hands-on directors should also
spot when rewards for staff are
so out-of-control as to threaten the
profits being made for shareholders
and for the future financial health
of the business. “Profit before
perks” should be the mindset.
Important to good governance
is a willingness to ignore the herd.
For example, if every US bank began
to expand into South America, a
smart South Korean bank would
refuse to copy. However, in practice,
this proves hard to do. Directors
meet each other in the same clubs
and conferences, and like to be part
of the same pack. Nevertheless,
US investment guru Warren Buffett
has become one of the world’s
wealthiest men by ignoring the
herd instinct among investors.
The mass market
Some modern boards of directors
accept that if there is wisdom
among crowds, there may be
even greater wisdom among staff.
Henry Ford was one of the first
to realize that your workers are
your customers, but it has taken
a century for others to see the
potential in this phrase. Not only
is there value in drawing ideas from
staff who care about the products
they both produce and use, but
there is also strategic value in
understanding the huge potential
of the mass market. When looking
at China today, the most exciting
opportunities are for products that
would appeal to the hundreds of
millions of potential consumers
who are workers, not managers.Using money wisely
In management accounting, two
factors are of particular importance:
cash and costs. A management
accountant works hard to provide
accurate data on production costs,
so that managers can make
informed decisions about pricing,
on outsourcing, and on which
products to back with marketing
spending. Activity-based costing,
which provides the most complete
data on costs per unit, is the best
way to do this. When trading
is poor, however, management
accountants place their tightest
focus not on costs but on cash
flow, following the maxim that
“cash is king.” This arises because
the worse the trading conditions,
the more that companies try to hold
onto the cash they have—making
it much harder to get paid if they
are your customers. The flow of
cash dries up, so an early focus on
cash flow makes sense: start your
own cash hoard before others
begin trying to create their own.For financial accountants, the
traditional stance has long been
“playing by the rules.” Integrity and
adhering to accounting principles
such as prudence and consistency
were seen as most important. More
recently, career opportunities have
arisen for accountants who are
willing to be more creative. This
way of thinking stems from the
scope for “making money from
money,” by lending the company’s
cash deposits to other companies at
high rates of interest, or speculating
on future trends in exchange rates
or commodity markets. In a world
where a quicker, bigger buck can
be made from money than from
manufacturing, playing by the
rules may seem a poor choice. ■MAKING MONEY WORK
I am incredibly nervous that
we will implode in a wave
of accounting scandals.
Sherron Watkins
US executive, former vice president
of Enron (1959 –)119