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VIEWPOINTS : Critics Should Stop Bashing the Bean Counters : Firms May Put Too Much Stress on the Short-Term, but That Isn't the Fault of the Accounting Division

February 14, 1988|BRIAN FORST | BRIAN FORST is the author of "Power in Numbers."

"T his is what I would recommend . . . . Call together the top officials of (GM) and announce: . . . Accountants will not sap the productivity of the company's car builders with guerrilla warfare."

--Ross Perot, in the Feb. 15 issue of Fortune magazine.

It is convenient to think in terms of cartoon images. One that is fairly common these days is that of the unimaginative financial bean counter. The portrait is accurate often enough to persist, but it is a cartoon nonetheless, like that of the slick, Madison Avenue-hype marketing executive and the nerdy computer expert.

Ross Perot's salvo against accountants is but the latest in a series of attacks by prominent reformers of corporate America against the providers and users of business numbers, attacks that build upon this cartoon. Here is another, from Robert Hayes and William Abernathy's widely cited 1980 Harvard Business Review article, "Managing Our Way to Economic Decline": "By their preference for servicing existing markets rather than creating new ones and by their devotion to short-term returns and 'management by the numbers,' many (American managers) have effectively forsworn long-term technological supremacy as a competitive weapon."

And this from David Halberstam, attacking the "immense power of the finance people" in Detroit, from his best-selling 1986 book, "The Reckoning": "The great business schools of America could not produce genius or intuition, but they could and did turn out every year a large number of able, ambitious young men and women who were good at management, who knew numbers and systems, and who knew first and foremost how to minimize costs and maximize profits." He goes on to say that, by 1980, most auto industry leaders had become excessively "cautious and finance-oriented."

These portraits of the numbers people as not only unimaginative and cautious, but as powerful, preoccupied by short-term results and even mean-spirited, will hardly attract talented young people to careers in corporate finance. The portraits are often accompanied by the recommendation that U.S. corporations would do much better to follow the example of the Japanese; or that they should be led to a greater degree by people of vision and courage (Lee A. Iaccoca and Perot are popular models), or that they should engage more fully in participatory management or recent developments in the theory of organizational behavior. The skillful use of financial data rarely ranks high on these lists of recommendations.

The view that a numbers orientation is somehow behind the common obsession with short-term results is especially pernicious. Today's chief executive is more likely to have entered the corporate board room from a division other than finance, usually either the production or marketing division. Those who trade away the company's future for its short-term performance, if they have had formal training in finance, didn't pay attention to one of the discipline's most fundamental lessons: One should choose among investment alternatives by comparing their profit streams over their expected lives, discounting future profits at a rate that approximates the firm's cost of capital.

Myopic executives, regardless of the extent of their financial training, tend not to stay there for long. Even mediocre executives know that their reputations and fortunes are more likely to be built on the success of their companies over the long haul than on the numbers for a particular quarter.

Financially skilled executives are, in truth, like other corporate executives. The best--like Harold Geneen, former chief executive of ITT, and Walter Wriston, former CEO of Citicorp--are second to none. They can be inspiring leaders, creative geniuses, visionaries, team builders, tough competitors and courageous takers of the calculated risk. The worst are about like other bad executives.

Whether destined to become CEO or not, financial executives in virtually every large, successful corporation provide information that is indispensable to the company. They inform top management about which aspects of the business contribute most to the bottom line and which detract from it the most, information that signals the need for corporate expansion and contraction. They help the company decide what kind of equipment it should buy, whether it should make or buy a part, whether it should buy or lease a plant. They identify which kind of financing is the least expensive to pay for growth and to replace aging assets. They maintain cash balances at levels that preserve the firm's solvency without sacrificing its profitability.

Consistently successful corporations can do without financial executives and their numbers about as easily as commercial jets can do without navigators and their flight plans.

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