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Management
www.fm-magazine.com May 2012
Making the
right play
HMV Canadas CFO Harvey Berkley
on why his business is thriving
at a time when global specialist
retailers are taking a hit
Plus:
Nuclear where the
power lies p14
8 ways to be a great
project manager p36
Blowing through
whistle-blowing p50
While 80 per
cent of our
members
employers have
a code of ethics,
only 36 per cent
are monitoring
performance
At a glance
Front
3-18
36
32
I work at...
Tata Steel p6
The data
Proliferation of power stations p14
Forum
Blogs, polls and discussion p16
Opinion
Robin Pagnamenta of The Times on
Indias economy p18
Features
20-37
Harvey Berkley,
CFO of HMV Canada p20
Shared success Why employee-owned
businesses are thriving p26
Looking to the future How predictive
analytics can drive performance p32
Prime number Income tax rates p35
8 ways...
To be a great, and efficient, project
manager p36
CIMA is the
Chartered Institute
of Management
Accountants
26 Chapter Street,
London SW1P 4NP
020 7663 5441
www.cimaglobal.com
20
President
Harold Baird FCMA, CGMA
Deputy president
Gulzari Babber FCMA, CGMA
Vice president
Malcolm Furber FCMA, CGMA
Chief executive
Charles Tilley FCMA, CGMA
Financial
Management
is published for CIMA by
Seven,
3-7 Herbal Hill,
London EC1R 5EJ.
Tel: 020 7775 7775.
editor@fm-magazine.com
Group editor
Jon Watkins
Editor
Lawrie Holmes
Group art director
Simon Campbell
Junior designer
Josh Farley
Creative director
Michael Booth
Editorial director
Peter Dean
Chief sub editor
Steve McCubbin
Senior sub editor
Graeme Allen
Technical
50-55
Back
56-66
A look at the...
Business processes Mastercourse p56
CIMA global events
Highlights of the international
calendar p60
The Institute
CIMA announcements, plus the
latest from CIMA Ethics p62
CIMA CEO column
Charles Tilley p65
CIMA versus... p66
Head of pictures
Martha Gittens
Picture editor
Nicola Duffy
Senior picture researcher
Alex Kelly
Production manager
Michael Doukanaris
Editors note
Most organisations, especially corporates, are coming
under pressure to deliver results in an ever tougher,
more competitive environment. But this increasingly
tough environment is also inspiring a whole new
approach to how firms should operate, adapt strategy,
and employ better systems to understand how the
world is changing.
Our cover feature looks at the relative success of
employee-owned businesses, compared to their
traditional peers, around the world, be they stockmarket listed entities in the West or state-owned in
China. Although the models may differ, these
companies show that a workforce with more interest
in the companys success is likely to work harder to
ensure continued high levels of performance.
Also in this issue, Harvey Berkley, FCMA, CGMA,
CFO of HMV Canada, reveals how the group is using
innovative new techniques in a fast-changing world
dominated by the arrival of digital technology.
Meanwhile, our feature on predictive business
analytics looks at the skills, technologies, tools and
processes for continuous analysis of past business
performance to gain forward-looking insight and drive
business decisions and actions.
Lawrie Holmes
Please send your comments and ideas to
editor@fm-magazine.com or join the FM
feedback group on CIMAsphere at
www.cimasphere.com/groups
Tel: 020 7775 5717
Managing director
Jessica Gibson
Chief executive Sean King
Chairman Tim Trotter
Seven
Cover photography
Steve Carty
Subscriptions:
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should be in sterling drawn on a UK bank.
www.cimaglobal.com
I worked on
achieving huge
efficiencies through
outsourcing
Start date June 2010 End date December 2010
Name:
Kevin Io,
ACMA, CGMA
Organisation: Tata
Steel International
(Singapore) Pte Ltd
Location: Singapore
CIMA qualified:
February 2002
Update
Getty Images
UK female board
members up
but shy of target
The number of women on
the boards of FTSE 100 firms
has risen in the past year,
but still stands at just 15 per
cent of all board members.
The figures, which were
in the annual Female FTSE
Index and Report from
the Cranfield School of
Management, represented
a three per cent increase in
the number of female board
members from 2011. Of the
190 appointments made to
FTSE 100 boards in the past
12 months, 47 were women.
The report came as
Lord Davies delivered an
update on firms progress
towards meeting his
recommendation in his
2011 report, Women on
Board, that 25 per cent
of FTSE 250 directors
should be women by 2015.
For FTSE 100 companies
this target was regarded as
a minimum goal.
Lord Davies update
revealed that 11 all-male
boards remain in the
FTSE 100, down from 21.
However, the number of
all-male boards in the FTSE
250 was 112, accounting
for 44.8 per cent.
The update also showed
that 53 female
appointments were made
within the FTSE 250 in the
past year, meaning women
now account for 9.6 per cent
of all directorships up
from 7.8 per cent.
Recruiters failing
to consider
business outcomes
Most global businesses want
to connect talent decisions
with business outcomes, but
fewer than half do.
That was one of the
findings from the SHL 2012
Annual Global Assessment
Trends Report.
The report analyses how
organisations measure talent
throughout the entire
employee life cycle and
surveyed nearly 500 HR
professionals from 37
countries around the globe
gauging their views on talent
it to achieve quantifiable
business outcomes.
Our Trends Report has
shown that as the economy
continues its recovery,
organisations are recognising
that their attraction and
retention of top talent is what
will propel them to the top of
their newly reformed market
landscapes, said David Leigh,
CEO of SHL.
This may seem obvious in
theory, but its proving to be
difficult in practice.
While these organisations
aspire to make the best
business decisions based on
key talent measurement data,
many lack the ability to do
it effectively.
11
Update
Now on
CGMA.org
Gallery Stock
Turboscan
Turn your device into a multi-page
scanner for documents, receipts, notes,
whiteboards, or any other hard-copy
documents, allowing you to email them
as multi-page PDFs or Jpeg files from
wherever you are. Turboscan also allows
you to search the documents.
i
Cost: $1.99
Category: Business
Updated: 31 January 2012
Current version: 2.5.1
Size: 1 MB
Languages: English,
Russian
Developer: Tania Sulimov
Compatible devices:
iPhone, iPod Touch
and iPad
System requirements:
iOS 3.0 or later
12
Update
Hot potato
This months
dilemma:
I am a management accountant
working for a privately owned
engineering company.
While the finance director
is on leave, I am in charge of
the finances.
visit www.cimaglobal/
ethics
Tanya Barman, head of
ethics, CIMA
Disclaimer
CIMA does not provide
legal, investment,
professional or career
advice. No responsibility
or liability whatsoever
is accepted for any error,
omission or mis-statement
(whether or not arising
out of negligence) or for
any loss or damage sustained
as a result of reliance on
information supplied or
comments made.
13
Update
Illustration: Denis Carrier/Dutch Uncle, Lucas Varela/Dutch Uncle. Photography: Getty Images
Most attractive
cities revealed
Although the so-called
emerging economies are
closing the gap on Europe
and the US, when it comes
to attracting capital,
businesses, talent and
tourists, the US and Western
Europe are still ahead of the
competition.
The Global City
Competitiveness Index,
a new report from the
Economist Intelligence Unit
(EIU), says that while there
has been much concern in
the West about the impact of
the financial crisis, it has not
significantly reduced their
overall competitiveness. And
while cities in emerging
economies such as China
rank highly in terms of the
speed of their economic
growth, they lack the ability
to attract talent.
New York (1st) and London
(2nd) remain the worlds two
most competitive cities, the
report found, while Singapore
(3rd), Paris and Hong Kong
(joint 4th) completed the top
five. In total, cities from the
United States and Western
Europe account for 24 of the
top 30 cities.
Book in brief
Learn from...
KarmaLoop
14
The Data
Global proliferation
of nuclear power
stations
Number
of nuclear
reactors: 19
Number being
built: 0
Canada
Number of nuclear
reactors: 18
Number being built: 0
Belgium
Number
of nuclear
reactors: 7
Number being
built: 0
UK
US
Number of nuclear
reactors: 104
Number being built: 1
France
Number
of nuclear
reactors: 58
Number being
built: 1
Spain
Number
of nuclear
reactors: 8
Number being
built: 0
Key
umber of
N
nuclear
reactors
Number
being built
Going nuclear
There are currently 435 nuclear power plant units with an installed
electric net capacity of about 368 GW in operation in 31 countries,
and a further 63 plants under construction in 15 countries with
an installed capacity of 61 GW. By the end of 2010, the total
electricity production since 1951 amounts to 67,240 billion kWh.
The cumulative operating experience amounted to 14,745 years by
February 2012. Although the US, France and Japan have the most
reactors, it is the BRIC countries of China, Russia and India that are
committed to building the most new reactors as of February 2012.
15
weden
S
Number of nuclear
reactors: 10
Number being built: -
Germany
Number of
nuclear
reactors: 9
Number being
built: -
Russia
Number of nuclear
reactors: 33
Number being built: 10
Ukraine
Number of nuclear
reactors: 15
Number being built: 2
India
Number of nuclear
reactors: 20
Number being built: 6
South Korea
Number of nuclear
reactors: 21
Number being built: 5
China
Japan
Number of nuclear
reactors: 50
Number being built: 2
aiwan
T
Number of nuclear reactors: 6
Number being built: 2
Number of nuclear
reactors: 16
Number being built: 26
16
Forum
From the
blogs
A new way of
doing business
In our CGMA report on ethics,
our members and students
around the world reported that
human rights had risen in
importance as an issue of
priority for business.
Reflecting this, March saw the
launch of the Childrens Rights
and Business Principles.
As a joint venture between
the United Nations Global
Compact, UNICEF and Save
the Children, the Principles
resulted from wide
consultation with business,
government and civil society
globally, and will be rolled
out across the world. Covering
a wide range of issues, the
Principles identify actions
that all business should take
to prevent and address
adverse impacts connected
with their activities, and
maximise positive impacts
on childrens lives.
At the launch event in
London, the big influence that
companies have on the lives
of children was highlighted.
Businesses everywhere are
under increasing scrutiny to
do no harm, against a
background of a growing
demand from shareholders,
customers and employees for
companies to have high
You asked
standards. Impacts on
children and youth are at
a range of levels children
themselves may be customers,
they may be employees or they
may be affected directly by the
products created. Or they may
be impacted by family life. For
example, parents working far
from home, or for low wages in
unsafe conditions, or working
long hours.
Companies with complex
supply chains across many
markets need to understand
that the issue can be bigger
than one company alone can
tackle and solutions arent as
simple as just forbidding it.
Collective action, and working
together with like-minded
organisations and
governments, can make
positive changes, with
childrens welfare in the long
term the focus.
Speaking at the launch
event, a leading retailer
headquartered in the UK
explored many of these issues
in relation to the workers in
the garment industry in
Dhaka, Bangladesh. Through
its work there, the company
learned it was important to
share knowledge with other
companies working in similar
industries in relation to health,
education, and safeguards in
factories. Due diligence was
critical for this company, as
well as learning that its impact
went further than the
immediate business activity.
By understanding and
resolving issues, it
Both techniques come under
the general umbrella of
value-based management.
EVA is an internal measure
that highlights the increase in
wealth to the shareholder by
investing in the organisations
shares. It uses adjusted
after-tax profits, less adjusted
capital invested, times by
the weighted average cost
of capital.
Shareholder value analysis
No threat at all: 3%
Not sure: 3%
Source: Survey on fm-magazine.com, 2012 (Figures exceed 100% due to rounding up)
18
Opinion
Robin
Pagnamenta
South Asian correspondent, The Times (of London)
I
Though crying
out for strong
leadership,
India still has
big natural
advantages
Getty Images
20
Q&A
Photography by
Steve Carty
21
23
Q&A
A big part of my
job is networking,
which effectively
leads the charge
for the business
We compared the British market to the US, but
didnt fully understand the differences in size and
density of the US market. As a result, we ended up
pursuing too many real estate deals in too many
markets. At one point, we had 24 stores in the US, all
on the east coast. When market conditions evolved
unfavourably, we were forced to exit the market.
Subsequently, I was offered the opportunity to
become the VP, finance and management
information systems, for HMV North America.
How did you end up in your current position?
Part of my new role was as vice-president of finance
for Canada. At the same time, I was continuing
to focus on our exit from the US marketplace.
Once that was complete, I then became CFO of
HMV Canada.
From 2000 onwards, I was fully involved with the
Canadian business, which had approximately 90
locations in Canada when I began. Our plan was to
increase coverage to somewhere between 125 and
140 sites. At this time, there continued to be plenty
of opportunities for expansion, as Canada was still a
solidly performing market that focused on physical
music sales.
Internet retailing had yet to fully develop here in
the way other countries had by this time, partly
owing to shipping costs in a large and less densely
populated country. Traditionally, Canadians are
Changes to the
UK marketplace
began about
three years
ago, when
competition
increased
24
Q&A
What area of financial management are you
most focused on?
Now that we are no longer part of the original parent
company, there is more flexibility to be
entrepreneurial, as we no longer need the approval
we once did for major decisions. To continue being
successful, we have discovered that it is all about
cash management, i.e. managing cash and working
capital. We introduced a well-controlled cash
forecasting tool, which we manage on a weekly
basis. It allows us to keep a careful eye on every part
of the business, concentrating on EBITDA and PBIT.
How helpful was your qualification?
The CIMA qualification provided me with the
opportunities Ive experienced. With a more
rounded view of an organisation, it makes it much
easier to have an understanding of things across all
channels. Ive also had the good fortune to have
worked in four different countries. Chartered
accountants, by contrast, are a little restricted.
Career
Ladder
1981: Joins Avon as
European reporting
and planning analyst.
1983: Becomes
assistant management
accountant at Sony
UK.
1984 Moves to Thorn
EMI Security as
divisional accountant.
1986: Joins HMV
UK as financial
accounting manager.
1989: Transfers to
New Zealand HMV to
become chief financial
officer.
1991: Back to HMV
in London to take up
post as international
business analysis
manager.
1993: Moves to the
US to become vicepresident, finance
and MIS, based in
Conneticut, for
HMV USA.
1998: Across the border
to Toronto to become
vice-president, finance
and MIS, for HMV
North America.
2003: Becomes
vice-president, finance
and MIS, for HMV
North America.
2011: Named chief
financial officer of
HMV Canada as the
firm comes under
new ownership.
26
27
Business
Photography by
Franck Allais
28
Business
At ICT provider
Huawei, more
than 65,000
employees own
shares in the
company
and loyalty of customers. Its not that every business should be a co-operative, but every business
can benefit from being more of a co-operative,
he says.
In the US, 11,300 companies run employee stock
ownership plans covering 13 million employees,
according to figures from the National Center for
Employee Ownership (NCEO). The NCEO points
to research that suggests that companies that turn
to employee ownership grow 2.3 per cent a year
faster than they would have done with only external shareholders.
In the Far East, there is a growing acceptance
of different business models, especially in China.
One of the worlds leading employee-owned businesses is ICT provider Huawei. More than 65,000
of its employees own shares in the company. They
elect 51 representatives and nine alternative reps
who, in turn, elect members of the board of directors and the supervisory board. The companys
EOI
FTSE All Share
1000
800
600
400
Jan 11
Jan 10
Jan 09
Jan 07
Jan 08
Jan 05
Jan 06
Jan 03
Jan 04
Jan 01
Jan 02
Jan 99
Jan 00
Jan 97
Jan 98
Jan 95
Jan 96
Jan 94
Jan 92
0
Jan 93
Source: www.ffw.com
200
30
Business
anybody objects to people being rewarded for
value creation thats what our bonus is doing.
But when staff are rewarded for no value creation,
thats when people become anxious.
So can business models such as co-ownership
or co-operatives create a new climate in which
even big businesss sternest critics will be won
over? Giving employees a stake in a company
creates a sense of organisational purpose that is
greater than merely financial purpose, says William Davies, academic director of the Centre for
Mutual and Employee-owned Business at Kellogg
College, Oxford University, in the UK. It leads to
long-term investment decisions and higher productivity, when combined with the right management internally, he says.
Ironically, the obsession with short-term
earnings even defeats itself over the longer term,
and profit maximisation eventually leads to
smaller profits.
Davies points to the work of economist
John Kay on obliquity focus on the central
Tullis Russell
Giving
employees
a stake in the
company leads
to longer-term
investment
decisions and
higher
productivity
We need more
imagination in financing
models to raise capital
for employee-owned
companies
Its unfortunate that employee-owned companies perhaps have no other choice than to be
taken over by another company, or seek a listing
on the stock exchange as a way of raising additional capital, he says.
We need more imagination in financing
models. Perhaps there should be a market in preference shares, alongside an employee trust continuing to own the ordinary shares.
He points out that the John Lewis Partnership
has preference shares listed on the stock exchange,
which despite not carrying votes, do receive a dividend and are traded.
When he spoke to FM, Nuttall stressed that he
had not yet reached any conclusions about what
would appear in his report. He expects to deliver
his findings in July and says: I have received significant encouragement from the government that
it wishes to turn the recommendations into action
as quickly as possible.
Peter Bartram
is a regular contributor to Financial Management
32
33
Strategy
Predictive
testing
Illustration
by Christian
Montenegro
gives detailed guidance on how to create a structured predictive analytics process, and explains
the tools and techniques involved.
Eddie Short, partner and head of business intelligence at KPMG, says: We look at predictive analytics as a natural evolution of business intelligence
and big data [that is, the huge amount of internal
and external data now available from a wide range
of sources]. In a volatile, globally hyper-connected economy, you will be subject to changes. The
management accountant needs to be able to plan
scenarios and what if analyses so alternatives are
available and the company can meet its stress tests.
Their role is no longer to tell the business and
shareholders whether we met targets, but to show,
with analytical tools, how to meet or beat them next
time. It makes the role of finance more important.
Short says predictive analytics requires a solid
business intelligence platform. If you have an
integrated planning, forecasting, budgeting and
consolidating cycle, then you can build on that.
You can pull in data from outside the business to
add confidence to the forecast. You will never have
100 per cent confidence in a predictive analysis, but
sophisticated algorithms and confidence in your
data might give 90 per cent.
Malcolm Wilkinson, financial analytics partner
at Deloitte, says predictive analytics have a wide
range of applications, from pure financial planning
to finance-sponsored analytics in other parts of
the business, such as commercial, sales or supply
chain management.
For example, finance could sponsor the use of
predictive analytics in price optimisation, he says.
If you adopted different pricing policies what would
that mean to your profit and to your suppliers profit?
Returning to the theme of big data, Short says:
One of my clients refers it to as a data arms race.
Leading organisations are harnessing everything
out there. For example, data from social media
that is a lot more than they have been able to manipulate via internal sources. They are building
34
Strategy
It is a significant
shift to get from
bolting business
analytics on to
your business
model, to
building it in
35
Prime number
Belgium
Papua New
Guinea
Croatia
Greece
Italy
France
Tunisia
Denmark
India
UK
Japan
US
Switzerland
Cayman
Islands
34.8%
13.1%
40.3%
6%
25.2%
20%
27.5%
16%
33%
9.6%
20%
22%
31.8%
9.2%
40.4%
0.2%
27.4%
12%
23.3%
7.7%
16.1%
12.2%
18.6%
5.7%
11.4%
6.3%
0%
0%
Effective income
tax rate
Effective employee
social security rate
3%
59%
Source: KPMG
Getty Images
Global rates
of income tax
36
The list
Illustrations
by Borja Bonaque
Words by
Peter Bartram
ways to...
be a great project manager
Experts in the field on how to
organise and get the best out of
a team to ensure the success of
change and efficiency projects
37
Assemble a
great team
Choose the
best tools and
techniques
Communicate at
every stage
Deliver whats
expected
In association with
Study notes
Notes
Study
Paper F3
Financial
Strategy
The ASAP method of tackling scenario-based
questions is designed to help you maximise
yourmarks while making the best use of your
time,soits well worth practising repeatedly
By Andrew Finch, BPP Learning Media
The post-exam
guides written
by the examiner
give clear advice
on how marks
were allocated
39
Paper P1
Performance Operations p44
Paper F2
Financial Management p47
41
Study notes
Make your
point clearly,
relate it to the
scenario and
draw out its
implications
interms of
howit solves
problemsfacing
the company
42
Study notes
Paper F3
Financial Strategy
by director A on share prices seems valid, as the
Terp will be lower with a bigger discount. Director
As point about shareholder wealth will be proved
correct or incorrect by your answer to part B. You
should realise immediately that the point raised by
director B is not valid, since the same amount of
funds needs to be raised whichever discount is
offered, although shareholders may feel they are
getting more of a bargain at a bigger discount. You
should also recognise that director C has a valid
point if a stable dividend is taken to mean from
a dividend-per-share point of view. In this case there
would be more shares in issue, which would require
more funds to be able to pay the same dividend
pershare. But if a stable dividend is considered to
be a fixed percentage of earnings, the discount
levelwill have no effect. In addition, if shareholders take up their full entitlement of rights, they will
receive the same total dividend irrespective of the
level of discount.
For part D you should recognise that the share
price has risen in recent months, which suggests
that the markets confidence in DCD is growing.
Writing out an answer plan will help to give structure to your answer and should ensure that it covers
all the points you want it to. Few examiners look at
detailed answer plans, so your plan can be a rough
outline showing key headings and key words. Use
it as a reminder of these points once you start writing your answer.
To aid your understanding, the points included
in the following example are more detailed than
those that you would include in your plan:
Part A (seven marks).
l Calculate the issue prices by discounting $6 by
25per cent and 40 per cent.
l Divide the $250m funds required by the issue price
to get the number of shares to be issued. Round up
the number of shares to be issued to ensure that the
answer can be given in whole-number terms.
l Use the Terp calculation, inflating the price of
thenew shares by the relative rise in rates of return
(20 per cent 15 per cent).
Part B (four marks).
l Use the yield-adjusted Terp results to calculate
shareholder wealth under both discount levels.
l Shareholder wealth is total number of shares at
relevant Terp less the purchase cost of new shares.
Writing out
ananswer plan
will help to give
structure to
youranswer and
should ensure
that it covers
allthe points
you want it to
44
Study notes
Paper P1
Performance
Operations
When youre conducting investment appraisals or
making capital budgeting decisions, the annualised
equivalent method will allow you to make a proper
comparison of assets with unequal lifespans
By the examiner for paper P1
Cost of capital
10%
NPV-35,345
Cost of capital
10%
NPV-44,224
Cost of capital
10%
l
l
CIMA provides
cumulative
discount factor
tables at the
back of the
exampaper
NPV-53,289
46
Study notes
Paper P1
Performance Operations
Getty Images
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E: pakistan@cimaglobal.com
CIMA Pakistan: Islamabad
1st Floor, Rehman Chambers,
Fazal-e-Haq Road, Blue
Area, Islamabad
T: + 92 51 260 5701-6
CIMA Pakistan: Lahore
Flat 1, 2, 1st Floor,
Front Block 3, Awami Complex
at 1-4, Usman Block,
New Garden Town, Lahore
T: +92 42 3594 0311-16
CIMA Poland
Warsaw Financial Centre,
Floor 11, ul Emilii Plater 53,
00-113Warsaw
T: +48 22 528 6651
E: poland@cimaglobal.com
CIMA Russia
Office 4009, 4th floor,
Zemlyanoj Val 9,
Moscow 105064
T: +7495 967 9328
E: russia@cimaglobal.com
CIMA Singapore
3 Phillip Street,
Commerce Point, Level 19,
Singapore 048693
T: +65 68248252
E: singapore@cimaglobal.com
CIMA South Africa
1st Floor, 198 Oxford Road,
Illovo 2196
T: +27 11 788 8723
E: johannesburg@
cimaglobal.com
CIMA Sri Lanka
356 Elvitigala, Mawatha,
Colombo 05
T: +94 (0)11 250 3880
E: colombo@cimaglobal.com
CIMA Sri Lanka: Kandy
229 Peradeniya Road,Kandy
T: +94 (0)81 222 7883
E: kandy@cimaglobal.com
CIMA UK
26 Chapter Street,
LondonSW1P 4NP
T: +44 (0)20 8849 2251
E: cima.contact@
cimaglobal.com
CIMA Zambia
6053 Sibweni Road,
Northmead, Lusaka
T: +260 1 290219
E: lusaka@cimaglobal.com
CIMA Zimbabwe
6th Floor Michael House, 62
Nelson Mandela Ave, Harare
T: +263 4 708600
E: harare@cimaglobal.com
47
Study notes
Paper F2
Financial
Management
Until environmental reporting becomes a legal
requirement, questions on the topic will continue to
focus on the pros and cons of disclosure, but its still
crucial to make a careful note of their requirements
By Jayne Howson
Freelance lecturer specialising in financial management,
reporting and tax, and a marker for F2
It is the public disclosure of information concerning an entitys environmental performance. Environmental reporting makes organisations appear
more accountable for the economic, environmental
and social consequences of their activities.
The reports may include information such as:
l The companys profile eg, its size, its industry,
the markets in which it operates.
If someone
asked you the
way to London
and you
didntknow it,
wouldyou give
themdirections
to Sheffield,
hoping that they
wouldnt notice
the difference?
No, but many businesses still feel the need to publish environmental reports in order to:
l Communicate to stakeholders their general
approach to environmental responsibility.
l Increase their competitive advantage.
l Enhance levels of recognition the public are
becoming increasingly aware of environmental
issues, so lets tell them how wonderful we are.
l Set targets if we tell the public what we want to
achieve, that puts pressure on us to hit our targets.
l Ensure that they are well prepared in the event
that environmental reports become mandatory.
The UK government has hinted that they will if it
becomes dissatisfied with the quality and quantity
of voluntary disclosures.
l Improve access to lists of preferred suppliers.
l Manage corporate risk. If the company is demonstrably aware of the environmental risks it faces,
it is more likely to have effective procedures in
place to prevent disasters, thereby reducing the
likelihood that it will require emergency loans.
This could reduce its finance costs and perhaps
give it access to more investors.
l Increase profitability if revenues grow as a result
of an improvement in consumer perceptions.
Some people believe that employees are much
more likely to want to work for an environmentally
friendly organisation, which means that making
such disclosures will help a company to recruit
Further reading CIMA Official Study Text Financial Management (2011-12 edition), CIMA Publishing, 2011.
48
Study notes
Paper F2
Financial Management
the best workforce. I dont know of anyone who has
applied for a job at a company as a result of
having read its environmental report. In the current climate of high unemployment, I think that
most people are even more unlikely to do that.
The main disadvantage of making such disclosures is that the associated labour hours and printing costs are likely to be substantial.
You may think that a company could be giving
away its trade secrets, but because the reports are
voluntary, it can include whatever material it
wants to. Since such disclosures are not audited,
either, the lack of regulation allows each company
to provide the information in the format it chooses.
This makes it more difficult for users to compare
how different companies are performing.
Because the companies making the environmental disclosures get to decide what information is
published, exam questions have tended to focus
on the advantages and disadvantages of providing such information. This in itself is not a difficult
topic, but candidates in recent sittings have failed
to read the requirements properly and identify
whether to comment on the pros and cons from a
users point of view or from that of the business.
Take question 5 from May 2011s P2 paper, for
example. It offered candidates six marks to discuss
the potential advantages that could be gained by
BNM (the company in question) if it included
voluntary disclosures in its annual report. The part
highlighted here in italics is just as it was shown on
the exam paper, but many students still failed to
notice this and their answers listed general advantages eg, how investors would have a better view
of the company which earned them no marks.
A good answer would have perhaps come up with
some or all of the following (note the emphasis on
the benefits to the company):
l The reports may be biased. The firm can concentrate on positive aspects and ignore the negative
ones. (Note that this would be a disadvantage if we
were looking at this from a users point of view.)
l If enough positive aspects are highlighted, the
companys share price may improve.
l Investors may be attracted to the business,
thereby increasing its share price.
Getty Images
Candidates
inrecent sittings
have failed
toread the
requirements
properly
49
Study notes
Exam notice
Visit www.cimaglobal.com regularly for updates
Admission advice
Post-exam feedback
Exam results
For your reference, and to help you prepare for the exams, an index of all technical articles published in Velocity and FM
and on the wider CIMA website in 2011 was
included in the February issue of Velocity
(www.cimaglobal.com/velocity).
CIMAsphere
Visit www.cimaglobal.com/sphere,
CIMAs online community, to ask questions, share information and find expertise and support among CIMA students,
members and alumni. You can also read
useful blogs on studying and the exams.
Assessments based on the CIMA Certificate in Business Accounting 2006 syllabus will be available only until 30 June
2012. After this date, all Certificate assessments will be based on the 2011 syllabus
(assessments for this syllabus have been
running since 3 October 2011).
If you pass any Certificate assessments
under the 2006 syllabus (or are awarded
exemptions) before 1 July 2012, you will
be given credits for the equivalent subjects within the 2011 syllabus.
New guidance notes for each of the
2011 syllabus subjects are available online.
Each of these contains:
l Information on the syllabus structure
and learning outcomes.
l A guide to studying.
l The assessment strategy.
l Comparisons between the 2006 and
2011 syllabuses.
l References to further useful reading.
CIMA has also compiled answers to
some frequently asked questions based
on the 2011 Certificate syllabus. Visit
www.cimaglobal.com/2011certificate to
access all of these documents.
For details on entering for a computerbased assessment at Certificate level, visit
www.cimaglobal.com/certificateentry.
Queries
Visit www.cimaglobal.com/students/
exams or get in touch with CIMA Contact
(cima.contact@cimaglobal.com) or your
local office (see panel, page 46).
50
Technical notes
Notes
Te c h n i c a l
Blowing through
whistle-blowing
To protect individuals who make certain disclosures of information in the public interest; to
allow such individuals to bring action in respect of
victimisation; and for connected purposes.
Statutory
protection
provides that a
disclosure, made
by a whistleblower to their
employer, is
protected
52
Corporate culture
could do better?
European Union
The European Commission has recommended
that companies should not encourage anonymous
reporting since whistle-blowing schemes require
the processing of personal data that is subject to
data protection rules. A procedure is useful only
insofar as it is followed, and to this authors mind
it will reduce the number of reports.
FTSE 100
Researchers from Middlesex University (16 February 2012) analysed the public availability of
information on how to go about whistle-blowing
(internally reporting misconduct, wrongdoing
or suspect practices of an employee or organisation) by checking the websites of all FTSE 100listed companies. The research found that only
just under a third (31 per cent) of companies had
information on how to facilitate whistle-blowing
within the organisation available publicly. The
researchers claim that failing to make it clear how
to blow the whistle on suspect company practices
or employee misconduct puts the company at the
potential risk of lawsuits and, as a result, potential
financial cost and damage to the companys reputation. If a companys whistle-blowing policy is not
made readily available, employees are unlikely to
actively search it out themselves for fear of alerting their superiors.
Law firms
The Solicitors Regulation Authoritys (SRA) Compliance Committee has agreed that the SRA Board
should consider a consultation paper on a whistleblowing policy. If the board agrees, the SRA will be
inviting comments on the idea of imposing more
lenient sanctions on those involved who are helpful during investigations.
Technical notes
An employee
cannot be given
priority when
making
redundancies
simply because
they made a
disclosure
The good
Management
accountants and
whistle-blowing
53
Technical notes
particularly where the disclosure threatens peoples jobs. Nevertheless, the number of cases
brought by whistle-blowers to employment tribunals has increased by more than a thousand,
from 157 in 1999/2000 to 1,761 in 2008/9.
David Lewis, writing in the Industrial Law
Journal, highlights what he perceives as weaknesses in the legislation. First, he says it does not
force employers to make a policy relating to disclosures. Second, it does not prevent employers
from blacklisting and refusing to hire those
who are known within the industry to have made
disclosures in previous jobs. The complexity of
the law was also criticised, as was the fact that,
if such a disclosure turns out to be incorrect, the
employee may be sued for libel by his employer.
Volunteers and self-employed people are not covered, nor are those who, in disclosing the information, commit a criminal offence. At the same
time, the law does not make any provision for any
psychological harm caused by whistle-blowing,
which research shows is an increasing likelihood.
Getty Images
Recommendations
Policy presented in
annual reports
Human element
One problem is the reluctance that many employees feel to snitch on colleagues. Whistle-blowers
are not necessarily popular with their colleagues,
54
Technical notes
Is personal computing
now too personal?
managers from multi-national organisations about
their use of spreadsheets the answers were surprising. Its not only a spreadsheet problem, one
senior finance manager said. Personally, Id turn
off all the accountants computers for at least two
days a week. That would force them to get out into
the business and talk to real people!
n 1987, David Norton and Robert Kaplan challenged the relevance of management accounting and the way in which the accounting project
was being driven by a financial accounting system
that produced out-of-date and overly aggregated
data. A significant cause of the problem was the
dependence on expensive central mainframe computers. These were difficult to reprogram and relied
on batch, not real-time, processing. In the 1990s,
personal computers, together with various End-user
Computing tools (ECU), most notably spreadsheets,
enabled accountants to produce the right information, in the right place, at the right time!
However, 25 years on from Norton and Kaplans
challenge, we ask whether the desk-top revolution
has been just that, and that revolution has now
come full circle. Are spreadsheets an anachronism
in truly global accounting systems, based on near
real-time one-source of the truth, with a stronger
emphasis on corporate governance? Is data liberation now seen as risky and inefficient, a personal
indulgence ripe for control and recentralisation?
Id turn off
accountants
computers for
two days a week
to force them to
get into the
business and
talk to people
55
Technical notes
or their clients. The results surprised us. The positive aspects were largely similar across the groups,
but there was a much longer list of negative points.
It would appear that the once unchallenged ubiquity of spreadsheets and other end-user tools is now
being questioned. The chief concerns are summarised below. Risk being inherent in the first the four,
while the fifth is about cost.
If you find
yourself
clicking new
spreadsheet
next time you
have a business
problem, think
again
it. In any case, the chances are that someone somewhere else in the organisation is doing something
pretty similar. Maybe even at the next desk. The
problem is that when many of these people were
hired, advanced spreadsheet skills were a musthave item on the job spec. Changing embedded
attitudes and skill sets is difficult.
Business partners need to be connected to, and
involved with, business teams. While putting transaction processing into a SSC/BPO environment can
free up business partners to make sense rather than
just simply produce management information, it
cannot be assumed that everyone will seize the
opportunity. Some will, no doubt, prefer to stay
in their comfort zone after all, spreadsheets provide order and structure to those who have difficulty
embracing uncertainty.
If you find yourself clicking new spreadsheet
next time you have a business problem, then think
again. It probably means your ERP system has failed.
While spreadsheets are great for organising relatively simple tasks and generating new insights into
data on an ad-hoc basis, many spreadsheets have
long outlived their original rationale and now should
be a part of the standard ERP routines. The problem
for the CFO is to understand where the tipping point
might lie between appropriate and inappropriate
use of spreadsheets, and reflect this in the culture
of the finance function.
4 Owner continuity
Without the discipline that comes naturally to specialist IT workers in central units, the maintenance
of documentation recording formulae and macro
operations, together with tracking version updates,
are likely to be fraught. Serious problems can arise
when spreadsheet owners leave or are absent. Moreover, variation drives up the cost of external audit.
The research team at Loughborough University is keen to hear your stories and experiences at ssc-research-team@lboro.ac.uk.
We will report back as our research progresses. In the meantime, visit the project website at www.shared-services-research.com.
Project support by the Charitable Trust of the Institute of Chartered Management Accountants. Thanks also to Chris Warner.
56
he course started a
couple of years ago in
response to the increasing use of Lean finance
methods (initiated by
Toyota) to tackle waste,
combined with the Six Sigma approach
of tackling variability out of processes
(created by Motorola). I figured that
a lot of companies were putting in place
a change management process, but
didnt always understand what their
long-term objectives were for the process. My own experience is that when
I left Glaxo in 2007, there were three
and a half months dedicated to do the
budget. I still had 22 years until I retired,
so I realised I was going to spend six
and a half years doing budgets. I felt
this had to change and, increasingly,
I have come to recognise that Im not
alone in this.
The course builds on the Lean methodology of placing customers at the
centre of all we do, and that the methodology is structured to take this into
consideration. One of the issues is to
understand why there is waste, rather
than just trying to fix things. We can do
this through the DMAIC methodology(define, measure, analyse, improve and
control), and we use a two-hour case
study around a fictitious situation at a
shared financial service centre. We also
map out and use tools to consider how
the whole methodology is around value
in the eye of the customer, and how
you ensure that the process will deliver
this to the customer.
The first section looks at What is
value? and asks How can you get
value from the finance process? We
look at the methods that came out of
Lean finance and Six Sigma. It discusses how you ensure the process is
customer-centric, what you want to get
from the process, and how areas such
Visit www.cimamaster
courses.com for more details
about this and all CIMA
Mastercourses.
To discuss our recruitment solutions call us on +44 (0) 207 775 5590
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59
www.cimaglobal.com/myjobs
Recruitment
Market Update
Key skills in
demand
Despite the challenging
market, plenty of
opportunities exist for
commercially focused
CIMA members
Getty Images
60
CIMA Botswana held its annual general meetings for members and students from 7-13 March.
At the student AGM (pictured below), Lorato Kedisitse, ACMA, CGMA, gave a motivational talk and
advised students that failing CIMA exams should not be viewed as the end of the world but as
a learning process, because many current CIMA members, herself included, had to re-sit some
papers before finally passing them. Baboloki Peters Mosoto was elected as the Students Chapter
chairman for 2012. The members AGM was held at Cresta Lodge on 13 March. Samantha Louis,
regional director for CIMA Africa, presented a report regarding regional activities and highlighted
the benefits of becoming a CGMA.
Workshops tackle
performance
management and exams
30 March, China
More than 70 financial experts took
part in a CIMA management workshop
at the Beijing Landmark Hotel recently,
entitled Performance management
targeted is the key.
At the workshop, CIMA welcomed
speakers from local universities and
companies to share their experience and
knowledge on performance
management. Meanwhile, a similar
workshop, held at the Yong An Hotel in
Beijing, saw more than 30 students
given access to tips on how to pass the
operation and management level exam.
9 March, Zambia
CIMA Zambia held its annual general
meeting at the Taj Pamodzi Hotel in
Lusaka recently. The AGM was attended
by 57 members. Samantha Louis,
regional director for CIMA Africa,
attended and delivered a presentation
on the joint venture between CIMA and
the AICPA. She also discussed the new
Africa board and branch governance
structures.
Danny Luswili, FCMA, CGMA, was
elected as the branch chairman, while
Emmanuel Banda, ACMA, CGMA, was
elected as the new vice chairman.
Future of finance
discussed in
London
29 March, England
CIMA held a roundtable
discussion with senior
executives from a number
of leading companies
including AstraZeneca,
ING Direct and BUPA
to explore the future of
finance. Topics included
how finance best serves
the business, internal
customer expectations
and implications for
skills development.
61
Coming
events
Singapore
Singapore annual general
meeting
24 May, 7pm to 9.30pm
The Ritz Carlton,
Chihuly Room
Contact singapore@
cimaglobal.com
China
Global Business
Challenge 2012 China
country final
25 May, 1.30pm to 6pm
West 4th Ring Middle Road
16, Haidian District, Beijing
Five teams will participate
in the event, and the
winner will represent
China in the global
competition, to be held
in Sri Lanka in July.
Contact gbc.china@
cimaglobal.com
UK
Business continuity
management
16-17 May, 6.30pm
Thistle Haydock, Penny
Lane, Haydock WA11 9SG,
and Shire North Lakes
Hotel & Spa, Ullswater
Road, Penrith CA11 8QT
Business continuity
management is important
for two compelling reasons:
it significantly improves
your organisations chances
of surviving a major
incident, or a nationwide
outbreak, such as pandemic
flu; and it is a corporate
governance requirement
Visit www.cimaglobal.com/events for updates and a full list of events, which are free unless otherwise stated.
CIMA Mastercourses your catalyst for business change: visit www.cimamastercourses.com or call 0845 026 4722.
To submit an event for this page, email michaela.lambert-beresford@cimaglobal.com
62
The Institute
CIMA notifications
63
Presidential
engagements
6-12 May Visit to Malaysia and Singapore
26 May N. Ireland CIMA Dinner and Awards
Council member
required
Following the resignation of Will James
with effect from the close of the AGM on
9 June 2012, a new candidate is sought to
represent the constituency on the CIMA
Council. The vacancy will be until the close
of the AGM 2013, when the successful candidate may stand for re-election for a
further three-year term. Nominations for
candidates (fellows) may be made by any
six or more members (three of whom must
be fellows) whose registered addresses are
in electoral constituency 3.
Nomination forms may be obtained
from Roopa Deshmukh, Corporate Affairs
Manager (020 8849 2305/roopa.deshmukh
@cimaglobal.com) or downloaded from
www.cimaglobal.com/About-us/Gover
nance-charter-and-byelaws/Elections.
Nominations must be received on the
prescribed form by the Corporate Affairs
department at 26 Chapter Street, London
SW1P 4NP by noon on 14 May 2012 (faxes
are acceptable, but must be followed by the
signed original). If more than one candidate is nominated for the vacancy, a postal
and online ballot will be conducted.
65
Tentative return to
optimism in survey
of business leaders
It is
encouraging
to see 42 per cent
of CEOs globally
plan to increase
the number of
employees
66
A. CIMA
Listing on Alternative
Investment Market (AIM) is
neither quick, nor cheap, and
wont necessarily ensure you
raise sufficient capital. It is for
this reason that companies
have been delisting from the
AIM. Although the rate of
delisting is slowing, eight
companies listed in the first
quarter of 2010 raised 200m,
while ten in the second
quarter raised just 133m.
An approximate timescale
for listing on AIM is around
five months.
However, an AIM listing is
subject to less regulation
than, say, the NASDAQ, and
is relatively lower cost than
listing on other bourse.
Consequently, other funding
methods should also be
considered before a decision
is reached about listing.
Directors may want to think
about the following benefits
and risks to help them reach
a decision.
Lets consider the benefits.
A listing will raise your
profile and reputation with
the public, competitors,
suppliers and customers.
If successful, a listing will
provide cash for innovation
and development and allow
the company to raise more
cash in the future. It also
allows you to offer tradeable
shares when making
acquisitions, again easing
cash flow. Staff can be
incentivised via share
options, which can lead to
improved performance.
And now for the risks.
Directors often
underestimate the time,
A. Mike
I founded Belvoir Lettings in
1995, and today it is a
franchise business with 140
offices nationwide. We
wanted to float to raise
money, both to expand and to
allow current shareholders to
exit. So, on 21 February this
year, we listed on AIM. It was
a time-consuming process,
exciting, and at times
nerve-wracking, but looking
back, it was the right decision.
Preparation began in
November 2010 when we
started meetings with our
advisors, the corporate
finance firm Sunaxis. In July
2011, we appointed Seymour
Pierce as our nominated
advisor, or Nomad. We
auditioned six Nomads and
picked Seymour Pierce
because of its excellent
relationship with institutional
investors and the impressive
personality of their corporate