Progressive CFOs Need a Strategic Business Driven Tax Department in Today's Environment - How do you get there?

Over the past three years, businesses have confronted a new regulatory era in terms of corporate governance, financial disclosure, public accounting practices, and income tax planning, disclosure, reporting and compliance. One area significantly affected, but without much public discourse, is the tax department and how it is managed as a function in today's environment. Tax can be the single biggest line item expense for a profitable business and has lately been the subject of Wall Street Journal articles reporting material weaknesses in this arena. So we wanted to find out what progressive CFOs and Chief Tax Officers ("CTOs") are doing to change the strategic direction of tax departments and how they will be managed prospectively.

Focusing on US multinationals, we had extended conversations with Chief Tax Officers and Chief Financial Officers from four large corporations. The sectors they operated in were:

• retail, with outlets in all US states and over 100 overseas;
  
  
• international financial services and electronic funds transfer;
  
  
• diversified worldwide manufacturing;
  
  
• international natural resource extraction.

Not surprisingly, we found that there is no "one size fits all" approach to such complex and significant challenges. What did emerge were some intriguing thoughts and ideas about successfully responding to and optimizing opportunities in the new regulatory environment. The key: Leading, developing and mentoring the talent needed to strategically shift the direction of today's tax department - at a time when the demand for the requisite skill set will be far higher than the supply of talent.

All of our interviewees agreed that SOX had brought tax accounting and compliance to the forefront of their businesses. "Risk" and "compliance" were two words that came up repeatedly in our conversations. "Tax" no longer occupied a background role and function, but had been thrust center stage. This creates an inherent tension between the pressures of risk mitigation and those of tax planning. The need to reconcile these pressures was, it seemed to us and our respondents, a fundamental challenge that needs to be addressed. No one had an iron-cast solution - but all of our respondents were aware of this and were taking steps to arrive at a solution. In addition to the day-to-day balance of planning and risk management, the new era has increased the interest and focus of Audit Committees and Boards on tax matters.

One of our interviewees was at pains to point out that SOX had resulted in the "revenge of the auditors." What was essentially a privileged "attorney-client" relationship had been destroyed by the legislation which had turned auditors into policemen rather than advisors. There had been a "sea change" in the nature of the relationship between auditors, the Board and the Audit Committee. Others have capitalized on the increased transparency, left the black box behind, and - to everyone's surprise - maintained a parallel emphasis on tax planning and risk management and delivered positive results on both fronts. The underlying variable is tax planning that's deeply rooted in their business units. The key to catalyzing this phenomenon has been changing the vision of how to "Lead" a tax function, "strategically" revamping the team to align with the new mission, along with an enormous investment of time across the global business units. The by-product has been a much better standing with all the stakeholders in the new regulatory era, while the shareholders are being better served.

So what is the future? The consistent message is that CTOs will be expected to:

• Have broader and more strategic skills than has historically been the case.
  
  
• "Connect more dots" than previously expected.
  
  
• Optimize planning and balance risk management by being embedded in the business units.
  
  
• Focus on developing and mentoring their teams in alignment with the shift in strategic direction.

In short, CTOs and their teams are expected to be transparent global business leaders with tax expertise, and not just tax experts - a paradigm shift as the demand will be higher than the supply of talent with these collective attributes.


About the Author: Tony Santiago is Senior Partner at TaxSearch, Inc., the premier boutique executive search firm for identifying senior level tax professionals - with over 25 years experience assisting clients in building world class tax departments throughout the U.S. and globally. He can be reached at 843-883-5100 or tony@taxsearchinc.com.

Copyright © 2000 - 2006.