While interviewing hundreds of corporate tax executives this year on compensation and business trends, we discovered a lot of interesting information valuable to CFOs. Learning the inner thoughts of multinational corporate tax executives will give CFOs a competitive business advantage. This article covers information obtained during hundreds of private conversations and interviews with lead corporate tax executives. As we gathered this information, we recognized the importance of the relationship between a CFO and its lead tax executive. The relationship between the CFO and the head of tax establishes an important direction for a company and its financial success.
We learned some CFOs view their in-house corporate tax organization as a cost center, and many admittingly tell us they do not understand tax and how it affects the company’s bottom line as much as they should. However, on the other hand, there are CFOs who understand the value of a close working partnership with their head of tax to build the tax organization into a profit center. This article discusses what it takes to turn your in-house tax organization into a revenue generating profit center for the company.
Reporting Relationship
Unless you worked in the trenches to learn this information, a company would rarely know what tax executives privately think. One of the most important things to lead tax executives working for a multinational corporation is a reporting relationship to the CFO. Tax executives frequently turn down opportunities to work for a company if the lead tax role does not report directly to the CFO. The reason for this is tax needs to be brought into the business transactions upfront to structure these business opportunities from a tax advantage standpoint. Without having tax involved during the beginning of these transactions, numerous problems can occur.
With over three decades of experience conducting tax executive searches, I have heard from numerous CFOs that they need to hire a new tax executive because their former head of tax left due to the losses that occurred in how a previous deal was structured. In other words, the CFO was not listening to the advice of the lead tax executive on how to structure a deal for maximum tax savings. The previous tax executive was not included in the business discussion on the acquisition, the tax executive leaves, now the company needs to hire a new tax executive who can figure out the best way to deal with a transaction that created a huge financial loss for the company which could have been avoided. This usually happens with less experienced CFOs as the more experienced CFOs know to always run the deal by the lead tax executive, if they want it to be structured the best way possible for the company and investors.
When the head of tax is reporting to anyone other than the CFO, they are often left out of business deals as they are being developed. This is not a good formula for success on business acquisitions/dispositions. When the head of tax is reporting to a Controller or someone other than the CFO things happen, and these things are called mistakes that occur when the CFO and tax are not discussing the tax impact on these deals.
Another factor in the reporting relationship between the CFO and the head of tax is when companies do not understand what happened when a tax executive did not take an offer from their company. When you have an offer extended to a lead tax executive candidate and it is turned down, the likely culprit is the head of tax reporting relationship is to someone other than the CFO. Companies are often bewildered by what happens when they spend so much time interviewing a tax executive candidate only to have the candidate turn down an offer in the end. There are many reasons tax professionals turn down offers but the one reason that is often overlooked is how management has set up the reporting relationship. The reason tax executives most shared with me for turning down an offer is the reporting relationship in the company did not have the tax executive reporting directly to the CFO.
Another example regarding the importance of the relationship between the CFO and the lead tax executive is when a new CFO is hired by a company and the reporting relationship changes. The company new organizational structure changes from lead tax executive reporting to the CFO, to the lead tax executive reporting to the Controller or Accounting Officer. Again, this change removes the lead tax executive one step away from the CFO involved in corporate business transactions. By now, hopefully I have made my point about the high importance of building a strong bond and business relationship between the CFO and the head of tax. This relationship is what turns an in-house tax department into an in-house corporate profit center.
This Is Part I of A III Part Series Titled:
A Profit Center: The CFO And Lead Tax Executive Relationship (Series Part I)
If you would like to receive additional insight on building profitable relationships within your multinational organization, please register to receive our blog at the bottom of the page at this link: https://etsearch.com/
Kat Jennings, CEO, kat@etsearch.com/858.232.4415 (Cell, Text or Call)
Retained Executive Tax Search Expert (Exclusively Tax Executive Search)
View Our Clients: https://etsearch.com/retained-tax-executive-search/
The Tax Intelligence Report
Editor
