Despite originally training in accountancy, I have been in marketing now for some 40 years. For almost 30 of them, I’ve sat on Boards of Directors. Immaturity in the finance and marketing relationship has been and continues to be an issue.
Both professions fail to achieve the mutual respect levels required to optimise the Board’s performance. We concentrate on the areas of difference in our approaches, not the areas of overlap and collective responsibility. Marketing people hide behind their passion for the consumer, building brands and anticipating the future. Finance people hide behind an unrealistic measurement capability expectation and the false hope that accounting standards are real measures of truth… all these differences can boil over across a Boardroom table when the Finance and Marketing Directors have a tiff.
The central role of management is to maximise shareholder value. But management all too often gets seduced (or bullied) into believing this is about short-term profit.
Delivering shareholder value is important long-term issue
Delivering shareholder value is not about maximising this year’s ‘divi’ – it is a much more important long-term issue. Potential shareholders are looking to the senior team and marketing, in particular, to help define and forecast the scale of future opportunities and their cash flows AND for an ability to minimise the risks associated with this.
Market capitalisations of the great branded companies far exceed the tangible assets accountants can show on the books. High market caps recognise the disproportionate value of branded businesses. Investors recognise the resilience and reduction in risk to future cash flows in the such companies’ share prices.
And who manages these most important of corporate assets and is charged with developing new ones? Not HR, Procurement, IT, Sales, Manufacturing or Finance.
Marketing, with their knowledge of consumers’ needs and aspirations, is unquestionably at the centre of shareholder value creation; not Accounting. Accountants can’t use historical cost accounting methodologies to value or balance sheet them unless they have been sold. They must be content with reporting passed financial performance and providing the company with the lowest WACC for necessary investments.
The Board is accountable for managing the business on behalf of its owners. It must satisfy itself that, beyond the normal financial reporting, assets are being nurtured, money is well invested and risk is minimised.
The right questions
Two decades ago I was asked to pose questions which a marketing director should ask his finance director colleague. Alarmingly, it appears these questions remain valid:
- Does he accept that the most important assets the company owns are its brands, and, if so what is he doing to help assess their real value?
- Why are he and I not regularly reporting real measures of brand strength at Board meetings (brand value, strategies for evaluating their progress, shifts in penetration and loyalty, brand equity and their financial implications)?
- How close are finance team members to brands’ strategic planning activity to help achieve the optimum balance between short- and long-term shareholder value? Does he have a perception as to which brands merit long-term investment and which do not?
- Does he worry about the effect of short-term marketing spend cuts on long-term values of our brands, as I do?
- How many of his team should move out of their finance to sit at desks next to my marketing people?
Harmonious relationships between marketing and finance
So what do we do about it, given short-term pressures on Boards? Herewith my advice for more harmonious relationships between the two functions is to:
- Agree what you are each there to do for the company including your common agenda (whether asset management or reporting metrics) and how you best can help one another.
- Agree a disputes procedure between yourselves (probably over a pint); keep your team out of it.
- Measure key success criteria as best you can, without seeking perfection; and get them discussed at the Board regularly. Don’t confuse shareholder value with just short-term profits.
- Learn each other’s jargon
- Work at the mutual professional respect thing – you are both there for the common good of the business.
Edited from a speech originally delivered at a Charter Institute of Management Accountants Conference, April 2009