Alex Malley - cashflow is the key

The big bonuses and exorbitant salaries paid to corporate executives are not only impacting on stakeholders, but are also intoxicating Australia's emerging generations. A Macquarie University academic says that many university students are not studying for challenging and rewarding careers in the corporate world, but to simply become wealthy.

Macquarie University's award-winning accounting and finance academic, Alex Malley, says the unprecedented enrolments in accounting, finance and business related courses can be strongly attributed to the priority given to high incomes and associated lifestyles.

Malley, who is also a senior member of the CPA profession, has been researching and consulting to public and private sector organisations in the area of strategic cash flow management for many years, and has published a number of refereed journal articles.

He enjoys sharing his experience in the corporate world with his students and encourages them to be analytical and critical, particularly in relation to ethical standards and the distinction between alleged corporate performance and cashflow reality.

Malley believes that the role of universities is to develop not only the lateral skills of students, but also a sense of ethical practice and an understanding of the pressures and responsibilities faced by accounting professionals.

“I talk to students about the romance of accounting, that is, the opportunity to be central to all major business decision making - from recognising the signs of corporate disaster to setting a new course for success,” Malley says.

But, he adds that many accountants confront difficult situations in relation to management and board of director issues and believes universities need to expose students to such realities and train them to deal with conflict in a structured and ethical manner.

When asked to comment on recent high profile collapses, Malley says the issues of cash shortfalls and exorbitant bonuses are nothing new. “This has been the case with company failures over many decades. A gambling mentality seems to pervade the financial management of many of our large public companies - the idea that eventually things will turn around if we keep throwing money at it,” he comments.

“There is a tendency for companies to reward the volume of transactions rather than the return on those transactions,” he explains. “If the aim is for volume, then there is nothing stopping the process of discounting to enhance that volume. The trouble is that when discounts are taken into account, the cash flow returns are simply not there.”

Malley believes that company stakeholders need to embrace today's risk realities. “An unprecedented number of companies have, and will continue to, float on the market with high expectations of quick returns. We are also seeing an increased focus on short term business turnover to enhance market value rather than a concentration on cash returns from such growth,” he says.

“The market and the media are fixated on the profile of company directors and associated public statements on performance, rather than scrutinising cashflow information, which is now available along with traditional accounting reports.”

According to Malley, new industries, including telco and techno, are often characterised by a shortage of experts in comprehensive technical knowledge and its relevance to the market.
“This places management teams in difficult positions in relation to strategic decision making and cashflow management,” he says. “There is increasing evidence of new strategic directions being undertaken in the corporate sector with no substantial cashflow reserves to contribute to the initiatives, placing reliance on public and institutional funds.”

He also believes that these new markets are heavily focused towards the younger generation, which is relatively untested in its credit worthiness. “This is obvious when you analyse the level of bad debt provisions of many public and private entities.”

Malley says there is little evidence of risk management strategies to combat increasing levels of debt, and little evidence of corporate governance provisions leading to an increased risk of nepotism or mismanagement of funds.

According to Malley, education is the answer to resolving this problem.

“The next generation must be exposed to these issues and trained to focus on the reality of business survival and long term growth through strategic cashflow management. Corporate regulation will become substantially more potent only when stakeholders act on cashflow realities rather than marketing rhetoric,” he says.

“An entity cannot and will not survive in the long term if it does not have the capacity to generate strong predictable operating cash surpluses. Bonus systems should be based solely on cashflow targets being achieved. Growth strategies should only be adopted when cash flow reserves meet the minimum levels predetermined within the strategic plan,” he adds.

Story by Kathy Vozella
Photo by Effy Alexakis

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