Wal-Mart's Michael Fung: Why Internal Auditors Make Good CFOs

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Did you feel like that was taking a step backward in your career?
I was in internal audit with Beatrice way back when, and [at the time I was offered the chief internal audit role with Wal-Mart] I had been in a lot of financial leadership positions and I wanted to keep doing that. I was very happy in global procurement. But the CEO said, Mike, I think it will be a good move for the following reasons: You have a chance to help improve the business. You have a chance to build relationships with the board of directors and our major business leaders. You have a chance to move internal audit to more value-added processes and improve our controls. You have a chance to improve the development of the associates there. And you will build your own ability to manage relationships, work with cross-functional teams, and manage people overall.

After spending four years in internal audit, I can say he was absolutely correct. It really worked out. Internal audit offers a deep understanding of the value drivers of the business and the underlying business processes, whether in merchandising, store operations, the supply chain — all those things were worthwhile. [I saw that I had] minimized truly appreciating the decision-making process within the company, and our culture and how it permeates our decisions and how we operate. I gained those things in audit.

Sarbanes-Oxley came along when you were in internal audit. How did you handle that?
Everybody sort of wanted to run away from it. But [for me] Sox came at an opportune time. You had to learn to use your business judgment to understand the risk to the company, satisfy the legal requirements, and still in the end make sure value was added to the company. To this day both our outside accountants and other peer groups that we work with marvel at our ability to implement it as seamlessly as we did on a worldwide basis without a lot of rework.

Is internal audit more respected in corporations because of Sarbanes-Oxley?
If as a result of Sox internal or outside auditors spend all of their time just auditing for Sox, then it will hurt the profession and the development of people. I think my success, both in internal auditing and my career generally, is trying to really understand what drives the value for the business, whether that's in sales, in margins, our competitive edge with customers, or how we compete in our markets. So I prefer the operational auditing approach.

What Sarbanes-Oxley does is get you more into processes that drive financial statements. But ultimately as a finance officer, you have to be a business person. That is the key to success, rather than a focus on Sarbanes-Oxley itself.

You never did become a CEO. Is that still in the game plan?
I recognize that I work with some great operating people who have in-depth knowledge about what it takes to run a business. I can support them and be a great CFO and satisfy my desire to help make an impact on the business and drive it to greater profitability. I don't need to be the CEO just to have the title.

What makes for a successful CFO?
First, you have to have relationships with your business partners in which you're trying to add value to the business. Second, it is useful to understand the business drivers.

Retail on the surface doesn't appear to be a very complicated business. But you need insights into, or the ability to learn, what it take to increase your basket of customers; how to change the margin mix of anything; what it takes to operate a $150 million store with 500 associates; how to make sure associates are appropriately motivated and taken care of; how to find the goods to display and merchandise in the store; and the competitive advantages of Wal-Mart in our supply chain.

I got that from internal audit. Is internal audit good development for a CFO? Absolutely yes. Is it a good career path for people coming out of school? Absolutely yes. And certainly it has been helpful in my career, because my last name is not Walton.