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Give directors and managers access to information, incentivise them – and await results. ‘The result of figures coming out of management accounting should be to change management behaviour or reinforce it in the direction you want to go. The whole point of management accounting is you can align it with the operational needs of the business whereas much of financial accounting is acquiring little practical use.’
Sir Richard Lapthorne Chairman of Cable & Wireless Communications As chairman of Cable & Wireless Communications, Sir Richard Lapthorne set up management accounting systems aligned with director and senior management incentive schemes aimed at turning round the performance of the communications giant. Over a three-year period, Cable & Wireless Communications’ UK division grew its enterprise value from £600m to £1.7bn. The performance of the corporation’s international business, meanwhile, improved, as over £800m of management accounting debts made real by the design of the incentive scheme were paid down. Sir Richard attributes this performance to an incentive scheme that was ‘based for its drivers on management accounts’. He says they help reinforce or change behaviour, because the information they convey acts as management-by-proxy. ‘It is a question of working out what it is you want managers to do, bearing in mind that when we run large corporations, you are delegating at a distance. Whether it is an incentive scheme or a measurement system, you are trying to get people to think along the lines that they would think along if you happened to be alongside them, talking to them about
it as a mutual decision. That is what incentives should be about, but it is also what management accounting is about,’ he says. Splitting the company’s UK and international assets into two units was the first stage in the company’s restructuring exercise. John Pluthero, Executive Chairman of the UK and European business, turned his division around in three years instead of five and at a cost of £300m rather than the £600m projected, Sir Richard explains. Pluthero externally refinanced a part of the division’s property portfolio at the height of the property market, avoiding costly management accounting loans where he only had access to a 15% internal PIK facility as his source of working capital. Keeping executives focused on the over-arching plans and rewarding them accordingly is key to maintaining focus on strategy, says Sir Richard.
CIMA value: Cable & Wireless Communications Grew the balance sheet of the UK and European division from £600m to £1.7bn over three years. Paid down £890m of debt at the overseas division over the same period. T. +44 (0)20 8849 2251 E. cima.contact@cimaglobal.com www.cimaglobal.com