Rendell Case

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The allegiance of any kind of controller should be to the business itself and not to the business unit managers. Hence, even if the division controllers would report to the corporate controller, the working relationship of the former to the division managers would still exist, but not as close as before. The role of the division controllers would be supervisory in terms of the financial performance and auditing of the division managers. The division controller would now be able to perform its intended functions with the overall goal of protecting the company’s assets. This would also lead to the promotion of goal congruence by minimizing conflict of interests.

3. What should the relationship between the corporate controller and the divisional controllers? What steps would you take to establish this relationship on a sound footing?

We have two alternatives on which Controllership Structure Rendell should adopt. The first one is status quo – continue the business with the current setup (Rendell’s Dotted Line Controllership Structure), or the second one which altering its structure by adopting the Martex model (Solid Line Structure). There are pros and cons for these two substitutes as discussed below.

The Martex Model has adopted the functional structure, however the Rendell’s current structure is founded on the business-unit structure.

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Rendell’s Controllership Model

Advantages

Disadvantages

Better relationship between Division Controller and Division Manager

Conflicting interest between the Corporate Controller/Management and the Division Manager

Faster decision-making and budget approval can be achieved since it is easily justified in the eyes of corporate level management

The reports are biased towards the Division Manager and the Division Controller cannot act on this since he is under DM’s authority. Hence the reliability of the reports can be put in question.

Lack of empowerment on the part of DC to perform his duties due to the limitation of his role

Division Managers are more likely to serve their personal or divisional interests using this structure (Dotted Line) by working towards hitting division targets than meeting the overall goal of the organization. To achieve goal congruence, our group recommends that the division controllers should report to the corporate controller, instead of the division manager as proposed under the Martex Model (Solid Line).

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The Martex Controllership Model

Advantages

Disadvantages

More flexibility to control implementation

Conflicting interest between the Division Controller and the Division Manager

Division Controller will be more empowered to perform his duties with integrity

The effect of uneasy working relationship between DM and DC can lead to inefficiency

More reliable reports will be submitted to the top management

DM may unofficially assign DC’s role to someone else due to lack of trust

Hidden budget allocation (fats) can be eliminated

Slower budget approval/reporting process

Promotes goal congruence between the division level and corporate level management

Controllership functions can be best accomplished using Martex structure for better Goal Congruence, hence we recommend this method to be implemented by the Rendell Company.

With the current set-up of divisional controllers reporting directly to the divisional general managers, the loyalty of the divisional controllers are mostly given to divisional general managers. The problem with this set-up is that, the role of divisional controllers is merely to prepare the documents needed in budgeting and reporting performance, and just explain some technical points in the report. Even if he has something to say regarding the financial performance of the division, the most that he can do is inform the divisional general manager and let him do the decision making and the action. This scenario may be applicable if the division is considered as one company, having no relation at all with a head office or any other divisions. However, in the case of Rendell, each division is considered a business unit of the Rendell Company. Which means that the goals of each division should support the entire organizational goals. This kind of set-up acts as if each division is on their own and has controllers protecting their own financial performance.

Also, as discussed in the previous lesson, the role of controller is evolving. Gone are the days that controllers just record and interpret financial data. They have to be more active in analyzing, reporting, and providing suggestions and recommendations to the top management that would help achieve the company’s goals and objectives. It is important to take note that top management mentioned is that of from the headquarters, and not just in the division level.

There is an incongruence or conflict of interest between the Corporate Controller and Division Manager. The aim of the corporate controller should be to minimize budget allocation and maximize the use of resources in order to be more efficient and profitable, whereas the goal of the division general manager is to show an effective management. The controller would usually try to reduce the budget proposal that the division manager is requesting for, even though the manager would always want a larger budget for his business unit. This goal incongruence may lead to ineffectiveness to achieve the goals of the organization. In the case of Rendell Company, it can be observed that the goal of corporate controllers’ is to minimize the budget allocation and maximize the use of funds. On the otherhand, the division manager always prefer huge budget allocation to be able to be more effective in running his business unit.

The relationship between the corporate controller and the divisional controller should be a solid line (Martex Model), which means