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:IHIIIIIMI!!!llM the first, Foglia analyzed the financial 'status of Lederle, the size of the marketplace, share of market, and so on," says John D. Herrington, vice-president and treasurer of Fisher. "He had to set up all the charts of accounts and accounting procedures we'll use there. Ten years ago, when we bought a company, the financial department wasn't even asked to look at it." Swinging more weight So far at least, the emphasis on controls has apparently paid off. In the past 18 months profit margins and return on equity have increased significantly for most corporations. The economic recovery, of course, helped. But companies such as fmc, Lear Siegler, Heinz, and Mark Controls, where finan- f 1 A :>i i f ?√ß ?√ß ?√ß" ?√ß. ?√ß. ?√ß.?╟≤..'.?√ß?√ß?√ß GE's Way: Double-digit inflation helped put controllers in the limelight. cial controls have been emphasized, have been strengthened markedly. Indeed, for that reason, the controller's office may have become a place to be for the rising young executive. Job recruiters note that such well-known controller training grounds as Xerox, GM, Ford, ITT, and General Electric are often raided by other corporations for new personnel. And, says one rising executive who is working in his company's budgeting office: "A couple of years ago, I would never have wanted to spend time in the controller's department. But I see now that this job gives me high visibility and frequent access to the chief executive." The debate over whether corporate controls are going too far, however, is heating up as the current economic recovery grows older while corporate investment remains disappointingly soft. Critics claim that the experiences of Taylor at CBS and Jarman at Genesco should serve as a warning that too much emphasis on controls can lead to serious problems. The trimming back on controls by some companies is alerting other companies to the need to review and refine their system as they review and refine any other parts of the business. Jarman's tight budgets, says one source close to the operation, made it difficult for divisions that were running over budget in June to order new merchandise for the fall season. A delay of only a few weeks resulted in the loss of precious selling time at the height of the season. Penney's control tightness cannot compare to Genesco's. But one of several procedures that have been scotched lately was a daily cash monitoring system in some of Penney's stores. Management found that the procedure was simply taking too much employee time. Perhaps more important, says Controller Northam, it caused morale problems. So Penney now monitors the cash weekly instead of daily. Similar problems are cropping up in many places. One big New York commercial bank, recently set up an ad hoc committee to determine whether important bank services were being neglected in complying with stringent control procedures. Elsewhere, complaints from employees about excessive paperwork and minute scrutiny of the smallest expenses are common. Gillette Co., for example, refuses to allow its divisional controllers to bypass the local operating management. "When the controller reports directly to headquarters, there is the tendency of local management to treat them as spies," says Edward G. Melaugh, senior vice-president of finance. Corporate critics also worry about top management's recent concern with quick returns on investment. "You've got to get better performance quicker to satisfy investors," says one controller. Such objectives often mean that corporations would rather take such short-term measures to shore up profits as raising prices or slashing budgets than marketing a product harder or starting up new ventures. It also means adding gingerly to capacity, if at all, rather than building a new plant. Borrowing future trouble Recently a Heinz affiliate found that it needed more warehouse space for frozen potatoes. Ten years ago, the company would have simply built the new facility without considering its potential impact on earnings, says Lattanzio. But this time Lattanzio opposed construction because the return from \ \ X Whittaker's Alibrandi: "Doing the same business on substantially less assets." investing in a warehouse was not as great as that from investing the cash elsewhere. Heinz leased space instead. Because the controller gets involved in such decisions, he is going to remain a controversial figure inside the corporation. Nor will that controversy fade soon, because it will take years to judge all that the controllers are doing today. The problem, of course, is that while the savings can show up at once, potential side effects, such as lost opportunities, may not be apparent for many years. "If you cut back things like r&d," says Kenneth W. Reese, senior vice-president for finance at Tenneco Inc., "the results won't show up in earnings for five years?╟÷but they can be disastrous." Many managers are aware of such dangers. They also feel that in uncertain times, and with inflation likely to push up costs dramatically, they must not stretch their cash too thinly. "The main thing is to be sure the decision is made with the facts," says Robert McAdams Jr., controller of Ampex Corp. "But if an idea doesn't meet our rate-of-return goals, there may be other reasons to pursue it. The risk factor is the key element that might have to be determined by gut feel." In short, while overzealous controllers and overrigid controls may indeed be smothering some companies, that need not necessarily be the case. "You can go back to fundamentals and still be very entrepreneurial," declares Way of General Electric. Nor is there evidence that ge's controls have inhibited either its growth or its investment in the future. "There is no inherent reason," says J. Fred Weston, who is professor of finance at the ucla business school, "why the controller can't cause companies to be more flexible, faster to react, better at seizing opportunities." ?√ß SEPTEMBER 77 "Reprinted from the August 15, 1977, issue of BUSINESS WEEK by special permission, (c) 1977 by McGraw-Hill, Inc." 11 ?√ß