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Comment by underwater | Hacker News Reader

I worked for a company where capex was cheap and easy and opex was hard to get.

So engineering managers would pitch a project, fund a bunch of consultants, get a massive piece of tech built and then fail to support it. They knew the downsides, and wanted to build long lived teams that built and support and evolve products, but there was too much push back from finance and IT.

I realised that the company would prefer to spend two or three dollars in capex every year than a dollar of opex. This helped me understand how and entire industry of overpaid an underqualified consultants existed.

So my question is, where is that accountability for the finance function? Their controls and constraints caused the company to flush huge amounts of money down the drain, just so their books could have numbers appear in the columns they wanted.

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This is not a Finance function issue. Finance has absolutely no preference between opex and capex. There are accounting rules that determine the appropriate classification and any reasonable CFO simply wants it done correctly.

The opex / capex argument is about compensation. Opex reduces income immediately while capex gets spread out over the projected life of the asset (software, power plant, computer, etc). By shifting items from opex to capex, a company temporarily increases its net income. Increasing net income often leads to higher bonuses.

This is what drives the silly behavior. To make matters worse, once a company goes down this path, it cannot get off as it is usually evaluated on a year-over-year basis.

As for accountability, CFOs of public companies can be found criminally guilty (i.e. go to jail) if they not only commit accounting fraud, but simply do not establish a robust enough control framework to ensure the financial statements are correct.

CFOs are always accountable ultimately to the CEO and sometimes to the Board of Directors. If you think the CEO was unaware the company was spending "two or three dollars in capex every year than a dollar of opex," your either mistaken or you had a clueless CEO.

This was an independent, but publicly funded, company. So a combination of cluelessness and perverse incentives.

My snark comes from the fact that in this organisation it was taken for granted that the CFO has a seat at the table because, after all, finance is a thing that grown-ups do. It's serious business. Because they have control of the money they can dictate how the rest of the organisation does their job.

But in reality, they're kneecapping the rest of the company – the part that is actually producing something – so that they can make some imaginary number appear in the right place. They're they ones playing made-up games.

It is unfortunate you had such a bad experience. It's even more unfortunate that there a many more such companies out there.

As a CFO, I want to earn a seat at the table where decisions are made. Finance frequently has access to a significant amount of data about the company and if the Finance team does it job well, they turn that into useful information. Bringing key information to the executive team (and entire company at times) to facilitate the decision-making process is one part of how to earn that seat.

Finance does not have all of the information. The Technology (IT/Engineering/Product Dev/etc) team will have a unique perspective. Marketing will have a unique perspective. The People team will have a unique perspective. I think a company with a strong culture figures out how to embrace all of these perspectives and collaborates to develop world class products and services.

Finance does get tasked with evaluating the ROI question - does the proposed investment opportunity create more financial benefit (can be expansively evaluated) than the investment. That should be to ensure a consistent process and is frequently because Finance is viewed as independent from the group requesting the investment.

A good CFO, heck an average CFO, wants to support good investments. It is always more exciting to say 'yes' than 'no' and importantly the company grows by making smart investments. I have never seen a compensation structure for a CFO that provides for increased compensation for always saying 'no.'

> I worked for a company where capex was cheap and easy and opex was hard to get.

This is sometimes the same in the public sector. Oversimplifying: capex can be funded with a bond, but opex increases come from taxes.

Was capex preferred due to preferential tax treatment?

No. You actually get better tax treatment for opex as you can record the full amount of the expense immediately as a deduction against your income. Capex spreads the deductibility of the expense over years.

As I mention above, opex vs capex is usually a compensation issue.

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