What management expects: evaluation of the tax department and its executives

Tax Executive, The, Jan-Feb, 1996 by Raymond F. Douglas, Patrick J. Ellingsworth, James P. McAndrews, III

Jim William's observed that taxes are more important in business units that are experiencing consolidation and aggressive competition. Managers are no longer judged by their "contribution margin," he said, but rather on a return-on-equity or risk-adjusted after-tax basis. As such, there is a need for the tax department to become a true partner with the business, and for tax personnel to become educators and advocates for how taxes can make a difference and should be considered in business decisions.

In judging the effectiveness of the tax department, Mr. Williams considers the following measurements:

* The department's relationship with taxing jurisdictions and its success in handling tax litigation;

* Its creative new ideas for reducing taxes;

* The cost of the department and productivity gains;

* The processes by which returns are prepared and audits handled;

* Benchmarking and management of tax function;

* Competency and continuous education;

* Skills at advocating, consulting, and negotiating; and

* Evaluation of the department from a service perspective.

Like most of the other evaluators, Mr. Williams does not place great significance on the effective tax rate in judging performance because of the lack of comparability with other companies and the numerous questions that need to be asked. Rather, he looks for a different' kind of effort from his tax department -- one that adds to the bottom line and responds to the needs of a company experiencing consolidation and aggressive competition.

Conclusion

The responses to the survey show that tax departments are evaluated on the basis of traditional measurements -- meeting compliance deadlines, tax dollars saved through planning, results of tax audits and the like. Perhaps these responses are a function of how the survey was structured or may simply represent the view of the individual tax executive.

The comments of the evaluators, on the other hand, suggest that they take a much broader view in the way they evaluate the tax department and its executive. This perspective is reflective of the evaluators' span of responsibility and what "turns on" bosses in general. As Barry Eigen pointed out in his book, How TO THINK LIKE A Boss AND GET AHEAD AT WORK, the qualities that turn bosses on are:

1. Vision: The ability to see the organization and its goals in total.

2. Initiative: The ability to get started on your own.

3. Risk Tolerance: The willingness to try new things even though success may be uncertain.

4. Trustworthiness: Honesty and follow-through.

5. Confidence: The willingness to say "I don't know," "I made a mistake," or "Other people have good ideas, too."

6. Leadership: The ability to motivate and direct others, to build a team.

7. Courage: The willingness to think independently and stand up for your opinions.

8. Communication: The ability to write and speak clearly and succinctly.(8)

The comments of the evaluators are loud and clear with respect to these items -- vision through the executive's creativity and knowledge of the business, communication through the executive's ability to speak the business language effectively, and leadership through the executive's ability to exude enthusiasm and instill staff teamwork and creative thinking. They also strongly emphasized the modern-day demands to provide superior customer service and add increasing value to the business enterprise. In the final analysis, these broader-based measures appear to be the real-world measures by which the performance of the tax department and its executives are judged.