China National Petroleum Corporation: Meeting the challenges of complexity and volatility

China National Petroleum Corporation: Meeting the Challenges of Complexity and Volatility


February 2013

Wang Guoliang is the chief financial officer of China National Petroleum Corporation (CNPC), China’s largest oil and gas producer and supplier, as well as one of the world's major oilfield service providers. Mr. Wang, who has worked in China’s oil and gas industry for nearly 30 years, is a director of PetroChina Company. As part of an Accenture research initiative studying high-performance finance organizations in Chinese companies, we spoke with Mr. Wang about the role of chief financial officers in improving overall business performance.

Outlook Q&A: Making good business decisions today requires timely and accurate financial reporting data. What should CFOs do to improve the reliability of this information?

Wang Guoliang: Our experience has shown that companies should focus especially on strengthening their financial management system and improving their risk management and control processes.

For example, an important step we took after the reorganization and listing of CNPC in 2000 was to centralize our accounting system to ensure that we produce accurate and timely accounting information. Our goal was to introduce corporate-level accounting with one set of accounts managed at the highest level.

Before the company was publicly listed, we had 1,800 sets of accounts, with seven tiers of accounting across business segments, regional companies, factories, units and other parts of CNPC. Accounts were manually consolidated, took a long time to produce and often contained inaccurate data.

Starting in 2007, we worked to centralize the accounting of all regional company subsidiaries. Now the accounting data prepared at different levels of our subsidiary companies is sent directly to CNPC headquarters. Financial statements are generated by our headquarters’ finance department at the same time that statements are produced by the individual business units. From having 1,800 sets of accounts, we now have just one.

Because the accuracy of data is managed by CNPC headquarters, we can better support the production of reliable and timely information. We can also generate financial statements at any time.

As part of this centralization, are you considering moving to a shared-services center model?

Our company’s management has already reached a consensus on the strategic importance of setting up a shared-services center, so we are already moving in that direction. We believe that model will help make us more competitive.

For example, there are still some gaps between expenditure and revenue at our subsidiary companies. Shared-services centers are an important part of addressing that issue because they impose standardization and process-oriented operations. And although their main purpose is to reduce costs, a shared-services approach can also improve managerial expertise, financial transparency and consistency.

As we go forward to implement this model, all our financial accounts will be reviewed through the center, an approach that can enable more careful decision making. CFOs should bear in mind, however, that implementing a shared-services center takes time, because it doesn’t just involve finance but also IT, procurement, legal and human resources.

Earlier you mentioned the importance of instituting better processes for risk management and controls as way to improve the quality of information.

Yes, in 2003, CNPC was among the first group of companies to implement a risk control system in line with the Sarbanes-Oxley Act. Compliance with the Act was required by the regulatory authorities, and was also an internal CNPC requirement to enhance financial management and improve our internal control systems.

CNPC attached great importance to the issue of building internal control systems. We established a management committee chaired by our chairman, Jiang Jiemin. We also established an internal control department that arranged new training sessions related to controls. Our measures passed an external audit on the first attempt.

In addition to better reporting about the past, and better risk management in the present, CFOs are also increasingly charged with providing information to help their companies steer better into the future. How do you provide that kind of future-oriented analysis to your company?

Performing economic analyses is part of our daily work. Our finance department submits suggestions to management based on the analysis of items in the financial statements. For example, the finance department will advise management on how to manage problems around excessive debts and surplus inventory.

In addition, our finance department conducts frequent site visits to understand the goals and current performance of our regional companies, and we devise strategies to help them manage their operations more effectively. CNPC subsidiaries promptly report problems to the finance department. We maintain effective communication with all other company departments and deal with problems in a timely manner.

CNPC was one of the first Chinese companies to go global, and it is expanding very quickly. How does CNPC manage its overseas financial operations?

We have been working on reforms to our overseas financial management system. Here again, we are considering using a shared-services model to manage financial accounting, while tax accounting and management accounting will be the responsibility of the subsidiary undertaking the project.

Once complete, the shared-services center will enhance the transparency and standardization of basic financial data. In collaboration with the CFO, the center will strengthen management’s control over the company’s business development and operations. It will also allow us to collect information more quickly and accurately, and get spending under control by developing a more effective internal control system. The center will also enable us to use production and management processes more appropriately, and help provide a more accurate analysis of business performance.

What challenges have you encountered in managing overseas investments?

CNPC confronts a range of international challenges, including risks involving monetary policy, political unrest and policy uncertainty. We also encounter risks having to do with project management. Like many companies, we are experiencing a shortage of high-quality talent—workers who are familiar with multinational operations and have skills in technology and management.

If we can address these problems, the international prospects for CNPC are promising. To deal with these risks, we have taken a number of measures, including paying close attention to the integrity and loyalty of our employees, improving our risk control systems for overseas projects and centralizing overseas spending through the creation of shared-services centers.

What can CNPC do to find better finance talent overseas?

In terms of a talent strategy, one thing we are doing is pursuing more hiring at the local level. This is important for three reasons: It provides job opportunities for workers in more areas; it can reduce costs through less expensive recruitment; and it gives us access to a quality labor force in developed countries. These employees are more likely to have the training we need—not only in finance but in more general business management skills and in professional ethics.

So we believe that as long as the talent market can meet the demand, hiring locally is the best approach. We have had excellent success in this area—our non-Chinese employees recognize us as a good employer, one that respects them and helps them grow in their careers.

CFOs have to manage a number of potentially complicated relationships, both inside and outside their organizations. How do you manage the many relationships between CNPC and governments, regulators and stakeholders within the company?

It’s no easy task to be a CFO, especially in China. CFOs of state-owned enterprises directly under the central government have to be adept at maneuvering through numerous, often-complicated dealings. First, we need to maintain good relationships with government ministries, including the Ministry of Finance, the National Development and Reform Commission and financial regulators. We need to gain their support and understanding. Any improper handling of critical issues could directly affect our company’s operations and image.

Second, we must manage our relationship with capital markets and overseas regulators. As an overseas-listed company, we must comply with foreign regulatory institutions, such as the United States’ Securities and Exchange Commission. We must meet annual reporting requirements in a number of countries, which is also a time-consuming task.

Third, we have to develop good relationships with our company’s management and business sectors. On the one hand, we need to communicate effectively with the head of our company and senior management to minimize disagreements and achieve synergies. On the other hand, we need to obtain the understanding and support of other departments within the company, as well as with our subsidiaries. We need to actively communicate with our subsidiaries to understand their needs and goals, and provide them with the support they require.

Are there particular skills and traits that you think effective CFOs have in common?

CFOs should have foresight and vision, as well as the strategic thinking needed to achieve a company’s development objectives and good financial management. These are key indicators in evaluating the capabilities of a CFO. A CFO should not only have a good command of finance but also an excellent understanding of the big picture for a business.

 

About this interview
This interview was conducted by Claire Yang, who leads the Accenture Talent & Organization group in Greater China; Ralph Wang, a managing director in the Accenture Finance & Enterprise Performance group in Greater China; and Xuyu Chen, a senior marketing manager in Accenture Management Consulting in Greater China.

For more information about this interview, please contact Xuyu Chen.

 

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China National Petroleum Corporation: Meeting the challenges of complexity and volatility | Accenture Outlook 
This interview with Wang Guoliang, chief financial officer of China National Petroleum Corporation, explores the role of chief financial officers in improving overall business performance.
energy, finance, china, risk management
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