Purpose of the Finance Committee
This is a discussion forum for Chief Financial Officers to enable benchmarking across AmCham member companies.  We meet 4-5 times a year, with an average attendance of ~8 people.  The discussions cover various relevant topics and are very open and stimulating.  Recently we have started to involve others from our finance organizations e.g. our local Tax specialists have set up their own network, and we invited our deputies to the last speaker meeting.

Recent Topics

1)      The Lean Finance Organization – Oracle Case Study
Our local Finance organizations have undergone a transformation over the last 12 years as our companies have set up regional and global service centres and moved work to them such as accounting, accounts payable, accounts receivable, reporting, travel expenses etc.  The role of the local CFO in their governance of these activities continues to be a hot topic in the Finance Committee. 

We recently explored the Oracle case, which is probably most extreme with only seven people left in their Nordic Finance organization, reducing from ~30 in 1998.  Mikael Gattberg, Finance Director, Oracle Nordic, gave a very interesting talk explaining how the new model can be made to work (see below).  Key elements are outsourcing whole end-to-end processes (including the accountability for the results), a lot of training, and upfront calls on what risks will be taken and how to mitigate it.  The approach has made Oracle very capable at managing acquisitions.  More details are in the attachment.

2)      Tax Audits
We are all engaged in tax audits to a greater or lesser extent.  These range from Transfer Pricing audits (reviewing the business model) to tax audits on employee compensation and benefits.  This is relatively time consuming for us and our organizations – we estimate the time taken to manage the ongoing external audit workload is 0.5-1.0 full time person in each company.  Having processes managed by or extending across offshore service centres makes the audits more tricky, particularly when it comes to retrieving documentation.  Transfer pricing audits tend to work better, where regional / global tax support is effective, and in one case has led to an Advanced Pricing Agreement (P&G Denmark).

We have asked our Tax specialists to form a network where they can benchmark best practice and spot audit risks early.  They first met in January 2010 and plan to meet twice a year. 

3)       Recruiting and People Costs
The recent economic environment has impacted wage inflation and made recruiting easier.  On the other hand, it is getting harder to recruit and develop people with accounting mastery profiles, partly because of the offshoring of a lot of accounting transaction work from Nordic.  We would like to explore this topic in more detail in the next meeting, including the latest outlook on wage inflation, and plan to set up a joint review with the AmCham HR Committee.

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Presentation by Mikael Gattberg, Oracle, on 29 January 2010

Topic: Lean Finance Organization

Oracle has sales and Consulting people in each of the four Nordic countries.  Support functions on the ground are very lean e.g. only one Marketing person for Nordic.

Local Finance Organization: The Nordic Finance organization has seven people:  Mikael, two SFMs (strategic finance managers – one in Sweden and one in Finland) and four people responsible for payroll.  This has fallen from 30 in 1998.  Since then A/P was set up in Bangalore, A/R in Romania, Accounting in Dublin and Analysis/Reporting in Bangalore.

Profiling is very important for the local staff.  Mikael and one of the SFMs have commercial experience so are well suited to working as a lean organization close to the business.  The business needs for the local SFMs are mainly in the areas of budgeting, forecasting and deals.  The Sales people forecast revenue, Finance focuses primarily on cost (mainly employee cost), and margins are reviewed every month.

Working with the service centres:

i. Allows the ‘outsourcing’ of whole end-to-end processes:

·  The service center personnel manage the end to end process – e.g. A/P will call suppliers directly and deal with issues, reminders etc.
·  External audit work now takes place mainly (90%) in Dublin.  Local audit focuses on contract reviews and payroll.
·  Accounting has 5 people responsible for Nordic (a Nordic controller and one for each legal entity).  The accounting leader co-signs the statutory accounts.
·  Reporting in Bangalore do monthly reports and reconciliations.  They often ask the local org to explain key drivers because they need this to show their management they know what is happening.
·  To some extent the service centres need to troubleshoot and solve problems as part of the SLA (IBM/Microsoft have something similar, including at Microsoft a senior counsel for issue escalation).

ii. Requires Training and Coaching

·  It does take some time to ‘get the best from the international players’ (football coach analogy).  E.g. A/P now know that it is very important to pay invoices on time in Nordic to avoid late payment charges.
·  …and also time to train local people to work directly with the service center without expecting the local FD to handle the interface or day to day problems.  This works ok, as long as both sides understand each other (not always the case).  The FD is usually a second point of escalation.
·  Language capability helps a lot but is not critical (staff in Bangalore and Romania speak Swedish, and speak English when dealing with Finland)

iii. Enables Integrations:

·  Oracle have managed 60 acquisitions over 7 years.  This is only possible because of the standard processes, systems, and the service centres which can absorb extra transactional work quickly.
·  Integrations, including detailed process mapping work to ensure all elements of a process are converted to the 'Oracle way', are conducted in the most timely manner - and happens fast relative to the complex nature of the integrations.

iv.  Requires some calls on how risk will be managed, and who is responsible if the process fails:

·  For example Oracle manages all entertainment expense as non-deductible.  This means they likely pay a little too much tax but they save on the complicated process to determine and document deductibility / non-deductibility.

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The Finance committee has members from Procter & Gamble, Elekta, Oracle Svenska, IBM Svenska, Accenture, Microsoft, American Express, HP, Eli Lilly and GE Health Care.

Written by Matthew Tipple, Procter & Gamble