CFO in focus, September 2008

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Sep 9th 2008
From Economist.com

Our monthly round-up of noteworthy articles published on CFO.com, a source of news and insight for senior finance executives


Not child’s play

“The Players”

By Tim Burke




On its opening weekend in July, “The Dark Knight”, the new Batman movie, set records by taking in more than $150m. On its first day of release in April, “Grand Theft Auto IV”, a video game, made twice that. The global games industry is estimated as being worth nearly $50 billion this year, and it is growing fast. But making money in the trade is far from easy, as the finance chiefs of three of the largest developers explain in CFO Europe's September cover story.

Shifting demographics, rising costs and spiralling complexity mean that games companies need to master the art of “lightning-fast strategy shifts”. These days, that means adjusting business models to include more subscription-based online offerings and in-game advertising, and offering titles that appeal to older, casual gamers.

And will consumer spending on such discretionary, often frivolous pursuits slow along with the global economy? Thomas Tippl, finance chief of Activision Blizzard, reckons that the industry may be immune to recession. High petrol and food prices are forcing many consumers to spend more time at home, he says. “They've got to be entertained somehow.”

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Fair helpings

“Fair-Value Revolution”

By David Katz




Since August, when financial regulators paved the way to requiring American companies to switch from long-standing national accounting standards to international ones (see article), the concept of “fair value” has been thrust to the fore. The effect is likely to be dramatic, according to CFO's cover story for September. International standards favour valuing assets and liabilities at what they would fetch today, rather than at what they originally cost, as under American rules. When companies adopt the international standards, “results may look far different than they do today.”

The ultimate goal of fair value is to give investors better understanding of how companies value their assets, “and few deny that it achieves that aim,” the author notes. However, there is concern that the volatility introduced to corporate earnings by fair-value measurements will unsettle markets. The article explores the five areas most likely to be affected by fair-value accounting, from liabilities to lawsuits. (For updates on the adoption of international standards, see CFO.com's accounting section.)

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Doing good

“Best Intentions”

By Matthew Bishop




The business of business is business. But over and above that, companies have an important role to play in tackling some of society's biggest problems. Still, it is a role that needs to be well thought out and strategic. Three rules should guide philanthropic companies that seek a profitable path toward a better world: be good with what you’re good at; stick close to what matters to your business; and don’t be afraid of turning a profit by doing good. Examples on how to put the rules into practice can be found at both Google (“Don't be evil”) and Wal-Mart.

Finance executives “inject much-needed rigour into the pursuit of enlightened self-interest,” the author asserts. And on no account should philanthropic efforts simply be left to the public-relations department. “Much PR-driven corporate philanthropy or other spending on corporate social responsibility has, frankly, wasted money.”

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Where credit is due

“Credit Check”

By Jason Karaian




Despite the turmoil in financial markets, a dispassionate analysis of corporate balance sheets in Europe finds them in reasonable shape. Moody’s KMV, a credit research company, crunched the numbers for Europe’s 100 largest debt-issuers (excluding banks and insurers) for a new ranking of corporate credit quality.

Using a proprietary model that considers market-based information as well as the history of thousands of defaulting companies, the scorecard shows that the average large European company is no more likely to go bust than it was three years ago. Still, it would be wrong to be too optimistic: few companies are finding it as easy to raise funds today as in 2005. “The anxiety captured in historically high credit spreads suggests that investors reckon more companies are heading for trouble,” the author notes.

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Links in the chain

“Digging In”

By Randy Myers




In these cash-constrained times, firms are leaving no stone unturned in the drive to cut costs. Many are finding savings by re-engineering supply chains. In this article, senior finance executives from firms small and large discuss the lessons learned from their attempts to squeeze chains—by such measures as making closer contact with suppliers and customers to improve forecasts, better computer systems to route freight more efficiently, increasingly sophisticated commodity-hedging strategies and “scrounging for any way they can think of to minimise energy consumption.”

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Heavy vetting

“Nine Things to Ask Your Future Boss, the CEO”

By Marshall Krantz




This article offers finance chiefs tips on how to determine whether a new job is a good fit. “Since knowledge is power, know all you can about your prospective superior’s habits, history, likes and dislikes,” the author advises. “Interview your future boss, the CEO, as if he or she were the job applicant.” The proposed questions are crafted in such a way to “appear to be about one topic but really are meant to elicit information about another.”

Is finance a strategic partner or simply there for compliance duties? How influential are outside advisers? How is the firm handling its books? These are all queries to pose to a prospective boss. In addition to eliciting information, the article concludes, the act itself could improve your chances of getting hired. “Rigorous due diligence, albeit on your own behalf, should impress any savvy CEO.”