Issues Facing CFOs Today Rich Schrader, Chair, FEI Sydney, Nov 9, 2006

1. 1 Issues Facing CFOs Today Rich Schrader, Chair, FEI Sydney, Nov 9, 2006

2. 2 A brief overview of FEI

3. 3 FEI History 1931 in NYC--Controllers Institute of America (Note that the Dow was at 41 vs over12000 last month) 30 Members 1935--Research Council is formed (now Financial Executives Research Foundation) 1962--name changed to Financial Executives Institute Membership broadened 1996-web site founded 2000--name changed to Financial Executives International Adding a global reach as a goal

4. 4 FEI Today 15000 members 86 chapters in US and Canada Global Outreach Affiliations with Australia, Korea, Mexico, Italy Represented on IASAC Strong advocate w/ SEC, FASB, Congress Staff of 40 in NJ and Wash DC Colleen Cunningham-1st woman president

5. 5 FEI Today is Multifaceted Effective Advocacy (But not Lobbying) Examples: Rating Agency Reform, Complexity Task Force , FAS150 (Equities & Liabilities) Stronger voice for private and small companies Education, Information & Research Costs of Sarbanes Oxley Implementation FE Magazine---Tim Regan featured in latest issue Career Services Code of Ethics Peer Networking

6. 6 The Chair�s Plate for 2006/7 Assess the brand, improve the asset FEI isn�t well known outside finance circles Using outside consultant to help assess Expand membership How to grow which is necessary for a vibrant, diverse organization But how to avoid dilution of membership �quality�

7. 7 Special Activities-2006/7 Replace Colleen Cunningham Celebrate the 75th Anniversary of FEI

8. 8 Issues Facing CFOs Today Staying abreast of major accounting changes and impact on company Developing strategic plan metrics Overseeing major system improvements Examining outsourcing/offshoring solutions Recruiting for senior finance staff Mitigating impact of a pension deficit Chairing next evolution of ownership program (pvt company) ���

9. 9 Corporate Governance Sea Change in Corporate Governance Has profoundly changed relationships among board and executive suite Has spawned a wave of new regulations Has brought new focus on ethics and ethical behavior All of which have added to the already full plate of today�s CFO

10. 10 Sarbox accelerated the corporate governance movement in the US Changes in governance were already underway with leadership by the regulatory agencies and mega-sized institutional investors. The aftermath of Enron brought Congress into the picture and because of corporate excesses we now have Sarbanes Oxley

11. 11 Sarbanes Oxley Act of 2002 Impact on governance, especially role of Audit Committees and independent directors Impact on accounting firms and creation of PCAOB Impact on management -- certification as to condition of financial statements and quality of internal controls

12. 12 Relationship Management for the CFO Independent Directors CEO Accounting Firm Finance Staff

13. 13 Relationship Management for the CFO CFOs need to understand and articulate the technical elements of all the regulatory changes (as good CFOs have always done) but the environment being dictated by regulatory change has put new demands on CFOs relationship skills.

14. 14 Independent Directors Audit Committees Lead Directors-over 90% of Fortune 500 Split Executive Suites? Nonexec Chairs? (not the US model)

15. 15 Audit Committees Focus on Compliance--is the CFO getting the job done Independent relationship with Internal Audit Independent relationship with CPA firm CFO & staff spending more time on educating AC members AC is �kicking the tires� Uses of outside consultants/CPAs

16. 16 Audit Committees CFO must manage tough issues before getting into formal committee meeting Never surprise the CEO (more on this later) Use chair of audit committee to consult Take initiative-management action vs reaction Even agendas/minutes must reflect Executive session with internal audit staff without senior management Executive session with accounting firm without senior management

17. 17 Let�s examine the CEO/CFO Relationship Core member of the management team-Partner and supporter for decision making Advisor - sounding board Behavior in Board Room vs behind closed doors But--ACs, board expect CFO to tell it like it is-no withholding of key information---so CFO needs to be able to walk the fine line between CEO and Board members

18. 18 You and your CEO

19. 19 CEO expects bad news from the CFO, but? Material Weaknesses Restatements Regulatory Violations Eliot Spitzer�s office just called Overzealousness vs public guardian? All result in:

20. 20 CEO and CFO

21. 21 Reality of relationship management Must recognize when to �fall on sword� Vs �Live to fight another day�

22. 22 The Wave of Regulation or is it a Tsunami? Triggered by Enron, Worldcom, Tyco, etc.--public view is one of unbounded corporate greed Diversion of Management & CFO Attention Focus of Boards and Audit Committees 26 AC meetings in one year!

23. 23 The Tsunami of Regulation Complexity was there already and has been compounded Costs of Compliance -(FEI Survey) Litigation Underpin

24. 24 Capital raising today should be the easiest job of the US CFO The world is awash with capital--and capital formation is taking place everywhere IPOs moving to London Not just Sarbox; ��cumulatively,are taking the already heavy US regulatory structure over the edge.� Peter Wallison in WSJ, Nov4-5

25. 25 US at a capital raising disadvantage? Regulation is the biggest challenge to small businesses that want to raise capital, investment bankers and attorneys told the Securities and Exchange Commission at an SEC government-business forum on small business capital formation on Friday. (CFO.com)

26. 26 Is the Pendulum returning? As CFO.com reported last month, the PCAOB recently submitted a draft of changes to AS2 to the SEC. The proposed changes reportedly fix what the PCAOB considers confusing definitions and clarify that auditors do not need to evaluate how CFOs come up with their assessments of internal controls. Two private commissions formed to study capital raising disadvantages in US. SEC and FASB set up issue advisory groups

27. 27 Issues Facing CFOs How to Hire a Good Attorney?

28. 28 When you need a good attorney? Former Hewlett-Packard chairman Patricia Dunn said the company's chief financial officer approved an investigation into boardroom leaks that has since led to the resignation of Dunn and several other directors and executives.

29. 29 Ethics--the scandals keep coming Backdating options �Pretexting� We are at a crossroads in America where malfeasance in corporate America has reached an all-time high," judge says (CFO.com quote) What�s happened to values and judgment?

30. 30 The Backdating Options Scandal SEC is on a �tear� and it should be Isn�t backdating an obvious �don�t� What are people thinking?

31. 31

32. 32 Ethics The New Yorker may have some insight

33. 33

34. 34 Ethics

35. 35 Ethics

36. 36 Litigation Post Enron--record #s of shareholder lawsuits Recent class action vs Citigroup Shareholders asked to vote on settlement Settlement was a number of corporate governance changes (plus approval of attorney�s fees for claimants)

37. 37 Ethics-the Role of the CFO Integrity in the financial function Integrity in the executive suite �Conscience of the organization� Zero tolerance vs business practicalities--how to draw the line �Spin� is a great temptation vs full and straight disclosure

38. 38 How does this all add up? The biggest challenge facing CFOs today is managing their own time, far outweighing other concerns such as keeping up with technology or accounting changes. (CFO.com)

39. 39 In hindsight: