| HUMAN RESOURCE/ MANAGEMENT |
July/August 2006 |
MANAGEMENT
FOUR EYES ARE BETTER
By Kate O’Sullivan
Could a different reporting structure have prevented the WorldCom fraud? Harry Volande thinks so.
The Siemens Energy & Automation CFO reports to the board of directors, rather than to the CEO. He says the structure, which Siemens refers to as the “four-eye principle”, makes it easier for finance chiefs to stay honest. “The advantage is that you have a CFO who does not depend on the CEO for reviews or a remuneration package,” says Volande. “That gives him the freedom to voice an independent opinion.” The reporting structure, which is more common in Germany, applies throughout the German electronics conglomerate. In the United States, such a reporting practice is rare, in part because at many companies the CEO also chairs the board. “Most CEOs would resist such a change in the hierarchy,” says James Owers, professor of finance at Georgia State University in the US.
With a change in the reporting model unlikely, governance watchdogs are
advocating frequent and independent meetings between the CFO and the board. Many CFOs have access to the board only when the CEO requests a finance
presentation, says Owers.
Espen Eckbo, director of the Center for Corporate Governance at Dartmouth’s Tuck School of Business in the US, says boards should consider taking more responsibility for evaluating the CFO and determining his or her compensation, rather than relying solely on the CEO’s opinion. Such a practice would provide more independence for the finance chief, he says.
Of course, there are drawbacks when the CFO reports directly to the board. Volande admits that it can slow the decision-making process. For example, if there are disagreements about a possible merger, the board ultimately has to make the decision. “You require additional communication, which can be useful, but it takes longer,” says Volande. He acknowledges that the structure is not for everyone, as conflicts can arise when senior executives share power. “It takes a CEO and CFO with a certain amount of humility and flexibility.”  |
CFOs on the Move
China Construction Bank (CCB), which went public on Hong Kong’s stock exchange last year, has tapped Pang Xiusheng to become its new CFO. Formerly executive vice director of CCB’s Asset and Liability Committee, Pang has been with the bank since 1980. As CFO, Pang will be responsible for formulating the bank’s financial strategy, improving its business processes, and ensuring its compliance with internal and external regulations. In a clear nod to the international investors that bought heavily into the offering, the bank says that Pang will get some expert guidance on governance and transparency issues by international experts in financial management who will act as consultants. The bank is also focusing on improving its risk management practices, and has tapped Zhu Xiaohuang to become its new chief risk officer. He will also be assisted by consultants; the bank has already hired the former CRO of the Australia and New Zealand Banking Group, Mark Lawrence, in that capacity ... China.com, a 77%-owned subsidiary of the former chinadotcom – now CDC Corporation – has made Xiaowei Chen the company’s new CFO. She was the company’s general manager. The mobile value-added services and online game company is listed on Hong Kong’s GEM board and is a constituent stock of the Hang Seng IT index. Chen, who has a PhD in molecular genetics and biochemistry, will be doing more than putting the company’s numbers under her electron microscope. She will be pursuing a strategy of mergers and acquisitions as well as implementing other capital market initiatives ... At Indian pharmaceuticals maker Dr Reddy’s Laboratories, the head of HR is taking up the post of CFO. Saumen Chakraborty, former CHR, has already been managing the company’s IT and business processes, but will give up his HR responsibilities to take over those of the finance function. – Jennifer Lee |
