📬 Balance of power: weighing centralized vs. decentralized finance functions

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Now, on to today’s Mailbag.

We’ve got some great topics. Here’s what’s on tap:

Now, let’s get into it.

Anon from Spain asked:

What are your thoughts on centralized vs. decentralized finance functions in multinational companies? My company entered bankruptcy, and when it emerged, the new owners quickly dismantled corporate finance and other corporate functions.

When I became BU CFO, decentralization was already underway. This process has been very positive for the BU. The lower reporting workload to corporate and simpler structure has allowed us to:

Of course, a global function provides more oversight and standardization. Do you think a centralized model can provide these benefits at a similar cost to the decentralized model?

I have strong views on this, and I expect plenty of people won't agree with me.

Centralization gets talked about like an unchallenged holy grail. The case for it is seductive, and it usually arrives in a PowerPoint deck prepared by a central department head (the people who stand to gain the most from it):

It sounds compelling, and most of it is even true.

But then comes the reality…

The transformation is far more disruptive than anyone projected and takes twice as long. The technology barriers turn out to be enormous, pulling the IT team away from everything else to unblock a project that somehow became a company-wide priority overnight. The headcount savings are never quite as real as the model suggested, because there were edge cases and local complexities that nobody in the center had properly understood.

And now the function sits one or two layers extracted from the ground floor reality of the business. Nobody is quite sure who owns the overdue debt, or that reconciliation, or whatever it may be. You have got fuzzy accountabilities over cashflow, unlocked a whole new layer of organizational politics, and spent eighteen months disrupting a function that was working adequately, for no meaningful net gain.

If your group went through decentralization after bankruptcy, I would hazard a guess that it was the direct response to exactly that experience.

I am not saying never centralize. At sufficient scale, some center of gravity is necessary, of course. And even extreme levels of centralization are right in some circumstances. And a minimum ,ost global businesses needs critical mass in certain areas:

Those functions benefit from consistency and control in a way that is hard to replicate if you scatter them across every BU.

But beyond that, centralized services only work if they are genuinely designed around the business, not around the ambitions of a central functional leader.

The truth is, centralization rarely makes as much sense as the people sitting in the center believe it does. Their incentives are not perfectly aligned with the right answer. So your hurdle for conviction needs to be higher than you think.

You should always heavily discount the benefit case of a centralization program - if it still stands up after you’ve cut the benefit promise by 75%, great, it probably makes sense. If not, proceed with caution.

The other thing worth saying is that centralization and decentralization are relative terms. In a large multinational, you might have groups, regions, countries, operating locations, etc. What looks like centralization from one level looks like decentralization from another. The evangelical debate about which philosophy is correct is mostly a distraction.

The real question is simply, where in the hierarchy is the right place for each piece of work to be done? Orient around that, function by function, and you will get further than any top-down structural dogma will take you.

Your BU experience backs this up. Closer to the business, cleaner accountability, better processes, improved P&L. That is not an accident. That is what a good finance structure actually feels like. Just make sure you are not quietly losing the things a strong central function genuinely provides - technical depth, oversight, standardization - because nobody filled the gap when corporate was dismantled.

TLDR: Centralization consistently overpromises. But at scale, some center of gravity is necessary. The real question is not centralized vs decentralized, but where each piece of work belongs.

Exhausted Accountant from the US asked:

How do I manage a CEO who wants "no surprises" in a business that is highly weather-dependent and volatile by its very nature; rolling up immature businesses on a PE platform?

My accounting team has to deal with all kinds of surprises when we work through the "accounting" of these acquisitions. It's seemingly never-ending. Between unfavorable weather and pre-acquisition accounting failures, surprises pop up every month.

My CEO claims to have decades of CEO experience at small companies, yet he acts as if our mid-sized company can manage earnings like a Fortune 100 company.

Let's start by defining what a surprise actually is, because I think there are two very different problems buried in your question, and they need different solutions.

The first type of surprise is real performance volatility. Weather hits, a newly acquired business underperforms, revenue swings, etc. That is not an accounting surprise in any meaningful sense. That is just the business doing what volatile, acquisitive businesses do, and your reporting should reflect it clearly, explain what drove it, and separate what was controllable from what wasn't. Better variance analysis, better FP&A, and better commentary. None of that is Fortune 100 earnings management. That is fairly basic finance, just doing its job well.

If your CEO genuinely cannot accept that a weather-dependent, PE-backed rollup will produce lumpy monthly numbers, that is a CEO expectation problem, not a finance problem. And it is worth addressing directly. Sit down with him, explain the nature of the business he is running, and that he needs sight of the things driving performance, not false comfort through smoothed reporting. If that conversation doesn't land, that tells you something important about the relationship, and it is worth paying attention to.

The second type of surprise is messier. Restatements, adjustments, and corrections that relate to things you could reasonably have been expected to know at an earlier close. That one is on you, and I won't dress it up.

I also want to push back gently on the framing of "pre-acquisition accounting failures." You bought the business. The books came with it. Labeling problems as pre-acquisition is understandable in the early weeks, but it starts to feel like an excuse after a while, and your CEO will hear it that way, too.

More importantly, your due diligence and integration process should be surfacing this accounting risk early and time-boxing it so the surprises get smaller and shorter quickly.

What works better than blame is a clean, time-boxed commitment. Something like, "The books we inherited from the ABC acquisition are messy. It will take us three months to fully clean them up. We may see some monthly volatility during that period, but we will have a clean close by the end of May."

For any part of the business that is causing you recurring accounting grief, go back to basics. Hard close, account by account balance sheet reconciliation, elevated review. Sometimes you there is no shortcut to wrestling the beast.

Finally, do not underestimate how much of this tension is a communication problem. Subtle changes in how you frame performance commentary to the board and to your CEO can go a surprisingly long way. For example, simply introducing a few different profit metrics might solve some of the tension.

TLDR: If performance volatility is a feature of the business, then your reporting needs to reflect that. But avoidable restatements are something else. Get a clean edge on the balance sheet ASAP, and align your CEO on how long that will take.

Susie from Socal from the US asked:

What to do if you believe the CEO and board are not acting in the best interest of shareholders? More specifically, due to dwindling cash, they opt to put in retention bonuses for key executives (perhaps not unreasonable), which require large upfront cash payments (seems very unreasonable). To pay these bonuses, vendor payments are being held for at least 30 days (and probably longer).

I don't want to go down with the ship, but also don't want to burn bridges. What would the Secret CFO do?

Susie, reading this made me puke a little in my mouth.

But let’s start by giving the board the benefit of the doubt, because there is a version of this that makes sense.

Retention bonuses in a struggling business are not inherently wrong. In fact, they are often essential. One of the cruelest dynamics in a turnaround is that your best people have options, and your worst ones don't. Left unchecked, natural attrition drags average capability down exactly when you need it to go up. A well-structured retention incentive locks in the leaders you need fully committed, stops them hedging their career risk, and aligns their upside with the recovery.

That is a legitimate tool, but it has two non-negotiable design principles.

First, it should only pay out when the turnaround is successfully delivered. Second, it should pay out in the future, when the business can actually afford it.

What you're describing violates both. A retention bonus paid today, in cash, in a business burning through its runway, is not a retention incentive. It's just a bonus. Unlinked to performance. Funded by creditors.

That is culturally and ethically egregious. But it may be even worse than that, it might be illegal.

When a business is in financial distress, directors’ duties shift. Directors don't just owe a duty to shareholders anymore; they owe a duty to creditors, too. A board that votes to pay large upfront cash bonuses while holding vendor payments to fund them needs to understand that.

What you describe - at face value - does sound like a potential breach of fiduciary duty to creditors. That could be a serious legal exposure for every director who voted yes. So, legal advice is very important here.

The first question I would be asking is, who benefits from these payments? Are any of them going to the CEO, board members, or anyone connected to the decision making? Because if yes, this stops looking like a misjudgment and starts looking like self-dealing. That is a much more serious problem.

If the payments are going to unrelated executives, the board will argue they are in the best interests of the business. That argument is available to them, even if you think it is wrong.

So how would I handle it?

I am generally a calm person. I don't reach for boardroom theatrics. But that’s because I save them for when I really need them… i.e., for moments like this.

If I were fundamentally opposed to these payments, I would want my opposition formally on record. If you are a board member, that means a documented vote against, with your reasoning in the minutes. If you are not on the board, it means a clear written communication to the board setting out your concerns. Not a heated email. A calm, factual, documented position.

Before you go that route, speak to your CEO one-on-one first. You don’t want to catch them offside. Make yourself heard. Give them the chance to share context you may not have, but make it clear you will be following up in writing. That might feel a little nuclear, but in a situation like this, nuclear is probably warranted.

You asked about not wanting to burn bridges; that’s fine if that is possible. If you have a choice between burning a bridge or your own reputation… take the bridge. A clear, calm, written objection protects you. It shows you saw the problem, raised it properly, and did your job.

One more thing, and I say this carefully.

It sounds like this decision happened without you. If you are the CFO, you should be at the center of any conversation about cash, affordability, and compensation structure. The fact that the business has reached this point without your meaningful input is worth sitting with. How did you end up this far outside the room on a decision this consequential? That is not a criticism. But it is something worth understanding, because it will matter for what comes next.

And if you raise your concerns formally and nothing changes? Then you have a different decision to make about whether this is a table you want to keep sitting at.

TLDR: Prejudicing creditors to pay execs is - at best - ethically and morally wrong. And it may be a lot worse than that. Get legal advice, and get your objection on record at a board level.

A few of the biggest stories that every CFO is paying close attention to. This is the section you might not want to see your name in.

This is an interesting one. Investors allege that while the Navan IPO was sold to Wall St on the basis of strong recent revenue growth, the S1 didn’t mention that sales and marketing costs for the same period were growing even faster (preusmably implying the sales growth was ‘bought’ ahead of the IPO).

This all became apparent when Navan published their Q3 results in mid December, just 6 weeks after their IPO - and the stock (understandably) tanked. It raises all manner of questions about the true natural growth rate, the quality of the reporting, and the robustness of the balance sheet at the point of IPO. Not questions I would want to have to answer as a CFO…

Does a 68% drop in SEC enforcement actions point to improved compliance or just a change in the level of oversight? I’ll leave that one to you to make your mind up.

$10 billion in debt and not one number the banks could trust. This one is just a total house of cards.

ICYMI, here are some of my favorite finance/business social media posts from this week.

Let me know what you thought of today’s Mailbag. Just hit reply… I read every message.

Last weekend’s Playbook traced the history of CFO tech debt and how it shows up for CFOs now.

In this week’s upcoming Boardroom Brief, we answer the question: Are CFO’s building or buying their next piece of software?

Disclaimer: I am not your accountant, tax advisor, lawyer, CFO, director, or friend. Well, maybe I’m your friend, but I am not any of those other things. Everything I publish represents my opinions only, not advice. Running the finances for a company is serious business, and you should take the proper advice you need.