Among the new challenges: keeping Sarbanes-Oxley expenses under control and "their CEOs out of jail."
NEWTON, Mass.—Executives from a number of well-known companies, including technology stalwart Google and business applications vendor SAS Institute, spoke of the rapidly expanding list of duties assigned to today's chief financial officers at an event here Friday.
Among the business leaders taking the stage at the Massachusetts Institute of Technology's CFO Summit were George Reyes, chief financial officer of Web search giant Google, and James Goodnight, chief executive of SAS. Along with experts such as Blythe McGarvie, president of consulting group Leadership for International Finance, and Angelo Messina, CFO of manufacturing giant Carrier, the business leaders outlined the challenges of being a top-ranking finance executive.
Predictably, the issues most frequently touched on were related to the glut of accounting scandals unearthed at companies such as Enron over the past several years, and the daunting task of meeting the guidelines set forth in the Sarbanes-Oxley Act, the legislation crafted in the wake of those scandals to protect against corporate fraud.
Reyes noted the importance of establishing better protective measures but said Google's efforts to comply with Section 404 of Sarbanes-Oxley have become increasingly expensive. The 404 guideline, which took effect earlier this month, demands that publicly traded companies have policies and controls in place to secure, document and process material information dealing with their financial results.
"It's always true that a smart bad guy can extract what they need (to commit fraud), but I have real concerns over the rising costs" of Sarbanes-Oxley, Reyes said. "We've seen (Section) 404 certification fees triple, and with a scarcity of resources on the market, people are taking advantage."
Reyes said one benefit of working to meet the requirements of Sarbanes-Oxley has been the opportunity to employ new accounting process measures that benefit the company as a whole, not just in meeting the regulatory legislation's terms. While he believes that costs related to addressing Sarbanes-Oxley remain "out of whack," Reyes said he hopes activity in the sector will cool down over the next two years.
Goodnight, who offered a colorful illustration of how some companies may actually be able to save money by purchasing their own airplanes, as he says SAS has, focused on the growing need for chief executives to nurture close relationships with their CFOs. The SAS executive said that in addition to "keeping their CEOs out of jail," chief financial officers must become more involved in corporate strategy, not just smarter bookkeeping.
"The relationship needs to be more collaborative than it ever was in the past," Goodnight said. "With the accounting fallout bringing corporate governance to the forefront, that adds a need for additional levels of trust and mutual dependency between CEOs and CFOs."
The executive referred to the CFO as the chief executive's "ideal confidant," someone who needs to look beyond the numbers on a company's balance sheet to help understand where a business needs to go in order to improve its prospects.
"CEOs need to include their CFO as a trusted partner to balance internal and external factors and transform their role from providing transparency to creating a better corporate vision," Goodnight said.
Among the other issues addressed by Google's Reyes were the search company's initial public offering, in August 2004. The CFO called the stock offering the "critical defining moment" for Google, and he admitted that challenges such as the publishing of a controversial executive interview in Playboy magazine made the event all the more harrying.
"In some ways, we didn't perform as well as possible, as with the Playboy article, which was a self-inflicted wound," Reyes said. "But, as our board of directors and investors look back, we couldn't be happier with the outcome, as the stock is performing well."
Reyes also detailed his role in promoting Google's human resources efforts, including the company's strategy of keeping employees on campus by offering on-site benefits such as gyms, masseuses and an abundant cafeteria. The executive even broached the topic of the corporate expensing of stock options, a concept that has ruffled feathers throughout the IT industry, based on the belief that the practice will discourage companies from offering the incentives to employees.
"Equity and stock options have been at the heart of (Silicon Valley's) attraction," he said. "But there's a new sheriff in town, and he's beating the drum this year. The question becomes: What do you replace options with? But that's not a big factor for Google, as we've got a head start on building a system of meritocracy, where people are paid based on performance."