2. Grading Control Criteria
The key to achieving effective financial control is to establish a comprehensive financial management system. So, what is the most ideal parent-subsidiary financial control system?
The multi-level organizational structure of a group determines that under a financial management system that integrates centralization and decentralization, the enterprise group's financial management process usually involves four different levels of financial entities or financial management institutions: the parent company board - group finance headquarters - internal settlement center or finance company - subsidiary finance department. In an enterprise group with a middle layer business unit organizational structure, the group finance headquarters often has a dispatched financial institution - the business unit finance department. Therefore, the group's financial control system should also reflect the characteristics of grading control: First, the control system composed of decision-making units is a ladder structure, except for the highest level, each level has several units running in parallel; Second, each level of control has corresponding objectives at various levels, forming a goal system; Third, information processing follows a top-down priority order, where the information from the higher-level control serves as instructions for the lower level. Each level of grading control receives a certain amount of information, and the more independent the control functions are at each level, the more information they receive, and the higher the efficiency of control.
Under a multi-level corporate structure, financial control centralization should be achieved through process improvements and IT means.
II. How to Build an Ideal Financial Control System
Huacai's research found that, along with the trend of organizational structural centralization and operational specialization, financial control has shown a corresponding concentration, thereby maximizing the balance and utilization of resources (funds and financial information).
In the control of group enterprises, a perfect financial analysis and reporting system is an effective tool for implementing control and a critical information basis for supporting high-level leadership decisions.
The purpose of control is to improve efficiency. If the cost of implementing control exceeds the benefits generated, there is no need to implement such control. Group financial control should adhere to the principles of legality, importance, and cost-effectiveness while ensuring smooth operation of each level's financial system within the overall framework, thus achieving a synergistic amplification effect in the group's financial control system.
As a large enterprise with nearly hundreds of billions in assets, CR Vanguard has formed a diversified holding structure over half a century, which we conventionally refer to as a diversified holding enterprise. Diversified operations not only lack sufficient theoretical support but may also face more challenges in practical management operations.
To build a financial control system, it is first necessary to construct a financial control framework, including personnel control systems, institutional control systems, objective control systems, and information control systems. Secondly, it is essential to ensure the system operates effectively. In practice, providing a good humanistic environment and mechanism for system operation is crucial. Focusing on people, closely integrating the board of directors, operators, and financial managers, and properly handling the relationships between supervision, operation, and decision-making is important. Additionally, adopting successful incentive mechanisms from abroad, such as stock options combined with current salary, allowance, or bonus forms in China, can form a reasonable incentive mechanism that promotes the sustainable growth of the enterprise group.
Based on its diversified reality, CR Vanguard's approach is to establish an overall strategy of "group diversification, profit center specialization," reorganizing numerous subsidiaries by industry into different profit centers. Under these profit centers, further profit points are established, and business strategies are determined under a flat management structure to ensure specialized operations under diversified holdings. On this basis, we have utilized the Hong Kong capital market to integrate these profit centers for listing. Currently, six have been listed in Hong Kong, accounting for the majority of the group's assets, with other assets also being considered.
(Case) Exploration of CR Vanguard's Financial Control System
1. Cost-Effectiveness Principle
I. Principles for Building a Multi-Level Financial Control System
The so-called "synergistic amplification effect" refers to the situation within a group where the parent company is at the core position, regulating and controlling the financial and economic activities and production operations of subsidiaries through its own financial control. The subsidiaries, in turn, control their own subsidiaries through their financial controls, indirectly achieving the parent company's control over its grand subsidiaries... Ultimately, making the parent company's regulatory role effective at all levels and transmitted to the grassroots companies. This continuous transmission effect of the financial control system essentially produces an amplification effect, where the parent company controls several times or even dozens of times more capital than its own, playing a financial leverage role.
The key part of group financial control is combining strategic planning, business planning, and budget management, which is also the most important tool for strategy implementation and execution.
In short, the most ideal parent-subsidiary financial control system is neither too rigid nor too loose but rather a highly effective control system.