FinExpertiza organizes platform for efficient interaction of managers of financial and economic block of RZD

For about two years, FinExpertiza has been holding seminars and round tables for Russian Railways (RZD), aimed at information and technology exchange between financial experts of the parent company and the subsidiaries under implementation of the new strategy of the holding company.

After the fifth meeting held in late July and focused on strategic and financial planning within the current business-model of RZD, we had a conversation with Aleksander Romanov, Deputy Head of Corporate Finance Department of JSC RZD, and Elena Filatova, Head of Consolidated Financial Planning Division of Corporate Finance Department of JSC RZD.

We asked them to tell us why RZD needs such meetings, which goals are to be achieved at FinExpertiza's seminars, which results have already been achieved and what is to be done in the future.

Aleksander Romanov:

- Historically, RZD had two separate management areas: the parent company – a government-regulated monopoly, and subsidiaries that have been established since 2007 in accordance with the core business activities.

Earlier, about 80 to 90 per cent of management was centered in the parent company, but later the subsidiaries needed more and more attention from the managers.

Initially, when subsidiaries were being established, they were fully independent: free from many regulations, formal procedures etc. At that time, there was favorable market environment. Unfortunately, such independency turned out useful not for everyone. For instance, every year we make substantial effort to improve the policies, procedures, regulations, reporting forms in the parent company etc. We constantly optimize all management processes to achieve maximum efficiency. But, since many processes are controlled by the subsidiaries independently, they somewhat lag behind in terms of methodologies, technologies and procedures.

Elena Filatova:

- Now the situation is improving, and the reason is not only the favorable environment, but also the higher interest of the Government in the holding as a whole: in fact, the entire Group is being controlled by the Government, not just the parent company, as it was before, that is why the same requirements are set to the quality of management of all RZD subsidiaries. Also, Rosimushchestvo (The Federal Agency for State Property Management) made a request for financial management and the unified treasury office of the Group. Many regulations and standards that are applied in the parent company are to be spread throughout the entire holding and adapted for the subsidiaries. In other words, the holding must constitute a single unit in certain business activities – particularly, in the financial block.

Aleksander Romanov:

- We outlined the main reasons why the management has become centered on RZD subsidiaries and requested to strengthen connections with the parent company.

At present, the system of corporate governance is based upon a number of procedures involving the Board of Directors and various committees. Their sessions are not rare, but discreet. These sessions are held on certain matters, like implementation of quarterly budgets and so on. Besides, sessions are mainly held when information comes from a subsidiary to a management body, with no feedback as such. Thus, the subsidiary is excluded from the information field and is not always aware of the situation within the holding.

Elena Filatova:

- That is why we needed a platform that could provide for prompt exchange of information and experience between the parent company and the subsidiaries. We introduced the initiative, and FinExpertiza helped us to organize such a platform that, as experience showed, not only copes with all the tasks, but also opens up new opportunities for interaction. The seminar provided another precedent when not a parent company, but a subsidiary shares its experience with other subsidiaries showing possible ways to settle similar issues. Thus, Aleskander Muslovets, Deputy General Director of JSC Federal Passenger Company, made a report on topical issues of planning of economic activities of a subsidiary within RZD and told his colleagues about his own experience of application of new technologies, which we now can transfer to other subsidiaries.

Aleksander Romanov:

- You would probably agree that, very often, parent companies are somewhat snobbish since they are competence centers and promote technologies and methodologies from top to bottom. Yet, as the July seminar showed, our major subsidiaries are ready to share their own methodological solutions, which we can adopt and transfer throughout the Group.

It's important to note that last year the Board of Directors of RZD approved a new company-wide strategy. It is the first strategy to classify business units under product and technological principle. In accordance with the new strategy, “virtual” business blocks were created which had new management of their own. Respectively, our branches and subsidiaries had quite a lot of questions on how they should operate under the new management. It is not simply a matrix, but a three-dimensional organization. For example, the director of a branch or a subsidiary has a triple subordination: first - to his or her management in Moscow; second – to the head of the region (a railway), third - to the management of his or her business block. Accordingly, we had to change regulations of planning, budgeting, reporting and to design a new system of KPI for business blocks. At the latest meetings we told our subsidiaries about the work under new conditions, received plenty of questions from them and gave our feedback. Since the Board of Directors announced that the new strategy and the format of companies are a top-priority, RZD management takes it very seriously.

We cannot say yet whether the new format will turn out successful, since we've been using it for less than a year. I think, the period of establishment will take another year or two. Still, the Board of Directors will probably request a report on effectiveness of business blocks. Accordingly, subsidiaries will have to make reports on implementation of KPI in the new paradigm. So we'll have to transfer all methodologies and approaches to them. In this respect, the events organized by FinExpertiza are an optimal platform for effective communication.

Elena Filatova:

- Therefore, experience shows that seminars of this kind help settle not only financial issues but also issues related to corporate governance as a whole.

Aleksander Romanov:

- In this sense, we consider ourselves to be involved in the change management: first, a decision is taken at the upper level and then it is to be further promoted.

In the recent years, FinExpertiza has been developing conceptual documents in financial planning. Particularly, the methodology of decomposition of strategic indicators to each particular subdivision or a branch. At the meetings, FinExpertiza experts speak as the authors of methodologies. This is a great advantage because it is always better to get explanations on how to apply a methodology directly from a developer of this methodology.

As for the plans for further meetings, we would like to synchronize seminars with budget process cycles. For example, it would be better to hold a seminar prior to the budget campaign for 2016 in order to tackle all possible issues that may arise in the course of budgeting.

Another issue under consideration is regional expansion. We simply cannot do without a meeting on a regional scale. Whereas in Moscow we can settle many issues within our net-working, at regional scale there are issues that are very long-term and cannot be solved overtight.

Elena Filatova:

- It would also be useful to hold meetings in the form of conferences after the final session of the RZD Board in order to set goals for the next year and provide a single direction to achieve them.

Aleksander Romanov:

- Indeed, in late December the RZD Board holds a session, sums up and sets goals for the next year. But in order to set a goal, a lot of issues have to be agreed upon. In this process, tasks often become rather “blurred”. We are responsible for draft decisions and we know how important it is to set clear goals. And we want branches to be aware of that.

Elena Filatova:

- FinExpertiza assists us with its competent expert opinion to achieve greater efficiency in the course of implementation of such projects.

The interview was prepared by the press-service of FinExpertiza with the assistance of Tatiana Podtikan, Head of Corporate Accounting Methodology Department.