Is there room for yet another "C" in the C-suites of Corporate America? According to a new study by Ernst & Young, one of the world's largest accounting firms, the answer is yes -- especially for companies actively engaged in transactions such as mergers & acquisitions.
According to the Ernst & Young study, "Striving for Transaction Excellence: The Emerging Role of the Corporate Development Officer," the
The study is the most comprehensive examination of the CDO role ever completed. E&Y's Transaction Advisory Services practice conducted over 175 in-depth interviews with executives bearing responsibility for corporate development. Participants were drawn from a diverse range of companies, including 89 Fortune 1000 companies -- 26 of which represented the Fortune 100.
"There is a shift in how companies are approaching corporate development, and the emergence of the CDO role is at the center of that change," said Kerrie MacPherson, Americas Markets Leader, Transaction Advisory Services.
"Significant market and regulatory changes are forcing companies to take a fundamentally different approach to corporate development. The need for CFOs (who often held responsibility for transactions in the past) to remain laser-focused on financial reporting and regulatory compliance has created the need for another senior executive to "own" the transaction process.
Increasingly, we see CDOs joining the ranks of C-suite executives. They are gaining significant executive visibility, accountability and responsibility throughout the execution, implementation and integration of a transaction. Companies are creating and elevating this position to increase the likelihood of their transactions adding value," MacPherson added.
Today, 37 percent of CDOs report directly to the CEO or corporate boards, as is common in other C-suite positions. Eighty-six percent of CDOs were a primary source of generating transaction opportunities, versus investment bankers (74 percent) and consultants (14 percent). In addition, CDOs were most often named as the internal executive leading M&A and monetization transactions such as sales of subsidiaries, carve-outs and spin-offs.
The proliferation of the CDO role is likely to continue. Based on the study findings, the corporate transaction environment is clearly rebounding after several quiet years. Ninety-six percent of study participants expect to undertake a merger or acquisition in the next 24 months and 79 percent expected to launch some form of alliance. In addition, 63 percent expected to achieve monetization through transactions like the sale of subsidiaries (63 percent) or carve outs (22 percent).
However, concerns about transaction risk, regulatory changes, market and investor scrutiny and a heightened focus on corporate governance are creating a more complex and challenging environment. Citing transaction failures, unrealized strategic goals, damaged corporate reputations, and potential personal liability for corporate officers, a majority of study participants said more needs to be done to improve transaction risk processes, and that responsibility is increasingly being placed with the CDO.
"The marketplace demand for accountability in transactions has changed the rules," said MacPherson. "Not long ago those in the corporate development function might have been compensated based on how many deals they did and how fast those deals got done, but today they are being rewarded based on deal outcomes and even for deals where they advised their companies to walk away," she added.
The Ernst & Young study identified other changes in the organizational structure of transaction-oriented enterprises. Many companies are establishing board-level mergers & acquisitions committees, which are charged with setting new policies and moving companies towards greater independence throughout transaction lifecycles.
However, the study noted an inherent conflict between the demand for increased governance and independence in transaction assessments and the speed in which many transactions must take place in an increasingly competitive global market.
"CDOs must be able to adjust their processes, methodologies, criteria, and models quickly to regulatory and accounting changes," said MacPherson. "This type of responsibility is largely unprecedented and is a driving factor in creating the new prominence of the CDO."