Lease Accounting Project Executive Sponsor
The participation of a highly-engaged executive sponsor is one of the key factors that determines whether a big project will fail or succeed. As a result, experienced project managers are always on the hunt for a good executive sponsor. But demand for these heavyweights at most companies often exceeds supply as there are many more critical projects than there are sponsors. Busy executives can only afford to commit their time to a handful of projects. A C-Level executive who is sponsoring 10 projects on top of their day job will likely be ineffective.
The new lease accounting rules are arguably one of the biggest accounting changes in history. For many large companies, hundreds of millions if not several billion dollars of leases will transfer onto the balance sheet. These new standards will impact many of the financial metrics that Wall Street uses to gauge financial performance from EBITDA to return on assets. Debt covenants, agency ratings, market capitalization, and even executive compensation plans could be impacted by the adoption of these new rules. In other words – the risks are too high to not do this right.
Who Should be the Lease Accounting Project Executive Sponsor?
The controller or chief accounting officer is the obvious candidate for executive sponsorship given the nature of the project. However, unlike many FASB or IFRS standard changes that can be contained within the four walls of the accounting department, this one has enterprise-wide reach and high visibility. The new leasing rules will require a cross-functional effort that stretches across groups from Operations and Fleet Management to Real Estate and Human Resources. As a result, we recommend considering the chief financial officer or chief procurement officer as candidates as well.
What is the Role of the Lease Accounting Project Executive Sponsor?
The executive sponsor’s role is not to manage the day-to-day aspects of the project, but to act as the advocate for the project. He or she will need to champion and communicate the importance of the initiative to the CEO and Board as well as the leaders of HR, IT, Procurement, Treasury, Real Estate, and Operations. The executive sponsor will need to solicit participation from the various stakeholders around the business. Additionally, the sponsor will need to secure the budget to fund the implementation effort and any additional software that may need to be purchased. Throughout the project, the sponsor will help to clear obstacles that put milestones or project goals at risk.
What are the Key Challenges that the Lease Accounting Project Executive Sponsor Will Face?
Lease Accounting projects will encounter many of the challenges that all big projects face. Time and attention will be required from some of the busiest people in the company. These are the same people who are involved with all the other enterprise-wide projects – upgrading the ERP system, integrating the latest acquisition, and preparing for the next major product launch. There will be some additional obstacles that lease accounting champions will need to overcome:
The executive sponsor will need to ensure that owners of leased assets in far-flung geographic regions participate in the project. Real estate and equipment lease owners from Europe, Asia Pacific, and Latin America will need to prioritize the effort to collect and submit all of their leasing documentation in a timely manner. A single email from the CFO requesting support will not be enough to motivate these international constituents. A higher-touch, more personalized effort will be required.
Board and Shareholder Inquiries
Given the significant potential impact to financial metrics resulting from the accounting policy changes, the project is likely to receive more attention from the CEO and Audit Committee of the Board of Directors. Major shareholders, such as institutional investors, are likely to inquire about the readiness for transition via the Investor Relations team. Also, given the magnitude of the assets and liabilities being transferred onto the balance sheet, sponsors should expect more scrutiny from internal and external audit functions as the deadline approaches.
Strategic versus Tactical Approach
At most companies, the leasing programs have been neglected – understaffed and underfunded with relatively weak systems, processes, and controls. Executive sponsors will face a challenging decision on how ambitious the project should be. Should you do just enough to comply with the implementation deadline, risking SOX compliance issues from weak systems, processes, and controls after implementation? Or should you take a more strategic approach to the project by truly fixing the leasing program’s inefficiencies to develop a longer-term sustainable program?