Wednesday 18 November 2015

Finance Directors and Ostriches - why they both stick their heads in the sand

The FD and the Ostrich, by betterFX

One of the best known myths is the one about ostriches 
sticking their heads in the sand when frightened; it is not 
true - they run away very fast (at up to 40mph). The myth 
comes perhaps from the need that ostriches have, to root
around in the sand for small stones which they swallow to 
help their digestion.

Answering the question, "Why do FD's, CFO's and other finance managers (let's just use the collective term FD's for now) stick their big brained heads in the sand" where Foreign Exchange is concerned, takes a little longer.

In my two decades in the FX business, one of the hardest things to do is to persuade FD's that they might even have a problem, even though 80-90% do, but just don't realise it.

I have a number of theories about why this is, based on real experiences meeting with hundreds of FDs.

1. Too busy. Finance departments are rarely staffed up to the level where management can examine every nook and cranny of the company's financial activities. Being reactive, fire fighting and meeting reporting deadlines all come first.

2. FD's are generalists. By definition most FDs are generalists needing to have a very broad knowledge of a wide range of financial disciplines. This is particular true in small and medium size businesses (SME's) who would not have the luxury of specialist finance roles in tax, treasury, accounting, corporate finance etc.

3. Closed mindedness. I'm not sure if that is an accepted term, but what I mean here is not being open minded. The more senior a finance manager is, the more they believe they are all knowing. This is probably reinforced by being the finance expert in their company, and to whom all colleagues and senior managers look to for financial wisdom. If someone comes along and essentially says they may be missing something, the shutters come down.

4. The prey taking advice from its predator. Many FD's take their advice from their banks, or non-bank FX providers. The goal of these providers is to make as much money for THEIR shareholders, which means finding as much revenue from the FX flows of a company as possible; and that does not normally mean offering the lowest possible costs in terms of FX rates. In fact, in most cases it will mean the exact opposite.

So what do you think happens when the FDs of companies are too busy to look into an area of cost, that they are not a a specialist in, but which they still believe they know enough about to be able ignore, and who put their trust in the firms that want to exploit them??

Answer;  Lots and lots of banks and other FX providers making lots and lots of money, whilst lots and lots of companies LOSE lots and lots of money, without realising it.

The real question here is who is most at fault? Is it the finance manager community for allowing themselves to be exploited in this way, or is it the banks and non-bank FX providers who are at fault for exploiting them?

Or is it neither? Is this just how the free market world works, where sellers extract the highest price a  buyer is willing to pay, and exploiting buyer weakness is a fair game?

One thing for sure is true, if you do stick your head in the sand, don't be surprised if you get bitten in the backside!!

If you are a finance manager and want to tackle this problem in your company just visit, and send in a contact form. betterFX is NOT an FX provider, but finds companies the best FX deals on the market, personally negotiated for you.

Some of the biggest house hold names in the world have followed this advice and saved huge sums - your company could too.

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