Top Story

 

Corporate Fraud Special

 

Q&A with Victor C. Moore - Code #A007 by Christine Fawaz  - Regional Marketing Coordinator, Morgan International Offshore September 25, 2006 Specialty areas in accounting and their attractiveness are rapidly increasing in the market today and forensic accounting seems to be the hottest one of them all. Whereas in the ‘it takes one to know one’ philosophy, former fraudsters are seen as ideal candidates to join forensic departments, it is not always the case in the real world and many CPAs are now opting for experience in auditing and risk assessment in order to gain the necessary experience to become forensic accountants. And it pays well too. According to reports forensic accountants can earn up to $100,000 a year. We had an exclusive interview with Forensic Accounting Expert Victor C. Moore from Forensic Accounting Consultants P.C in the US who told us all we need to know about forensic accounting…

                
Q: Can you tell us a bit about forensic accounting, what is it and what are the required skills to be a forensic accountant?

A: Forensic accounting is about reconstructing accounting information or interpreting the   information the data in, what may be an unconventional format. In many cases it is a re-interpretation of GAAP that says if proper GAAP had been applied, this is what the financial statements WOULD have looked like, rather than the way they did.

In other cases, we may be tracing down ill-gotten funds through bank statements or investment records. We have worked with many of the agencies involved with criminal activities.

The real experience required is detailed experience in the old “debits & credits” of accounting and a strong sense of common sense. My youngest employee is 43 years old. We market being the “no hairs” and “gray hairs”

Q: What are the educational and professional requirements one would need to get into the field?

A: The basics are an accounting degree, but the real requirement is some level of experience that allows a person to look at an adjustment (or entry) and know that it is wrong or doesn’t make sense just on the surface. (ie Enron) In my opinion, there isn’t a way to train for that in that in the educational environment we have today.

Q: We have seen in recent years a substantial increase in the number of candidates applying for professional designations and sitting for the exams. We’ve got CPA for public accounting, CIA for internal audit, CMA for management accounting, CFA for financial analysis and CFE (Certified Fraud Examiner). To what extent would holding one (or more) of these designations help in the forensic accounting field and is there one in particular that would be more relevant in order to become a forensic accountant?

A: My personal opinion is that none of these designations are really pertinent. What would be is being a hands-on controller in a public company for 5 years, and having to deal with the practical nature of what’s going on in the real world and facing those real limits of what is right and wrong, based on the limits of GAAP and the changing federal regulations.

Q: How did scandals that affected the likes of Enron/Arthur Andersen shape the future of forensic accounting and/or affect forensic accountants?

A: I believe that Enron was a “reality check” for accountants. The rules were there in GAAP for SPE’s and Enron and AA decided the rules didn’t apply to them. They both paid the price. I believe that the whole mess enhances the posture of forensic accountants and gives us all a lesson in “let’s not forget the basics and honesty that accounting is supposed to present in a set of financial statements”.

Q: Would it be too nosey to ask what the biggest accounting fraud you have worked on during your career was?

A: No. The biggest I have worked on is Computer Associates, that has taken years to unfold combined with approximately a dozen guilty pleas over the last 8 years.

Q: In addition to being a difficult job, forensic accounting must be an exciting one. What has been the highlight of your career as a forensic accounting expert?

A: The ability to be able to be free to express an opinion in court and not having a master agenda due to being related to a large company.

Q: Finally, given your extensive experience in this field, could you briefly explain the importance of forensic accounting nowadays and more importantly the importance of the role of forensic accountants for companies?

A: In my opinion, forensic accounting is not more important to companies now than in the past. Forensic accounting is more of a “recovery mode” for companies. What is really important to companies now is the corporate governance required by Sarbanes Oxley and the quality of the financial statements they issue to the public. While forensic accounting is useful, the message is loud and clear from the regulators and congress, that the abuses of financial reporting of the past will not be tolerated.

Tip-Off: Spotting The Clues To Corporate Fraud
Code #A010
Matt Mientka, AFP Staff Writer
July 27, 2005

Though human nature remains unchanged, businesses face ever greater risk today from fraud and other criminal activity as old-fashioned grifters use technology to stretch their arms around an increasingly integrated global marketplace.

Knowing where to look is often a company’s first defense.

(This article first appeared in Exchange magazine.)

While 70% of fraud is committed by company employees, the modern conman—and bogeyman to his victims—has evolved to represent the outside threat as a sophisticated, multilingual traveler, cultured and well-educated. This smooth-talking criminal might approach the business either directly or through an employee targeted as the weakest link, according to Norman Inkster, president of Inkster Group, a risk-management firm in Toronto.

In one instance, a man walks into a bank and requests a loan, the collateral for which would be photographs of the bank officer and his mistress during a weekend getaway. Despite the increasing presence of higher technology in the business world, many frauds and related crimes are predicated on the fallibility of humans, involving drugs, sex, gambling or simple avarice.

Though no business can achieve total security, most frauds occur because victims neglect to conduct due diligence, investigating the finances and lives of potential business partners, Inkster said in a May interview.

“Oftentimes, with employees it’s less about greed and more about a cash flow problem,” he said. “Such people believe that they can solve their long-term cash flow problems with a quick scam, but dig themselves into deeper trouble as their cash flow problems persist.”
Under the well-established precept that 20% of people are dishonest and 60% are sometimes dishonest, Inkster said that corporate executives must know their employees and business partners, and must watch for red flags arousing the “healthy sense of skepticism” essential to the modern finance professional.

“[Chief financial executives] and other executives must conduct due diligence at the earliest stages of any business transaction,” he said. “They must learn about their potential business partners and where their money originates.” In North America, especially, he added, businesses must not only fight fraud to avoid financial losses, but must comply with laws intended to prevent terrorism financing.

Former Interpol Head Fights Crime In Canada

An expert in national and international law enforcement and forensic investigations, Inkster began his career in police work at age 18 with the Royal Canadian Mounted Police. After 10 years of service, Inkster earned a four-year degree in sociology at the University of New Brunswick before later accepting, in 1992, an honorary doctor of laws degree. From 1987 to 1994, Inkster served as commissioner of the Mounties and joined international crime-fighting syndicate Interpol, serving as president from 1992 to 1994. Following the Sept. 11 terrorist attacks in the United States, Inkster served as special advisor to the premier of Ontario on security matters affecting the province and has also served as advisor to the auditor general of Canada.

Before founding Inkster Group, Inkster served as the “global managing partner” for the international forensics practice of accounting firm KPMG in Canada. Now, Inkster runs a company helping businesses with such risk management areas as security assessments, computer forensics, operating concerns in higher-risk countries and—regarding the human element—performing due diligence investigations of business partners.

In practice, competent business executives never simply forget to perform due diligence on the businesses with which they plan to deal, but often neglect to investigate the people who run those companies. As businessmen pursue the art of the deal, they often conduct fastidious checks of corporate financial records without bothering to consider the risks of fraud and other crimes. In risk mitigation, Inkster said, companies are most vulnerable during times of transition—any downsizing, right-sizing or re-engineering to cut personnel often leaves a dearth of supervisors, too.

“Also, when staffers are under pressure or stress they may do things they ordinarily wouldn’t do—and let’s face it, downsizings are stressful for the ones left behind as well,” Inkster said. “Employees who feel they are about to be let go may give secrets to competitors or take lists or other company assets with them when they leave.”

At the most basic stage, corporations conducting assessments of their security risks might ask some obvious questions to allocate fraud prevention resources. “Financial executives should ask themselves, ‘What does our business have that others may want to steal from us?’” Inkster said. Some businesses, for example, might determine their most valuable assets to be informational, choosing to better secure their customer lists.

Another structural consideration companies might examine is the degree to which employees are compensated based upon sales, Inkster added. Such risk mitigation might not only entail oversight of the sales force, but any executives whose remuneration is tied to sales figures or shorter-term incentives to reach quarterly targets.

Special Risks

While any business with cash flow might need to plug security holes, multinational corporations and other organizations with international exposure face even greater challenges as they navigate terrain that is foreign in ways more than one.

Coming from the developed world, corporate executives might find some of their most basic assumptions thrown aside—such as the trustworthiness of an organization that calls itself, at least in name, a bank.

“Globalization has created many new risks for professionals that have to do business with banks because it can be hard to tell what type of company really is a bank,” Inkster said. “Just because a company says it is a bank or other type of brokerage, what does that really mean? In some countries,” he added, “banks are controlled by organized crime groups or cartels.”

In a number of developing countries, executives must also adjust to new ways of doing business, learning that deal-making and bribery go hand-in-hand in some legal jurisdictions.

Advice To CFOs

Just as people are more likely to be harmed by someone they know, most corporate fraud is perpetrated by those most intimately connected—the business’ managers and employees.

While the Sarbanes-Oxley Act of 2003 in the U.S. helps to provide a good framework, there is nothing the law can do to help companies prevent fraud. “If management conspires to commit fraud, there’s nothing in Sarbanes that can prevent it,” Inkster said. “External auditors might never find it.”

Once corporations have conducted their due diligence investigations and implemented basic safety controls, they often cannot prevent fraud but must learn to recognize warning signs to blunt the effects.

“Sadly, in the business of fraud, a smart person—a bad person—will beat you every time and the bet thing that you can do is to make sure you’ve got the kinds of checks and balances, the Internet control systems in place that they’ll quickly indicate that something is not right,” he said. “In other words, it won’t prevent the fraud but it will help you to catch it quickly and mitigate your losses.”

Security firms such as Inkster Group advise corporate executives on spotting fraud, beginning with the recognition of basic red flags with record audits. Given that business flows continuously across time with loose ends flapping in the breeze, quarterly or yearly records ending with zero balances might jump out at corporate executives, saying, there’s your sign!

Upon detecting fraud, corporate executives face another problem that might seem counterintuitive to observers: whether to report the crime to local authorities, or to pursue another strategy to mitigate losses. “In fact, businesses report very little fraud activity to police and sometimes either do nothing or investigate privately in an attempt to recoup money,” Inkster said.

At that point, the pragmatic executive might conclude that any delays caused by official investigations might hurt management as well as share prices. Thus, the real work lies in identifying risk, placing controls and attempting to manage the affects of crime after the fact.

Copyright © 2005 Association for Financial Professionals, Inc.  All Rights Reserved

52 Percent of 63,249 Candidates Worldwide Passed June 2006 Exams for Investment Industry's Highly Regarded CFA Program - Code #A006
by CFA Institute
August 16, 2006

A Record 12,314 Who Passed Third and Final Exam Will Soon Join More Than 69,600 Charterholders.

CHARLOTTESVILLE, Va., August 16, 2006 – CFA Institute today announced that 52 percent of the 63,249 candidates worldwide in the rigorous Chartered Financial Analyst® (CFA®) program passed the exams they took in June.
 

To earn the CFA charter, described by many to be the “gold standard” for investment professionals, candidates must sequentially pass three six-hour exams that are widely considered to be among the most challenging in the investment profession.  Of the 16,283 individuals who in June 2006 took the third and final exam that leads to the prestigious CFA designation, 12,314 (76 percent) passed.  

For the other June 2006 exams, the Level I global pass rate was 40 percent (26,467 took the exam) and the Level II global pass rate was 48 percent (20,499 took the exam).  Since the first exam was given in 1963, the average global pass rates are 47 percent for Level I, 52 percent for Level II, and 68 percent for Level III.

 “The overall weighted pass rate has moved from 48 percent last year to 52 percent this year,” said Robert Johnson, CFA, Ph.D., managing director of the CFA and CGIPS Programs Division.  “We believe this reflects several factors, the most important of which involves better preparation by candidates.  Our research suggests that candidates spent more time in preparation for this exam cycle and were more focused on the Body of Knowledge™ from which the examinations are directly derived.

“Candidate success was also aided by the proliferation and variety of available learning materials,” Johnson said.  “When I was a CFA candidate in 1990, I was simply given a list of reading materials and had to rely on a large stack of books to study from.  Candidates today have access to many more learning tools from CFA Institute, such as Learning Outcome Statements, online sample exams, and the new custom curriculum.  The exam has also evolved to reflect the changing nature of the investment industry, which is more complex and global.  The CFA examinations reflect this shift because the content is practice-oriented.”

Those who passed the Level III exam – a record 12,314 candidates, which surpasses the last record of 9,410 Level III candidates in 2001 – will begin receiving their CFA charters in early October, provided that they also have completed the minimum work-experience requirement of three years in the investment industry (four years after July 1, 2007), signed a commitment to abide by the CFA Institute Code of Ethics and Standards of Professional Conduct, and become a member of CFA Institute.

“The market recognizes the value of our Code of Ethics and Standards of Professional Conduct and the fiduciary responsibility – putting clients’ interests first – that our members have,” said Jeff Diermeier, CFA, CFA Institute president and CEO.  “Employers of investment professionals believe strongly in the value of the CFA program and many require their professional staff to earn the CFA charter.  They tell us that they appreciate the depth and breadth of charterholders’ knowledge about investing and financial analysis.”  

"The CFA program is increasingly becoming an integral part of our employees' overall investment experience and we continuously promote the CFA program to our employees globally,” said Matthew Scanlan, CFA, head of Americas Institutional Business at Barclays Global Investors.  “BGI has always embraced the mission of CFA Institute and is a strong advocate and supporter of the organization’s goals.  At BGI, we constantly strive to deliver superior investment performance and we are committed to helping advance the investment industry’s body of knowledge, so CFA Institute is a natural partner for us.”

Employers with the largest number of CFA charterholders, Diermeier noted, include ABN AMRO; Barclays Group; CIBC; Deutsche Bank; Fidelity Investments; The Goldman Sachs Group, Inc.; HSBC; Merrill Lynch & Co., Inc.; Royal Bank of Canada; and UBS. 

Exam Results by Country/Region

By country/region, the pass rates for the Level I, Level II, and Level III exams combined are:  

• United States:   54 percent of the 22,173 total exam candidates

• Canada:   53 percent of the 5,914 total exam candidates

• Europe:  57 percent of the 10,287  total exam candidates

• Asia and Pacific Asia: 49 percent of the 21,109  total exam candidates

• Central and South America: 46 percent of the 1,091 total exam candidates

• Africa/Middle East: 39 percent of the 2,675 total exam candidates

Thirty-six percent of all CFA candidates for the June exam were from the United States, 21 percent from Pacific Asia, 15 percent from Europe, and 9 percent from Canada.  Countries and territories with the largest number of candidates outside North America were Mainland China (5,840), Hong Kong (5,201), United Kingdom (4,807), India (3,178), South Korea (2,919), Singapore (2,726), Taiwan (2,135), Switzerland (1,289), South Africa (1,239), Germany (1,219), and Japan (1,171). 

Candidate Enrollment Forecasts

“We estimate there to be 200,000 serious investment professionals in the United States who might qualify for the CFA designation, as well as 90,000 in the United Kingdom and 80,000 in Japan for example, with thousands elsewhere across the globe,” said Timothy G. McLaughlin, CFA, chief financial officer of CFA Institute. 

CFA Institute expects more than 121,000 candidate enrollments for the December 2006 and June 2007 CFA exams:

• United States:  More than 42,000 estimated total candidate enrollments

• Canada: More than 10,000 estimated total candidate enrollments

• Europe: More than 18,000 estimated total candidate enrollments

• Asia and Pacific Asia: More than 42,000 estimated total candidate enrollments

• Central and South America: More than 2,000 estimated total candidate enrollments

• Africa/Middle East:  More than 6,000 estimated total candidate enrollments

“Employer demand for employees with the CFA credential is driving the growth we are seeing in the number of candidates,” Diermeier added.

CFA Program

On average, CFA candidates take four years to pass the three required exams.  (The Level I exam is offered twice per year, while the Level II and Level III exams are offered once each year.)  The exams cover ethical and professional standards, equity analysis, debt analysis, derivatives analysis, alternative investments, financial statement analysis, quantitative methods, economics, corporate finance, portfolio management, risk management, asset allocation, and performance measurement.  CFA Institute recommends at least 250 hours of study per exam.  Enrollment information may be found at www.cfainstitute.org/cfaprog/register/index.html.  

“The CFA designation is a passport to practice anywhere in the world.  The curriculum and examinations are grounded in practice and are regularly reviewed to ensure global relevance,” Johnson said.

There are more than 69,600 CFA charterholders in 120 countries and territories (not counting candidates from the June exams). CFA Institute expects the majority of the 12,314 candidates who passed this year’s Level III exam will become CFA charterholders later this year, bringing the number of charterholders worldwide to more than 79,000.  

CFA Institute

CFA Institute is the global, non-profit professional association that administers the Chartered Financial Analyst® curriculum and examination program worldwide, publishes research, conducts professional-development programs, and sets voluntary, ethics-based professional and performance-reporting standards for the investment industry.  CFA Institute has more than 84,000 members in 128 countries and territories, including the world’s 69,600 CFA charterholders, as well as 134 affiliated professional societies in 55 countries and territories.  CFA Institute has offices in Charlottesville, Va., New York, London, and Hong Kong.   More information may be found at http://www.cfainstitute.org.

The Final Leg: Wishing You All Success
Code #A008
by Stalla
October 20, 2006

With little more than a month until your CFA® Exam, we at Stalla want you to know we're rooting for you on exam day! You will have lots to keep track of over the coming weeks, so we've included below some important reminders and tips going into the final stretch.

But first, a reminder to keep your confidence strong...  Remember, the CFA exam is a pass/fail test, and at Level 1, the exam emphasizes knowledge and comprehension. You are not striving for an "A+"; all you need is to pass. While the standards used by CFA Institute’s Board of Governors to set its minimum passing score are not disclosed, 70% is typically considered a perfectly acceptable score. 

Tips for the Final Month of Review

• Don't get overwhelmed, and review the material in "bite-sized chunks". If you are a Stalla System student, you have already received guidance on where to focus each week. In addition to taking simulated exams using your PassMaster software, it’s time to begin reviewing your Study Guide’s Key Points and Important Equations as well as your Lecture notes and personal formula sheets.  Focus on your areas of weakness and contact your Personal Tutor if you have any questions.

• If you are not a Stalla System student, we suggest you schedule on your calendar every step of your remaining preparation through exam day, making sure to allow sufficient time to address weaknesses you discover during the final weeks of review.

• Network with your classmates and/or colleagues for support, and consider starting a study group to keep each other motivated, using flashcards as a final review study resource.

• Know and practice with the same calculator you'll use on the exam. Learn how to properly clear the calculator and be sure to do this before starting every calculation. 

• Focus your final review on the most heavily weighted topics which will have the biggest impact on your results. Know what concepts you mastered, and which need more attention.

• Build up your exam endurance and track your progress by taking simulated exams and progress tests using either your PassMaster™ software or CFA Institute's online sample exams.

• Check that your photo identification has not expired, and make sure the name on your admission ticket matches your name as it appears on your ID. IF NOT, complete and submit the Name Change Form from the CFA Institute Candidate Website.

Week before/Night before the exam

• If you haven't been to the test center, get directions from the CFA Candidate Website and visit the testing center, parking lot and exam room before exam day. 

• Stop studying the afternoon before the exam and get lots of rest for several days before the exam.

• The evening before your exam, check your alarm clocks (yes, two), lay out your clothes and items for your exam (see below), and replace and test your calculator batteries.

Exam Day Reminders

• Dress comfortably and with layers. 

• Don't skip breakfast the morning of your exam; you'll need the energy.

• Plan to arrive to your exam center location 90 minutes early. While you must report to the exam room one hour before the exam, you'll appreciate that extra 30 for unanticipated delays or just to decompress. 

• Avoid any exam related discussion before the exam and over lunch. These types of conversations may discourage you and impact your confidence and results.

Taking the Exam 

• Take the "3-Pass" Approach to your Level 1 multiple choice problems:

1.       First, complete those questions you can answer quickly (1 minute or less) and easily, being sure to take the time to really understand what is being asked.

2.       Second, answer the questions that you know but that take more time to complete, such as computational questions. 

3.       Finally, work through the questions you are unsure of, eliminating clearly wrong answers and choosing the best remaining answer. 

• Be mindful of the time. If you get stuck, skip the question and come back to later.

• Don't "over-think" questions. The CFA Institute Board of Examiners is trying to assess your knowledge of the subjects covered in the assigned readings. They are not trying to trick you. 

• Record your answers on the answer sheet rather than your exam booklet, and periodically check to be sure that the oval you fill in on the answer sheet corresponds to the number of the question.

• Also, when answering multiple-choice questions, be sure to fill in ALL the ovals.  CFA Institute only gives credit for correct answers and does not deduct points for incorrect answers. If you notice there are only 5 minutes left and you still have 8 questions to complete, go through and mark an answer for each. Then get back to work knowing there is a likelihood of getting some of those answers correct.

• BE WARNED: Do NOT open your exam books before the exam commences, and STOP writing immediately when instructed to do so. Candidates have exams invalidated for these missteps. 

• Remember there are two sessions of the examination-one from 9:00am-12:00pm and the other from 2:00pm-5:00pm. You must attend both sessions for your exam to be graded. 
   

2006 SHRM Workplace Forecast - Code #A009

The following findings are from the 2006 SHRM Workplace Forecast, a survey of key issues and trends influencing the workplace and the HR profession. Based on a random sample of 1,232 HR professionals in the United States, the report is divided into eight broad categories including demographics, economics, employment, international issues, politics, technology, society and the HR profession itself.  

International Issues

Though globalization is not a new development, the increased mobility of goods, services and capital throughout the world has highlighted the importance of international issues in business

and the economy. Globalization is an underlying theme throughout many of the trends that HR professionals felt would have the strongest impact on the workplace. Trends within the global or

international area included the expansion into the global marketplace, the economic growth of Asia, increased pace of change, cross-border and regional employment, policies and legislation,

cultural issues, offshoring, and a growing interest in the role of business in encouraging both positive and negative social and political developments.

International Trends Most Likely to Have a Major Impact on or Cause a Radical Restructuring of the Workplace according to HR Professionals

Note: Sorted by descending order by “major impact” column.
Source: SHRM Workplace Forecast (2006)

A global marketplace

An expansion of the marketplace is developing on two fronts. Globalization and the development of emerging economies are creating new markets for goods and services, while information and communications technology is helping to link together businesses with consumers all around the world. Business writers and leaders, such as CK Prahalad, are focusing more attention on the market potential of the so-called “bottom of the pyramid,” which consists of low-income individuals living in developing countries. As the economies of many countries, especially in Asia, grow more robust, there may be a greater number of middle class consumers who will want to tap into the products and services of the industrialized world. But writers like Prahalad argue that even if a large proportion of these populations remains in poverty, economies of scale still make them a major potential market for the right products. The major expansion of the world market is leading businesses to think globally. The number one action that HR professionals reported their organizations were taking in response to international trends was to expand into the global marketplace. Even those companies with no plans to move into the global market may need to consider new competitors at the international rather than local or national level. The use of outsourcing, supported by information and communications technologies, is enabling many types of work to be done anywhere. For this reason, the expanding global marketplace can be viewed as both a threat and an opportunity.

Economic growth of Asia

The growing economies in Asia, especially China and India, are major players in this expanding global marketplace. Not only are most of the leading offshoring destination countries located in Asia, Asian companies are also major employers. In addition to large companies investing in Asia, many smaller companies are also setting up operations in an attempt to tap these growing markets. In 2005, China could be considered the second largest economy in the world after the United States when measured on a purchasing power parity (PPP) basis, though not in per capita terms. China is already estimated to be the world’s largest consumer of grain, meat, coal and steel and is ahead of the United States  in the consumption of goods such as television sets, refrigerators and cell phones, though per capita consumption in China is still below that of the United States. As the world’s most populous country, the potential market in China is enormous and is leading to massive investment. Investment in India has been largely driven by business process offshoring. The United Nation’s (UN) projected growth rate for India at 8% over 2006 is nearly as high as that of China at 9%. India continues to rank at the top of the list of the most attractive offshoring destination countries (see Table 17) in spite of increasing wages. With demand for skilled workers high, India may continue to experience wage inflation for the most in-demand workers. This could represent an opportunity for other Asian economies to benefit from the offshoring trend. In addition to India and China, other Asian economies are also projected to experience healthy growth levels. The UN predicts that Malaysia, Thailand, Singapore and Taiwan will boost their economies through an increased demand for electronics while Pakistan and Bangladesh could benefit from a growing demand for textiles and more investment in education and infrastructure.

Accelerating change

The expansion of the global market as well as the strengthening of infrastructure and communications technologies is creating an environment where change can happen very quickly and often unexpectedly. Economic growth among emerging and developing countries is also integrating them into the world economy. With greater economic interdependence, the chance of economic shocks as a result of instability in regions or countries may grow. On the other hand, the economic integration of more countries could make the response to economic shocks more rapid. In either case, a greater number of players in the world economic market make change more likely. In addition to globalization, communications technologies that shift information around the globe instantly lead to faster reactions and change.

Cross-border policies and employment legislation

Regional employment policies are becoming more well-established in many geographic regions of the world. HR professionals operating in a global environment will need to be aware of cross-border policies and legislation in order to comply with all applicable laws. Many multinational companies are using planning systems that create one standard across all operations to ensure that they comply in every country. Because policies can vary, even within countries, ensuring compliance on a global level is extremely complex. Legal compliance experts will continue to play an important role in the formation of HR practices of multinational organizations. In addition, key regions will continue to influence employment practices. The influence of the European Union and European employment law could continue to be critical for global employers, especially because European courts seem to be more likely to rule against companies in cases involving working conditions or competition law and because many European employment laws cover a wider range of workplace issues than those in other countries.

Need for cross-cultural understanding in business practices

In 2006, HR professionals ranked the need for cross-cultural understanding higher than they did in 2004. This may be the result of more rapid global business expansion, in which HR professionals are bridging cultural divides, or as the result of greater attention in the media and public discourse given to cultural differences at home and abroad. The importance of greater cultural understanding will only continue to grow for HR professionals in a globalizing economy.

Cultural issues may play a crucial role in determining the success of transnational mergers and acquisitions, the decision to offshore and working through a global supply chain. In addition, HR professionals will continue to be responsible for policies and practices that ensure that their organizations do not discriminate, and with the expected increase in diversity in the workplace, fostering cultural sensitivity will be necessary for employees to work effectively with one another.

Though English has established itself as the world’s business language, a more culturally diverse global business environment will also mean that a multitude of languages may be spoken depending on the context. This shift could lead to increased expectations of language skills among executives and greater investment in language training.

Offshoring

HR professionals may be increasingly involved in the decision to offshore as well as the process of either contracting out work or establishing operations in other countries. They will also need to deal with the impact on employee morale, recruitment and retention of the workforce at home. Currently, Asian countries are considered key offshoring destinations (see Table 17), but as more countries attempt to benefit from the offshoring trend, deciding where to offshore may become more complex. Because wages and productivity rates can be quite sector-specific, a large amount of industry- and country-specific data may be needed to make the right decisions regarding offshoring. Though business consultants are making offshoring a key element of their advisory practices, ultimately the organizational leadership will need to have an in-depth understanding of the issues. Because offshoring is based mainly on human capital issues, HR leaders will be expected to have a thorough understanding of all of the options and be able to give business leaders detailed information on the labor market and legal and economic environment of any potential offshoring destinations.

Push for global labor standards

Offshoring is also a driver behind the growing push for global labor standards. Earlier, the movement for global labor standards focused on poverty and working conditions in developing countries. Though the members of the movement pushing for global labor standards continue to include antipoverty activists, broader economic trends are involving new players in the issue, particularly labor unions. One of the issues emphasized by the Change to win coalition in its split from the AFL-CIO was the need to push for better working conditions abroad. Not only can U.S. unions be expected to support the development of global labor standards, they are likely to do this through attempting to build transnational union alliances of workers working in the same industry. Though technology may help bring together new groups of international union alliances, equally likely could be more alliances between unions and activist groups aimed at bringing about the establishment of global labor standards. The development of regional employment laws is also likely to influence this issue.

Global and domestic safety and security

The war in Iraq and the deaths of nonmilitary personnel and private contractors continue to highlight the issues of safety and security, especially for expatriate employees working in dangerous regions of the world. Because regional instability and anti-American or anti-Western sentiment can vary widely depending on political or current events, HR professionals must be able to act quickly to ensure the safety of expatriate employees. In some cases, this may require evacuating employees from an unstable area or working closely with government or military officials to ensure the safety of expatriate employees. It may also mean making special arrangements for expatriate workers’ families, and in some cases, organizations may find it difficult to assign expatriate employees to unstable areas due to family or safety concerns.

Backlash against globalization

Protests against global bodies such as the World Bank and International Monetary Fund or at high profile summits such as the World Economic Forum in Davos, Switzerland, illustrate the dissatisfaction that many individuals and groups around the world feel toward the current direction of market-based globalization. HR professionals continue to rate this as an international issue that could affect the workplace in the years ahead. One important factor that will be significant in shaping this movement is how focused it may become and how broad of a base of supporters it could encompass. Though often characterized in the media as simply “antiglobalization” activism, this movement involves a number of issues and organizations, including environmental concerns, global labor standards, trade issues and human rights. Many of these campaigns are led by nongovernmental/nonprofit organizations (NGOs). A 2005 Gallup survey commissioned by the World Economic Forum found that people around the world had the lowest levels of trust in national legislative bodies and large companies and the highest in NGOs. This “trust deficit” has been deepening during the last few years and could continue to grow. If so, public distrust in both national governments and multinational companies could lead to a growing backlash against some aspects of market-based globalization.

Ethnic and regional tension

Ethnic and regional tension and the rise in nationalism rank slightly lower on HR professionals’ list of top international trends than they did in 2004. Managing operations where political or social instability is on the rise as a result of ethnic or regional disputes will continue to be taken into account when making foreign investment decisions. Reliance on unstable regions for key natural resources, especially oil, will continue to drive business and political decision-making.

Foreign nationals and students

There is some disagreement among HR professionals over trends relating to foreign nationals and foreign students. Almost an equal percentage of HR professionals believe that there will be an increase in foreign students staying on to work in the United States compared with those who believe there will be a decrease. This may be because it has become more difficult for foreign students to obtain visas in the aftermath of 9/11, but at the same time, demographic trends make it likely that immigration levels will increase, especially among highly educated immigrants. The education foreign students obtain in the United States makes them good candidates for finding jobs and staying on to work and raise families. However, many HR professionals predict a decline in the use of H1-B visas, perhaps as a result of legal restrictions. In the event of skills shortages, requirements for obtaining H1-B visas may be loosened.

Anti-Americanism

Anti-American views continue to be the majority in many countries, even those considered U.S. allies. Strong anti-American and anti-Western views may affect multinational companies through consumer boycotts or, in some cases, security threats or property damage. In some cases, companies may adjust their brand to better integrate with the local culture.

Business/corporate role in dealing with global problems

Businesses may be forced to take on a greater role in dealing with global problems for several reasons. First, instability—whether stemming from political problems, war, access to natural resources or public health issues—creates economic uncertainty and a volatile business environment. In addition, growing public distrust in large companies could lead to more consumers blaming global problems on business practices or even specific companies, thus threatening business brands. As corporate social responsibility becomes an expected part of doing business, more companies may look at how they can help bring about solutions to global problems. This may not only be through corporate social responsibility initiatives but also through the development of products and services that address specific needs.

Implications of international trends for HR

As in 2004, the main way that organizations are responding to international trends is through expanding into the global marketplace. Even for HR professionals working at organizations that are primarily locally or nationally focused, international issues are likely to have an increasing impact on product markets, supply chains and business practices. For the growing number of HR professionals working for organizations with an international presence, global human capital issues will become a major focus of their attention, particularly the integration of different cultures, management of a global workforce, the decision to offshore and management of offshoring, and a thorough understanding of regional and international employment legislation.

Note: Sorted in descending order by “yes” column.
Source: SHRM Workplace Forecast (2006)

Source:
Schramm, J.  (2006)  SHRM Workplace Forecast.  Alexandria, VA:  Society for Human Resource Management.

For more information on the SHRM Workplace Forecast and HR trends go to www.shrm.org/trends

Call for Presenters - Code #A004

Become a part of IMA’s  Annual Global Conference in Dubai May 6-9, 2007.

IMA is currently seeking senior business leaders to present at this leading-edge event.

The Conference offers educational opportunities to management accountants delivering value in the areas of decision support, planning and control.  Topics include leadership strategies, ethics, strategic cost management, enterprise risk and controls, planning and budgeting, and enterprise business reporting among others. . Presentations typically run 75 minutes within a given track, with 10 to 15 minutes of questions and answers. Workshops can range between 75 and 125 minutes with a combination of narrative, case studies, and problem solving. IMA is also open to other format suggestions to make best use of the presenter’s material. If you wish to submit a program idea for one of our educational sessions, please provide three items to jthomson@imanet.org (Jeff Thomson – VP of Research) and jgurowka@imanet.org (James Gurowka – Leader, International Business Development).  The items are:  the speaker’s complete contact information; a session title (short and compelling); and, a proposed session description (100 words or less – compelling, relevant and creative). 

Submissions will be reviewed by the Program Committee, and you will receive notification by November 2006.