Developing scorekeeping metrics is a critically important yet undervalued role of the chief financial officer. CFOs ignore this role at their and their organizations’ peril, because if they don’t set the scorekeeping metrics, others will, and will make a mess of it.
Both EBITDA and Free Cash Flow are metrics that look “better” than their closest GAAP equivalents because they are calculated by adding back certain expenses and expenditures. For that reason, even if CTCT asserts that these are the most appropriate and valid metrics – a highly arguable assertion, but let’s leave that aside for now – presenting those metrics to the complete exclusion of their GAAP equivalents is certain to raise questions in the minds of some in the audience – questions like, “Why don’t they want us to look at the GAAP numbers?” “Are they hiding something?”
There is a theory of tort law that liability should be apportioned based on who could most efficiently have assured that a tortious event did not take place. If that standard were applied to the Bernie Madoff fiasco, the auditing profession would owe a whole lot of money to a whole lot of people. It’s a shame that the thoroughness, doggedness, and precision the profession is known for wasn’t applied to its own practitioners.
My nostalgia for this whole kerfuffle arises because after a six-month trial, a jury has just returned guilty verdicts against five of Madoff’s former employees. To understand why this event has raised unpleasant memories and unresolved concerns, let’s have a short Socratic dialogue:
Again I ask: Is the potential benefit of spinning your information worth the potential impact on how you are perceived as a presenter
In recent posts we’ve seen how tiny changes in the way we present numbers can have a huge impact on how well the information is understood. In this post, we look instead at how those little things can affect how your integrity or your ethics might be perceived.
Are accountants being unethical or just irresponsible when they misallocate costs to products, service-lines, channels, and customers? Are they not adequately serving the needs of their managers and workforce when they report flawed and misleading information needed for insights and better decision making? Should we place shame on them or shame them? There is a difference.
We can now gather, correlate, and analyze information in ways that were unthinkable in the past. The book “The Human Face of Big Data” does a particularly good job of rounding up some of the most interesting stories of how these technologies will touch our lives.
However, with great power comes great responsibility. Analytics is a very powerful weapon, and weapons can be abused.
The past clearly shows that without proper controls, there can be irresistible temptations for companies and governments to combine data in ways that threaten personal liberties. Misuse of every previous data gathering technology has eventually come to light, sometimes only decades after the facts, leading to new laws re-establishing privacy limits.
In business half truths pose substantial problems. Why? People may have their own biases as they interpret data and information. How untrue and dangerous could half truths be for providing business insight?
Ancient Romans used integritas to describe pottery. Saying a ceramic piece had integritas meant the quality that appeared on the outside existed throughout the entire piece. There were no hidden weaknesses or imperfections covered by an attractive glaze. A vessel with integritas will hold up under stress.
In many cases, speaking out of turn, encouraging debate, rethinking a strategy, is frowned upon, while maintaining the status quo is well received. But what happens to all these yes men when the dark clouds loom and the firm gets into a whirlpool of its own created problems and that were ignored?