Full Transcript of CFO StudioLIVE Interview with Tony Melfi, CFO, Brother International
Andrew Zezas:
Welcome to CFO StudioLIVE, where New York Stock Exchange, NASDAQ, private company, and tax-exempt organization CFOs share insights and intelligence with your host, Andrew Zezas. Visit cfostudio.com to hear more interviews, to attend CFO Studio events, and to request your copy of CFO Studio Magazine.
Andrew Zezas:
Now I’m very excited to introduce you to today’s CFO StudioLIVE interviewee, a good friend of CFO Studio and a personal friend of mine, Tony Melfi. Tony Melfi is the senior vice president and chief financial officer of Brother International Corporation. Tony is a 22-year veteran of the organization, leading a team with responsibilities ranging from finance, business intelligence, import and export operations, facilities, to compliance.
Andrew Zezas:
Tony is responsible for most aspects of the financial and regulatory issues related to Brother International Corporation and its subsidiaries. Tony has experience in structuring international transactions, mergers and acquisitions, and operational efficiencies. As a member of the senior management team, Tony also serves as a member of the Board of Directors for Brother International Corporation along with each of its subsidiaries located throughout the Americas. He’s a founding member and chairman of the Americas Ethics and Governance Committee. Tony is also a strategic sponsor for initiatives for Brother in the Americas related to operational transformation.
Andrew Zezas:
Since joining Brother in 1994, Tony has held several positions, including vice president of tax and vice president of finance. Prior to joining Brother, Tony worked at Deloitte in the M&A and International Tax Specialties. Tony received his law degree from Seton Hall School of Law and a bachelor of science degree in economics from Rutgers University. Tony currently resides in Hillsborough, New Jersey, with his wife and two sons.
Andrew Zezas:
Now a little bit about Brother International Corporation. Brother International Corporation is one of the premier providers of products for the home, home office, and office. Brother’s industrial products manufactured by its parent company, Brother Industries, Limited of Nagoya, Japan, include sewing, embroidery machine tools, and gear motors. I’m going to say that again, sewing machines, embroidery machines, machine tools, and gear motors. Brother’s products for the home include sewing, embroidery, and crafting products.
Andrew Zezas:
Brother has longstanding license relationships with Disney, Warner Bros., and is a significant sponsor of the TV program Project Runway. Bridgewater, New Jersey is the corporate headquarters for Brother in the Americas. Brother has fully integrated sales, marketing, services, and manufacturing capabilities located here in the United States. In addition to its headquarters in New Jersey, Brother has operations in California, Illinois, Colorado, and Tennessee, as well as subsidiaries throughout the Americas.
Andrew Zezas:
Today Tony will share his insights as to the effects of the current business climate on its industry, on Brother International’s industry, and on its employees, customers, supply chain logistics, manufacturing and other issues. His discussion today is entitled A Frank Discussion with Brother International CFO Tony Melfi on the Business and Health Crisis and the Future of Business. Gives me great pleasure to introduce you to my friend, today’s CFO StudioLIVE interviewee, Tony Melfi, Senior Vice President and Chief Financial Officer of Brother International. Tony, it’s nice to have you with us this afternoon. How you doing?
Tony Melfi:
I’m great, and thank you very much for inviting me, Andy. I appreciate it.
Andrew Zezas:
My pleasure, my pleasure. This has been a long time coming. I’m so grateful that you took the time. I know how crazy your schedule gets and how busy you are. And your willingness to participate in CFO StudioLIVE and share your views and talk about the company and the future and the recent past, I can’t thank you enough.
Tony Melfi:
Well, it’s an honor, as we’ve talked about before, and always a pleasure to do this and to do this with you.
Andrew Zezas:
Thank you. Thank you. Now, when we were talking off camera, you had mentioned that you wanted to share some thoughts with our audience as to what’s going on in the world, current social movement, health crisis, civil unrest and so on. So the floor is yours.
Tony Melfi:
Well, the first thing I’d say is when you asked me to do this, it was a bit ago and it sounded like a great idea at the time. Then since then, lots of things have happened. The world’s a crazy place today, so I really had some trepidation of doing this now with so much going on in the world and trying to understand how it all comes together, what do you say. Are there even words that we could use to even describe what’s happening and the impact of it all? I did think about that. Really, at the end of the day I have a couple of thoughts and some of that is my own thoughts, but it’s also how I think we should be looking at this from an individual perspective but also from an organizational perspective.
Tony Melfi:
We talk about CFO events. We talk about CFO activities, and I think we migrate to always wanting to talk about the organization and the company. But I don’t think in this world today that we can really separate those. So as we know, we do have a confluence of affects that we’re dealing with and they all deal with our quality of life. As we’re all aware, we’re dealing with global epidemic issues, racial tensions, economic and environmental challenges. These issues not only present challenges to us, like I said, from a business perspective, but I believe it all comes down to us finding out and trying to figure out who we really are and who we really want to be.
Tony Melfi:
We have to come down and really figure out, how do we want to be treated, but we have to understand that in order to be treated that way, we have to understand how we should want to treat others. So I truly hope that we respond to these challenges in a way that we can look back at and our future generations could look back and be proud of what we do. How we respond, I believe, will really define us. So if we learn to treat each other with kindness and respect, I truly hope we can make great progress. And as I said earlier, I really believe that these are responsibilities of both personally, each of us, but also as the organization. And I really don’t think there’s that much of a distinction anymore if we truly want to make a difference. Those are my thoughts.
Andrew Zezas:
Thanks, Tony. The idea of people treating each other with kindness has been around for a long time. People tend to forget that every once in a while. I think there’s a lot of people who have forgotten that and would do well by paying attention and heeding your words. I truly appreciate your insights and your perspective, and I agree wholeheartedly. Thank you for that. Let’s talk about-
Tony Melfi:
Andy, one other thing.
Andrew Zezas:
Yeah, sure. Sure.
Tony Melfi:
I was going to say, one other things that we’ll talk about, and it’s sometimes easy for us to talk about that. But if you ever look at any of our products, you see the word Brother, but underneath that it says, “At your side.” That’s sort of what people would say, “Hey, that’s your tagline.” But that’s something that we’ve used for many, many years, and it’s something that’s ingrained in us.
Tony Melfi:
When we say, “At your side,” we really mean that we’re at your side. And we define you as our customers, our vendors, the communities that we’re in, and certainly each other as individuals. We spend time each day talking about that and we let that be our guidepost in everything that we do, so it’s easy sometimes for us to look and say, “We really have to understand how we’re treating everybody because that’s the core and the nature of what Brother is.”
Andrew Zezas:
I love it. I love it. You can take that in a lot of directions, how a brother is always at your side. I love the inferences. Thanks for sharing that. Appreciate that very much. Let’s talk about Brother. We’ve been through… Been through. We’ve gone through. We’re still in. We’re coming out of. Some people think we’re backing back into this very, very funky time, this craziness, this abruptness that no one has ever experienced certainly in our lifetime, and hopefully no one ever will again. Some companies tell us that they’ve done very poorly during this time. Others have told us they’ve done exceptionally well. Many somewhere in the middle.
Andrew Zezas:
How has Brother fared during this health and business crisis?
Tony Melfi:
Well, when you ask us how we fare, I’m going to maybe separate that from a business point of view and from a business point of view, from a sales and profitability point of view. I think except for the few that we would know, I think a lot of people or a lot of companies are challenged by what’s going on, and we’re not so different than that. But compared to other organizations, we believe that we fared very well. Our business is down somewhat as most other companies, as our competitors are, but not as much as we would’ve thought we would’ve been or we could’ve been.
Tony Melfi:
So overall, I would say that we’ve done fairly well. We do have some restrictions, as most other companies do. You find some challenges from the supply chain point of view and product availability, et cetera. But for our business, as you mentioned before, we have several different lines of businesses, the main line of business in printing. We have seen a pretty healthy sales stream coming out of that group. The businesses that are associated with manufacturing, some of that is in the auto industry and other places. Of course, those are challenged.
Tony Melfi:
Some of our sewing businesses, the more advanced machines, we sell them through small mom-and-pop dealers, and those are people who have been in business in small companies for many, many years. They don’t have a lot of the technology that you would expect for a company that could transition and kind of pivot from spending a lot of time trying to drive sales by getting people to walk in the door, giving them tutorials, showing them things. To move that from that to an online, that does pose some challenges.
Tony Melfi:
So we’ve seen some challenges and I think what we’re focused on in the most recent past is trying to work with our customers, trying to help them along and understand that they’re not alone. We’re with them. Again, we’ve got that at your side mentality. That help I think goes a long way. It goes a long way not only in driving our business today, but making sure that our key partners, our customers, are going to stay strong and vibrant for the future. But it also then allows us to do the things that we need to for our employees, and that’s very important. We spent a lot of time when we started talking about the transition to actually going through it and continuing on and making sure that our employees are safe, but they’re also financially sound during this process. That’s important to us.
Andrew Zezas:
Tony, talk to me about your employees. Has Brother taken any particular steps during the crisis to support its employees and, specifically, to serve its customers?
Tony Melfi:
We have. Well, when we first went to the work from home environment, it was very abrupt, as you know.
Andrew Zezas:
For all of us, right. Sure.
Tony Melfi:
I remember the day saying, “All right. Well, you know what? We have to be ready. We’re going to test. We’re going to pick a day. We’re going to do a test work from home.” We scheduled it for the week after, and before we had that test, we were all working from home permanently. So we didn’t have that planning. But what we wanted to make sure of is we’re an organization that culturally likes to think of our employees as some of our treasures, if you would. We had one of our retired chairmen that used to actually, when he called our customers, he had a name for our customers and our vendors and our employees, he used to call treasures. That’s important to us, so that’s something we spent a lot of time understanding, what does this mean to them?
Tony Melfi:
Staying connected is also very important and having that connectivity feeling, so we reached out. We made sure that we had a way to connect with all employees. I don’t know what other companies are doing, but people do town halls. We do an all-employee town hall once a week. When we first started, people were saying, “You know, that’s a lot.” And we thought it was a lot too at the beginning. We had some internal discussions, but what we found is that it’s something that really helps people. The way we figured that out is we tracked the number of people who were attending.
Tony Melfi:
I think we’re on our 16th weekly town hall this week and we have, within a 5% deviation I think, just about the same number of people that participate. We use that discussion to tell people what’s going on, what to expect in the future, how we’re going to come back to work, what we’re going to do, and also share what’s going on in the business.
Andrew Zezas:
Wow.
Tony Melfi:
So I think that’s a way of connecting. When we did the transition and we had people working from home, our first concern for us was safety, of course. So we had to decide who was going to stay home and then who are essential employees were. That was a big issue for us. We have operations, of course, like everybody else. We have office operations. Most of those are nonessential, but we had a few people who needed to keep the building running, et cetera. They were essential. But then we had our warehouse and our assembly and manufacturing operations, and how do we keep them going?
Tony Melfi:
So we spent a lot of time and effort in putting a team together. We met every day and we still do and came up with a plan that allowed our facilities to operate. I’ll give you an example. We had our primary warehouse, used to run on two shifts. We had one shift was our major shift, and then we had a small night shift. We understand that in order to one, keep people safe, what we did is we separated those shifts into three shifts and basically, three even shifts. Then what we did by doing that is we’re able to separate them so that between each shift we’re able to do deep cleaning. We set up different entrance points for each group that was working. We made sure that we tracked people and spaced them out.
Tony Melfi:
We knew that from a business point of view, and this is kind of a selfish point of view, from a company point of view, we wanted to make sure that we kept everybody separated and in smaller groups. Should we have somebody that became infected, we wouldn’t have to shut down the whole operation. But more importantly, we did a lot of things, including having separate break rooms, separate lunch areas, separate restrooms for different groups that we probably didn’t have to do. And a lot of that was really optics to make our employees feel better, and making them comfortable is also part of this. They had a lot of stress in their lives already, but having to come to work and understanding that you’ve got an organization that was doing everything they can to try to make them safe I think made a difference. We had a lot of positive comments back from that.
Tony Melfi:
We spent a lot of time doing those things. Probably spent, from a CFO point of view, a little more money than maybe others, but definitely well worth it because we had people that came in and were happy to do so. We did the other things that most other companies do and that’s giving people the special pay for coming in and essential workers’ pay and things like that. Those are the things that, like everybody else, we’ve done.
Andrew Zezas:
I’m curious, have you retained the majority of your employees? Have you lost a significant amount of employees during the pandemic?
Tony Melfi:
We haven’t really lost very many. Nothing more than the normal attrition. I’m going to guess that there’s probably even less than the normal attrition.
Andrew Zezas:
That’s great.
Tony Melfi:
We have not lost a whole lot, and I think that says a lot to how we went forward with a lot of the things that we did.
Andrew Zezas:
Sure does, sure does. When it’s sometimes financially beneficial to be on unemployment versus working and Brother’s retaining its employees, that’s a tremendous compliment to the company. Before-
Tony Melfi:
One of the things that we did from an economic point of view, because we all know it’s not all about money, it’s about making people feel comfortable-
Andrew Zezas:
Of course.
Tony Melfi:
… making sure that we take care of them, making sure that they know that if they have medical issues that we did everything we can to make the adjustments to our medical plans to make sure that all the help was available. Once we understood that we weren’t coming back for a while and, of course, we weren’t and we haven’t as of yet furloughed anybody, but we knew that wasn’t the same for everybody else. Just because our employees were still employed doesn’t necessarily mean that their spouses and significant others were also. So we know that even though we have employed our people, they still could be having financial difficulties.
Tony Melfi:
We have a year end that’s March 31st, so we would normally pay our annual bonuses in June. What we did is we wanted to make sure that we did what we could to help our employees financially, so what we decided to do was in April we took a percentage of that year-end bonus and we prepaid it in April to all of our employees-
Andrew Zezas:
Wow.
Tony Melfi:
… to give them help and assistance. I think that did. We got a lot of comments back from that too that that did, one, of course it makes them feel better, but it really allowed the people who needed the help to get it earlier. And that helped them get through a very tough time. That’s the approach that we have with our employees. We like to think of them as part of our group, and it’s our way of saying that we really are at your side. It’s not just a tagline.
Andrew Zezas:
Wow. So you’re not only talking the talk, you’re walking the walk.
Tony Melfi:
We try.
Andrew Zezas:
That’s tremendous. That’s tremendous. Very, very thoughtful on the part of the company. When you arranged for the test to send employees home and then didn’t get to test, prior to that did the company have a substantial portion of its workforce working from home?
Tony Melfi:
We did not. We had started a few years ago a work-from-home policy, and what we did was we left it up to each individual department head, if you would, or manager to decide which of their employees can work from home. On average, we were allowing our employees anywhere from, if they were able, if their job allowed them to work from home, maybe one to maximum of two days a week. But usually, one day a week kind of a process.
Tony Melfi:
We were playing with the idea. We were practicing it, but we weren’t doing it on a high volume basis. But by doing it that way, I think it allowed people to get comfortable with it, so it wasn’t the first time they did it. It’s the first time they did it for five days every week, but they were used to it. I think that did help the process.
Andrew Zezas:
Brother’s in many respects a technology company. Did the company deploy any particular technology to support its work-from-home employees?
Tony Melfi:
Well, we’ve done some things that allowed us to do the things that we needed to do ahead of time. I’d like to sit here and tell you that we did it all with a lot of planning and thought. As we’ve chatted before, sometimes thought and planning is good. Sometimes being lucky is good. So in the past year we’ve looked at some of our strategies and some of our technologies for how do we operate remotely. Video conferencing was one of those. We updated our video conferencing capabilities. We changed our provider. We did all those things. We fixed our bandwidth issues.
Tony Melfi:
So what happened is we went from being in the office one day to everybody working from home the next day. We didn’t have any bandwidth problems. We didn’t have any slowness. We didn’t have any degradation of capabilities. It really was really transparent from that point of view. Again, I’d like to say that it was all because of the fun stuff that we did ahead of time and thoughtfulness, but we did those things but not purposely. But it did work out, so that’s where we are.
Andrew Zezas:
Brother is obviously very thoughtful, whether before or after, obviously, but very thoughtful nonetheless in terms of protecting the interest of its treasures, its employees. Certainly sounds like you guys put a lot of work in on a technology basis, but while you had employees working from home, so you obviously worked to motivate them and to maintain the culture. What did you do specifically to ensure operating efficiency and to drive profitability during the last 100 and change days?
Tony Melfi:
Well, I think staying in contact with people is important, and that’s one of the things that we pride ourselves on. As I said, we did the town halls. What we found is, and I looked at some of the people that report directly to me, I found that they were having a lot more interactions with their staff than maybe they had before. I think that did help a lot of the connectivity. It helped us achieve a lot. Profitability is a lot to with not only with what we do ourselves but with our customers.
Tony Melfi:
We spent lots of time and we pride ourselves also on our relationships with our biggest and most important customers, and not always our largest ones. Our relationships with them are important, so truly understanding what they needed during this crisis was also something that we spent a lot of time on, making sure that we connected with them. And the people who needed some more time in paying, the people that needed some special assistance, if they were good customers of ours, it was an easy answer for us. So making sure that we all went forward with the idea that we’re in this together, this is a partnership, that’s really important.
Tony Melfi:
What we also did is we made sure that we were able to keep our business going. So internally, we tried to do the best that we could and not say, “Well, we’re putting all these things on hold.” For example, we say, “We didn’t stop business.” Of course, it’s not to the same level. Of course, we’re not going to trade shows. We’re not visiting customers, but we did things with our customers like in the past we would send people and technicians out to fix things. We did a lot more by video now. We tried helping them using FaceTime. We put more things out on YouTube videos. So we tried a lot of those type of activities. We had an annual show that we would do for our sewing dealers. Instead of canceling it, we did it all virtually. We still hire people. We’re still doing training. We’re still doing our internships. We’re still doing orientations. Probably not to the same level, but we’re trying to keep business as usual.
Tony Melfi:
One of the examples I’ll say is back in the spring everybody knows every year we have a Bring Your Child to Work Day. It would’ve been very easy for us just to say, “All right. Well, we’re not in the office, we’re not going to have it.” We had it anyway. It was a little challenging. We had probably not as many people participate. You can imagine a lot of the parents of the younger children were already going crazy with homeschooling anyway, but we got a lot of participation. That’s just an example of just trying to keep normalcy. I think when you try to keep normalcy, sometimes some of it comes through.
Andrew Zezas:
I love it. I’m going to talk to you offline about how you did take your child to work. I’d love to hear more stories about that.
Tony Melfi:
Well, I will tell you, I can hook you up with the people who did it. We have a great HR group that did all that. I would like to say I had something to do with it. I didn’t, but they did a phenomenal job.
Andrew Zezas:
I’m sure. I’m sure. You mentioned customers in the last comment, and I’m very curious to understand the effect of the health and business crisis on Brother’s supply chain, specifically well, both, both its upstream and its downstream supply chain logistics. Were there any challenges in receiving inbound raw materials or components necessary to manufacture the company’s products?
Tony Melfi:
I think everybody today, if they tell you they don’t have challenges, it’s pretty impressive. We all have challenges, challenges from a manufacturing point of view. Of course, what we’ve seen in the past is that there has been I think over the past number of years maybe a concentration in where companies had their manufacturing and sourcing their supplies or parts. Before, a lot of times you had various places of production. You spread it out. But because of cost and for other reasons, a lot of that’s consolidated, so that becomes an issue. This is not, especially when you talk about the COVID scenario, it’s not something that was limited to one part of the world. It was limited to really very few places.
Tony Melfi:
So if we have manufacturing, and the way most companies do is we have different products. We try to have co-sourcing of products, but we have a lot of factories that are primary producers of certain products. So to the extent that we had, for example, a factory in the Philippines, and the Philippines area got closed down for a month, that of course would affect our supply. We had that just like everybody does.
Tony Melfi:
We see a lot of that starting to come back now, but we’re dealing with a lot of that. So not only do we have to deal with the demand issues from our customers and what’s going on with the economy in the US, we have to also match that up with what’s the challenges in getting the product. And hopefully, the product that is more in demand isn’t the product that is less in supply. Hopefully, that gets matched. But that’s some of the challenges that we’ve had.
Tony Melfi:
What we’ve seen is that the infrastructure itself with the ports and the transportation system I think managing pretty well. We were very worried that we would see a lot of slowdowns from that area, and we didn’t see a lot. There were some, but I think the US infrastructure from a transportation point of view held up pretty well. I think that’s a tribute to the people who were out there driving the trucks, working at the ports. They were doing a lot of things, and we should be proud of that and make sure we thank them also.
Andrew Zezas:
You know what? I agree with you. There really are a lot of folks who are unsung heroes throughout this whole scenario. I mean there are heroes that we’re aware of, frontline, first responders, hospital workers, doctors, nurses, the people who clean the hospitals, everyone who affects healthcare directly. And not with any intention to diminish those people, but there are so many others who are serving seemingly insignificant roles that are so significant to the fact that this country has continued to function, albeit with one arm tied behind its back, but it’s continued to function relatively efficiently, relatively efficiently in many respects. That’s because, like you said, people who drive the trucks, fix the trucks, put gas in the trucks, and do everything that has to do with so many other aspects of business and life that the machine has continued to go.
Andrew Zezas:
How about on the downstream? Has Brother experienced any impact on the downstream logistics getting products from the plant and warehouse to its customers?
Tony Melfi:
We’ve seen a little, but to be honest with you, not as much. I mentioned earlier that we spent a lot of time at all of our distribution facilities making sure that we had separation. We changed our entrances. We put all the processes in place to get our people comfortable. By doing that, as you said earlier, we haven’t lost a lot of employees. We had people coming to work. That’s the first piece, so we have to thank them. So the people that came to work, moved our product, unloaded it, shipped it, that’s the reason why we were able to ship. We owe them a lot of thanks too.
Tony Melfi:
What we found is that by doing that and understanding that sometimes you have to make concessions, so if we had an issue where either we had an issue with one of our shifts in one of our facilities, we were able to move that load to another facility. We were able to move the demand around a little bit, effectively taking care of our customer. It may not be the most efficient. It might not be the most cost effective, but we wanted to make sure that at the end we did the best we can for our customer. So instead of shipping something out from maybe the central US, it may have gone out from the East Coast. It may have meant an extra day of transit time, extra transportation cost, but we did the best possible and got the product out. That’s how we addressed everything.
Tony Melfi:
What we really also have done is I mentioned earlier that in business, and I think we’ve chatted about this at different times, that company to company is important, but individual to individual and building those relationships are important. So I think it’s the relationships that you’re building in your operations and in the way you do business on a daily business, take time. We believe that the relationships we built with our customers over a long time really then when you have issues really help.
Tony Melfi:
So our customers have been great. We’re trying to do what we can to make sure that we support them, and I think they’re doing what they can to support us. So we’re trying to get the product to them as fast as possible, and I think for most of our customers, they’re trying to be as understanding as possible. And it’s really a cooperative effort, and that’s what makes this work.
Andrew Zezas:
Wow. That’s what makes success.
Tony Melfi:
We try.
Andrew Zezas:
As this crisis moves on, hopefully resolves itself, do you see Brother experiencing any long-term changes in terms of how the company operates?
Tony Melfi:
Well, we’re talking about that every day, of course. I think every company today, if they say, “We don’t see any changes going forward,” that they either have their head in the sand or they’re just not being honest.
Andrew Zezas:
Right.
Tony Melfi:
What that is, I don’t know that we’ve figured that out yet. I think that most companies have to look and say, “We need flexibility. We have to make sure we have redundancies, and we have to have alternatives for what we do.” Going back to the days where you have one way of doing things, one type of office, one set of standards, we need flexibility. For me it’s really going forward there’s two words that stay with me, flexibility and preparedness. You always have to think about now, what if? And the what ifs today are things that you would never have thought about before. I’m not giving you an answer directly, but I know things are going to change. But what it is, we’re not so sure yet.
Tony Melfi:
We’re probably not hoping to go to an environment where we are all remote. That’s one thing that we’ve talked about. Nobody knows where we’re going with that, but of course as you know, as I said earlier, parts of the relationships that you build are done over time. We could do this on a video, but you still can’t get all the nuances that way from meeting people and developing people and developing your relationships. One of the reasons that I would say that we’ve done so well for the past three months is that we’ve done so much work before that working on our culture and what that means to us.
Tony Melfi:
But we also have to remember that once we went to work from home, who were we talking with on a regular basis by video? All the people that we knew. So we’re communicating with people that we’ve worked with for years in many cases and have built those relationships. The challenge will be how do we then adapt that to bringing on new people and having people that don’t have that opportunity to have that personal interaction. That’s one of the challenges I think that every company will have as we go forward, and it’ll be interesting to see how we deal with that and how successful we are, just like everybody else.
Andrew Zezas:
That’s about as frank an answer as I could’ve expected, Tony. You said you’re not giving me a direct answer, but you actually did. Post-crisis, some CFOs are advising us that they will keep a portion of employees on work from home on a permanent basis maybe as a way to reduce long-term costs, mitigate negative effects of possible future events. You said, “Be prepared.” Yet others are telling us that they may also consider greater geographic diversification of employees and of company offices, whether they be critical functions or customer care or finance and so on.
Andrew Zezas:
Not speaking specifically about Brother but about the various industries in which Brother operates, how do you expect companies to address those kinds of evolutions? Do you think there’ll be more diversification? Do you think there’ll be more work from home? Do you think there’ll be other tactics that companies will deploy?
Tony Melfi:
I think if we talk about the industry, and by the industry I meant business in general more than our specific industry because I don’t think our specific industry is so significantly different when we talk about these type of things than most organizations. And in chatting with either friends or other CFOs and other business associates, most people I think say, “You got to put everything on the table. You have to think about this.” But there’s pluses and minuses from a total remote scenario. I’m not expecting that we’re going to see a lot of organizations that go to a 100% remote scenario. I’d be very surprised at that, but time will tell.
Tony Melfi:
I think what we might start seeing is that there’ll problem be a loosening up of the amount of time people are required in the office. I think it’ll be a spectrum of companies that want to go back and bring everybody back ultimately. There’ll be some that say, “Maybe this is a way of reducing our costs and reducing our footprint, and we’ll go to a total remote scenario.” But I think you’re going to see a hybrid in many companies where maybe we’ll some sharing of days where some people will come in part time and not others.
Tony Melfi:
Now it gets interesting because in the past when we talked about that, we always combined that with what the workspaces looks like and you got to hoteling, shared cubicles and things like that, which was perfectly fine just a few months ago. If today you start telling program that you have the ability to come in only two days a week but you’re going to be sharing space, I don’t know that you’re going to really get the buy-in from that. It’ll be interesting to see what impact that really has. There’s pluses and minuses, and I don’t know what the cost savings are until this all shakes out and we see what happens and what the space requirements end up being. That’ll be interesting.
Andrew Zezas:
There’s definitely a strong argument that suggests that employees won’t want to be sitting shoulder to shoulder anymore, that they’ll want larger cubicles. They’ll want plexiglass sneeze guards. Whether they’re hoteling in their workspace or not, they’ll want constant sanitization and deep cleaning, not just people emptying waste baskets after hours. They’ll want it happening during the day and they’ll want to see it. They’ll want air conditioning systems that scrub the air so they’re not breathing in or breathing out germs.
Andrew Zezas:
Long meetings sitting shoulder to shoulder will be challenging. But then you’ve got the issue of urban buildings, city buildings where employees aren’t going to want to stand in an elevator with 15 other people breast to back, shoulder to shoulder to get to the 32nd floor because you can’t hold your breath that long. Even prior to that, we’re hearing from a number of companies whose employees are telling them they’re uncomfortable taking a bus or the train or the subway into a city for the very same reasons, and they like the idea of sitting in the relative safety of their own car and parking in an open-air parking lot and walking to the building and only having to walk up three flights.
Andrew Zezas:
There’s some companies that are going to have to figure that out. Some companies that I think are going to move out of the cities in part or in whole, and some companies that are going to increase their work from home. But unless you’re a small company where you can send everyone home or a very unique large company where you can send everyone home, it’s going to be some combination of the above. On one side of the ledger there’ll be some cost reduction. The other side there could be some significant cost increase.
Tony Melfi:
Yeah.
Andrew Zezas:
Let’s talk about the economy a little bit, Tony. In addition to the indicators that are associated with the ending of the pandemic, whenever that will be, what do you think the indicators or what do you anticipate that will signal that the economy will actually be prepared to… the components of the economy that have struggled will actually be prepared to bounce back? What indicators do you look for?
Tony Melfi:
I’ve been thinking about that, and for me there’s a couple of things I think that are key. As we all know, we always think about the large employers as the predominant employers in the US. And as we know, individually they are, but as a group, small businesses employ the largest percentage of Americans or people in the US. Those are the businesses I think, from what I understand, would be the ones that have been most hurt, the ones that have laid off and not been able to keep employed many of the people that were working for them. So until they get back on their feet and until they could start bringing back those employees so they’re gainfully employed, I really worry about how strong of a recovery we will have and how deep that recovery goes.
Tony Melfi:
You can’t look just at a segment of the population and say, “Well, it’s okay at this segment and therefore everything is fine.” I really believe that you have to look at all segments, and I think we have to hopefully see the ability for the people that are in those jobs to get employed, to start making money and start being in a position where they can start spending again, taking care of themselves and taking care of their families. Once they do that, I think then we get a little more comfortable that we’re on the right path. But I worry until then and I worry not only for the economy but for those people themselves.
Andrew Zezas:
Yeah, that makes perfect sense. I think I agree with you about that. During this pandemic we’ve seen corporations cut back on spending. We’ve seen them seek deferrals of expenses. We’ve seen many corporations extend the time when they’ll make payments. We’ve also recently seen articles in the media suggestive that individuals are cash rich. Those who have been employed have been able to retain their cash. From a corporate perspective, do you anticipate that there’s kind of a pent-up demand to spend, to invest and that post-crisis there may be a surge in spending?
Tony Melfi:
I think there could be. The question is how will the priorities and the requirements change. So I think what we’ve seen in many organizations is that because of the uncertainty of how long this is going be, how deep will this go, what’s the ultimate impact on our organization? I said when we first started that we’ve fared fairly well compared to other companies, but we do have challenges. But I can’t tell you today what next month is going to be or the month after and how long this is.
Tony Melfi:
So with uncertainty, I think what many companies have done is they put a lot of their big projects on hold. They’re not making the huge investments in infrastructure, in building new factories, in doing the other things that they would normally do. So when the pandemic is over and one, we have to talk about what does that mean, over? And then how long does it have to stay over before people believe that it’s truly over?
Andrew Zezas:
Right.
Tony Melfi:
Those investments, are they still the same priorities or not? That may change because I think a lot of people now will hopefully start thinking about you need diversity of supply. You need other things, so maybe where I was going to spend my money before is not where I’m going to spend it going forward. You talked about real estate. That’s another sizeable investment.
Tony Melfi:
For a company to move their office or to change how they operate, especially if you’re in Manhattan and you’re in a high rise and you have 10 floors there, it’s a big endeavor to go and do something else. Those are I think big drains on cash and I think people are going to be looking at what makes sense, what do you need to do. That’s going to take some time before I think some of those things fall out.
Andrew Zezas:
Tony, this has been great. I can’t tell you how much I appreciate your sharing your insights with us. We’ve got a couple questions from the audience that I’d like to share with you. One in particular, the question is do you anticipate that any industries in particular will benefit from what we’ve just experienced in maybe the near term?
Tony Melfi:
Well, I think what we’ve all seen is that industries that have a strong internet providing capability, a lot of the dotcoms, people that don’t rely on brick and mortar have done very well. For us, our business has shown that. Our customers, we see a lot of demand and growth in the dotcom area, more so than of course the brick and mortar retail. So I think customers or companies that operate in that area I think will do very well as they go forward. I think companies that have really worked on having an easy customer experience and a supply chain will do well.
Tony Melfi:
I think we’re all challenged in not only, we talked earlier about supply chain, but the ultimate way of taking care of a customer at the end of the day when they have issues is through customer service, and how do we do that? Most companies in those cases, us included, have instead of diversified, have consolidated some of our centers and our capabilities. When you put them in a low number of different places, if you’re in place that’s safe, you’re good. If you’re not, you can really affect your customer experience. So I think companies that have the ability to diversify the way you take care of customers and making sure that you have a consistent customer experience will also do better.
Andrew Zezas:
One more question from the audience. How do you expect Main Street businesses will fare? Will government rescue measures do enough to keep small business alive, and will most of them bounce back?
Tony Melfi:
I would answer that and say, I sure hope so. Because like I said before, I really think that’s the key for what happens going forward, and I’m sure you do the same. Through the pandemic when we have an opportunity and we do a takeout order or we do something, a lot of times we ask not only, “What do we feel like eating?” But, which of the small restaurants that we know or which of the small shops that we know that we like, the people are nice, and we want to make sure that we can help them stay in business? It’s important.
Tony Melfi:
It’s important to the communities that we’re in. It’s important to the people that work there, so I sure hope so. I am challenged with understanding that the government has done a lot so far with some of the incentives that they’ve done. The question is, is it enough and how long will it continue? And until people can fully open up, I still think there’s a need there, so time will tell.
Andrew Zezas:
I think you’re right, time will tell. Tony, this has been great. I can’t thank you enough for participating with us today on CFO StudioLIVE, for sharing your thoughts and your insights, and being so open. Your message on behalf of Brother International is a very positive one and that proves out in what the company’s experienced, not only in retaining its employees but in dealing with its customers and protecting its revenue base as well. Congratulations for all the great stuff you’re doing. And once again, thank you so much for participating with us.
Tony Melfi:
Well, it’s been an honor, and I always enjoy talking with you. You guys do a great job. Again, it’s a pleasure and I wish everybody the best.
Andrew Zezas:
Thank you. And to our guests, thank you for joining us. Let me remind you that today has been an interview with Tony Melfi, Senior Vice President and Chief Financial Officer of Brother International. We’ve got a long list of very exciting CFO StudioLIVE interviews, CFO Business Intelligence Briefing events, and CFO discussions happening right through the summer. So come visit us at cfostudio.com. Contact me directly at andrew.zezas@cfostudio.com. Be safe. Enjoy the Fourth of July Independence weekend. If you’re traveling to the kitchen or the living room, watch out for the traffic. Get out, enjoy the weather. Come see us again, and God bless.
Tony Melfi:
Thank you.
Andrew Zezas:
Thanks, Tony.
Andrew Zezas:
Thank you for joining us at CFO StudioLIVE. Visit cfostudio.com to hear more interviews, to attend CFO Studio events, and to request your copy of CFO Studio Magazine.