Just a few months in the job, you’d be forgiven for thinking Canon UK and
Ireland’s new FD Ed McNally is a greenhorn but this provides a false image.
After stints as managing director of Canon Portugal, head of M&A and as tax
director for the whole of Canon Europe, a role he still maintains he is no
He qualified with Price Waterhouse through the traditional audit route and
threw himself straight into the deep end of commerce. “Once you’ve got your
qualification you realise how little you know as far as the real world is
“I did training with PwC down the standard audit route but, once you get out
into the business world, you realise there’s still so much more to learn and my
personal philosophy is it’s all about learning.”
Talking to McNally reminds you of the high-speed shutters you hear whirring
at sports events tireless with a wealth of information packed into every
First impressions suggest McNally is a company man through and through, that
he leapt at the chance to spearhead the printing, camera and photocopier giant’s
Sarbanes-Oxley implementation speaks volumes.
Canon is a US-listed company, which means it has to run the internal controls
gauntlet something that effectively pushed some companies into delisting
Stateside to spare themselves the expense and the workload. But here you get the
distinct impression that McNally relished the challenge. “I always try and find
the difficult things to do.”
About 30% of Canon’s business is generated in Europe, so a lot of the
significant entities information required by Sarbox pulls the European
businesses into its remit. “When I saw it happening I thought, ‘this is
difficult’ but we needed to do it’.”
After setting up its European tax department in 2001, he led the Euro project
to become Sarbox compliant.
“I think it benefited the business a lot, improved our controls and limited
our exposures in certain areas. And we’ve now had three years of no reported
deficiencies and we’re very proud of that. Technically it’s easy. The difficult
part is persuading people to change their behaviour or to understand why it is
important or to take responsibility for doing these things themselves.
“When you explain to people that this isn’t just about ticking boxes, it’s
about having good processes in place, understanding what they are and having
controls in place to mitigate your risks that means you can go home at night
and sleep soundly. And once you’ve had the chance to speak to people
face-to-face and explain what it’s all about, they come around quite quickly.”
The auditor’s role in Sarbox compliance was also key, but the
responsibilities of leading firms towards watching over and helping to implement
controls and risk management systems for clients was called into question as
major banks went into meltdown. McNally says the reason that the top financial
figures have not been the victim of a legal witch hunt is partly because the
auditors would have been dragged in as well.
“If you look at some of the financial institutions that ran into difficulty,
the question I would ask is why certain directors are not facing prison
sentences, because under the SOX rules they signed a statement saying they have
designed their internal controls to mitigate risks of material financial
“That’s a dereliction of duty. They should have been taken to court and they
should have gone to prison. My guess is, the reason that hasn’t happened is, can
you imagine how many institutions that would have applied to?
“The Big Four audit firms signed off on their statements agreeing that the
internal controls have been designed in such a way to prevent material financial
misstatement. My guess is [lawsuits] would just destroy the Big Four audit
“There is a strong case in my view that there should be a liability cap for
audit firms. If there isn’t, already it’s inevitable.
“Why haven’t the directors and auditors been taken to court? It’s because
it’s too big a risk. Too many people would be affected by having to dig into
their pockets and the Big Four would collapse.
“It’s an extreme view but there should be a liability limit for doing their
work normally in terms of gross negligence clearly not. There should be a
substantial cap but it should not be unlimited.
“Putting a partner in an audit firm, giving them unlimited liability to sign
off a banks’ financial statements where is he going to get the £30bn from?
It’s not going to work, and you’re going to destroy the Big Four.”
Like most in the retail space, Canon has been rocked by the economic
shockwaves. It’s a simple equation McNally says. When consumers stop spending
retailers stop buying in stock. “Like everyone else, you’ve got to cut your
cloth when there’s less money coming in. From a business point of view we are
assuming a fairly flat future.”
Canon is in the middle of setting its business unit budgets for next year and
trying to align itself with what the right plan should be in “obviously quite
500 people work in the European finance function group all under the direct
leadership of the European CFO. McNally leads a team of 70 directly and, for all
the technical demands of the job, McNally stresses the only way to prosper is to
give the team their head and get out into the commercial world.
“I’ve got a floorful of qualified accountants here. They can do the job with
their eyes closed but, in order to get the best out of people, they’ve got to
develop. They must meet customers and see how they operate and make their
The run up to Christmas is a crucial time for Canon, so McNally focuses on key
customers, reviewing what products are available, the marketing plan, helping
the retailer position Canon products and talks on how Canon can deliver what the
customer needs when they need it. All of this in a climate where the chances of
customers going bust has not been so strong since the last recession, so Canon
has taken steps to obtain confidential management accounts to put its mind at
“We’ve worked very carefully with retailers to get transparency on how their
finances are, their P&Ls, balance sheets and having a clear understanding
about how their cashflow’s going and understanding where their funding’s coming
from as well.
“We have a non-disclosure agreement. A company may not want you knowing how much
profit they make but we want them to make money. If they’re successful, they
continue to grow the business and continue to reinvest in it. The last thing we
want is a company losing money. If they’re successful, we’re successful.”
Keeping dozens of financial plates spinning is a constant feature of
McNally’s day and the Canon circus now has to factor in new demands being put on
top of finance staff by the government.
Fears were raised in the private sector that the Senior Accounting Officer
rules would cause major headaches, but McNally says it is the least top finance
personnel should be doing in exchange for their handsome rewards. “It’s an
excellent idea. If you have somebody that’s responsible for a country, it’s
important they sign off on it and they’re doing the job properly. I don’t want
to find out in two years’ time that they haven’t done their job properly and the
company’s got an exposure.
“People in the finance arena get paid good salaries and they’re paid that
because they have to do a job and for them to fall back and say ‘well I made a
mistake it’s not my problem’, to me, is not acceptable and certainly in Canon we
embrace the SAO initiative. I’m happy to sign off on it. If I have to take
personal responsibility for getting it right that’s what I’m paid to do.”
“That’s what I expect from all the controllers in Europe and as the UK FD
it’s absolutely the right thing to do.
“I don’t gain personally if I don’t get my tax return right. I don’t run it
like my back pocket, I run it in accordance with international professional
standards and corporate governance we do things properly at Canon.
McNally quotes a study that finds most companies spend 3% of revenue on
printing and Canon’s focus is to boost its business solutions arm to provide
more print solutions in the case of one banking client, Canon slashed the
number of networked printers from 8,000 to 2,000. With another client it
whittled 1,900 devices down to just 190.
“We can reduce most company’s print costs by nearly 30% over the life of the
He believes government contracts will also be big business as the public
sector looks to suppress spending.
“We see that as an opportunity. We have already worked with government
departments to reduce the number of printers they have on-site going forward.”
McNally saves his final word for accounting standards. He has called for tax
GAAP to become more closely aligned with IFRS. Canon UK has the option to switch
from UK GAAP to IFRS, which McNally is looking into.
The US-listed arm has already got a project running on this in preparation
for the US convergence project’s 2014 deadline and “we will adopt IFRS as early
as we can,” McNally predicts.
McNally remembers his pitch when he applied for the tax director’s job.
“I applied for the job nine years ago and I said: There’s no point going to a
PwC or KPMG in London and looking for a European tax specialist because it
doesn’t exist. Nobody knows everything about every single EU tax
“You need someone with a general understanding of all the tax
issues-particularly the cross border issues-and knows when to ask the right
“We’ve been changing our organisation, not in an aggressive way for tax
reasons but to restructure our supply chain, centralise the ownership of
inventory, centralise IT systems and moving functions around. Of course this has
to be managed from a tax point of view.
“The biggest issue you tend to find is VAT. We have two European tax
managers – one here and one in Amsterdam – an EU VAT manager and an EU systems
VAT specialist. Clearly when you set up a European distribution model VAT is
going to be the biggest issue.”
Canon’s EU trading company is based in Holland and has up to 17 VAT
registrations. “We have inventory in each country and every time we supply that
locally to the customer or to local sales company it’s a VAT transaction, so
you’re very much relying on systems. But my philosophy is never trust the
system. Sarbox has taught us just because the software company has given us the
package it doesn’t mean it automatically does what you want it to.
“Compliance requirements and how the transaction tracks through the
system on the sales side, but even on the purchasing side, we have a manual
check for every single transaction that goes through over a certain amount. It’s
always worthwhile. I want to work for a company that does the right thing and,
in my view, doing the right thing in the long term is not super aggressive tax
“All it’s going to do is ensure local governments don’t have the revenues
they should have and then they’ll have to get it from somewhere else. We pay the
right amount of tax in the right place, we don’t waste time trying to find fancy
tax avoidance schemes.”
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