a product that does not help the typical investor. Said
one pointedly: “The answers are there and correct, but the nancial statements
are a disservice to the average user who does not know what they mean.”
Not only was the value to investors questioned, but so was the
time drain on the organization itsel. Many respondents said that
keeping up with and synthesizing rule changes, clarications, and
the like on regulatory pronouncements, guidance, and standards
was a huge, nonvalue-adding task—especially when regulators are
unorgiving when it comes to technical noncompliance with overly
complex standards and rules.
Similar rustration was expressed with the way standards are set.
More than one respondent said, in eect, that there were “too
many theorists setting standards” and that r egulators need to be
more seriously engaged with the business community about what it
takes to interpret, implement, and sustain standards.
“”
The joke goes, why, when 10 commandments are sucient,
do we need 178-plus accounting standards?
Things may be getting a bit out o control.
–tiM pistell, Cfo, parker hannifin
I you could describe yourview o the current nance
and accounting environment
in the U.S., what’s the most
important point you’d make?
100% of respondents noted
“CoMplexity” and/or its
laCk of Value for shareholders.
V C u.s. fc
acc r evm
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8 | A Survey of Select Fortune 500 CFOs A Survey of Select Fortune 500 CFOs | 9
Given their rustration with how standards are set,
respondents echoed these sentiments when asked about
the strength o their voice in aecting regulations,
guidance, and standards in nancial reporting.
When asked to rate their current voice on a scale o 1 to 5 (with
1 being the weakest and 5 being the strongest), the average response
was a disappointing 2.0. In act, only one respondent gave an
answer above 3.5.
Although respondents perceive their current rate o infuence as low,
it was encouraging that when asked to rate on a scale o 1 to 5 the
benet o having a stronger voice at the regulatory table—with
leading regulators such as the SEC, Public Company Accounting
Oversight Board (PCAOB), and Financial Accounting Standards
Board (FASB)—respondents gave an average response o 4.0 (with
only one response below 3.0). Clearly, respondents would greatly
benet i regulators listened to the business community beore deciding
on new standards and regulations.
Strengthening that voice, o course, is the purpose o the SEC’s new
Advisory Committee on Improvements to Financial Reporting (CIFiR).
Yet judging rom the survey results, while it appears that leading CFOs
believe this committee is well intentioned, they also expressed healthy
skepticism about whether timely, cost-eective, transormational, and
sustainable changes can actually be implemented.
When asked point-blank i they believed the SEC CIFiR would
represent their company’s interests and issues to reduce complexity
and produce correct, relevant, and reliable nancial disclosures or
investors, more than hal (53%) said “no,” only 35% said “yes,”
and 12% said they were not sure.
V n seC av Cmm
imvm fc r (Cifr)
Similarly, when asked to consider whether the SEC CIFiR would
produce any “meaningul or transormational change,” nearly
90% responded with either “no” or great skepticism.
These results indicate that although they clearly desire a more
active voice in the regulatory arena, leading CFOs doubt the ability
o a body like the SEC CIFiR to aect the changes necessary to
solve their complexity concerns.
It should be noted that this survey was conducted while the SEC
CIFiR was in its early stages o activity. Since the IMA/CFO
interviews were conducted, CIFiR has made considerable progress.
As CIFiR releases proposed recommendations or exposure, we
anticipate urther reaction by CFOs. Indeed, discussions with SEC
sta indicate they look orward to receiving CFO participation in
the exposure process and welcome their comments.
No
53%
Yes
35%
Not Sure
12%
100
75
50
25
0
Do you believe the SEC CIFiR will
represent your company’s interests and
issues to reduce complexity and
produce correct, relevant, and reliable
inancial data or investors?
Do you believethe SEC CIFiRwill lead to anymeaningul ortransormationalchange?
yes
12%
no
88%
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10 | A Survey of Select Fortune 500 CFOs A Survey of Select Fortune 500 CFOs | 11
In general, respondents were interested
in pursuing a more active dialogue
with regulators i the opportunity
became available—but with some important
conditions.
More than 75% o respondents said they would
be willing to participate in additional orums and discussions
only i it was a valuable platorm with participants who wanted
to listen and make change.
Clearly, then, these leading CFOs are interested in pursuing
regulatory advocacy at some level, but only i the regulatory
community seriously engages with the business community.
I that were to happen, there was a general agreement that
such a dialogue could be instrumental in creating some major
and sustainable changes, such as reducing unnecessary,
value-eroding complexity and regulatory processes.
w
t n s
Would yoube willing toparticipatein ollow-updiscussionswith regulators?
no
24%
yes
76%
The Challenge and the Opportunity
by paul a. sharMan, aCMa
president & Ceo, institute of ManageMent aCCountants
On the negative side, this survey reinorces what anecdotal and
documented evidence has demonstrated or quite some time:
Complexity in regulatory processes and standards is perhaps
one o the gravest problems acing U.S. public companies today.
What’s also discouraging is that even attempts to address this
concern in the orm o a new SEC Advisory Committee are being
met with skepticism and caution.
Fortunately, that isn’t the whole story. On the positive side, we’ve
got leading CFOs willing to take a more pronounced role at the
regulatory table and work with regulators to provide investors
with higher quality and more understandable nancial results.
I’m encouraged that these leading CFOs are so concerned about
the value o the inormation they provide to their shareholders. I also
know that these individuals care greatly about how the problems
o accounting complexity hinder their organizations’ successul
accomplishment o critical economic goals. Frankly, that’s what
it’s all about. We must remind ourselves that the most important
purpose o accountancy is to acilitate business perormance and
economic development. This is achieved through transparent,
honest, and orthright disclosure o a company’s nancial peror-
mance, without which all capital market participants ail to achieve
the common objectives o economic growth and prosperity.
I urge regulatory bodies and CFOs at some o this country’s largest
companies to capitalize on this willingness to engage in a dialogue.
To the regulators: Create orums or business leaders to participate
in the regulatory process. Talk to them, listen to their concerns, and
work with them to create a system o nancial reporting that works
better or all o us.
Finally, I want to thank all o the participants who gave their time
and valuable opinions to this survey. Your voice matters—and I
trust that it will be heard.
It appears that we have some good news and some bad.
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