Rendell Company

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the best information from their divisions. Although some of the aspects of Martex’s system might be helpful to Rendell Company, the system as a whole would not fit into their structure.

To whom should the divisional controllers report in Rendell Company? Why?

In Rendell Company, divisional controllers should stay reporting to the divisional managers but introduce a solid line relationship to the corporate controller. The relationship between the divisional controller and the divisional manager is vital to the division’s success, which contributes to the overall goal of profitability and growth of the Rendell Company. It is very important to maintain a close relationship in order to effectively and efficiently run the division. The corporate controller needs to accept that there will always be some element of fat in the budget. Instead of eliminating all fat from the budget, it’s about managing financial expectations in order to get to profit targets. The corporate controller can not have unreasonable expectations for divisional performance. If he believes he is getting inaccurate information, it may be because his expectations for performance are unrealistic and is setting unreasonable budgets. Having fat in the budget is actually critical to divisional performance. If all fat is eliminated from the budget, just one thing that does not go as planned for the division can make it impossible to reach their targets. This would harm the firm’s profitability and long term success because in order to meet their targets, the divisions would do things to cut expenses in the near term, such as fire skilled workers which could be detrimental to long term success.

One change that needs to be made in Rendell Company is the corporate culture. The corporate controller should set the tone of the top that creates a proper culture for financial reporting expectations at the divisional level. The culture should require transparency between the corporate controller and division controllers and encourage honest discussions. If managers are deliberately cooking the books, the culture should reflect no tolerance and they should be relieved of their jobs immediately. However, there is a difference between creating fat in budgets and reporting inaccurate financial information. Having some flexibility in the budget should not be seen as secretive and inaccurate. In order to achieve this corporate culture, the corporate controller needs to have improved communications with divisional leadership. This includes not only the division controllers, but also the division managers, in order to have a better understanding of performance. There needs to be frequent conversations that happen monthly, or quarterly, at a minimum.

The role of division controller needs to be strengthened. This includes a stronger relationship and more accountability to the corporate controller. The corporate controller has a responsibility for internal audit and needs to ensure proper oversight. The corporate controller has input to annual pay increases for divisional controllers. This is one way he can set expectations for division controllers. If division controllers do not contribute to the transparent and honest relationship and deliver accurate reports, they will not be rewarded financially. Not only should the relationship between corporate controller and division controller be strengthened, but the relationship between division controller and division manager should be as well. The division controller should not be a subordinate to the division manager, they should be business partners. This will increase the accountability of the division controller to produce accurate reports and not be influenced by the divisional manager. However, it is vital that the corporate controller be cognizant of the important relationship that division controller should have with division managers. Corporate should want division controllers and division managers to be a highly effective team in order to meet firm objectives of profitability and growth.

What should be the relationship between the corporate controller and the divisional controllers? What steps would you take to establish this relationship?

The relationship between the corporate controller and divisional controllers needs to be an extremely transparent relationship with open and honest discussions. This includes monthly phone calls with the divisional controllers alone but also regular reviews with divisional controllers and divisional managers that discusses forecasted performance to budget where they review risks and opportunities. By allowing divisions to address potential risks and opportunities, the corporate controller has a better idea of what is happening in the divisions and can understand potential risks that could affect financial performance. It increases transparency between the two parties. Also, the corporate controller should follow up with the divisional controllers and have a year end recap to better understand the financial performance of the division and the impact of the noted potential risks or rewards. Because the corporate controller is apprehensive about the future implementation of modern control techniques, the relationship should also include initiatives to improve controllership at the divisional level to include new methods and techniques. The corporate controller needs to communicate control techniques and expectations to divisional controllers. While the divisional controllers work with the divisional managers, they have a responsibility to the organization to provide honest and accurate information to the corporate controller.

Would you recommend any major changes in the basic responsibilities of either the corporate controller or the divisional controller?

In terms of major changes that would change the basic responsibilities and help solve the problem at Rendell Company, there are a few possibilities. Currently the divisional controllers help support the divisional manager, who is responsible for reporting results to corporate headquarters. The current system doesn’t promote goal congruence among the divisions and corporate. This can be achieved by changing the responsibility and relationship of the divisional controllers so they can act more independently of their respective divisions. It is believed that the divisional controllers can act more independently if they themselves are responsible for the reports instead of the division manager. This would hopefully create an environment where the controller doesn’t feel the need to “dress up” reports in order to gain the approval of the division manager.

Changes that could be made to responsibilities at the corporate level that