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Business Briefs By Skip Kaltenheuser January 2003 (Financial Executives International) The following business briefs are brought to you by the January/February issue of Financial Executive. Information on how to subscribe to FE is located at the bottom of this page. Business Briefs:
Faster Reporting Could Boost Shareholder Value
Investors tend to like companies that disclose financial information in a timely fashion. Indeed, a study by Parson Consulting, a financial management consultancy, finds companies that release their financial results earlier than their industry peers achieve an average 15.5 percent premium in their price-to-earnings (P/E) ratio.
"The market provides evidence that earlier release times are indicative of well-run financial operations, which is reflected in higher P/Es," said Dan Weinfurter, president and CEO of Parson Consulting.
Still, while they may release their earnings promptly to the public, many large U.S. companies are taking longer to file their complete financial reports - 10-Ks and 10-Qs - than the recently proposed Securities & Exchange Commission-mandated guidelines would permit. The study found that nearly 90 percent of U.S. companies listed in the S&P 500 roster don't meet the shorter 10-Q filing deadline of 35 days scheduled for 2005 -- it's currently 45 days -- as set forth in the Sarbanes-Oxley Act.
The study's findings underscore the need for many U.S. companies to retool their reporting systems significantly to meet more structured reviews of their financial results.
Contract Management Software Brings Savings
Do you know what all your various contracts say, and if you are losing money because you aren't meeting their terms? Many big corporations don't have an adequate handle on those questions, says Mark Friedman, CEO of Accruent, a Santa Monica, Calif.-based software firm doing "enterprise contract management." Companies the firm has worked with, like Morgan Stanley or Viacom Inc., may have 10,000 or even 100,000 contracts in force, filed away in many locations, and may have not be on top of the details, he says.
"Large companies are very good at negotiating contracts. The challenge they face is that they are not good at enforcing conditions and provisions in these contracts," Friedman says. "There is a lot of what we call `leakage,' and they tend to pay amounts that are different than what is stated because of cancellation clauses, thresholds and the like. This is stuff they fought for, but they don't enforce."
"Large companies are very good at negotiating contracts. The challenge they face is that they are not good at enforcing conditions and provisions in these contracts," Friedman says. "There is a lot of what we call 'leakage,' and they tend to pay amounts that are different than what is stated because of cancellation clauses, thresholds and the like. This is stuff they fought for, but they don't enforce."
Friedman says that the biggest issues for companies in this area now are:
Since a software program can't readily extract information on contracts across an enterprise, Accruent has created a data center in the Philippines. Documents are scanned and imaged and sent to that center, where they are input into a comprehensive management system and sent back to the customer in electronic form. That doesn't happen overnight: Friedman says that a current project with Rite-Aid Corp., involving about 5,500 contracts, is expected to take about two to three months. Contract management is a growing area. Research firm Gartner Inc. says that 60 percent of the global 2000 companies will have at least begun to address this issue in the next year, and it foresees a $20 billion market by 2007.
Workers Confused About Pay: Study A recent national study to determine how much employees really know about their compensation shows that most are in the dark about how their base pay and cash bonuses are determined. Most workers think their employers do a good job explaining their performance objectives and how their performance is measured, but are unclear about how performance is related to pay.
In summary findings:
The survey, "Knowledge of Pay - Emails from the Frontline," involved more than 6,000 managers and employees from 26 organizations in North America. It was sponsored by WorldatWork, the not-for-profit benefits and compensation professional association, and conducted by Peter LeBlanc, senior vice president at Sibson Consulting. He believes that employers are not fully leveraging the incentives that come from pay raises and bonuses because they are not communicating effectively with their employees. The survey revealed that pay knowledge was nearly as important as the amount of pay itself in determining workers' overall pay satisfaction. At all income levels, the more knowledge study participants have about their pay system, the more likely they are to be satisfied at work. This was true even at senior management levels.
LeBlanc notes, "Management has tended to say less about how pay decisions are made to protect the amount of discretion and judgment that is involved. However, some employers that are being intelligently open about pay are building a stronger bond with workers and managers alike."
Survey Criticizes Credit Ratings
A recent survey by the Association for Financial Professionals (AFP) finds many financial professionals ready to vote thumbs down on credit ratings, which they view as often inaccurate and slow to reflect changes in company finances. As a result, AFP has urged the Securities and Exchange Commission to refocus its oversight of rating agencies.
According to the survey, 29 percent of practitioners who work for companies with rated debt believe that their company's ratings are inaccurate - and only 40 percent of these managers believe that changes in their company's ratings are timely.
More than one-quarter of respondents whose companies have experienced a downgrade, report that it took more than six months for their rating to be downgraded to reflect an adverse financial change. Ratings upgrades take even longer, with 57 percent of respondents from companies that experienced an upgrade reporting that the change took place more than six months after a positive change in their company's financial position.
In other findings:
Ninety percent believe the SEC should take additional action to improve its oversight of the agencies and foster greater competition. Currently, three rating agencies - Moody's, Standard & Poor's and Fitch - are the only nationally recognized statistical rating organizations. The survey was conducted last fall via email to senior-level AFP practitioner members and prospects, as well as AFP associate members working for banks.
Facts and Figures On Earnings Releases
Average S&P 500 Company:
Source: Parson Consulting 2003 Salary Guide Sees Gains, Losses
While starting salaries in corporate accounting should remain consistent with 2002 levels for most positions, small gains are forecast for certain job titles, including payroll supervisors and managers, assistant controllers and assistant treasurers, controllers and general, audit, tax and cost accounting managers. But some positions can expect to see starting pay decline.
Robert Half Finance & Accounting and Accountemps projects salary declines at the most senior levels. For example, chief financial officers and treasurers at companies with $250 million to $500 million in annual sales could see declines in average starting salaries of up to 3.6 percent. Directors of finance at companies with $500 million or more in annual sales could see declines in base compensation of up to 8.6 percent.
More information, including a regional analysis of hiring trends and compensation variances, is included in the just-published 2003 Salary Guide produced by Robert Half and Accountemps. The guide is based on an analysis of the thousands of job searches, negotiations and placements conducted by the company's U.S. offices. Free copies are available by visiting www.roberthalf.com, or by telephoning 800.474.4253.
Payment Methods for Relocations into U.S. (not returning expatriates)
Related to Home-finding, Temporary Living and Final Move
Source: Runzheimer International
Protection Tips for Executive Travelers
With confidential corporate information more important than ever, security consultants offer travelers some solid advice that applies to both domestic and foreign travel. John Nolan, chairman of Huntsville-based Phoenix Consulting Group and a former president of the Society of Competitive Intelligence Professionals, says, "Don't advertise your importance with a loud cell phone voice in an airplane, or show off your big screen laptop viewing sensitive documents. There are no expectations of privacy with your seatmate, and others around you probably have excellent hearing. No one in the next seat is obligated to say who they are working for as they listen, fascinated, to [you talking about] your job. At the end of the day, it's your job to protect your information, not the other guy's job to warn you about it."
Jim Thomas of J. Thomas Consulting Group in Monument, Colo., and K.J. Kuchta of Phoenix-based Forensics Consulting Solutions, strongly recommend devices that scramble and encrypt data in laptops, as well as provide firewalls against hackers. These devices are plentiful, cheap and effective. Kuchta also cautions not to use encryption that violates U.S. law. But there are quality encryption tools that conform to law and protect emails from monitored phone networks. Digital certificates, which must be exchanged before parties can communicate with each other, also make eavesdropping tougher.
Bill DeGenero, a principal with the competitive intelligence firm The Centre, says travelers need to think through every element of their trips a number of times, to be ready to act rationally and quickly when the unexpected happens. For example, if a man in an airport points out that you have ketchup on the back of your coat, and an attractive person of the opposite sex comes forth with towels to help you as you set down your briefcase or laptop to examine your jacket, think twice. If the person in front of you as you approach the scanner machines is wearing loads of metal, change lines -- you never want to be held up while your belongings move ahead of you.
DeGenero also advises traveling very light. Important documents and one's electronics can often be sent ahead by a courier to the office you're heading to, or sent to arrive at your hotel room. Few things are completely foolproof, says DeGenero, particularly when professional thieves are involved, but as the saying goes, "Don't make it easy, and don't make it cheap."
Efforts at protection can range from the major, such as rigging the destruction of a hard drive if someone tries to access it without the proper password, to the simple, such as removing hotel signboards announcing the place, times and attendees for a meeting. Attendees should already know those details, says DeGenero.
Subscribe to Financial Executive! The flagship publication of Financial Executives International (FEI), this premier magazine provides senior financial executives with financial, business and management news, trends and strategies to help them work better, faster and smarter. For more information about FEI, visit www.fei.org.
2003 Financial Executives International. Reprinted with permission.
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