Sleepless in Kazakhstan
Wendy Schmidt sometimes has sleepless nights. The head of Business Intelligence Services and a principal at Deloitte Financial Advisory Services says that in doing due diligence investigations for corporate clients of potential merger targets, she frequently uncovers money laundering operations and even terrorist links. "I report them to the client and then lose sleep that night," she says. Because of the firm's attorney/ client relationship with its clients, she cannot take the information to federal authorities.
But Schmidt says she's not the only one who should be losing sleep. According to a Deloitte study she directed, two-thirds of companies do not even bother to conduct detailed investigations into potential foreign business partners or acquisition targets. Only 29% of the 565 executives who responded to the study's questionnaire said that they conducted investigations into bribery, money laundering, terrorism links or even resume fraud when they were dealing with overseas entities.
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"It's hard to understand why this is," says Schmidt. "Given the current regulatory environment and 9/11, I cannot understand why companies are not taking this more seriously. I guess companies just get so caught up in getting the deal done, and on focusing on the reputation of the principals, that they just don't think about it."
Admittedly, overseas investigations can be costly and more difficult because of the lack of public data. But it is a mistake not to make the effort, she says. Seventy percent of respondents in the survey had pulled out of some international deal because of the results of a background check. Another 57% said they had renegotiated deals because of negative information that came out of an investigation. "There isn't a day that goes by that my unit doesn't find a problem," says Schmidt. "Companies need to make sure they have a system of internal controls in place to catch these issues before they happen." Otherwise, you may face some problems from the Department of Homeland Security or the Foreign Corrupt Practices Act.
Ignoring a Source of Talent
Are companies overlooking a pool of talent when they search for CFOs? That would seem to be one conclusion from a study just released by the search firm Korn/Ferry International.
Korn/Ferry, which looked at the CFOs of Fortune 500 U.S. companies, found that among companies that hired internally, 33% had elevated their controller to the post of CFO. But when it came to companies that went outside to hire a CFO, only 4% had turned to a controller for the post–just above the 3% who picked a treasurer. "I suppose you could surmise that there is some flawed thinking going on here," says Charles B. Eldridge, senior client partner and managing director of the financial officers practice at Korn/Ferry, one of the two authors of the study. "Since so many controllers do become successful CFOs, it does seem as though the market is not giving controllers a good enough look as candidates when they go outside their own company."
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