Listen to Your Cassandras

As Seen in CFO Studio Magazine Q2 2017 Issue

-By Aldonna R. Ambler, CMC, CSP, The Growth Strategist

Get early warning of strategic inflection points

A company recently brought in my consultancy because the long-awaited risk management analysis was suddenly needed — right now! Media coverage about the spontaneous combustion of the lithium batteries inside Samsung’s Galaxy Note7 smartphones woke that client up. (If your product line involved fancy lithium batteries, you would want to speed up your risk analysis, too.)

Of course, we were pleased to help them pick up speed to make informed strategic decisions more quickly. But frankly, nine times out of 10, when executives feel blindsided and urgently need outside help, one of the underlying causes is that those businesses lack real CFOs, or their CFOs are too buried in the generation of reports or in analyzing the past. And the result is that the company doesn’t get early warnings of the need for a major directional shift ahead.

It seems to me that strategic inflection points no longer slowly sneak up on companies. Rapidly advancing technology, generational differences, the shrinking middle class, populism, and cyber attacks, among other factors, are pushing our clients to change.

A business is much more likely to achieve profitable accelerated growth when its CFO is expected to look and listen for symptoms of change, hints about new opportunity, warning signs of lost competitive advantage, etc. Much of the data first appears in the form of returns, product questions, or whining salespeople. And no, this reconnaissance is not just the purview of a Chief Marketing Officer (CMO). A CFO’s education and training bring different questions and increase the objectivity of analysis.

Change Your Company’s Fate

It was Intel’s late Chairman and CEO Andrew Grove who described the people on the outer fringes of a business as Cassandras (a nod to the priestess who warned ancient Troy about an upcoming attack).

The Cassandras in your organization know about programs or products veering off-track — correctible things — but if you are staring at financial reports all day, the Cassandras may not bring early-warning signs to you.

As a CFO, are you available to learn from middle managers about what does and doesn’t seem to be working the way it was expected to work? Is there any time in your schedule to interact with customers or suppliers? If you were Samsung’s CFO, would you have picked up on some of the early-warning signs conveyed by Samsung’s Cassandras?

The Strategic CFO

As Seen in CFO Studio Magazine Q2 2017 Issue

CONNECTING THE CFO’S FOCUS ON STRATEGY AND RISK

As keeper of the numbers and the data, the CFO is the voice of reason and realism, but is often the challenger when it comes to a company’s strategic planning. However, Ron Kasner, CFO of iCIMS, a provider of cloud-based talent acquisition solutions in Matawan, NJ, envisions an additional line in the job description: “It’s the CFO’s responsibility to help identify opportunities for growing the business.”

Mr. Kasner spoke on “Strategy and Risk: The CFO’s Role in Driving Opportunity and Protecting the Enterprise” at an invitation-only dinner discussion attended by CFOs from New Jersey–area middle market companies. The event was held recently at Community FoodBank of NJ in Hillsdale, and is part of CFO Studio’s Executive Dinner Series.

“Because CFOs are indeed so data driven,” he said, “we should be delivering information about not just our business, but about the market and whether or not it is ripe for realizing the company’s goals and vision.” He continued, “CFOs should have an understanding of the marketing opportunity and whether the projected results of the business are realistic.”

Mr. Kasner shared his strategic focus on “Presence, Portfolio, Positioning, Pricing, and People” with dinner attendees. “For example, if the current opportunity isn’t large enough, CFOs need to guide the organization to expand its presence —whether geographic, segment, or vertical.” The company will then need to “assess the existing portfolio of products and services to ensure it can serve that newly defined presence.”

Without question, Mr. Kasner added, it’s the CFO’s duty to challenge and “push back” on some parts of even the best strategic plans, “mainly because of our keen attention to risk.” But this is where, he pointed out, strategy and risk go hand-in-hand, and “certain risk factors can and should be used by the CFO to create and help drive company strategy,” thereby opening the doors to new and expanded business.

Use Risk Strategically

There are countless types of risk troubling organizations today, and any CFO worth his or her salt has set up myriad controls to guard against or mitigate these dangers. Whether the risk is in the area of finance, personnel, compliance, or data security (to name a few), “once you’ve assessed the likelihood of the risk occurring and the impact that the risk would have on your business, as well as the ongoing value of the business, you can then determine your risk tolerance,” said Mr. Kasner.

He noted that while some business leaders are born risk-takers and others aren’t, risk tolerance is often based on the size or value of the company: “A start-up with little or no revenue may take on a lot of risk because it has nothing to lose, while a larger, more established firm might err on the side of caution and play things safe.” Alternatively, “larger organizations with a more established infrastructure may be better equipped to mitigate risks, thus lowering the likelihood of occurrence or impact, and thereby enabling the organization to take on what other organizations would otherwise deem a higher risk.”

In either case, “it’s now up to the CFO to ‘manage’ that risk,” said Mr. Kasner. Assuming all the necessary mitigating safeguards are in place, “the CFO should look to use that risk strategically to the company’s advantage.”

Mr. Kasner explained: “If it’s been decided that my company is going to have a greater risk tolerance, we may be willing to bring in certain types of customers that the competition might shy away from because they are viewed as too risky. On the flip side, if I have excellent controls around my risk, a customer might consider my company more secure, and decide to do business with me instead of my competitors.”

CFO Studio Business Development Partner Steve Peckman, a Vice President at Yorktel, an Eatontown, NJ–based provider of unified communications & collaboration, cloud, and video managed services, found Mr. Kasner’s take on the CFO as strategist enlightening. “As the only professional in the room who wasn’t a CFO, I was inspired to hear that the strategy and risk- management tactics laid out over the course of the evening correlated with the ways my team and I manage our business unit — as a microcosm of the larger company.”

Ultimately, it’s the CEO who has the vision for the direction of the company, “but the CFO should be contributing data about both the business and the market to help make accurate and strategic decisions,” Mr. Kasner pointed out.

“It’s our job,” he added, “to establish the framework for strategy and risk, and then use and contribute to that framework to help guide company strategy.”

Managing Business and Legal Risks

As Seen in CFO Studio Magazine Q3 2015 Issue

WHY MIGHT YOU NEED AN IN-HOUSE GENERAL COUNSEL?

In 2007, when the global organization Agfa-Gevaert decided to de-merge — splitting into three independent, listed companies representing the activities of Agfa Graphics, Agfa HealthCare, and Agfa Materials — the company initially managed the action using in-house attorneys, according to Gunther Mertens, CFO of Ridgefield, NJ-based Agfa Corp.

“But after the merger, we outsourced some of the tasks to specialized firms as a way of cutting costs and making the de-merger expenses neutral,” said Mertens, one of the experts featured in a panel discussion on “Managing Legal, Regulatory, and Business Risk: A Creative Dialogue Between CFOs and General Counsels (GCs).”The CFO Innovation Conference event was moderated by Christopher M. Santomassimo, a partner at Paramus, NJ-based Nicoll Davis & Spinella, LLP as well as GC of Agfa Corporation.

With regulatory, cybersecurity, and other concerns, CFOs today have more on their plates than ever before, and consequently need to work more closely than ever with their general counsels.

“GCs have multiple roles,” explained William Farran, general counsel of Innophos Holdings, Inc., an international producer of nutritional and other specialty ingredients in Cranbury, NJ. “As outside counsel, [attorneys] fulfill a tactical function, while as in-house counsel we fill a strategic one.”

In-house GCs, for example, work closely with the CFO and other executives on day-today matters, while outside attorneys are often retained for their specialized knowledge in taxes and other matters, he added.

Although outside counsel and in-house counsel may have different operating styles, they can still work in harmony, noted Kevin Fox, GC of Mahwah, NJ–based Sharp Electronics Corp.

“An outside attorney often has a significant fear of appearing to be wrong, so he or she will often issue lengthy, comprehensive memos to back up his or her position on a matter,” he said. “But an in-house counsel is expected to offer quick, though accurate and informed, decisions on important matters. So, they have to be prepared to move fast. Both are vital to the CFO, and they must all share a high level of trust and be able to work together smoothly.”

At Agfa, Mertens has been involved in a variety of financial and other activities. He said a GC “needs to be an excellent lawyer, but also a savvy businessperson who can take complex issues and translate them to manageable bites —without ‘dumbing down’ the concepts — that the CFO can easily digest.”

Smaller companies, like family-owned Berjé, Inc., often look to the inside counsel to deliver a wide range of value-added legal and other services at a reasonable cost, noted CFO Brian J. Hart. Based in Carteret, NJ, Berjé distributes essential oils and aromatic chemicals, and develops and manufactures finished fragrances.

“When I worked at a large firm, we tended to rely on outside counsel for more matters,” he reported. “At smaller firms, we develop expertise in a wider range of matters, including risk management. While [CFOs] consider traditional risk matters, like insurance needs and regulatory developments, the GC is also increasingly asked to weigh in on an expanding number of risk areas. Consider the example of the H&R Block tax services firm: Years ago their big concern was where to locate new stores as they expanded; but the real risk the company faced was relatively inexpensive tax software.” An alert GC might have helped the CFO see beyond that day’s goals. —Martin Daks

 

Copyright 2017