Management control

Savings, savings, savings. On paper, on salaries, on pencils, on integration trips, on bonuses, on service, on telephones. Enough! Bosses – start with yourselves! You have plenty to cut back on!

Emil Górecki

Most company directors are not exactly willing to talk about the fact that they are making less money than they used to. “So you think that we are going to boast about the fact that we make less money and drive cheaper cars? Fat chance! It would send a bad signal to everyone!” Only one of the directors managing the properties of one of the most important investment funds operating in Poland agreed to talk about how much its management has lost out. Nevertheless, he wishes to remain anonymous. “During a crisis you cut the things that are most visible, such as the costs generated by the management board. We have cancelled subscriptions to some newspapers, we are not attending the less important conferences and we have cut down on some advertising. We use cheaper petrol and lease cars not for three but for four years. We have suspended purchases of new computers, new mobiles and tablets. But these are only surface savings. What does it matter that we print out on both sides of a sheet of paper? If we make a mistake we still have to print the whole document again. What does it matter if we choose to go by train rather than by plane? If you calculated the time we spend idle in a train compartment, it would be cheaper to go by plane. But the supervisory board and shareholders do look at the numbers, so we have to show that we are tightening our belts in order not to be accused of being passive during the downturn. However, such savings are rather minor in the scale of a big company,” he explains.

An excuse to cut costs

“The credit crunch is a perfect time for making savings and cutting costs,” declares Roy Linden, financial director of the development company Plaza Centers, while rubbing his hands. The company started the implementation of a savings plan as early as mid-2008. This involved negotiating lower agreement costs with contractors, laying off part of the team, and renegotiating the leasing costs of offices and services. “It gave us savings of 15-20 pct,” claims Roy Linden. But have bosses also suffered as a result of these savings? “Each of our employees earns from 5 to as much as 15 pct less nowadays, including members of management boards,” he insists. He goes on to add that the company now books much cheaper hotels and flights: “Even in better times we did not use business class – we have always used economy class, only we do it in a cheaper way nowadays. We never throw money down the drain,” says the financial director of Plaza Centers.

The directors of Warimpex do not have to save so much on travelling. They admittedly do not own an airline, but they can sleep in their own hotels in every big city in the region as if they were at home. However, they have been making savings, which is evident in their results for H1. “We always try to use the cheapest forms of travel. Using cheap airlines or economy class seats is standard at Warimpex – and the members of the management board also do this. However, our annual travelling costs depend mainly on the locations of the projects currently being carried out. Driving or going by train from Vienna to Kraków is much cheaper than flights to St Petersburg,” explains Christoph Salzer of Warimpex.

This hotel developer and investor has cut back quite a lot on salaries. The base salary of company executives has admittedly not changed, however they did not receive any bonuses in the financial years 2008 and 2009. This provided a saving of more than 60 pct in this item on the financial report compared to 2007. In addition, marketing and PR costs have been cut by half. “We always try to watch our expenses, but in a way which does not work against us. Certain costs cannot be reduced because they are an investment,” claims Christoph Salzer.

A loan from a contractor

My anonymous interlocutor also pointed out a different method of company cash flow management – a ‘quasi trade credit’, which simply consists in avoiding invoice payments and postponing the payments even if the cash drawer is not completely empty. The only reason for this is maintaining current financial liquidity. It is a method which probably every bookkeeper is familiar with nowadays. “Paradoxically, this itself generates costs. Our bookkeepers’ salaries depend on the number of operations and documents issued. So this kind of creative bookkeeping costs more,” he says.

Nowadays things are not as jittery as they were only half a year ago. However, new purchases still have to be comprehensively justified, first to yourself and then to your superior. Nobody queried such expenses before the crisis, but nowadays questions are asked. “In the past we had plenty of meetings in which we talked about the state of the market and what was happening on it – we exchanged our observations and then settled business matters connected with our transactions. These days, when I meet somebody for dinner I have to be 200 pct sure that the transaction will be carried out. We may be saving on business relations, but in my opinion this is a huge mistake. These relations are our most important investment,” he argues. “September brought a considerable revival. Take a look at how many events are taking place. This industry has always liked to have good fun,” he adds with satisfaction.

Continuous expense control

“At Polnord we save systematically, not haphazardly,” asserts Wojciech Ciurzyński, the president of the development company. “The salaries of our management are not excessive in comparison with other stock exchange registered companies of a similar size. Our offices and interiors are far from scenes of decadence. The cars we drive are not luxury ones. The management does indeed travel by planes, but in economy class and most often only on the Warsaw-Gdańsk route. It was like this before the crisis, during the crisis and it’s like this now. We have not found ourselves suddenly having to implement additional savings,” insists the president. He goes on to add that in the middle of the crisis, directors did switch from planes to trains, but now they are flying again. “It lasted too long, was arduous and for us cost a lot of precious time.”

The restructuring – or rather reorganisation – of Polimex-Mostostal has now dragged on for a few quarters. The final closure of this procedure is planned for the end of 2010 or early 2011. The incorporation of seven companies is intended to optimise operations and prepare the company for the execution of large energy and oil projects. Of course this will also translate into costs: one management board, even if it is a larger one, will spend much less than seven combined. “So far it is not clear what will happen to the management boards of the companies after the merger – this will become clear during later negotiations. We control our costs like any other company – continuously,” explains Paweł Szymaniak from the communications and promotion office of the company.

Presidents and directors will survive. However, what they have lost and what the company has got out of it is an unpleasant subject for them. Savings? Sometimes they can even be substantial, but they will not prevent a company from collapsing. A good example to set for employees? Unfortunately, bosses normally limit themselves only as a last resort, with the most important factor being the company’s image. And this is a subject that they are prepared to talk about.