SF November 2022

LEADERSHIP STRATEGIES FOR ACCOUNTANTS AND FINANCIAL PROFESSIONALS

The Ups and Downs of SPACs Building Better Revenue Management, Part 2 Becoming a Trusted Business Partner NOVEMBER 2022

WHEN

STRATEGY MEETS PURPOSE

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Contents /11.22

The four pillars of a performance management system are the key to linking a sense of organizational purpose with a successful strategy.

26

FEATURE ARTICLES

26/ 34/ 42/ 50/ WHEN STRATEGY MEETS PURPOSE

THE UPS AND DOWNS OF SPACs

COVER STORY Performance

The SPAC fad might have ended, but SPACs still offer an alternative route to going public. Avoid becoming another cautionary tale by understanding how they work, the unique benefits, and the risks involved.

measurement systems play a pivotal role in successfully connecting strategy to corporate purpose.

BY CRISTIANO BUSCO, PH.D.; MARK L. FRIGO, PH.D., CMA, CPA; ELENA GIOVANNONI, PH.D.; ANDJELA PAVLOVIC, PH.D.; AND ANGELO RICCABONI, PH.D.

BY BRIDGET LYONS, DPS, AND BARBARA TARASOVICH, DPS, CPA, CGMA

BUILDING BETTER REVENUE MANAGEMENT, PART 2

BECOMING A TRUSTED BUSINESS PARTNER

Five more ways for SMEs to improve revenue management, including tips on pricing, forecasting revenue, performance metrics, communication strategies, and integrating data sources.

To be effective partners, management accountants can benefit from developing some of the skills often associated with sales.

BY JODIE MOLL, PH.D., AND OGAN YIGITBASIOGLU, PH.D.

BY NORMA R. MONTAGUE, PH.D.; REBECCA G. FAY, PH.D.; JOSH LOBS; AND KENNETH HERBST, PH.D. November 2022 / STRATEGIC FINANCE / 3

Contents /11.22

50

34

PERSPECTIVES

8 COMMUNICATE WITH COLOR

BY GWEN VAN BERNE, CMA TOP LINE

10 BUILDING FOR THE FUTURE

BY JEFFREY C. THOMSON, CMA, CSCA, CAE

ETHICS

TECHNOLOGY WORKBOOK

57 TECH FORUM

15 TWITTER AND MUSK CLASH ON METRICS

BY MICHAEL CASTELLUCCIO

BY LORENZO PATELLI, PH.D., CMA

59 TOOLS OF THE TRADE

BY MICHAEL CASTELLUCCIO

TAXES

17 MINIMUM TAX ON BOOK INCOME

60 EXCEL

BY JAMES W. RINIER, CPA, EA, AND ANTHONY P. CURATOLA, PH.D. LEADERSHIP

SF BULLETIN

12 IMA: IMA’S NEW TIKTOK PAGE 12 I MA: IMA INTRODUCES NEW CERTIFICATE PROGRAMS

13 NEWS: FASB PROPOSES CHANGES TO SEGMENT REPORTING

19 HOW LEADERS CAN USE BETTER JUDGMENT

BY SUNIL DESHMUKH, CMA

14 B OOKS: HANDLING IMPORTANT

62 TECH PRACTICES

BY ROSEMARY M. AMATO, CMA, CISA IMA LIFE

64 THE BEST VERSION OF MYSELF

FINANCIAL REPORTING

21 COSO’S INTERNAL CONTROL FRAMEWORK AND ESG

BY ARRIANE STEFFI BACON

SF PICK

BY SHARI LITTAN, J.D., CPA

13 I MA: WELCOME, NEW CMAs AND CSCAs

BY BILL JELEN

59

WORKPLACE CONVERSATIONS

14 S URVEY: ADAPTING TO THE DIGITAL REVOLUTION

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VOL. 104 NO. 5 November 2022

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Strategic Finance® (ISSN 1524-833X/USPS 327-160) Vol. 104, No. 5, November 2022. Copyright © 2022 by IMA. P ­ ublished m ­ onthly by the ­ Institute of Management A ­ c­coun­tants, 10 Paragon Drive, Suite 1, Montvale, NJ 07645. Phone: (201) 573-9000. Email: sfmag@imanet.org. ­ MEMBER SUBSCRIPTION PRICE: $48 (included in dues, nondeductible); student

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PERSPECTIVES

Communicate with Color

BY GWEN VAN BERNE, CMA

L

ET’S FACE IT: We accounting and finance professionals love our tables and numbers, especially when we’re trying to communicate information to others. Yet that love can often lead to drowning our audience in details and data. When we fail to summarize or provide context for our results and recommendations, we make the information difficult to consume and even more difficult to act upon. It can feel as if all our accounting and reporting efforts were in vain.

Now that the complexity of data is increasing— while everyone’s attention span seems to be getting shorter—it’s more important than ever to think about the bigger picture and how we want to present our recommendations.

Having worked in many businesses across various industries and segments, I’ve learned that communicating complex information clearly and concisely is a critical strength. Not only do we need to have strong analytical skills and a deep understanding of management accounting principles, but we also must collaborate effectively with others and share our findings in an impactful way.

We only have a few minutes to lure readers into our data story. Today, a great financial story contains great graphs and visuals, and I strongly encourage you to use creativity and flair in your business intelligence tools and management presentations.

When thinking about how to tell your message with visuals, start by asking: What’s the key message from this presentation, and which actions am I aiming for? Color is a great way to signal the messages we want to reveal or to provoke the responses we want to get. Artists have been using colors this way for ages. When you prepare tables and narratives for

your organization, use colors across the spectrum to connote different messages and evoke different emotions. Play with color, but do it wisely and don’t go overboard. If you use too much, your visual clues will get lost, and the information will become cluttered. Consider using a white background as your canvas and making good use of contrasting colors (being mindful of pairings that don’t work for color-blind individuals).

Red, for example, indicates energy and action but also danger. Orange can indicate enthusiasm but also areas that require caution. Green, on the other hand, indicates a positive effect to the environment and represents growth and renewal. Yellow is an invigorating color that promotes optimism and invites open conversations, yet it can also have a more negative meaning, such as deceit. Blue connotes calmness and responsibility (it’s no wonder management accountants love this color so much). Purple combines the calm stability of blue and the fierce energy of red and is often associated with royalty, luxury, power, and ambition.

Vincent van Gogh frequently expressed his preoccupation with color in his writing, noting, “the painter of the future will be a colourist the like of which has never yet been seen…. But I’m sure I am right to think that it will come in a later generation, and it is up to us to do all we can to encourage it, without question or complaint.”

In his work, van Gogh used color to genius effect, eliciting in us feelings of joy, sorrow, hope, and dread. I encourage you to experiment with color, to paint the future of your organization in ways that inspire, engage, and, most importantly, communicate. I also suggest checking out IMA’s Technology & Analytics Center (bit.ly/3xWK0pd) to find tools for creating more compelling stories with data. SF

« I’ve learned that

COMMUNICATING COMPLEX INFORMATION CLEARLY AND CONCISELY is a

critical strength.»

Gwen van Berne, CMA, is director of finance and risk at Oikocredit and Chair of the IMA Global Board of Directors. She’s also a member of IMA’s Amsterdam Chapter. You can reach Gwen at gwen.vanberne @imanet.org or follow her on LinkedIn at bit.ly/3LVeRGM.

8 / STRATEGIC FINANCE / November 2022

FALL• WINTER• SPRING•SUMMER

MANAGEMENT ACCOUNTING

Quarterly

EVERY QUARTER, IMA® brings you the in-depth information you want and need.

Management Accounting Quarterly is a refereed online journal that contains in-depth articles by and for academics and practitioners of accounting and financial management.

Some of the subjects covered are cost/management accounting techniques, ABC/ABM, GRC, statistical process controls, target costing, accounting education, theory of constraints, internal controls, technology and software, methods of calculating stock options, new theories in finance and accounting, and much more.

Visit www.imanet.org/insights-and-trends/management-accounting-quarterly

Building for the Future

BY JEFFREY C. THOMSON, CMA, CSCA, CAE

W

ITH SO MUCH VOLATILITY and ambiguity in the business environment, there’s never a perfect way to plan for the future. The pandemic and recent weather events around the world have made it all too apparent that major disruptive events, however defined, are becoming the new normal of business.

We management accountants play a vital role in guiding our organizations through the fog of uncertainty. With our expertise in balance sheet management, scenario planning, and enterprise risk management, we help ensure that our organizations are ready for whatever challenges arise. To be prepared, we must invest in activities that support the core values and mission of our organizations and anticipate how we’ll need to build for the future.

IMA® has been a mission-driven organization throughout its more than 100-year history, dedicated to making choices that deliver value to our members. IMA is continually seeking new ways to fulfill that promise, including finding new approaches to delivering that value and providing new resources to help members guide their organizations through uncertainty, enhance their careers, and serve the wider world.

I’m very proud of the many developments either in the works or recently completed that reflect IMA’s commitment to building for the future. Some of these include: ■ New markets and offices: We opened a new office in Egypt and expect to open additional

overseas offices soon to deliver better local engagement.

■ New certificate programs: To keep members informed about the latest in-demand topics, we unveiled two new certificate programs: one in diversity, equity, and inclusion (DE&I) and another in sustainable business management.

■ New partners: As part of our commitment to the diversification of the profession, particularly at senior levels, we formed a strategic alliance with NABA Inc. (National Association of Black Accountants).

■ New research: IMA collaborated on major studies covering topics such as DE&I, the state of the controllership function (with Deloitte), and environmental, social, and governance reporting.

■ New ad campaign: To highlight the need for skilled CMAs and demonstrate how CMAs can step up to leadership roles, we launched a new global ad campaign for the seventh consecutive year.

Building for the future also means taking care of those who enable us to deliver our mission.

At IMA, that means our talented, committed staff, in which we foster the same spirit of innovation and continuous improvement in serving members’ evolving needs. For example, we not only encourage IMA staff to pursue educational and development opportunities for themselves, but we also fund and financially reward employees who earn professional certifications and advanced degrees.

In a business environment challenged by extreme uncertainty, instability, and downturns, building for the future can and should be a top priority—for our members, for our organizations, and for IMA. SF

« BUILDING FOR THE FUTURE also means taking care of those who

Jeffrey C. Thomson, CMA, CSCA, CAE, is IMA president and CEO. He also is a member of IMA’s BergenRocklandMeadowlands Chapter. You can reach Jeff at jthomson @imanet.org or follow him on Twitter: @IMA _JeffThomson.

10 / STRATEGIC FINANCE / November 2022

ENABLE US TO DELIVER OUR MISSION.»

IMA/

IMA’S NEW TIKTOK PAGE

IMA® has launched a TikTok page (bit .ly/3CzeOxR) aimed at guiding students and young professionals on their journeys to fulfilling careers. We’re seeking video submissions from members—on topics like IMA, the CMA® (Certified Management Accountant) certification, or the life of an accounting or finance professional.

For more information on creating a video, contact Christine Pesce at christine .pesce@imanet.org.

$162 billion

THE STATS

Amount raised

by SPAC IPOs in 2021 (compared to $12 billion through mid-September 2022).

Source: SPACInsider.

See “The Ups and Downs of SPACs” on p. 34 for more.

12 / STRATEGIC FINANCE / November 2022

IMA/

IMA INTRODUCES NEW CERTIFICATE PROGRAMS

T

wo new online self-study certificate programs have been launched by IMA® (Institute of Management Accountants) as part of its mission to help members grow as leaders within their organizations.

The IMA Sustainability Business Practices Certificate™ (bit.ly/3eusVMQ) covers the basics about sustainable business practices, how these practices relate to current issues the world is facing, and the expected impact on financial processes and strategic directions moving forward. Topics in this six-course program include how to better understand environmental, social, and governance (ESG) matters; partnering for the integration of sustainability in business; and strategies, planning, performance, monitoring, and reporting in a sustainable business environment.

The IMA Diversity, Equity & Inclusion Practices Certificate™ (bit.ly/3CRGorB) provides participants with the tools and practices to foster a diverse, equitable, and inclusive environment. This five-course program features interactive exercises that demystify diversity, equity, and inclusion (DE&I), reveal the overlap between DE&I and sustainability, and illustrate ethical imperatives to champion DE&I initiatives within the accounting and finance profession.

Both programs offer the opportunity to earn NASBA CPE credits, a professional certificate, and a digital badge.

“Business practices on sustainability and DE&I are still relatively new areas being addressed by organizations, and these certificate programs are getting essential information into the accounting and finance field, reflecting changes in business expectations,” said Jackie Oppenheim, IMA vice president of education and career services. “These certificate programs serve as a type of training for all professionals, specifically for senior leaders who need to get up to speed on both areas, and for future leaders to see that they are making a difference.” —Lori Parks

®

WELCOME, NEW CMAs AND CSCAs NEWS/

FASB PROPOSES CHANGES TO SEGMENT REPORTING

T

he Financial Accounting Standards Board (FASB) issued a proposed Accounting Standards Update (ASU), Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, in October 2022. It would require public companies to disclose any significant expenses that impact their business units and to provide the title and position of who makes their financial decisions. The FASB is asking for comment on the proposed ASU by December 20, 2022.

The proposal, which would be the most significant change to segment reporting in 25 years, would improve the disclosures about a public entity’s reportable segments and address requests from investors and other allocators of capital for additional, more detailed information about a reportable segment’s expenses.

Investors, lenders, creditors, and other allocators of capital have observed that segment information is critically important in understanding a public entity’s different business activities. That information enables investors to better understand an entity’s overall performance and assists in assessing potential future cash flows.

The segment reporting accounting guidance hasn’t changed significantly since the issuance of FASB Statement No. 131, Disclosures about Segments of an Enterprise and Related Information, in 1997. While investors generally support the existing segment reporting guidance, they have expressed interest in exploring ways to require disclosure of additional segment information.

The amendments in this proposed ASU introduce a disclosure principle that would require that public entities report, on an annual and interim basis, incremental information about significant segment expenses included in a segment’s profit or loss measure.

The FASB decided to focus on expense information after considering feedback from stakeholders, which indicated that investors frequently request more detailed expense information at the segment level. Additional expense information helps investors better assess financial trends, perform more precise financial modeling when forecasting the components of an individual segment’s profit or loss, and better evaluate an entity’s business activities.

The proposal can be found at bit.ly/3g2NZdW. —Nancy Fass

1,082 IMA members earned their CMA or CSCA certification in September 2022.

The names of all the new CMAs and CSCAs can be found on the Strategic Finance website at sfmagazine.com/issue /november-2022.

For more information on the CMA, go to www.imanet.org /cma-certification. And visit www.imanet.org/csca -credential to learn about the CSCA.

November 2022 / STRATEGIC FINANCE / 13

Bulletin BOOKS/

HANDLING IMPORTANT WORKPLACE CONVERSATIONS Management accountants who work on improving their communication skills have more success navigating crucial conversations.

G

aining relevant leadership and managerial skills is my top priority as a young professional recently promoted to manager, which is why Crucial Conversations: Tools for Talking When Stakes Are High (third edition) by Joseph Grenny, Kerry Patterson, Ron McMillan, Al Switzler, and Emily Gregory was recommended to me as essential reading.

This book is an in-depth look at how to communicate effectively in many of life’s key dialogues.

First, the authors dive into what crucial conversations are and why many people avoid them, stressing how important they truly are with relevant statistics and metrics. They note that “mountains of research suggest that the negative feelings we hold in and the emotional pain we suffer as we stumble our way through unhealthy conversations slowly eat away at our health.” They then detail how to master all of the various dialogues that senior leaders, managers, and employees engage in to gain positive, concrete results from those conversations. The book features real-world examples from a variety of sources and characterizes each type of conversation by its own set of strategies and goals organized into acronyms to make them easy to remember.

The book also contains valuable information on the changing landscape of modern management, including cultivating virtual relationships and leading remote teams. In virtual-only or hybrid workplaces, leaders who define communication norms and create a proper foundation of meaningful feedback fuel the crucial conversations that will define manager-employee and coworker relationships.

The authors describe best practices to digest feedback that may not be favorable, then explore how to respectfully disagree with the person giving the feedback. By reflecting on the intent and expectations of the feedback, we can put aside our gut reactions “to a verbal wallop that rocks your psychological footing” and refocus on what’s important. This will keep the conversation productive for all parties involved.

Ensuring that you have the knowledge to handle crucial conversations is essential. This book details communication best practices and then asks the reader, “Think of your own important relationships: Are there crucial conversations that you’re currently avoiding or handling poorly? Do you walk away from some issues only to charge recklessly into others?” If you answered “yes” to either of those questions or simply want to sharpen your communication skills, then Crucial Conversations is the book for you. —Emmylou Duell 14 / STRATEGIC FINANCE / November 2022

SURVEY/

ADAPTING TO THE DIGITAL REVOLUTION

The Controllers Council has released its second annual study on how the roles and responsibilities of controllers, CFOs, and related finance executives are evolving.

The Digital Controller/CFO Study: 2022 Report finds that 69% of controllers/CFOs say their responsibilities for corporate technology are increasing, with:

92%

managing finance and accounting technology,

61%

managing all technology budgeting/ spending approval,

46% 28%

participating in IT, and

supervising IT.

The full report is available for download at bit.ly/3yz58SY.

ETHICS

TWITTER AND MUSK CLASH ON METRICS The public spat between Twitter and Elon Musk provides ethical lessons around performance data. BY LORENZO PATELLI,

H

PH.D., CMA

OW DOES A HIGH-STAKES DISPUTE between

a major microblogging and social networking company and the richest man in the world tie into ethical considerations for management accountants? As finance and accounting professionals, we partner in senior management’s decision making, devising planning and performance management systems and providing expertise in financial reporting and controls to help leadership formulate and implement the organization’s strategy. The selection and measurement of reliable metrics to assess performance is therefore at the core of management accountants’ role within business organizations, and there’s an ethical dimension to such decisions.

The recent disagreement between Twitter, the social networking platform, and Elon Musk, who made a bid to acquire the company, centered around the definition and measurement of a key performance metric that impacts the company valuation: the number of fake and spam accounts, some of which propagate and amplify misinformation, including automated “bots.” Musk attempted to terminate the $44 billion acquisition agreement before doing an about-face in October. The case is a warning for management accountants to educate themselves about challenges and ethical considerations for reporting, financial planning and analysis, and performance management systems.

When Musk attempted to terminate his agreement to acquire the social networking giant, he claimed that Twitter provided inaccurate information regarding “the true number of false or spam accounts,” according to Musk’s lawyers. Although Twitter previously acknowledged calculation errors that overstated its actual user base, this time Twitter defended its measurements and claimed that it did, in fact, provide Musk with historical data and sufficient explanation of the process that its personnel followed to estimate the number of spam accounts and bots.

Data scientists point out that it’s quite difficult to determine the number of fake accounts with objectivity and precision.

The case illustrates a challenge that isn’t unique to Twitter: Organizational November 2022 / STRATEGIC FINANCE / 15

ETHICS

performance often depends on intangible drivers that are hard to measure and require making complex estimates in an ethical way. Whether it is or isn’t appropriate to use such a challenge as an excuse to “put on hold” a $44 billion acquisition deal, as Musk tweeted, is debatable.

Performance management systems are becoming more comprehensive and can’t be limited to traditional financial and volume-based indicators. Management accountants have a responsibility to oversee and scrutinize such processes and metrics through the lens of ethics. It’s paramount for an organization’s performance management function to broaden its scope to nonfinancial metrics, which necessitates the development of more than technical accounting skills.

ETHICAL ISSUES The conflict between Twitter and Musk highlights crucial ethical considerations that tie into management accounting practices. The first ethical standard in the IMA Statement of Ethical Professional Practice is competence.

Management accountants are expected to “provide decision support information and recommendations that are accurate, clear, concise, and timely.”

As in the case of Twitter, and for many businesses, determining performance metrics with precision and objectivity demands data analytics and technology skills. Investing in developing these skills is no longer just a professional development matter but also an ethical imperative to avoid misleading rep16 / STRATEGIC FINANCE / November 2022

resentations of organizational performance.

Through predictive analytics, management accountants can highlight the relationships between financial metrics (e.g., growth of advertising revenues) and nonfinancial performance indicators (e.g., the number of daily tweets and user sentiment analysis). Thus, finance professionals can contribute to a more complete performance assessment. By continuously improving their skill set, management accountants can partner ethically in decision making and assist management in implementing the organization’s strategy.

The IMA Statement also includes integrity as an ethical standard that requires management accountants to “contribute to a positive ethical culture.” Did Twitter fail to provide fair information regarding its user base? Are its estimation methodologies biased? The case of Twitter vs. Musk underscores the need to infuse performance management systems with ethics and calls for a renewed sense of ethical responsibility for finance professionals to support management’s decision making with unbiased analysis of performance information.

Management accountants must be able to identify potential conflicts of interest and advocate for data governance practices that bolster the integrity of the design and reporting of performance metrics.

Further, the IMA Statement includes credibility as an ethical standard that requires management accountants to provide “all relevant information

IMA

ETHICS HELPLINE For clarification of how the IMA Statement of Ethical Professional Practice ­applies to your ethical dilemma, contact the IMA Ethics Helpline.

In the U.S. or Canada, dial (800) 245-1383. In other countries, dial the AT&T USA Direct Access Number from www.business.att.com /collateral/access.html, then the above number.

The IMA Helpline is designed to provide clarification of ­provisions in the IMA Statement of Ethical Professional Practice, which contains suggestions on how to resolve ethical ­conflicts. The helpline cannot be considered a h ­ otline to ­report specific ­suspected ­ethical violations.

that could reasonably be expected to influence an intended user’s understanding of the reports, analyses, or recommendations” as well as to communicate “professional limitations or other constraints that would preclude responsible judgment or successful performance of an activity.” For Twitter, the number of fake, spam, and bot accounts is a relevant piece of information that has consequences for stakeholders, including investors, advertisers, and acquirers. The credibility standard is foundational to the production of accurate performance information.

Accuracy refers to two properties of performance metrics: precision, including freedom from noise; and objectivity, meaning freedom from bias.

By complementing their traditional skill set with data analytics and through continuing education in professional ethics, management accountants can assist organizations in devising modern measurement systems and ensure that the data is collected, interpreted, and applied ethically and that the findings are shared with all stakeholders.

Management accountants have a great opportunity to actively contribute to cross-functional teams and enhance practices that resolve measurement issues in an ethical manner. SF

Lorenzo Patelli, Ph.D., CMA, is professor of management accounting in the School of Accountancy at the University of Denver and a member of IMA’s Committee on Ethics. You can reach him at lorenzo.patelli @du.edu.

TAXES

In many ways, the IRC encourages corporations to accelerate deductions (i.e., expenses) and, in some situations, exclude income to motivate corporations to undertake projects that they otherwise might not take on. As a result, net income on the financial statements rarely equals taxable income.

BOOK AND TAXABLE INCOME

MINIMUM TAX ON BOOK INCOME The Inflation Reduction Act of 2022 imposes a 15% alternative minimum tax on a corporation’s financial statement income.

C

BY JAMES W. RINIER, CPA, EA, AND ANTHONY P. CURATOLA, PH.D. ORPORATIONS IN THE UNITED STATES ARE

imposed by at least two sets of policy makers.

For financial reporting (which addresses book income), corporations follow the rules set forth by U.S. Generally Accepted Accounting Principles (GAAP). These principles are intended to match expenses with revenue, which generally permits a corporation to accelerate its income recognition while deferring its expenses. For tax reporting (which involves taxable income), corporations follow the rules set forth by the Internal Revenue Code (IRC). These rules are intended to determine the tax liability of a corporation.

SUBJECT TO RULES

Probably the most common book-to-tax difference is that book depreciation (the depreciation method used for financial reporting) tends to be the same amount each year while tax depreciation (the depreciation method used for taxable income to calculate the tax owed) is typically based on the modified accelerated cost recovery system (MACRS) and tends to have higher depreciation in earlier years and lower depreciation in later years.

In addition, some corporations may be eligible to take §179 immediate expensing depreciation, which allows businesses to deduct up to a set dollar amount in the year of acquisition, or even first-year bonus depreciation, which allows businesses to deduct a percentage of the cost in the year of acquisition.

In either case, this is a temporary difference because the amount of depreciation taken over the life of the asset will be the same for both financial and tax reporting if no salvage value is part of the calculation, which usually isn’t used in depreciation computation.

A permanent difference between book and November 2022 / STRATEGIC FINANCE / 17

TAXES

tax income is municipal bond interest or dividends received. Municipal bond interest is usually totally excluded from taxable income, and dividends received from a share of stock ownership of a corporation is usually fully or partially excluded from taxable income. For financial reporting, however, both income items are included in financial income, and, as such, the difference doesn’t reverse in the future and is thus permanent.

INFLATION REDUCTION ACT OF 2022 The Inflation Reduction Act of 2022 (IRA) brings back the alternative minimum tax (AMT)—which was eliminated by the Tax Cuts and Jobs Act of 2017— but adds a twist. The new AMT version applies a 15% tax on applicable corporations’ “adjusted financial statement income” for taxable years after December 31, 2022.

IRA §10101 defines an “applicable corporation” to be “any corporation (other than an S corporation, a regulated investment company, or a real estate investment trust), which meets the average annual adjusted financial statement income test.”

A corporation meets the average annual adjusted financial statement income test for any taxable year if the average annual adjusted financial statement income of the corporation for the three-taxable-year period including the current year exceeds $1 billion.

Once a corporation is determined to be an applicable corporation, it would continue to be one unless it 18 / STRATEGIC FINANCE / November 2022

has a change in ownership, or the Secretary of the Treasury may set a specified number of consecutive taxable years that the corporation doesn’t meet the income test (considering the facts and circumstances of the taxpayer), or it may just determine that it wouldn’t be appropriate to continue treating the corporation as an applicable corporation.

In addition, the Secretary of the Treasury is tasked with issuing regulations or other guidance on determining the adjusted financial statement income in situations where there is: ■ A different financial statement and taxable income year-end.

■ A different company grouping for the consolidated financial statement of income than the consolidated income tax return.

■ A dividend received from a corporation included in the amount of the dividends received by that corporation.

■ Partnership earnings received from a partnership interest included up to the amount of the earning.

■ Pro rata share of the net income of any controlled foreign corporation.

■ Financial statement net operating losses.

The Democratic Caucus of the U.S. Senate quoting the Joint Committee of Taxation estimates that the 15% corporate AMT is projected to raise $222 billion (bit.ly/3qLKH0A). The Wall Street Journal’s research last year during the initial reporting of the proposed corporate AMT said that 236 companies in the S&P

500 reported more than $1 billion or more in profits and more than 60 of them reported effective tax rates or the tax expense as a share of pretax income less than 15% in 2019 and 2020 (on.wsj.com/3HGDV3l).

OPPOSITION TO MINIMUM TAX Not everyone is in favor of this proposal. Stakeholders in the municipal bond market oppose the minimum tax on this bond interest because it would reduce the value of these investments. Tax-exempt bonds are the primary way in which state and local governments raise capital for many public projects.

Because the interest from municipal bonds is generally tax-exempt for federal and domestic state income tax purposes, investors accept a lower rate of interest on these bonds as opposed to taxable bonds.

As a result, state and local governments incur less interest on their bonds and can provide more services to their residents.

Several state and local stakeholders sent a letter to congressional leaders dated November 1, 2021, in opposition to the taxation of municipal bond interest, noting the tax-exempt bonds are the primary means for state and local governments to finance many essential public projects (bit.ly/3UybyLx). The American Institute of Certified Public Accountants raised concerns to Congress, noting that this tax proposal presents a fundamental shift in taxation of U.S. entities and could result in uncertainty and costly compliance requirements.

ADDED COMPLEXITY Right before the IRA was passed in the Senate, an exception was added to the computation of the adjusted financial statement income for depreciation. Book income tends to be the same amount each year and not accelerated, as noted previously. Yet now accelerated depreciation is allowed for the computation of adjusted financial statement income. Another exception was included that allows tax amortization relating to the qualified wireless spectrum used in the trade or business of a wireless telecommunications carrier instead of the financial statement amortization.

Putting in book-to-tax differences adds more complexity and complications. The apparent rationale of introducing this new form of taxation is to promote the view that Congress wants to ensure that large corporations pay their fair share.

But when the corporate tax rates increase, the consumer may be the one who ultimately pays the price. SF

James W. Rinier, CPA, EA, is a former assistant clinical professor of accounting at Drexel University. He can be reached at jimrinier22@gmail.com.

Anthony P. Curatola, Ph.D., is editor of the Taxes column for Strategic Finance, the Joseph F. Ford Professor of Accounting at Drexel University, and a member of IMA’s Greater Philadelphia Chapter. You can reach Tony at curatola@drexel.edu. © 2022 A.P. Curatola

LEADERSHIP

Psychologists make a useful distinction between System 1 and System 2 thinking or cognitive functioning. System 1 thinking refers to intuition, which is fast, automatic, effortless, implicit, and emotional. System 2 refers to reasoning that’s slower, conscious, effortful, explicit, and logical.

In most situations, our System 1 thinking is sufficient, but System 2 logic should influence our most important decisions. Many leaders place more trust in their intuition, which is System 1 thinking. That can serve them well in some cases but can also lead to judgment errors.

HOW LEADERS CAN USE BETTER JUDGMENT Good judgment comes from experience, and the best finance leaders do postmortems to learn from their previous bad decisions. BY SUNIL DESHMUKH, CMA

N

ORMALLY THE COGNITIVE PROCESS OF FORMING

or making a decision serves us very well, but in some instances our reasoning may lead us to the wrong conclusion or outcome. Leaders must be flexible and humble enough to recognize their own poor judgment, analyze the cognitive biases and flaws in their reasoning, attempt to correct their mistake and mitigate its impact, and then do better next time.

In any rational decision-making process, we follow a pattern to come to a final decision. This typically involves steps such as defining the problem, identifying and weighing the criteria, prioritizing the various factors, considering a range of options, rating each alternative based on the priority or weight assigned, and coming to the optimal decision.

A JUDGMENT

PSYCHOLOGICAL FRAMEWORK People rely on a number of simplifying strategies to make decisions without the exhaustive application of an algorithm. These are called heuristics, mental shortcuts that usually involve focusing on one aspect of a complex problem while ignoring other facets of it.

They’re useful, especially when making less important decisions, but can sometimes lead to severe decision-making errors.

There are various incarnations of heuristics.

With availability heuristics, people assess the frequency or likelihood of a particular cause and effect of an event by the degree to which information related to that occurrence is easily recognizable or available (e.g., we tend to buy stocks of companies that are known to us, even if such name recognition causes them to be overvalued).

November 2022 / STRATEGIC FINANCE / 19

LEADERSHIP

Representativeness heuristics are mental shortcuts or generalizations that people use when estimating probabilities.

People tend to look for traits an individual may have that correspond with previously formed stereotypes when making a judgment about what an individual is likely to do or guessing how an event will probably transpire.

Managers also use representativeness heuristics, often unconsciously, to predict an employee’s performance based on how a category of worker or personality type (e.g., extroverted salesperson) has performed previously.

With affect heuristics, most of our judgments are evoked by an emotional response, an evaluation that may occur before any higher-level reasoning takes place. Leaders may apply this type of heuristics while doing an employee performance appraisal. Environmental conditions that change a person’s mindset and attitude may also influence their judgment. Stock prices often go up on a sunny day, presumably due to investors’ good mood and optimism created by the pleasing weather.

The Miracle on the Hudson, when an airplane collided with a flock of birds shortly after takeoff and needed to make an emer­gency landing, is an example of herustics-based judgment. The pilots used the gaze heuristic—a type of mind-body coordination to execute the correct motion to achieve a goal factoring in one main variable (e.g., moving our hands to catch a ball in 20 / STRATEGIC FINANCE / November 2022

motion)—to safely land the plane in the Hudson River near New York City.

MASTERING THE POWER OF JUDGMENT People often make judgment calls based on their past experiences, good or bad. Initially in my corporate job, I tried to recruit professionals purely based on merit, but later I realized that it isn’t easy to retain some intelligent people with job-hopping tendencies who need new challenges all the time.

Now I factor in the likelihood that a candidate will stay with the company for an extended period of time, judgment based on experience, practice, rational thinking, and cultural fit.

We must learn to analyze our own abilities to make judgments and apply them to different situations. To master the power of judgment, leaders must make a decision, gauge the results, and examine what went right and what went wrong, if anything, and why.

The following are key insights for mastering the power of judgment: ■ Take note of the factors informing your judgment, as well as good and bad outcomes, on a regular basis.

■ Reflect on significant decisions and why you made each one.

■ Based on experience, create your own rules of thumb and shortcuts that you can use as cognitive tools to make quick decisions and judgments, but beware of biases.

■ Check with your friends and professional peers who’ve been in similar situations, and

SF

ADVICE

■

IMA LEADERSHIP ACADEMY The IMA® Leadership Academy supports the development and enhancement of our members’ leadership education and skills to aid in career advancement.

From presentation of or participation in leadership courses offered in person or virtually to our community of experienced leaders through our mentoring program to IMA’s leadership recognition program where members can measure their development and earn digital badges, the IMA Leadership Academy can help you meet your leadership goals. For more information, please visit the Leadership Academy website at www.imanet.org /career-resources/leade­rship -academy.

■

■

■

compare how they acted with your actions.

Don’t overcomplicate your decision-making calculus, and be willing to trust your intuition, even if it overrides your logic—but not if it conflicts with your ethics.

Be willing to slow down and use System 2 reasoning if you’re torn or unsure about a decision.

If you’ve failed by making a poor judgment, analyze what led to the bad outcome and take corrective measures.

Use common sense and develop your own decision-making rubric.

These simple, efficient rules work well in most circumstances, but they can lead to systematic deviation from logic, probability, or expected behavior based on rational choice theory.

The resulting errors are typically due to cognitive biases, which affect people’s choices in situations such as valuing a house, deciding the outcome of a legal case, making an investment or hiring decision, managing an accounting team, or leading the finance function.

Regardless of their technical know-how, the best leaders understand that judgment is a powerful ability but that they’re human and not perfect.

Only by examining their mistakes in judgment can they continue to improve this crucial skill. SF

Sunil Deshmukh, CMA, is a leadership coach and mentor. He's also a member of the IMA Global Board of Directors and IMA's Pune Chapter. You can reach him at sd@sunil-deshmukh.com.

FINANCIAL REPORTING

THE STATE OF REPORTING

COSO’S INTERNAL CONTROL FRAMEWORK AND ESG Challenges to building sustainable business strategies can be overcome by focusing on information and processes.

E

BY SHARI LITTAN, J.D., CPA

ARLIER THIS YEAR, the

Committee of Sponsoring Organizations of the Treadway Commission (COSO) endorsed new research by a multiorganizational team that includes IMA® (Institute of Management Accountants) to address the application of an updated framework (Internal Control—Integrated Framework, or ICIF-2013, which incorporates a risk-based approach to designing, assessing, and reporting on internal controls) to sustainable business information and reporting. Expected in early 2023, the publication (of which I am a coauthor) will propose solutions to the challenges in the current sustainability reporting reality.

Companies today use a variety of means to deliver sustainable business information. That can sometimes include directly releasing the information in a regulatory filing, such as Form 10-K. The U.S. Securities & Exchange Commission (SEC) stated in 2010’s Commission Guidance Regarding Disclosure Related to Climate Change [Release No. 33-9106] that existing disclosure rules already require corporate filers to provide material information related to climate change in Form 10-K. Over the last year, the SEC’s division of corporation finance has reviewed corporate filings with an eye toward compliance with this 2010 interpretation.

The SEC also proposed in 2022 new regulations regarding climate risk disclosures. Internationally, the new International Sustainability Standards Board, overseen by the International Financial Reporting Standards Foundation, issued proposed new corporate disclosure regulations regarding climate and other sustainability information in Exposure Draft (ED/2022/ S1): General Requirements for Disclosure of Sustainability-related Financial Information (bit.ly/3RJBkK2) and Exposure Draft (ED/2022/ S2): Climate-related Disclosures (bit.ly/3yoLfxX).

Concurrently, at the direction of the European Commission, in mid-2022, the European Financial Reporting Advisory Group released 13 exposure drafts November 2022 / STRATEGIC FINANCE / 21

FINANCIAL REPORTING

as Set 1 of sweeping new corporate reporting mandates (bit.ly/3CeWGcE).

BUILDING TRUST AND CONFIDENCE Although market demand for sustainability information continues to rise steadily, the level of confidence that internal and external stakeholders have in the reliability, utility, and quality of the sustainability information currently available is far below that of traditional financial data. There are multiple reasons for this lack of trust.

Fragmentation. Companies generally don’t follow a single set of standards. Instead, they’ve been selecting aspects of different guidelines, such as the United Nations Sustainable Development Goals and those issued by the Sustainability Accounting Standards Board, the Task Force on Climate-Related Financial Disclosures, and the Global Reporting Initiative. This fragmentation makes the development of information and reporting systems challenging and makes investors less confident about the information that they’re getting.

Acceleration. Regulatory authorities, such as the SEC, are increasing their oversight of filings regarding environmental, social, and governance (ESG) information and concurrently accelerating toward new legislation, regulation, and mandatory listing requirements.

This acceleration is driving financial and sustainability preparer teams to collaborate, and, as this occurs, 22 / STRATEGIC FINANCE / November 2022

financial reporting professionals are using their expertise and bringing rigorous oversight—along with the input of legal counsel—to the process.

Variation in software services. Following the explosion of new reporting demands, commercial providers have entered the space to offer new reporting tools. These platforms can help instill good controls and oversight systems, including documentation. But if poorly designed or implemented, these systems can create challenges. Some preparers find standardized software unadaptable to their organization’s unique data and information streams.

Others are loath to consider solutions after previous disappointment with other financial accounting and reporting solutions, such as those that failed to work as promised for lease accounting.

Novel data streams.

Often a company has never gathered, summarized, or analyzed the data it needs for sustainability reporting, such as information on greenhouse gas emissions, water use, waste management, energy sourcing, energy usage, and workforce turnover and diversity. Moreover, much of this data is in the hands of operational units around the world with immature or nonexistent systems.

Third-party data. In financial reporting, the concept of a “reporting entity” is relatively settled. Sustainability accounting, however, uses the concepts of “control” and “influence” differently. This means companies must assess and report on information

sourced from third parties, which raises significant concerns over reliability. Further, the impact accounting approach favored by certain sustainability advocates also depends on information from external sources, including government and nongovernmental statistics. This raises concerns from preparers, compliance professionals, and auditors on the quality and reliability of externally sourced data.

New time horizons.

Traditionally, financial accounting rested on the summarization of past transactions and events.

Over time, however, reporting evolved to reflect economic expectations and estimates of the future. For example, in adopting the current expected credit loss model, financial reporting evolved from “probable” credit losses to “expected” credit losses. Sustainability is about wise use and preservation of resources over the long term. Therefore, it necessitates estimating and assessing expectations over a longer term than the time frame to which financial professionals have become accustomed. The process of estimation is the same, but the time horizon is longer.

Qualitative information. Sustainability information is more qualitative than mainstream financial information. Because the goal is to estimate and assess expectations of ongoing availability of resources and stakeholder willingness to make these resources available to an entity, it’s inherently more qualitative than traditional financial reporting. Some of these factors can’t be adequately measured

or monetized, although research and innovation may yield new methods of doing so.

Demands for external assurance. Users of sustainability information are seeking similar assurance that the ESG information that a company issues externally results from the same rigorous oversight system—both internal and independent—that they’ve come to rely upon from financial reporting. Today, certain types of information that are now considered under the ESG umbrella, such as environmental data, is audited before submission to agencies.

But as more sustainability information is delivered via general corporate reporting such as Form 10-K, voices are becoming louder in seeking independent assurance.

All of these items underscore why the interpretation and application of the ICIF-2013 is a practical but important challenge for professionals that are now part of the sustainable business information value chain.

The ICIF-2013 can help an organization consider its purpose, set objectives, consider and respond to risks, implement and communicate new policies, and set its reporting agenda. These steps further the fundamental purpose of our profession: the delivery of relevant, reliable, complete, and unbiased information so that management, investors, and other stakeholders can make informed decisions. SF

Shari Littan, J.D., CPA, is the director of corporate reporting research and thought leadership at IMA. Shari can be reached at shari.littan@imanet.org.

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WHEN STRATEGY MEETS PURPOSE The four pillars of a performance management system are the key to linking a sense of organizational purpose with a successful strategy.

BY CRISTIANO BUSCO, PH.D.; MARK L. FRIGO, PH.D., CMA, CPA; ELENA GIOVANNONI, PH.D.; ANDJELA PAVLOVIC, PH.D.; AND ANGELO RICCABONI, PH.D.

November 2022 / STRATEGIC FINANCE / 27

E

ffectively realizing corporate purpose requires mediating, integrating, and balancing the interests of different corporate stakeholders and their goals. And the trade-offs that result from such a balancing act need to be acknowledged, measured, and communicated as the organization reports the efforts and performance connected to the creation of long-term sustainable value. Moving from the articulation of a company’s purpose to execution requires strategy and capital allocation with a comprehensive management system able to link sustainability strategies with financial returns. It involves reconciling competitiveness and sustainable growth within the context of an inclusive business model to take advantage of the opportunities and face the challenges of the market.

Importantly, this requires the development of new measurement practices that can capture whole processes of long-term value creation—taking into account the social and environmental externalities produced by its operations and, especially, its products and services, as well as how the multiple and heterogeneous resources provided

DEFINITION OF TERMS Purpose: the organization’s enduring reason for existence, which is generally communicated as a statement that captures its contribution to stakeholders and society.

Mission: the organization’s ambitious yet achievable position in the market and industry, which includes its business goals.

Strategy: the organization’s plans to compete in a market and how it intends to meet the multiple goals included in its purpose and mission.

Purpose-driven strategy: a strategy led by the multiplicity and diversity of goals articulated through the organization’s purpose statement.

Performance management system: a set of processes and metrics that enables the organization to monitor the achievement of the desired level of performance and indicate progress toward the fulfilment of the company’s mission and purpose.

28 / STRATEGIC FINANCE / November 2022

by the company’s stakeholders contribute to its financial and nonfinancial performance. Today, the investment community broadly recognizes the need to better understand how material environmental, social, and governance (ESG) issues matter to financial performance.

Aligning Corporate Purpose with Strategy Executing corporate purpose is likely to be challenging— and, in some cases, even uncomfortable—since it may require going beyond the company’s business-as-usual approach to respond to emerging opportunities for business development. It often requires rethinking the organization as it develops at the intersection of aspiration, inclusion, and action. Aiming to simultaneously address both financial and ESG issues, purpose-driven strategies are perceived as essential to achieve multiple and heterogeneous results expected by a multitude of stakeholder (see “Definition of Terms” for a review of the terminology as defined in this context).

With capital markets increasingly demanding evidence-based, market-informed, and transparent data to deliver long-term value to shareholders while helping secure the future for people and the planet, the challenge for corporate leaders lies in the complexity of pursuing long-term sustainable value creation during a period characterized by uncertainty and ambiguity. Performance management systems should be considered as mechanisms for measuring and monitoring the financial and nonfinancial results of an organization. They are means by which contemporary organizations execute their strategy and pave the way to fulfill the expectations of their stakeholders, including current and potential investors, as well as society at large. Despite their central role within companies’ governance and measurement systems, existing performance management systems have yet to fully deliver.

Within this context, Aligning Strategy to Purpose: The Role of Performance Management Systems, a forthcoming IMA Research Foundation study, is relevant to the paradigm shift in corporate thinking, management, and reporting. Performance management systems can play a powerful role in instilling a sense of purpose within the organization as well as in aligning corporate purpose with strategy.

An integrated approach to aligning strategy to purpose utilizes visualizing, engaging, measuring, and mediating the process toward long-term value creation for multiple stakeholders.

By relying upon the insights offered by three cases—Barilla, AXA, and Enel—we identify the key features of performance management systems for the purpose-driven organization and provide guidelines for management accountants to play a leading role in designing and orchestrating these systems.

Purpose of the Firm

In the book Value Creation Principles: The Pragmatic Theory of the Firm Begins with Purpose and Ends with Sustainable Capitalism, Bartley J. Madden introduces the pragmatic theory of

FIGURE 1: ROLE OF PERFORMANCE MEASUREMENT SYSTEMS

PURPOSE

Visualizing

Mediating Performance Management Systems

Engaging

Measuring

STRATEGY

the firm, sharing a useful four-part overview of the theory’s role in a market economy and showing how it defuses the conflict between shareholder and stakeholder proponents: 1. Communicate a vision that inspires and motivates employees to work for a firm committed to behaving ethically and making the world a better place.

2. Survive and prosper through continual gains in efficiency and sustained innovation, which critically depend upon a firm’s knowledge-building proficiency. Nothing works long term if the firm fails to earn the cost of capital.

3. Work continuously to sustain win-win relationships with all the firm’s stakeholders.

4. Take care of future generations, giving particular attention, at the early stage of the design of products and manufacturing processes, to minimizing waste and pollution.

Maximizing shareholder value is best positioned not as the purpose of the firm, but as the result of a firm successfully achieving its purpose. The fundamental determinant of a firm’s long-term performance is its knowledge-building proficiency, which is evident in the three cases we examine.

The Framework

We advocate a four-stage framework to successfully connect strategy to purpose (see Figure 1). Performance management systems are pivotal in this process since they are (1) visually routed based on visualization, (2) methodologi-

cally engaging, (3) measurement driven, and (4) a means of mediation and communication.

Visualization entails representing the material elements of purpose and connecting them, as well as visually communicating strategy through purpose.

Engagement encompasses articulating purpose from strategy to incentives and enabling commitment and collective work.

Measurement requires translating purpose into shared metrics and enabling wise judgment and confrontation around the impact of these metrics. Finally, mediation involves valuing diversity rather than suppressing differences to maximize opportunities for innovation and sustaining endurance and change. These aspects shape the patterns of training and education of management accounting professionals. The critical knowledge needed to design purpose-driven performance management systems is revealed through the principles of design and the practical case study examples to follow.

Engagement and Purpose-Driven Projects

AXA Group, a global insurance group operating in 54 countries, focuses its strategy in core business areas including November 2022 / STRATEGIC FINANCE / 29

Maximizing shareholder value is best positioned as the result of a firm successfully achieving its purpose.

health, protection, and commercial property and casualty segments. In June 2020, AXA’s corporate purpose was reformulated from “empowering people to live a better life” to “act for human progress by protecting what matters.”

According to AXA’s CEO, “This reflects our aim of helping our customers, both individuals and companies, and society as a whole to move forward. It also evokes the notion of protection that’s at the very core of our business as an insurance company, enabling customers to plan for the future with peace of mind. And in times of crisis, like the one we are experiencing now, this purpose throws light on the direction we need to take, providing a framework for our action.”

This new corporate purpose informs AXA’s sustainable value creation and business model. This was captured and communicated visually through AXA’s 2019 integrated report, where sustainable value creation was represented by linking key resources (related to customers, investors, employees, distributors, partners, government, and regulators) to its business model (articulated through protection, health, asset management, savings, property, and casualty) and impact (on customers, investors, employees, distributors, partners, government, and regulators). Through an AXA integrated report, which communicates externally much of the company’s financial and nonfinancial performance, corporate purpose can be visualized as the overarching framework that combines and integrates in the same whole all elements of the AXA business model.

The strategic pillars of AXA’s corporate purpose are shared among all local entities and are then articulated by each local entity into long-term plans, projects, actions, and objectives through an iterative top-down and bottom-up process. The strategic objectives for each pillar of corporate 30 / STRATEGIC FINANCE / November 2022

purpose are shared with the local entities through a letter of objectives. Within AXA Italy, this letter is then articulated further into more detailed letters at the various managerial levels and areas. This process is led by the CEO and is facilitated by the chief strategic officer (CSO), with the support of the CFO and the management committee.

As part of this process, key projects are identified and proposed by top managers across the different areas and in relation to the strategic pillars of the corporate purpose. The CSO orchestrates this process by attending key meetings and ensuring that projects are formulated and proposed in line with the priorities of corporate purpose. Following this preliminary discussion, projects are then examined by the management committee, including the CEO, CSO, CFO, chief customer officer, human resources director, and claims and customer operations director. This discussion lends coherence and consistency to the projects before the letters of objectives are finalized for all managers.

Purpose-driven projects and initiatives are then articulated into financial and nonfinancial key performance indicators (KPIs). Financial KPIs are monitored by the finance office, working closely with the strategy office and the transformation office, who are both in charge of monitoring the nonfinancial KPIs. Every three months, top managers meet to discuss and check the progress toward the strategic priorities of corporate purpose. Also, every month all projects, along with their KPIs, are monitored and revised. The progress made toward the strategic priorities of corporate purpose is reported to AXA headquarters at least twice a year and is fully incorporated into managers’ performance assessments and incentive system.

Measurement at Barilla

Barilla is a global Italian family-owned food company established in 1877 that operates in more than 100 countries. The group is recognized worldwide as a symbol of Italian food. From 2013, the purpose of Barilla has been captured in the statement: “Good for You, Good for the Planet” (also referred to as GYGP, which has recently been redefined as “The joy of food for a better life”). Barilla has adopted an integrated operations scorecard to support the alignment between brand/local strategies, corporate strategies, and the GYGP purpose through operations. This tool provides for a method for integrating financial and nonfinancial KPIs related to Barilla’s corporate purpose within a platform shared across Barilla’s group.

The scorecard is divided into a number of key dimensions, reflecting the purpose of Barilla (see Figure 2). Each dimension has the same weight: 1. People, including health and safety, training, absences, injuries, and accidents 2. Product, including product quality and customer complaints 3. Planet, including waste, recycling, and energy and water consumption 4. Profit effectiveness, concerning asset usage effectiveness 5. Profit efficiency, concerning asset usage efficiency

FIGURE 2: BARILLA’S OPERATIONS SCORECARD Group Supply-Chain Operations Scorecard Plant KPIs December 2019 TOTAL SOUTHERN EUROPE BAKERY

ACTUAL YEAR TO DATE

OBJECTIVE

VARIANCE (%) VS. BUDGET

LAST YEAR RESULTS

VARIANCE (%) VS. LAST YEAR

PEOPLE Head count Accident frequency index Accident severity index Total absenteeism (%) Training (%) PRODUCT Consumer complaints (PPM) Lot quality index (LQI) (%) PLANET Energy (Kg CO2 eq./[fp]t) Garbage (t/[fp]kt) Recycled garbage (%) Water (m³/t) PROFIT EFFECTIVENESS Production volume (t) MAPE vs. planning (%) Capacity availability (%) Capacity utilization (%) PROFIT EFFICIENCY Theoretical yield (%) Raw material loss (%) Labor usage (h/t) TOTAL EFFICIENCY (K€) B/(W) Source: Barilla

These dimensions are then linked to further performance metrics on capital expenditures and working capital. For each dimension, the scorecard shows the year-to-date (YTD) actuals, objectives, variance (%) from the budget, last-year (LY) results, and variance (%) from LY.

The operations scorecard (group level) is then articulated at the regional level (e.g., Europe or United States).

Each regional scorecard is further articulated into product category (e.g., meal or bakery) and then into further geographical zones, and a zone is then articulated according to different production sites/plants. Through this articulation, November 2022 / STRATEGIC FINANCE / 31

the operations scorecard provides for a shared platform through which all operations managers can monitor the performance of each plant in each region, in line with the key dimensions of the GYGP purpose.

The operations scorecard for all plants is fully accessible and shared within the group. This makes it possible for managers from different plants to compare targets and results, identify best practices, and discuss opportunities for learning and improvements, sharing best practices across plants. Every year from September through December, the targets are set in the scorecard for the subsequent year to ensure a process of continuous improvement. Specific (nonfinancial) targets are proposed by operations managers at the plant level following a process of analysis and data collection. Targets are then discussed and aggregated at the operations level, ensuring consistency with the strategy and with financial KPIs. The full visibility of the scorecard across the group facilitates the alignment of KPIs across the different units. Financial KPIs are managed by the finance unit, with finance managers working closely with operations managers in each plant.

Nonfinancial KPIs are managed by operations managers at the factory, brand, and region level. Every two or three months, reports from the scorecard are discussed at the supply-chain level. Every month, they’re discussed at the plant level, examining variances and opportunities for improvement. The oper-

Performance management systems can play a powerful role in instilling a sense of purpose.

32 / STRATEGIC FINANCE / November 2022

ations scorecard is the most relevant tool used to monitor each month whether operations are moving in the right direction toward the achievement of the planet, people, product, and profit objectives, in line with the GYGP purpose.

Mediation at Enel

Enel, an Italian energy company with a presence in more than 40 countries on five continents, identifies its purpose as: “Open Power for a brighter future. We empower sustainable progress.” The strategy developed by the company aims to create sustainable long-term value by managing the energy transition through decarbonization and electrification. Within Enel, sustainability is the driving force that connects the purpose-driven strategy with innovation. The innovability (innovation and sustainability) function, which reports directly to the CEO, manages all activities from the perspective of sustainability and innovation.

Listening to stakeholders, knowing the territory, and measuring the sustainable value created through innovation is a must for Enel. At Enel, the path for applying such an inclusive community relations model started in 2015 with the adoption of a creating shared value (CSV) model that integrates social-environmental factors into business processes and along the entire value chain.

The dissemination of this method required a consolidation path within the company on a cultural and operative level. In 2016, a specific internal policy, “CSV process definition and management,” was published. It defines how sustainability must permeate company processes across the board, making it a shared responsibility. This policy was supplemented by issuing an operating instruction labeled “project portfolio management system,” which represents the approach along Enel’s entire value chain in terms of project identification and characterization, management of the quality assurance process, calculation of beneficiaries, and evaluation of project impact.

Recommendations for Management Accountants

Performance management systems can play a powerful role in instilling a sense of purpose within the organization as well as in aligning corporate purpose with strategy.

By relying upon three case studies, as well as on prior research in the field, we identify the key features of performance management systems for the purpose-driven organization. Visualization, engagement, measurement, and mediation are the pillars of our framework for understanding the way in which contemporary organizations align strategy to purpose through performance management systems. Finance professionals, and management accountants in particular, can play a leading role in this journey by making the integration of strategy with purpose happen in practice.

In terms of visualization, management accountants have the opportunity to contribute to the representation of

Visualization enables management accountants to keep an open conversation with business leaders.

the material elements of corporate purpose; connect them to the vision, mission, and values of the organization; and communicate the integration between strategy and purpose through a series of interconnected objectives and initiatives.

As the link between purpose and strategy gets reinforced, finance professionals can rely on the company’s performance management system to visualize the objectives of the business and the way to accomplish them in line with the expectations of the stakeholders. Overall, visualization enables management accountants to keep an open conversation with business leaders and key stakeholders, and therefore build on materiality assessment to capture the financial relevance of material issues and their consequences for the company’s bottom line.

As for engagement, finance professionals can manage the opportunities that may open discussion and appropriation. This can be done by linking purpose-driven strategy to individual objectives and expected targets as well as by identifying the resources, activities, drivers, and stakeholders that are involved in the development and execution of the business model of the company. Commitment by individuals can be enhanced by overcoming, for example, the capital budgeting limitations that fail to account for the project’s ESG intangibles and developing better methodologies to assess and incorporate long-term value creation into decision making. By engaging with other professionals, management accountants can lead the collective process of knowledge construction that, supported by performance management systems, leads to a collective understanding of the value-creation process.

Measurement is the traditional key area for the finance function. The opportunity here is to lead the metrics-based process of judgment concerning the impact of purpose on strategy execution and business performance. In doing so, management accountants are asked to design a portfolio of financial and ESG measures that will be employed to test and assess corporate purpose in practice. In doing so, the finance function will be required to recognize and manage the multiple trade-offs, interests, and risks that characterize the value-creation process as it unfolds across multiple and heterogeneous stakeholders. This process involves the scrutiny and understanding of new ways of aligning strategy with purpose. By providing insightful information to decision makers, performance management systems can work in harmony with other business systems to recognize different viewpoints and leverage the richness of stakeholder engagement.

Finally, mediation requires management accountants to value diversity rather than suppressing differences, supporting the opportunities for innovation and change that emerge along the value chain. When opportunities for discussions emerge, different viewpoints can develop and legitimate doubts can be raised. Compromise across multiple and heterogeneous perspectives requires finance experts to understand trade-offs and their consequences within processes of innovation and change. Productive tensions can raise insightful questions and generate new knowledge. The role of management accountants is paramount here: While purpose must be aligned with strategy, such an alignment will affect the existing links among the organization’s internal and external stakeholders, therefore stressing and testing the effectiveness of the organization’s enduring reason for being in practice. SF

Cristiano Busco, Ph.D., is professor of accounting, reporting, and sustainability at Luiss Business School and at UCL (University College London).

You can reach Cristiano at cbusco@luiss.it and c.busco@ucl.ac.uk.

Mark L. Frigo, Ph.D., CMA, CPA, is the cofounder of the Center for Strategy, Execution and Valuation and the Strategic Risk Management Lab in the Kellstadt Graduate School of Business at DePaul University and Ezerski Endowed Chair of Strategy and Leadership Emeritus in the Driehaus College of Business at DePaul. You can reach Mark at mfrigo@depaul.edu.

Elena Giovannoni, Ph.D., is professor of accounting at Royal Holloway University of London and a researcher at the University of Siena. You can reach Elena at elena.giovannoni@rhul.ac.uk.

Andjela Pavlovic is a Ph.D. candidate in management at LUISS Guido Carli University, with a research focus on the role of business in society.

You can reach Andjela at apavlovic@luiss.it.

Angelo Riccaboni, Ph.D., is professor of corporate governance and management control systems at the University of Siena. You can reach Angelo at angelo.riccaboni@unisi.it.

November 2022 / STRATEGIC FINANCE / 33

THE UPS AND DOWNS OF

SPACs

While the enthusiasm around special purpose acquisition companies (SPACs) has diminished, SPACs haven’t disappeared entirely and continue to provide an alternate path toward access to public equity markets.

BY BRIDGET LYONS, DPS, AND BARBARA TARASOVICH, DPS, CPA, CGMA

November 2022 / STRATEGIC FINANCE / 35

S

pecial purpose acquisition companies (SPACs) seemingly exploded onto the scene in 2020 and early 2021. The volume and activity of SPACs soared, driven by spectacular returns, lots of hype, low interest rates, and celebrity endorsements. SPACInsider, a popular resource for SPAC data and deals, reported 613 SPAC initial public offerings (IPOs) raising $162 billion during 2021, up from 59 SPAC IPOs raising $13 billion in 2019. Yet activity plummeted during 2022, with annual volume decreasing to only 76 SPAC IPOs raising $12 billion by mid-September.

What brought about this sudden emergence (and decline), and what do management accountants and their companies need to know and keep in mind when considering the use of a SPAC? Let’s take a look.

SPAC Basics

A SPAC is a shell company established and listed on a public stock exchange for the sole purpose of raising cash to merge with one or more private companies without going through the costly and lengthy traditional IPO process.

SPACs are often called “blank check” companies because investors are providing funding with the intent of investing

in a particular arena, for example, gaming, but not necessarily in a known entity.

A unique feature of a SPAC is that it isn’t an operating business. The SPAC is simply a pool of capital intended to fund the purchase of an operating business. The initial SPAC investors have typically been institutional investors, including private equity and hedge funds, but also individuals.

A SPAC is set up by a management team called sponsors, who raise money from investors in an IPO by issuing “units,” typically at a price of $10. Investors buy the units, which consist of a share and a fraction of a warrant. The warrant is an option issued by the company that allows the holder to buy a share at a stated price, often $11.50, after the completion of the merger. Warrants were an important component in the SPAC boom since investors can profit after the deal if the share price rises and they exercise the warrants to buy more shares at a low price. The number of warrants included in a unit varies by SPAC. In most SPACs, the sponsors get a stake of approximately 20% in the SPAC for a very low price and can purchase additional warrants. The sponsor makes money if a merger occurs and the new company succeeds.

After identifying a target, the SPAC then merges with the target company in a process often called de-SPACing. Since the SPAC is already a public company when it merges with the target company, the reporting requirements are far less

FIGURE 1: THE SPAC PROCESS Timeline: Approximately 18-24 months

SPAC Formed Cash placed in trust

IPO

Search

Target Search Sponsors search for firm to acquire

36 / STRATEGIC FINANCE / November 2022

Acquisition Approved Merged company becomes publicly listed

Target Selected Potential target announced

Target

Vote

Proxy Vote Shareholders vote on whether to approve target and redeem shares

SPAC or No SPAC Shareholders Disapprove SPAC is dissolved, and proceeds are returned to shareholders

HIGH-PROFILE SPACs The initial interpretation of SPACs was as substantial-risk, high-reward investments, with a few companies experiencing astronomical success. This prediction hasn’t come to fruition. Many SPACs have failed to deliver success in the short term. While it typically takes years to measure successful returns, some of the more prominent SPACs have resulted in significant short-term losses to investors.

Virgin Galactic (SPCE) Probably the best-known SPAC, Virgin Galactic—a commercial space travel company—went public via merger with Chamath Palihapitiya’s SPAC, Social Capital Hedosophia. The company began trading under the Virgin name (SPCE) on the New York Stock Exchange. While companies such as Blue Origin and SpaceX have had successful passenger trips, Virgin Galactic stumbled and is now forecasting its first commercial passenger flight for 2023.

The company has cited delays in refurbishing its aircraft. From an initial price of $19.50 per share, the stock has dropped to below $5 per share as of the end of September 2022.

DraftKings (DKNG) DraftKings went public in April 2020 with a reverse merger with gaming technology provider SBTech and the Diamond Eagle Acquisition Corp. SPAC. A daily fantasy sports contest and sports betting company, DraftKings had an initial IPO of $40 per share. At the end of September 2022, it had dropped to just over $15 per share. While considered one of the more successful SPACs, the company has faced fierce competition and has been marred by scandals and bad actors.

SoFi (SOFI) Online fintech start-up Social Finance, also known as SoFi, went public in June 2021 with a SPAC known as Social Capital Hedosophia Holdings Corp. V. Intended as an alternative to brick-and-mortar banks, SoFi has a mobile app that gives users access to financial products such as student and auto loan refinancing, mortgages, personal loans, credit cards, investing, and banking. The stock climbed 12.4%, closing at $22.65 following the IPO. As of September 2022, the stock is trading below $5 per share. Consensus is mixed among Wall Street analysts: Some believe that SoFi has a unique business model, while others believe that the company faces stiff competition from banks offering comparable products and services.

Grab Holdings (GRAB) In April 2021, Singapore-based Grab Holdings launched a SPAC following a merger with U.S.-based Altimeter Growth Corp. The SPAC raised $4.5 billion and began trading in December 2021 on Nasdaq under the ticker GRAB. Valuations have since fallen significantly, reflecting the trends in the SPAC market overall.

onerous than if the target company were to go through an IPO. The SPAC must file with the U.S. Securities & Exchange Commission (SEC), but the filings are much simpler than traditional IPO filings.

SPACs have a set timeline to make an acquisition, usually two years (see Figure 1). If the SPAC sponsors can’t

identify a potential target company, then shareholder funds are returned. When the SPAC announces the formal target, the SEC reviews the terms. The next step is a proxy vote.

Investors who don’t agree with the business target can exit and liquidate their shares to recover the initial investment plus accrued interest. If enough shareholders approve the November 2022 / STRATEGIC FINANCE / 37

acquisition, it goes through as long as the consenting investors are above the threshold set in the proxy.

The benefits to a private company may include fast access to public equity markets through a process that’s simpler and less regulated than the typical IPO. Company owners can retain some equity ownership and may also gain access to knowledge and competencies from the SPAC sponsors.

For early-stage companies that haven’t yet generated positive cash flows or significant revenues, SPACs can provide founders an essential avenue to new capital. For more mature companies, SPAC proceeds can fund growth and acquisitions. The sponsors often secure additional funding through private investment in public company (PIPE) commitments. SPACs also provide public equity capital access to small and medium-sized companies that haven’t enjoyed such access in the past.

Factors to Consider

While SPACs can provide another avenue to access public equity, they face complex valuation issues and risk of personal liability for their sponsors and board of directors.

Accounting and finance professionals need to understand the related risks as well as regulatory, reporting, and compliance requirements. And companies considering a SPAC need to be aware of both the benefits and risks associated with a SPAC vehicle and any related regulations. Considerations include: Fast exit: For entrepreneurs considering exit strategies, SPACs provide a fast and viable alternative to an IPO or a sale to a strategic or financial buyer. Speed can be a benefit if there’s urgency or concern regarding market volatility, but management must consider if the timeline is feasible.

Valuation certainty: In a SPAC, the target company negotiates a fixed price per share, removing some of the valuation uncertainty inherent in the IPO process where market conditions change, information arises, and valuations fluctuate widely prior to setting the IPO price.

Sponsor quality: Sponsor experience in the industry and a successful track record in capital raising and deal execution are essential. Some SPACs provide experienced management teams who can add value during and after the merger.

Cost: Depending on the sponsor ownership, the deal may ultimately be more costly than an IPO in terms of equity dilution to target shareholders.

No breakup fees: Unlike most public merger or acquisition offers, SPACs typically don’t include a breakup fee.

Management and board readiness: The SPAC timeline is short, so the management team and board must be prepared for the process including reporting; compliance; environmental, social, and governance concerns; and other considerations.

Accounting and finance expertise: Because a SPAC is a shell company with no operations, it doesn’t have accounting and finance teams in-house. Thus, a gap can often exist between the capabilities of your organization and the SPAC. The internal teams may not have the expertise needed to navigate the process, the nuanced paperwork requirements, 38 / STRATEGIC FINANCE / November 2022

SHAQ’S SPAC The roster of celebrities who got into the SPAC game includes Shaquille O’Neal, the former basketball player and an NBA Hall of Famer. O’Neal backed a company called Forest Road Acquisition Corp. on November 25, 2020. It was formed as a SPAC for the sole purpose of effecting a merger or business combination.

Two companies that Forest Road looked to combine with were Beachbody Company and MYXfitness. Beachbody is known for its exercise DVDs, subscription streaming service, and weight-loss shakes. MYXfitness is a manufacturer of fitness bikes. The transaction was announced in early February 2021. Shares of Beachbody rose to $18.20 that month, a significant return over a short period of time. By April, the share price had fallen, hovering near $10—the initial unit investment.

On June 24, 2021, shareholders voted to approve the merger of these three companies to become Beachbody Company, Inc. The share price opened at $13.15 and closed the day at $12. With the acquisition, Beachbody had become a global fitness brand and direct competitor of other leading fitness brands such as Peloton and Lululemon.

In November 2021, after releasing third-quarter earnings that reflected a 17% drop in sales, Beachbody’s share price plummeted. It’s recently traded below $2 per share. Revenues and profits failed to meet expectations, and cash flow was also an area of concern. It remains to be seen if this company can achieve the success forecasted at the time of the merger.

or other strategic considerations that are unique to being acquired by a SPAC. Complexity in required filings: Even though SPACs are considered to have less onerous reporting requirements compared to IPOs or typical mergers and acquisitions, there are required SEC filings—and those continue to expand. If the necessary paperwork isn’t completed or is submitted incorrectly, companies can encounter regulatory snags that would stall the deal and distract executives from key business initiatives.

Post-deal risks: Depending on your company, there may be additional SPAC risks that emerge following a closed deal.

For example, private equity-backed companies have unique

considerations in the sense that a sale to a SPAC won’t constitute a “complete” exit. This can create some nuance as early investors, known as general partners, look to maximize their returns through secondary sales following the merger.

Changing regulations: On March 30, 2022, the SEC issued a proposed rule to enhance investor protection between SPACs and private operating companies. The objective of these proposed regulations is to more closely align the financial reporting requirements of business combinations with those of a traditional IPO. The proposal includes: 1. The financial statements of the target company must be audited in accordance with Public Company Accounting Oversight Board standards.

2. The financial statement time-period requirement in which the target company may report two years of financial statements would be expanded to three years.

3. The age of the financial statements provided by a target company would depend on whether the target company qualifies as a smaller reporting company.

4. Existing financial reporting practices would be codified by requiring the target company to apply Regulation S-X, Rule 3-05, or Rule 8-04 (or Rule 3-14) for real estate, to an acquired or to-be-acquired business.

5. Existing financial statement requirements would be codified by allowing the registrant to omit the pre-combination financial statement of the SPAC once such financial statements have been filed for all required periods through the acquisition date.

Companies need to be aware of both the benefits and risks associated with a SPAC vehicle.

FIGURE 2: SPAC IPOs BY YEAR

700 613

600 500 400 300

248

200 100 0

1

7

15

9

10

12

20

2009

2010

2011

2012

2013

2014

2015

13 2016

34

46

59

2017

2018

2019

78

2020

2021

2022

Source: Data from spacinsider.com/stats.

November 2022 / STRATEGIC FINANCE / 39

TABLE 1: EXAMPLES OF SPAC RETURNS

Company

Ticker

Close, Sept. 30, 2022

52-week 52-week low high

All-time high

Digital World Acquisition

DWAC

$16.81

$9.84

$175.00

$175.00

Roblox

RBLX

$35.84

$21.65

$141.60

$141.60

DraftKings

DKNG

$15.14

$9.77

$51.30

$74.38

Lucid

LCID

$13.97

$13.25

$57.75

$57.75

Simply Good Foods

SMPL

$31.99

$29.21

$45.77

$45.77

Primoris

PRIM

$16.25

$15.90

$29.38

$41.76

AppHarvest

APPH

$1.97

$1.82

$7.11

$39.50

RLX Technology

RLX

$1.05

$1.00

$6.46

$27.48

Beachbody Company

BODY

$1.01

$0.91

$5.95

$18.20

In addition, the proposal includes enhanced disclosure requirements as well as additional protections for SPAC IPOs and de-SPACing transactions.

A History of Ebbs and Flows

Market conditions and regulatory issues could further influence whether a SPAC deal is the right decision for a company. The history of SPACs shows how their use and appeal has fluctuated.

While the recent flurry of activity elevated SPACs to greater awareness beyond financial circles, a version of SPACs has been around since at least the 1980s when so-called “blank check” companies in the United States raised funds—mostly in the penny stock market—for shell corporations with the stated purpose of merging with an unidentified private company.

These companies led to widespread “pump and dump” fraud in which rumors of an impending merger would pump up stock prices and then insiders would sell shares before retail investors learned the truth. Eventually laws passed by the U.S. Congress and regulations enacted by the SEC provided some investor protection by mandating enhanced disclosures and requiring that the SPAC proceeds remain in escrow accounts until the merger is completed.

40 / STRATEGIC FINANCE / November 2022

Fast-forward to the dotcom bubble of the late 1990s, when the “blank check” investment vehicle was redesigned and reemerged with the SPAC name. While SPAC volume declined following the dotcom bust and new regulations in the early 2000s, SPACs didn’t go away completely. In 2007, 65 SPACs were completed, raising $11 billion in proceeds.

Included in that group was the Endeavor Acquisition Corp. buyout of American Apparel, which led to the December 2007 New York Times headline “Wall Street’s New Status Symbol: the SPAC.” But SPAC volume again diminished significantly during the financial crisis of 2008-2009.

By 2019, SPAC volume was rising (see Figure 2) as the perceived quality of SPACs improved based on experienced management teams working with well-known sponsors to raise capital for higher-quality companies. Some also attribute the COVID-19 pandemic with increasing investor appetite since retail investors suddenly stuck at home with few outlets on which to spend their time or money jumped into SPAC investing (David Benoit, “SPACs Rescued Wall Street From the Covid Doldrums,” The Wall Street Journal, January 22, 2021, on.wsj.com/3SK5oGH).

Small investors historically were unable to access the IPO market, so SPACs provided new opportunities. At the same time, cash-strapped companies struggling during the pandemic could use SPACs for quick cash infusions. Other

Market conditions and regulatory issues could influence whether a SPAC deal is the right decision.

Even celebrities were getting into SPACs, with Shaquille O’Neal, Alex Rodriguez, Martha Stewart, and Serena Williams signing on to SPACs as sponsors or in leadership roles focused on promoting a SPAC to potential investors. The list of celebrity endorsements grew to the point that the SEC issued an investor alert in March 2021 that included the warning, “It is never a good idea to invest in a SPAC just because someone famous sponsors or invests in it or says it is a good investment.” (See “Shaq’s SPAC” on p. 38 for more on O’Neal’s SPAC investment.)

Yet the hype wouldn’t last. By the summer of 2022, investor appetite had disappeared. On July 26, 2022, Ackman announced his decision to redeem all outstanding shares of his SPAC, saying he couldn’t find a suitable or executable transaction. Evidence mounted that SPAC performance had been poor for investors and that any significant returns were earned by the sponsors (see Table 1). Increased regulatory scrutiny and declining valuations also combined to further reduce SPAC attractiveness. As of mid-September 2022, SPAC Analytics cited 547 SPACs with $145 billion in proceeds seeking acquisition, with little time left in the 24-month merger window to complete deals.

What Does the Future Hold?

companies became concerned that market volatility would derail their IPO plans if valuations fell, so the speed of the SPAC process was an attractive feature. Debt markets also played a role, making additional back-up financing cheaper and more readily available.

Hedge funds have been huge players in the SPAC market, viewing the investments as having little downside while providing equity upside. A hedge fund could put cash in a SPAC and accrue interest until the deal was announced. At that point, the hedge fund could opt to stay in if optimistic about the new company’s prospects or redeem its shares— with interest—if it wasn’t interested in staying on after the merger.

Even if the shares were redeemed, the warrants issued with the SPAC units could be held or sold because they trade separately. Once a SPAC merges with its target, the warrants convert to relatively inexpensive stakes in the new company, which provides warrant holders the ability to profit from the merger even if the original shares had been redeemed.

By July 2020, SPACs seemed to have gone mainstream.

Pershing Square Capital Management, led by billionaire investor Bill Ackman, was working with Citigroup to create a SPAC, while Jefferies Financial Group and UBS raised $4 billion in the largest-ever SPAC IPO.

Will the recent poor performance and additional regulation put an end to SPACs? While some believe SPACS have flamed out due to poor performance and increased regulation, SPACs do provide potential advantages to companies and investors. The emergence of well-known private equity firms becoming SPAC sponsors will likely continue as these firms expand access to equity capital beyond traditional sources.

Even now, SPAC activity continues in the U.S. and globally. In September 2022, U.S.-based Intuitive Machines announced a SPAC with a valuation of near $1 billion. SPACs have also become popular in Europe recently, with global law firm White & Case reporting that European Union SPACs raised $1.78 billion in the first half of 2022. SPACs have also recently spread to Israel, Latin America, Hong Kong, and Singapore with a handful of deals completed in 2022.

We anticipate SPACs will continue at lower volumes and may eventually regain popularity when favorable market conditions return. The structures will adjust as needed to the competitive landscape and new financial regulations. Though it’s likely that celebrity SPACs won’t become a trend again: Future investors and target firms will pay greater attention to the experience and track records of sponsors. SF

Bridget Lyons, DPS, is a professor of finance at Sacred Heart University and a member of IMA’s Coastal Fairfield County Chapter.

You can reach her at lyonsb@sacredheart.edu.

Barbara Tarasovich, DPS, CPA, CGMA, is a consultant and professor of accounting. She’s also a member of IMA. November 2022 / STRATEGIC FINANCE / 41

This article is based on a study funded by the IMA® Research Foundation.

BUILDING BETTER REVENUE MANAGEMENT, PART 2 Here are five more ways that SMEs can improve their revenue management strategies to better optimize profits in difficult times.

BY JODIE MOLL, PH.D., AND OGAN YIGITBASIOGLU, PH.D.

November 2022 / STRATEGIC FINANCE / 43

R

evenue management involves using various tools and techniques, including strategic pricing, trend analysis, distribution channel analysis, and costing.

Advances in business intelligence technology have changed the availability of data to support revenue management decisions. Today, revenue managers increasingly use analytics to predict customer demand. They integrate that information with other data sources to make fact-based or scientific pricing decisions.

Small and medium-sized enterprises (SME), however, tend to lag behind in the use of revenue management practices, with managers often relying on instinct or basic one-size-fits-all strategies. But there are steps they can take to expand their revenue management capabilities and implementation. In the October 2022 issue of Strategic Finance, we discussed five of the 10 ways to build better revenue management (see Table 1) derived from our research on SMEs in the hotel industry in Queensland, Australia, during the COVID-19 pandemic (see “How We Conducted Our Study”). This month, we look at the remaining five.

As noted in Part 1, these lessons might not apply to every industry, but they should be helpful for companies that operate with a fixed capacity of a perishable product.

6. Avoid lowering prices and deep discounting.

Many businesses consider lowering prices or deep discounting when faced with uncertainty. Improvements in volume may follow when businesses use deep discounting, but it also affects how the customer perceives value.

Deep discounting without clear data on the customer’s willingness to pay may affect the organization’s financial performance.

Our research indicates that hotel customers changed during COVID-19 due to border closures and other measures.

Hotels had little understanding or data on customers’ willingness to pay. Many smaller hotels held onto pre-pandemic assumptions—for example, that customers still preferred overseas travel—and felt that they would need a price incentive to get customers to book a room.

Other hotels held fast to their pricing policy. They kept the same or similar prices, knowing that many customers had been isolated from their community or practicing social distancing. They knew that staycations might produce psychological benefits that increase their customers’ willingness to stay and pay at a specific time.

Hotels that took the latter approach also explained that no one in the industry wins when deep discounting tactics are used. Returning to normal prices can take years when this tactic is used. In an interview, a hotel manager said: In this sort of [pandemic] time, people just panic and go, “Oh, discount. Discount’s the way. Cheaper, cheaper, cheaper, cheaper.” The golden yield rule is: Why would you discount on a low-demand period and give the small number of people that want it here a cheaper price? It makes no sense. In a low-demand period, where everybody is discounting, don’t discount. Keep your price strong, and if they want to come to you, they’ll come.

44 / STRATEGIC FINANCE / November 2022

HOW WE CONDUCTED OUR STUDY For our research, we interviewed revenue managers of hotels and consultants in the hotel industry in Queensland, Australia. The tourism industry is a significant contributor to the economy of Queensland— indirectly, it employs 1 in every 11 people in the state according to the Queensland Government tourism market profile (bit.ly/3QZZtfW).

The sample included 14 hotels that were considered small, employing fewer than 20 employees. There were seven interviews with medium-sized hotels and three with consultants from the industry, totalling 24 interviews. Two participants were part of a revenue management team that managed a small chain of medium-sized hotels, and the remaining hotels were independent. In terms of locations, there were 14 hotels from coastal southeast Queensland, three from coastal north Queensland, and the remainder were not on the coast.

We also found that many SMEs now focus on getting repeat business. They keep databases of customer email addresses to send them the latest promotions and offers.

Small hotels often prefer to send customers a reminder about the hotel’s discount if the customers book directly.

SMEs tend to provide the same price to all customers and don’t seek to differentiate value among different customer groups. Because many small hotel managers remain unaware of the cost of serving customers, they’re reluctant to set prices differently for different segments of customers.

In the end, they remain unaware of unprofitable customers who may still pay more if they value specific attributes of the provided service.

7. Forecast your revenue.

We found that SMEs prefer simple forecasting methods that permit rapid updates to help them respond to unexpected external events. In particular, we discovered that those working in small hotels were more likely to base their forecasts on intuition and not historical data.

Effective revenue management depends on forecasting demand, price sensitivity, and cancellation probabilities.

Shifts in customer segmentation combined with uncertainty surrounding government measures and increases

TABLE 1: 10 WAYS TO BUILD BETTER REVENUE MANAGEMENT

PART 2

PART 1

KEY QUESTIONS TO ASK 1. Develop your revenue management knowledge and capabilities.

■ Do you know how to compute the break-even point or conduct a cost-volume-profit analysis?

■ Do you know how to use calculations to determine your most profitable customers?

■ If you provide information for others to make decisions, do you know how to choose/create an effective visual?

2. Review your revenue strategy.

■ Does your revenue strategy change in response to the changing market conditions, like those that have occurred since the onset of COVID-19?

3. Focus on value instead of price.

■ Value, not price, is the lifeblood of your business. What are the most valued aspects of the guest experience?

4. Develop clear price fences.

■ Do you charge guests for services that aren’t part of a package?

5. Consider which businesses are in your competitive set.

■ How frequently do you consider which businesses should be part of your competitive set?

6. Avoid lowering prices and deep discounting.

■ Lowering prices and discounting may affect your profitability in ways you might not expect. Do you have a clear pricing strategy that doesn’t compromise long-term profits for short-term gains?

7. Forecast your revenue.

■ What data sources, including historical and external (e.g., COVID-19 numbers, air travel schedules), do you use to forecast revenue?

8. Reconsider your performance metrics.

■ Do you use performance metrics such as Total RevPAR and conversion rates to support your revenue goals?

9. Develop a communication strategy.

■ Do you believe that all customers are equally profitable? Do you lead with price in your communications, or do you focus on the unique experience being offered?

10. Integrate accounting and nonaccounting data.

■ Do you have well-defined processes to collect and assemble internal and external data sources for decision making?

in COVID-19 cases made forecasting challenging. Hotels told us they revised their forecasts more frequently at the onset of COVID-19 as well as when lockdowns and border restrictions were established.

To improve the accuracy of their forecasts, they needed to understand how long it took customers to regain confidence and rebook once lockdowns ended and if they had confidence in the government to lift the lockdown in the announced time frame. Hotels with dedicated revenue

management staff collected data on booking rates each time the government introduced measures to help identify patterns in how customers react under current circumstances.

When revenue managers use historical data today, they’re using data from 2019 when there were fewer external events likely to have affected booking patterns, length of stay, and particular customer segments’ willingness to pay. Historical data forecasting is relatively easy because many hotels have reservation systems that record November 2022 / STRATEGIC FINANCE / 45

TABLE 2: METRICS FOR HOTEL REVENUE MANAGEMENT Measure

Advantage of Measure and Extent of Use

Total RevPAR (total revenue per available room) Revenue from all the hotel’s amenities, such as the restaurant and spa, will show how well the hotel promotes its services and can further support customer segmentation. The extent of use was minor by the companies that participated in our study.

Booking pace

The rate and lead time for bookings for a period will support pricing, forecasting, resource allocation for staff, food, etc.

There was moderate use of booking pace by the hotels that participated in our study.

Conversion rate (number of booking/visits)

This measure tracks the ratio of bookings to website visits and can reveal issues with the website’s effectiveness, pricing, and promotions, and the overall customer experience of browsing.

Similar measures can be used for social media to understand the return on investment from these distribution channels. Few hotels used conversion rate.

Direct booking/indirect booking rate

Tracking this ratio over time can show whether the hotel successfully generates more direct bookings and reduces commissions paid to OTAs. There was extensive use by hotels involved in our study.

Businesses need internal historical data and data about the external environment.

customer transactions. Depending on the system, the data collected can be detailed and include price promotions, price fences applied, etc. Still, that data doesn’t capture outside events that may have occurred. It will show an increase or a decline in bookings, but it doesn’t provide clues as to why the change might have happened.

To improve the accuracy of forecasts, businesses need internal historical data, and they also need data about the external environment. A hotel manager commented: I think for us being so small, we really need to constantly be looking at what’s going on around us on the Gold Coast. ... Trying to monitor our surroundings constantly. And even taking things into account on more of a countrywide basis.

Luckily, we haven’t had bushfires this year, but things like that will potentially impact as well. I think for us, especially, it’s changed so much.

Forecasting based on historical performance won’t account for new competitors that enter the market or new product offerings offered by competitors. For example, in Queensland’s capital city, Brisbane, several new hotels were opened in late 2019 and 2020.

8. Reconsider performance metrics.

Many hotels we studied have additional income streams and new offerings beyond rooms. Yet when we talk with managers about performance measures, metrics such as average daily rate (ADR), revenue per available

46 / STRATEGIC FINANCE / November 2022

room (RevPAR), and occupancy continue to dominate the discussions. These measures provide little insight into profitability or whether customer value has been provided.

There are more suitable measures available, such as Total RevPAR, which includes all revenue streams—but this isn’t a measure of profitability. For example, a hotel can show an increase in Total RevPAR but have a worse bottom line if costs aren’t managed.

Other indicators are available that can help build better revenue management. Booking pace, for example, shows how far in advance customers book rooms. Understanding customer booking preferences in different distribution channels is important to set booking controls that limit an offering made available to a customer segment at a particular time.

For instance, demand for room bookings in cities is higher on weekends. Consequently, revenue managers don’t release all their rooms to customers for early bookings.

They expect to sell a small number during the week before arrival—often on the same day as arrival. To be able to optimize their profits, these hotels collect data on booking pace and deliberately price several rooms with a significantly higher rate on weekends.

Some managers continue to experiment with pricing these rooms, suggesting they have yet to grasp the customer’s willingness to pay, particularly given the psychological benefits that the customers who booked these rooms seek. For example, these stays are often linked to attending a concert, festival, or athletic event, something people may not have been able to do since the onset of COVID-19. Although this pricing approach may seem risky, revenue managers explained that data showed these rooms are in high demand.

Table 2 outlines some of the more recent measures that have been developed to help those tasked with pricing and shows the extent to which the measures were used by the SMEs that participated in our study.

Our research on the hotel industry also shows that SMEs are trying to get customers to book with them directly because the commission they pay to online travel agencies (OTAs) can be as much as 25%. Many hotels that took part in our study had made significant investments in their websites at the onset of COVID-19. Yet few hotels in our research calculate or monitor an online channel’s effectiveness using measures such as conversion rates (number of bookings/number of visits), and many don’t use metrics such as click-through rate and costs per click to understand the return on investment of social media distribution channels.

It was apparent, however, that hotels closely followed customer booking preferences according to the different booking channels, particularly direct bookings as opposed to bookings via OTAs and other travel agencies. Revenue managers frequently commented on the percentage change in customer preferences for direct bookings vs. OTAs. They considered this a good sign of whether the investment to redesign their website effectively improved the organization’s financial performance (see “Tips for Improving Your Website”).

TIPS FOR IMPROVING YOUR WEBSITE ■ Design the website with the targeted customer segment in mind: Highlight features of the products and services your company offers that appeal to the target customer segment(s) (e.g., nearby venues, attractions, and hotel amenities). Use focus groups to understand customer experience and requirements when designing web pages.

■ Use content and images that complement each other: Find a balance of imagery and text. Don’t sacrifice clear and concise descriptions for the sake of having large, showy images.

■ Ensure compatibility with a wide range of devices and browsers: Make sure the website works with different types of devices (smartphones, tablets, desktop PCs, etc.) and browsers to improve user experience.

■ Alleviate concerns around health and safety and relevant policies: For hotels, customers should be assured that sound health and safety measures are in place and that cancellation policies are appropriate and current (e.g., flexible cancellation policies if lockdowns due to COVID-19 or other major events are imminent).

■ Use appropriate terms to market the business to the intended customer segment: Attract the right customer segment using appropriate terms to describe business and signal pricing range. Hotels, for example, would want to distinguish between a luxury stay vs. an affordable stay.

■ Secure customer data: Because of the increase in online fraud, including credit card fraud, customers need to be assured that measures have been taken to protect them. Provide digital certificates.

■ Establish metrics to evaluate website effectiveness: Monitor website traffic, including session lengths, visits by browser, website conversion rates etc., to flag issues concerning user experience and channel effectiveness.

November 2022 / STRATEGIC FINANCE / 47

ENHANCE HOTEL COMMUNICATIONS WITH CUSTOMERS ■ Don’t lead with promotions in your communications. Understand what customers value from their hotel experience and focus communications on those points. Note that different customer segments will value different experiences.

■ Send personalized emails about upcoming events and activities that interest particular customer segments.

■ Engage your existing and potential customers using social media channels during times of uncertainty (such as travel restrictions) to maintain and build customer loyalty.

■ Use conventional marketing channels such as radio and local press advertising when relying on local markets while travel restrictions are in place.

9. Develop a communication strategy.

Does the business communicate with all customers the same way, and do those communications lead with price?

Customers don’t buy based on price alone.

Our research on SMEs discovered that small hotels keep a database of guest email addresses. To help recovery efforts after a lockdown or new border closure, revenue managers had emails ready to send to guests listed in those databases.

The customer databases were segmented by state or regions within the state. This segmentation was done because some customers couldn’t travel to the state because of border closures. Revenue managers didn’t try to understand the profitability of specific customer segments within the state.

Most hotels also lead with discounting in their messaging. This approach isn’t surprising if the business hasn’t sought to build its revenue management capabilities and the practices that support pricing decisions. Still, it’s problematic because it means that these businesses may provide excessive discounts to customers who will pay a higher rate.

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Once a business has a clear revenue strategy that indicates its target markets, this information should drive its actions. For example, revenue management can help a business identify its most profitable customers in periods of uncertainty. Managers can then develop different pricing offerings for their most valuable customers, depending on the package they offer. Managers can also adjust their messaging for different customer segments and focus on explaining how their products and services help to address their unmet needs. A hotel manager said: So how do we make sure that once the border opens up and [customers] can still travel overseas, they come back to us when they want a short break? I feel like we are not doing that very well at the moment. We just go, “Great, they’re staying, let’s just bombard them with 20 more emails about our deals or what we are doing.”

And that’s the reason why we want to bring in a new system and go, “How do we market segment this? What is it that they really want?”

Since the onset of COVID-19, managers have noticed a marked increase in the number of guests’ phone calls

Even small improvements in revenue management can help managers understand how products and services are perceived to add value.

prior to arrival. Many suggest that staff spend a considerable amount of time learning about the purpose of guests’ visits to understand guests’ expectations. That data may be recorded to help identify what needs to be emphasized in guest communications and messaging (see “Enhance Hotel Communications with Customers”).

10. Integrate accounting and nonaccounting data.

Those tasked with revenue management should consider the information they use and need to support decision making. To understand what’s happening in the business, the revenue manager will need to source financial and nonfinancial data. External data such as customer perception of quality can be sourced from reviews left on Tripadvisor or OTA websites.

Businesses should also use data generated internally such as total number of customer complaints and nature of complaints, customer booking conversion rates on their website, customer profitability analysis, customer lifetime value, and data on customer willingness to pay. These will help provide a comprehensive understanding of how the business is positioned as well as the actions that may be required to improve performance.

All that data needs to be integrated with information about the pandemic, such as increases in the number

of cases. Knowing the context of the data with external events is important for understanding changes in customer demand and staff availability.

This may seem a mammoth exercise, but having well-defined processes to collect and integrate this data is critical for making sound pricing decisions. Only by integrating data from different sources can you understand trade-offs that will be made in choosing a particular pricing action. A hotel manager commented: I would say the revenue managers now need to attend more to the industry discussions, the online discussion. It can come from government, it can come from the OTA; they have a lot [of discussions], especially for the ones that provide for corporate guests, to keep themselves up to date with the government policy.

A More Structured Approach

Our research revealed that the dominant strategy of hotels to increase profitability during the COVID-19 pandemic, particularly small hotels, was to use “quiet times” (i.e., lockdowns) to upgrade their website to increase direct bookings. Although many managers suggest this tactic has resulted in significant improvements in profitability because it reduced the commissions paid to OTAs, it was widespread (i.e., more than 50% of the hotels in the study) and therefore doesn’t provide a sustainable competitive advantage.

Basing revenue management decisions on a combination of market rate and intuition has the obvious benefit that it allows for rapid decision making. Without investing in a more structured approach to revenue management, these hotels risk margin leakage and leave themselves vulnerable to cash flow issues. This was the case with many of the hotels we interviewed that failed to update their revenue management strategy in response to COVID-19.

We aren’t suggesting that businesses incorporate all the improvements we present here, but SMEs, which are small and more agile than their larger counterparts, can incorporate some of these with little effort to help make databacked decisions. Even small improvements in revenue management, like developing a survey to understand the customer experience, can help managers understand how products and services are perceived to add value. Managers may be surprised how minor or inexpensive changes in a product offering and how that offering is communicated to customers can affect their willingness to pay and increase business profitability. SF

Jodie Moll, Ph.D., is an associate professor at Queensland University of Technology and a member of IMA. Jodie can be reached at j2.moll @qut.edu.au.

Ogan Yigitbasioglu, Ph.D., is a senior lecturer at Queensland University of Technology. He can be reached at ogan.yigitbasioglu@qut.edu.au.

November 2022 / STRATEGIC FINANCE / 49

BECOMING A BUSINESS

As you build your management accounting career, developing your self-awareness and harnessing your social skills may be more valuable than you realize.

BY NORMA R. MONTAGUE, PH.D.; REBECCA G. FAY, PH.D.; JOSH LOBS; AND KENNETH HERBST, PH.D.

A TRUSTED PARTNER

November 2022 / STRATEGIC FINANCE / 51

H

ave you ever considered management accounting as a sales profession and yourself as a salesperson? There’s a constant need in our profession to communicate effectively, to be able to engender buy-in for our ideas, and to build our colleagues’ confidence and trust in our leadership—all key skills of a successful salesperson.

Possessing the skills of a salesperson is even more important in today’s virtual workplace, in which much is being accomplished and communicated remotely. By becoming more aware of how you influence others and by harnessing communication skills often attributed to a salesperson, you can have a positive impact on your business relationships and your organization as an accounting professional and enhance your career advancement and earnings potential.

The skill set of a salesperson is critical for success in management accounting. The IMA® (Institute of Management Accountants) Management Accounting Competency Framework identifies communication skills, motivating and inspiring others, relationship management, and negotiation among key leadership competencies that are needed to collaborate with and inspire others to achieve organizational goals (bit.ly/2S1bFO8). Further, the International Federation of Accountants notes that a CFO must “be an effective and influential communicator and negotiator” as he or she builds relationships with both internal and external stakeholders (The Role and Expectations of a CFO: A Global Debate on Preparing Accountants for Finance Leadership, October 2013, bit.ly/3RbFaey). The American Institute of Certified Public Accountants (AICPA) also emphasizes the significance of these communication skills in its list of core personal competencies (The AICPA Pre-certification Core Competency Framework, 2018).

As a management accountant and business partner, you have the opportunity and responsibility to influence and persuade external stakeholders in a variety of different situations. For instance, you may have the decision-making responsibility for procuring goods and services from external suppliers and may need to negotiate the best price for your organization. As a management accountant, you may also have to work with your organization’s external auditors to justify your organization’s financial reporting choices and practices. As the person representing your company in an audit, you must effectively communicate your point of view and the rationale behind it.

There are also many situations in which you’ll have to negotiate with internal stakeholders. For instance, you may have to work with other managers to agree upon budgets or encourage them to take greater responsibility for the financial performance of their areas. As a management accountant and a business partner, you may also find yourself needing to persuade a member of your team to modify behaviors that may be hurting your organization’s performance or motivate upper management and board members to invest in new resources (e.g., a new accounting system or updated equipment) that will enhance productivity.

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The very best accountants use well-honed selling and influencing skills.

The very best accountants use well-honed selling and influencing skills that encompass a broad range of components, such as planning, asking insightful questions, handling concerns, presenting value propositions, gaining commitments, and listening. Whether by assisting senior management in its operational decision making or by supervising others who handle the company’s basic accounting tasks, management accountants commonly “sell” aspirational visions, strategies and tactics, innovative ideas, and products for the shared purpose of improving personal and organizational performance. Increasingly, management and finance leaders are the faces of the organization; therefore, influencing, persuading, and negotiating are essential skills for relationship building with internal or external parties (e.g., regulators, banks, auditors, suppliers, and customers).

Interpersonal Skills

One of the primary components of effective selling is developing and refining social skills. Over the course of their careers, accountants participate in numerous meetings, seminars, and continuing professional education (CPE) courses that focus on acquiring and refining technical accounting knowledge. Though often overlooked by accountants when selecting their CPE courses, classes focusing on effective and efficient communication may positively impact your success as a business professional.

According to Raffaella Sadun, Joseph Fuller, Stephen Hansen, and PJ Neal, when companies search for incoming C-suite leadership, they prioritize one qualification above all others—strong social/interpersonal skills (“The

C-Suite Skills That Matter Most,” Harvard Business Review, July-August 2022, bit.ly/3dGMuBq). These skills include “a high level of self-awareness, the ability to listen and communicate well, a facility for working with different types of people and groups, and what psychologists call ‘theory of mind’—the capacity to infer how others are thinking and feeling.” These are skills also required of salespersons.

For instance, according to Kelley Higney, founder and CEO of the Bug Bite Thing, “A successful salesperson will have excellent interpersonal skills and focus on building authentic connections with their customers” (“14 Essential Qualities of a Good Salesperson,” Forbes, October 5, 2021, bit.ly/3SsyY2Z).

As workforces become more diverse, it becomes even more critical to evaluate and assess one’s social skills to better facilitate the exchange of ideas and engender effective problem solving. Furthermore, as highlighted by Sadun, et al., jobs requiring highly developed social skills “have grown at a faster rate than the labor market as a whole— and…compensation for them is growing faster than average.”

If we acknowledge that social skills are critical to success in accounting, then how can we best tailor them to our specific professional needs? Companies certainly expect accounting professionals’ technical knowledge to be sharp as a precursor to hiring them to perform services. So how can accounting professionals build on their existing foundation of strong technical expertise so that they’re viewed not only as technically proficient professionals but also, more broadly, as credible, competent, and trusted business partners? A keen awareness of one’s business relationships is an essential first step in improving one’s ability to influence and persuade—in other words, improving one’s ability to “sell.”

FIGURE 1: RELATIONSHIP DESIGNATION MATRIX

Trusted business partner

Dispensable business partner

Technical professional

Social skills

Business friend

Technical knowledge

Business Partners’ Perceptions

As accountants, we’re constantly being evaluated by our business partners. They’re almost certainly considering how well we’re performing our professional duties, but they’re also, for better or worse, gauging our likability and credibility. Accounting professionals would be well-served by asking themselves, “How am I perceived by my business partners?” and, just as importantly, “How do I want to be perceived by my business partners?”

To assist in answering these questions, consider four types of relationships that commonly exist in business partnerships: technical professional, business friend, dispensable business partner, and trusted business partner.

Figure 1 illustrates how these relationships come from the interaction of two dimensions of business success; namely, technical knowledge (on the horizontal axis) and social skills (on the vertical axis). Reflecting on the details of each designation and answering some related questions can help you understand which designation you identify with the most.

Technical professional. Morgan knows accounting intimately and has an uncanny ability to cite relevant guidance.

Yet Morgan places little value upon—and has little aptitude for—making strong personal connections with his business partners. Morgan often spends his meetings with executives eagerly anticipating their needs, which often precludes him from actively listening to what top management is saying.

As a result, the executives with whom Morgan interacts have tremendous regard for his encyclopedic knowledge but perceive him as somewhat unapproachable or aloof, resulting in interactions that are often limited to the “business at hand” rather than to an expansion of business opportunities for Morgan.

■ Like Morgan, do you tend to avoid engaging in personal interactions with your business partners?

■ Do you place more importance on providing technical expertise to executives than on investing in individual relationships that may enhance your ability to influence?

Business friend. Kendall, who is on the opposite side of the spectrum from Morgan, is heavily invested in the “people side” of the equation. Kendall has put significant effort—with great success—into being liked by his business partners. He always has a funny story and can be reliably counted on to fill out a colleague’s golf foursome. The personal connections Kendall has so carefully cultivated over the years have value, though occasionally at the expense of the technical or managerial side of his business relationships. Kendall has developed a tendency to avoid difficult business conversations in deference to his personal relationships and therefore has lost several opportunities to provide unbiased counsel that could have impacted his company.

■ Like Kendall, do you forgo “courageous conversations” to avoid offending those with whom you interact?

■ Do you avoid having challenging discussions or sharing difficult news with top executives, colleagues, suppliers, etc.?

November 2022 / STRATEGIC FINANCE / 53

Dispensable business partner. Peyton is somewhere in the middle of Morgan and Kendall. She has consistently provided a competent level of service to the task at hand but has never truly excelled either professionally or personally with business partners. Peyton, justifiably or not, isn’t confident in her ability and senses that business partners lack any real personal investment in her. She’s widely viewed by colleagues as providing little long-term relational value, and thus key decisions are often made without her input.

■ Like Peyton, would your business partners find that something valuable was missing personally and professionally in your absence?

■ Would corporate executives have difficulty replacing you?

■ Do you think that your conversations tend to remain at

a surface level with your business partners, and is your expertise seldom solicited?

Trusted business partner. Lakshmi consistently rates highly on both technical knowledge and social skills. She employs an ability to communicate relevant information in a clear, honest, and meaningful way, due primarily to the strong technical skills and consistent professionalism that she’s practiced throughout her career. Trusted business partners like Lakshmi recognize and seek a balance between technical competency, credibility, and objectivity.

■ Like Lakshmi, are you viewed as a business partner who goes above and beyond in both your personal and professional dealings?

TABLE 1: SOCIAL SKILLS TO IMPROVE YOUR IMPACT AND INFLUENCE Effective communication: Effective communication begins with placing an emphasis on actively listening in your business relationships. When you listen, you’re able to provide more incisive questioning, which ultimately benefits you and your business partner. No reputable company will ever recoil at one of its accounting employees seeking a fuller understanding of the company’s business. It goes without saying that accountants should also demonstrate an effective use of the written and spoken word—via reports and other formal correspondences, email, text, social media, or day-to-day conversations. An effective communicator needs to deliver and accept feedback that aims to improve efficiencies.

Inspirational confidence: Regardless of your tenure as an accounting professional, you’ll be put in a position to promote accountability and abide by and follow industry regulatory and compliance guidelines. These conversations must be planned for and conducted with confidence, which engenders an even greater sense of trust.

Managerial courage: Do what you say you’re going to do. Be willing to have the difficult conversations with colleagues and top management when needed. Often, a willingness to speak necessary truths is the first step in establishing the lasting trust of C-suite executives.

Negotiation skills: Never negotiate values, but understand the value that negotiation skills can have in the day-to-day dealings with colleagues and top management. Flexibility can lead to stability in relationships.

Passion: The way you do your job and the attitude with which you do it help determine the impact you have. Let your passion for your work guide you in your execution.

Connections: Developing a personal connection is important in today’s business environment. As a professional, you must be able to speak your colleagues’ language and demonstrate that you understand the business problems they face.

Further, when executed properly, you not only develop a connection with your colleagues, but you also position yourself as a valued business partner.

Focus: Professional success requires focus on the overall vision and goal of the relationship and on the details required to achieve the desired outcome. Planning and organization will pay dividends in your corporate interactions and time management.

Virtual communication skills: Take full advantage of the primary benefit of virtual business—the intimacy of face-to-face with a near-global reach. All of the skills mentioned in this list translate seamlessly to the online domain, from the transparency of actively listening with one’s eyes as well as ears to the intangible connections we make when we interact face-to-face. Building personal bridges with customers and clients remains essential but, in our widely interconnected world, often necessitates adopting less-than-traditional means. So, whether your meeting is across the office or across the world, embrace the virtual.

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TABLE 2: COMMUNICATION TIPS AND STRATEGIES Assess your audience: Gauge the audience’s expertise, experience, generations, and/or backgrounds, and find common ground with them. If feasible, craft examples that are relevant to that audience. For a mixed audience, include a variety of examples. At a minimum, make sure that your message is compatible with your audience’s needs, backgrounds, and expertise.

Craft your core message: Your core (one) message needs to be succinct and clear. If you can’t state it in 15 seconds or fewer, then you don’t know it well enough. All your points and subpoints should support your core message.

Highlight why your audience should care: Make sure that your core message highlights why the audience should care. Why should your audience listen to your presentation or read your document? Don’t assume that the members of your audience know how they can benefit from your communication. State the benefit to them more than once.

Provide a call to action: Provide audience members with a call to action. Be clear with the parameters and what you want them to do. It can be as simple as “Please send your documentation by Thursday” or “Please let me know if you have any questions.”

Less is more: Be succinct and clear.

Always be professional: Display the correct written format or speaking format. Don’t slip into casual mode. It’s easier to transfer from formal to informal rather than from informal to formal. Check your tone, body language, and dress. Don’t lose the opportunity to make a credible first impression.

Don’t data dump: Tell a story to illustrate your points. Use a story arc, such as problem-solution-benefit.

■ Do your colleagues and corporate executives routinely seek your counsel on technical, ambiguous, or sensitive issues?

Each of these individuals has qualities that could contribute to their professional effectiveness. Which of these professionals can you relate to? Consider a business relationship in which you’re currently a partner. How do your business partners in that relationship perceive you? Corporate executives may perceive you to be a trusted business partner, while other colleagues (e.g., those whom you supervise) may perceive you to be a technical professional.

Are you surprised to see an imbalance in your business relationships? Do any patterns emerge from which you can make assumptions about how others may view you?

Business Relationships

Most of us have room to refine our social skills and business relationships for the better. There are some relatively simple ways to create, improve, or preserve the value that accountants bring to their business relationships. Table 1 contains several important social skills that can improve your impact and influence.

Business relationships have been historically established and cultivated either face-to-face or via phone. The COVID-19 pandemic has dramatically changed the world in which we live and the relationships with those with whom we conduct business. More business is now being transacted via online modes than at any other time in history.

Virtual communications have transformed the business

landscape, combining the “personal touch” of face-to-face interaction with the global connectivity previously only attainable by a phone call.

Barbara Larson and Erin Makarius discussed the concept of successful executives having the interpersonal skill of “virtual intelligence” (“The Virtual Work Skills You Need—Even If You Never Work Remotely,” Harvard Business Review, October 5, 2018, bit.ly/3DU20Vj). They found that the ability to set norms for acceptable virtual engagement (e.g., sensitivity regarding optimal times to communicate or discussing how best to share information) is key in virtual business partnerships. In addition, they added that building relational trust (e.g., checking in on clients’ well-being) as well as competence-based trust (making clear how your business acumen will solve the other’s problems) remains important to develop and build enduring business relationships, particularly in virtual contexts.

Thus, in addition to the traditional social skills needed to excel as an accounting professional, virtual intelligence is now also essential to an accountant’s success, given first the necessity and now the tremendous convenience afforded by virtual communication.

The speed with which business has been thrust into the virtual realm can seem dizzying. The key thing to remember is that, while the medium may have changed, the skills needed to master it largely have not. In a blog post, Todd Kunsman, marketing team lead at EveryoneSocial, noted that the keys to effective virtual selling are essentially indistinguishable from traditional sales principles. This includes, for example, preparedness, sharing materials prior to the call, November 2022 / STRATEGIC FINANCE / 55

ADDITIONAL RESOURCES FROM IMA Articles and reports ■ David J. Elrod, “Leaders as Communicators,” Strategic Finance, May 2022, bit.ly/3RxNEwI ■ Mitchell Roshong, “Communicating in the Digital Age,” Strategic Finance, October 2019, bit.ly/3RrmszS ■ Lawrence Serven and Kip Krumwiede, “The People Side of FP&A,” Strategic Finance, July 2019, bit.ly/3m1sgBs ■ Patrick E. O’Brien and Douglas M. Boyle, “Do You Have Emotional Intelligence?” Strategic Finance, June 2019, bit.ly/3MUE2eg ■ Jerry Ratigan, “Communicating Like a Leader,” Strategic Finance, December 2015, bit.ly/3M6qPzo ■ Douglas M. Boyle, Brian W. Carpenter, and Daniel P. Mahoney, “Developing the Communication Skills Required for Sustainable Career Success,” Management Accounting Quarterly, Fall 2017, bit.ly/30cmyly ■ Lawrence Serven and Kip Krumwiede, Key Principles of Effective Financial Planning and Analysis, July 2019, bit.ly/2Y7frJP

Count Me In podcasts ■ “The ‘Softer’ Side of Accounting,” episode 128, June 21, 2021, bit.ly/3STW3vy ■ “The Emotionally Intelligent Accountant,” episode 62, April 27, 2020, bit.ly/3lGNHZV CPE courses ■ Storytelling Skills for Management Accountants, bit.ly/3SD2K5q ■ Communicating in the 21st Century, bit.ly/3RvdhOJ ■ From Accountant to Business Partner, bit.ly/3yfh3Fi

being effective at reading nonverbal communication, etc. (“Virtual Selling: Strategy Tips to Help You Sell Remotely,” EveryoneSocial, March 16, 2022, bit.ly/3DQ0bbN).

These same strategies that have long worked so effectively for sales professionals can also be called upon to enhance accountants’ communications with their stakeholders, regardless of the medium (see Table 2 for communication tips and strategies). That said, the accounting professionals who embrace the strategies outlined in this article, as well as harness the intimacy and connectivity provided by virtual communications, will add tremendous overall value and impact to their business relationships.

To answer the question posed at the outset of this piece: Yes, all accountants are in the business of sales—whether they’re marketing their company, product, service, or simply themselves. It’s much easier to sell ideas, feedback, and outcomes when you’re viewed as a trusted business partner.

The best accounting professionals possess the technical knowledge required for the job, but they’re also relationship builders and service providers who understand the need for solid social skills to be exhibited in both traditional and virtual contexts.

We’re all on a journey to be recognized as trusted partners in our business relationships. Enhancing effective communications, connecting with people, and building trust are some of the most valuable ways an accountant can 56 / STRATEGIC FINANCE / November 2022

improve their impact and influence both personally and professionally. When you make a positive impact on people, whether in the same room or virtually, you make a positive impact on business. SF

Norma R. Montague, Ph.D., is an associate professor of accounting and the senior associate dean of academic programs of the Wake Forest University School of Business. She can be reached at montagnr@wfu.edu.

(In Memoriam) Rebecca G. Fay, Ph.D., was an assistant professor at East Carolina University. She was the recipient of the American Accounting Association’s 2016 award for Innovation in Auditing and Assurance Education and the 2015 Scholar-Teacher Award from East Carolina University.

Josh Lobs is the author of the book COMPETE! Increase Sales by Competing with Confidence and has worked in sales, sales leadership, and coaching. He can be reached at jdlobs@yahoo.com.

Kenneth Herbst, Ph.D., is the Board of Visitors Fellow in Marketing, an associate professor of marketing, and the associate dean of the Undergraduate Business Program in the School of Business at Wake Forest University. He can be reached at herbstk@wfu.edu.

TECH FORUM | 57

TOOLS OF THE TRADE | 59

EXCEL | 60

TECH PRACTICES | 62

TECH FORUM

THE BITCOIN MINING CLOUD

BY MICHAEL CASTELLUCCIO

As the number of digital cryptocurrencies grows, the dark side of the algorithms and hardware that support the technology becomes more alarming.

The massive energy consumption plus the global e-waste from both threaten the environment and cryptocurrency sustainability.

B

itcoin, the leading cryptocurrency, depends on a worldwide network of miners who do processing for the blockchain using an algorithm called proof of work. According to the Cambridge Centre for Alternative Finance, bitcoin currently consumes about 110 terawatt hours of electric power per year, which is about the same as the countries of Malaysia or Sweden (see Figure 1).

While conventional banking also consumes electrical power as it processes financial transactions, it’s nowhere near the levels of cryptocurrency. The Digiconomist group (digiconomist.net) in the Netherlands has parsed bitcoin’s power consumption data in a number of interesting ways. Founder Alex de Vries and his group estimate that the footprint from a single bitcoin transaction is “equivalent to the carbon footprint of 1,716,811 VISA transactions or 129,102 hours of watching Youtube.” In terms of raw electrical

energy, that’s “equivalent to the power consumption of an average U.S. household over 47.60 days.” The reason for the difference in energy requirements is that it takes a couple of terminals and a database to manage the VISA transfer, while it takes a community of miners around the world engaged in looking for a solution that will validate the block called the consensus mechanism.

The first to get the solution earns bitcoins. Proof of work is an intense process, and the number of competitors at any given time is unknown.

Digiconomist explains the difficulty of the search: “The process of producing a valid block is largely based on trial and error, where miners are making numerous attempts every second trying to find the right value for a block component....

The number of attempts (hashes) per second is given by your mining equipment’s hashrate. This will typically be expressed in Gigahash per second (1 billion hashes per second).”

November 2022 / STRATEGIC FINANCE / 57

TECH FORUM

Figure 1: Bitcoin Energy Consumption Relative to That of Countries (bitcoinenergyconsumption.com) 150

TWh per Year

125 100 75 50 25 0 35. Kazakhstan

34. Netherlands

33. Pakistan

China had been a center for crypto mining, but once the demands from the mining farms began to encroach on internationally agreed-upon environmental limits it banned crypto mining outright in 2021. Other countries also have bans in place, and New York State passed a moratorium in 2022 on cryptocurrency mining that uses the proof of work algorithm.

Mining farms don’t use conventional computers. Their equipment has an average useful working life of 1.3 years. These small computers are specifically designed for mining and can’t be repurposed when they fail. In 2020, it’s reported that bitcoin generated more than 37.27 kilotons of e-waste. Researchers say that less than 20% of this waste is collected and recycled. The rest is sent to disposal sites to be buried, toxins and heavy metals included.

CHANGING THE ENGINE An alternative method for mining is called proof of stake, and Coinbase explains that it serves a similar function to proof of work’s function but “in general proof of stake blockchains employ a network of ‘validators’ who contribute—or ‘stake’—their own crypto in exchange for a chance of getting to validate new transaction, update the blockchain, and earn a reward.” The process consumes far less 58 / STRATEGIC FINANCE / November 2022

32. Bitcoin

31. United Arab Emirates

30. Norway

29. Argentina

energy and is used currently by Cardano and other cryptocurrencies.

Ethereum, the number two cryptocurrency, began its own transition to proof of stake in December 2020, and it finally completed the transition in mid-September 2022. This wasn’t an easy thing to do, and Investor’s Business Daily invoked an adopted metaphor for the difficulty of the change in its headline on September 15: “Ethereum Changed Engine While Car Was Running.”

The Crypto Carbon Ratings Institute called the switch “one of the largest and most complex upgrades to any cryptocurrency network in history.” Its report The Merge—Implications on the Electricity Consumption and Carbon Footprint of the Ethereum Network (carbon-ratings.com) estimates that the change reduces the electricity consumption and the carbon footprint of the Ethereum network by more than 99.988% and 99.92%, respectively. Prior to the changeover, Ethereum, like bitcoin, was consuming massive electrical power, equivalent to the national annual demand of Bangladesh.

There will no doubt be blowback from the proof of work miners and those who see Ethereum as a competitive threat, but the more important questions now are how well the proof of stake system will work at Ethereum’s scale and who else will follow its example. SF

“Learning how cryptocurrency works is like learning a new language.”

—Olawale Daniel, TechAtLast International founder

SF PICK

TOOLS OF THE TRADE

1

APPLE iPHONE 14 PRO

This year’s fall harvest of new releases from Apple includes a new iPhone 14 Pro with an improved battery, new safety features, camera updates, a larger screen, and a SIM tray replacement called eSIM that lets you activate your new phone or add carriers digitally. All this is available at the same price as the iPhone 13 Pro. The camera notch has been replaced at the top of the screen with a Dynamic Island, which works like a mini dashboard that offers additional information depending on the app you’re in. The always-on function for the display will turn off when you pocket the phone or place it facedown on a surface.

The Pro Max’s Super Retina SDR display is now brighter, with 2,000 nits of brightness for twice the brightness in sunlight.

The new safety features include an emergency SOS function that uses satellite for texting for emergency services when you don’t have Wi-Fi or cell service.

The 14 Pro also can sense a severe car crash and then call 911 and your emergency contacts. The main camera now has 48MP and an advanced quad-pixel sensor. The iPhone 14 Pro is available in deep purple, gold, silver, and space black. www.apple.com

2

APPLE WATCH ULTRA

At the September launch event, Apple also intro-

1

duced the Apple Watch Ultra, which features the best battery life of any Apple Watch. A new Action button is a third control button that can be used as a workout shortcut, a stopwatch, a way to open the Waypoint and Backtrack functions, a shortcut to the Depth function, to light the flashlight, and more. The screen is large and twice as bright as the Apple Watch Series 8. The dual-band GPS is more accurate than earlier models, and there’s an emergency siren. Along with all the workout monitoring, the Ultra is waterresistant up to 100 meters, and the Depth app can be set to open when the watch is submerged at three feet, where it will read your depth, the temperature of the water, and your time spent underwater. www.apple.com

3

KINDLE SCRIBE

The long-awaited largeformat Kindle with full note-taking abilities has finally arrived in the Kindle Scribe. With a 10.2" E Ink

2

screen and new notetaking software, the e-reader is modestly priced at $339.99 and has one other unique feature—a 300 ppi front-lit screen that has adjustable warm light.

The Basic Pen magnetically attaches to the side of the Scribe and needs no batteries, and the Premium Pen has a customizable shortcut button and an eraser sensor on top. While reading, you can tap on the text

3

4

metrics and reports on the quality of your previous night’s sleep. The ECG app has on-demand atrial fibrillation assessment, or you can turn on irregular heart rhythm notifications to check your heart rate. www.fitbit.com SF

and handwrite a note that gets stored in your Kindle collection. PDF markup is possible, and other formats supported include e-books, saved web pages, and others including Word docs.

The Scribe is a mere 0.22" thick and weighs 15.3 oz. www.amazon.com

4

FITBIT SENSE 2

The all-day body-response tracking and smart notifications of the Fitbit Sense include wellness metrics on a dashboard that displays heart rate variability, skin temperature variation, blood oxygen level, and more. The Sense 2 can track 40+ exercise modes and has built-in GPS for real-time pace and distance for running and swimming. Google Maps provides turn-by-turn directions. Sleep monitoring tracks 10 key sleep

Keep up with the ­latest tools and trends in ­technology with SF TECHNOTES, now a semimonthly blog at SFmagazine .com.

November 2022 / STRATEGIC FINANCE / 59

EXCEL

FIND DIFFERENCES WITH GO TO SPECIAL The Go To Special dialog box has been in Excel for decades.

Though the box contains 23 different options, I frequently used only two or three of my favorite choices and overlooked the rest. But in taking a closer look, I’ve realized there are a number of other useful items.

BY BILL JELEN

See more figures in the website version at:

SFmagazine.com

My use of the Go To Special dialog primarily involved the “Visible cells only” or “Blanks” options. Sometimes I might use “Formulas” or “Constants.” But that leaves a host of other options in the dialog that I never thought much about using.

One option that’s worth exploring further is “Row differences.” Consider the data in Figure 1. Cells B4:B17 contain original forecasts from 14 sales reps. Columns C through E contain weekly updates to the forecast. Now suppose you’d like to easily spot the changes from the original forecast. You can use conditional formatting, but it’s one of the trickier conditional formatting formulas to set up. Go To Special’s “Row differences” offers another option.

FINDING GO TO SPECIAL To start, select cells B4:B17. Then open the Go To Special dialog. In the old days, you could only get to the Go To Special dialog by first opening the Go To dialog. There were a few shortcut keys—either Ctrl+G

60 / STRATEGIC FINANCE / November 2022

or F5—to open the Go To dialog, then you’d have to press the Special button in the lower-left corner. Alternately, since the “S” in Special is underlined, you can also press Ctrl+G and then Alt+S to arrive at Go To Special.

Starting with Excel 2007, the Go To Special dialog was promoted to the ribbon in Excel. Near the right side of the Home tab, in the Editing group, open the Find & Select drop-down menu. Go To Special is the fourth item in that menu. Oddly enough, the next six menu items are shortcuts that mostly duplicate choices in the Go To Special dialog: Formulas, Notes, Conditional Formatting, Constants, and Data Validation do exactly what the corresponding choice in Go To Special would do, while Select Objects is similar to, but slightly different than, the Objects option in Go To Special.

USING ROW DIFFERENCES The top choice in the right-hand column of the Go To Special dialog is “Row differences.” If there were more room in the dialog, a better description would be “Find cells where there is a difference within each row.” Select “Row differences,” and then click OK. The original selection (B4:B17), which contained 56 cells, will change to include only eight cells. In Figure 2, I’ve changed the font color to red to help show the cells that were selected. These are the cells that are different from the original forecast.

To know why those cells were the ones selected, it’s worth a bit of study to understand how “Row differences” actually works. In row 4, Andy’s original forecast was 4 units. We can see that his forecast changed to 6 in week 3 because the 6 in D4 is different than the 4 in B4.

Note that Andy’s forecast from week 3 (D4) to week 4 (E4) didn’t change, but E4 is still marked as a change—that’s because week 4 is different from the original forecast in column B. In other words, “Row differences” is only selecting values on that row that differ from the first column. For example, look at row 7. Diane’s forecasts in C7, C8, and C9 are all marked

because they’re different than her original forecast in cell B4.

The most interesting situation happens with Kelly’s forecasts in row 14.

The 3 in C14 is marked as a change because it’s different from the 2 in B14. The next week, the forecast didn’t change from week 2, but the cell is still marked because it’s different from the forecast in week 1. But when the forecast changes from 3 to 2 in week 4, cell E14 isn’t marked. That’s because the forecast changed back to 2, which matches week 1.

Note that Go To Special can also mark changes within a single column.

The “Column differences” option would find all cells where the value is different than the first row in the selection.

USING CONDITIONAL FORMATTING To use conditional formatting to perform the same test, you would start by selecting C4:E17. Select Home, Conditional Formatting, New Rule, Use a formula to determine which cells to format. You would then enter a formula of =C4<>$B4.

This formula is tricky because it needs to be written from the point of view of the first cell in the range, which is C4.

Since you always want to compare to column B, you need a single dollar sign before the B. (If you wanted to mark when each week’s forecast was different than the previous week’s forecast, you would change the formula to =C4<>B4.

By removing the dollar sign, this formula will always look one column to the left of each cell in the range.)

Even Microsoft seems to forget Go To Special is there, because it didn’t update the Notes section to include Comments or Current Array to work with the new Dynamic Arrays. But the options that are there are still useful and worth exploring. SF

Bill Jelen is the host of MrExcel.com and the author of 67 books about Excel. He helped ­create IMA’s Excel courses on data analytics (bit.ly/2Ru2nvY) and the IMA Excel 365: Tips in Ten series of micro­learning courses (bit.ly/2qDKYXV). Send questions for future articles to IMA@MrExcel.com.

Figure 1

Figure 2

The Go To Special dialog box has several useful options that many people forget are available.

November 2022 / STRATEGIC FINANCE / 61

TECH PRACTICES

GETTING DATA LITERACY RIGHT

BY ROSEMARY M. AMATO, CMA, CISA Striking a balance between immediate, inclusive communication and long-term thinking is essential to savvy data management.

C

ompanies that haven’t started a data strategy journey may be struggling to play catch-up on the fundamentals of data literacy. Depending on the industry, company, and approach, the journey to this solution can begin at various points along the spectrum of data management models.

There’s no right or wrong way to start a data strategy project, but every company should have an ultimate goal toward becoming data literate—understanding the data it creates, collects, transforms, and discards.

Data governance becomes a key point in any data strategy.

ASK WHY, NOT HOW Establishing why you need data, not how you’re going to govern your data, should be the basis for your journey. Many senior company leaders are in such a hurry to be compliant that they primarily focus their data governance programs to comply with specific regulations (e.g., the U.K. General Data Protection Regulation, Global Reporting Initiative Standards, Generally Accepted Accounting Principles, or International Financial Reporting Standards).

Leadership also may want the organization to be recognized as being digitally savvy to demonstrate that its data governance program is propelling the company forward into the digital world.

The process of building a data strategy, creating a data governance program, and implementing various data solutions takes time. Achieving data literacy in your organization depends on both the people in your organization and stakeholders outside your organization. Determine how to provide these parties with the basics early

62 / STRATEGIC FINANCE / November 2022

on as you continue to explore a comprehensive solution. Have your employees join you on the journey, training them in the data they use every day as well as the data strategy itself.

QUICK WINS, BUT A LONG LENS For eight years, a Big 4 accounting firm had been using Excel spreadsheets and PDFs to publish more than 3,000 reports monthly to its internal management team around the world, but it still didn’t have 100% participation from its network of member companies to supply the data on a regular daily and monthly basis.

Our team advocating change needed a quick win to show them what was possible. Instead of going through an in-depth review of the user’s requirements, we decided to move forward with the data we already had. We made the decision to get a new solution up and running as quickly as possible and shut down the existing solution as soon as the new solution went live.

When we put the new solution in the hands of the end user, we immediately started getting feedback. Much of the feedback was positive because users were able to drill down and slice the data any way they wanted, but there was also a lot of negative feedback such as: ■ Why is this member company missing?

■ Where did this number come from?

■ Where is this client’s latest billing hours?

■ This number isn’t what we are seeing on other reports.

As we researched the questions every month, we found areas that needed to be fixed—not in the solution, but in the way we captured data and ran our business. We were then able to refine the solution, make

recommendations for improvements in business processes, and, most importantly, get the remaining member firms to participate. By year two, we had a robust solution in place that was able to provide management with the visibility of data worldwide—something the company never had before.

STAY FOCUSED A very different example involves a large bank that started with the strategy. It’s common knowledge that the financial services industry is heavily regulated. So many regulations exist— Basel IV, PCI reporting, MiFID II, and so on. In 2019, McKinsey and Company issued its Global Banking Annual Review, noting that investor confidence in banks was weakening. Banks wanted to show they were in control, and data lineage became their approach to demonstrate this. Data lineage solutions popped up to help banks map each piece of data by showing where it goes, how it’s used, and its journey to the final report that may go to a regulatory agency.

The bank under discussion had established its data strategy, moved into data governance, and created processes not only to address how it governed data, but also to document every definition of data it needed to meet reporting requirements. The amount of work required to create these data definitions and data lineage was tremendous. It took the bank 14 months to develop the first report.

The end users were still requesting additional reports, and our team continued defining what they needed by asking the question “why?” and getting answers. But the work to create data definitions and data lineage documents superseded everything else. The actual collection of data and creation of standard reports took a

back seat to the bank’s focus on internal policies creation and not on getting data into the hands of the end user.

TWO ROUTES, SAME DESTINATION Both companies became data literate, even though they started at different ends of the data model. Both companies were determined to understand their data and make it available to their end users in a digital format. Based on my experiences in both companies, I recommend always opting for a quick win. Don’t get bogged down in the data strategy. Just start working with the data. Develop digital solutions to answer your questions. Once you begin, you will see that the data strategy will naturally flow out of your work, and data governance will be easier to tackle because you’ll understand the data you have and why you need to govern it.

Also remember that in your role as a management accountant, you play an integral role in setting the data strategy and determining how data governance is handled in your company. You’re the person using the data to provide insights to your stakeholders. Get involved early and help determine which data needs to be managed. Become data literate and help your organization develop a data strategy that delivers successful results and insights that benefit your company and your stakeholders. SF

Rosemary M. Amato, CMA, CISA, is the founder of Romarat Consultancy and a member of IMA’s Technology Solutions and Practices Committee, Sustainable Business Management Global Task Force, and London Chapter. You can email her at romaratconsultancy@protonmail .com.

November 2022 / STRATEGIC FINANCE / 63

LIFE

The Best Version of Myself

BY ARRIANE STEFFI BACON

J

UST A FEW MONTHS BEFORE MY GRADUATION from college in 2020, my sister, an accountant who had finished school several years before me, told me about the CMA® (Certified Management Accountant) certification. As I did my research online and discovered more about it, I grew more interested. The CMA seemed like an excellent complement to my academic studies and a great way to increase my knowledge in critical areas of accounting and finance. I quickly resolved to pursue my CMA after graduation and set my sights on preparing for the exam.

Finding the time to prepare wasn’t easy. During the week, I worked a demanding job at EY Philippines (SGV & Co.). I also was very involved as a volunteer leader in the IMA® Philippines Chapter, serving in various roles including vice president for communications. To accommodate my schedule, I spent a few hours every evening after work reviewing and solving problems. I also dedicated my weekends to my review classes. Some days, I also attended IMA webinars on subjects such as strategic analysis, risk management, and financial planning and analysis, which helped me better understand topics covered on the CMA exam.

It was a challenging but fun learning experience. I learned a lot while preparing for the exam, and I’m proud to say that I passed both parts of the exam by August 2022 (and now only need to complete the work experience

requirement to become certified). Being a volunteer leader at our IMA chapter while pursuing my CMA certification also became a great help in opening many opportunities I had never even dreamed of, such as participating in my first-ever chapter board meeting. Our chapter president helped me prepare and made the experience less scary. And now I’m much more comfortable not only attending board meetings but also speaking in front of large crowds.

I’ve continued to be a chapter volunteer leader, currently serving as vice president for student chapter relations, chair of the student chapter committee, and chapter treasurer.

Being involved in my chapter and passing the CMA has given me so much—accounting and finance skills, to be sure, but also leadership skills, networking connections through IMA events, and an understanding of how CMAs can make a difference in the accounting and finance community. Passing the CMA exam was also instrumental in my recent promotion from business consulting associate to senior associate at EY. My family and friends have always inspired me and are very supportive of my goals. During the time I was preparing for the exam, my family gifted me a shoe that has my initials and the CMA letters embedded in it.

This gave me strength whenever things got tough.

Being a CMA is not only for myself but a gift for my family and friends who believed in me and stayed by my side.

Being an IMA member and pursuing the CMA certification are two of the best decisions I’ve made in my life. Not only have I gained skills, but I’ve met and connected with people who inspire me to always be the best version of myself. SF

« Being involved in my chapter and passing the CMA HAS GIVEN ME SO MUCH.»

Arriane Steffi Bacon is a senior associate at EY Philippines (SGV & Co.) and a member of IMA’s Philippines Chapter.

You can reach her at arrianesteffi .bacon@outlook .com.

64 / STRATEGIC FINANCE / November 2022

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