Johnson & Johnson’s CFO Dominic Caruso Featured in Latest Issue of CFO Studio Magazine

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FOR IMMEDIATE RELEASE

Lorenz Capalad

Lorenz.Capalad@CFOstudio.com

(732) 868-0000 x118

September 8, 2016

 

Johnson & Johnson’s CFO Dominic Caruso

Featured in Latest Issue of CFO Studio Magazine

SOMERSET, NJ – Dominic Caruso, the chief financial officer of Johnson & Johnson of New Brunswick, NJ, is guided in his decisions by the company’s Credo, penned by General Robert Wood Johnson II in 1943. When he receives a call from the head of one of J&J’s business units asking him to weigh in on an ethical matter, Caruso says that the General’s words, though written in a far different era, signal the right solution.

In the Q4 2016 issue of CFO Studio magazine, a cover story about Caruso’s leadership offers a case in point dating from 2007. Caruso was at that time CFO of the company’s medical devices segment and had to make a decision that was “gut wrenching” and “financially painful,” but was ethically correct. “Our Credo has lots of constituencies: doctors, nurses, patients, employees, and our shareholders. Our shareholders are listed last, but it’s really just another of our responsibilities,” he says in the article.

The cover story also describes Caruso’s role in developing leaders in the finance area, describing J&J’s Finance Leadership Development Program, a two-year rotational program that gives recruits new to public company finance the chance to work in multiple areas of the business in three eight-month assignments.

Other points touched on include Caruso’s thoughts about building long-term value versus reacting to short-term shareholder demands, and the ROI of J&J’s significant sustainability program.

 

About Johnson & Johnson

Caring for the world, one person at a time, inspires and unites the people of Johnson & Johnson. The company embraces research and science — bringing innovative ideas, products, and services to advance the health and well-being of people. Approximately 126,500 employees at more than 250 Johnson & Johnson operating companies work with partners in health care to touch the lives of over a billion people every day, throughout the world.

 

About CFO Studio

CFO Studio and CFO Studio magazine deploy the best of new and traditional media to promote finance executives as business and strategy thought-leaders. The magazine, published quarterly by CFO Studio and underwritten by great promotional partners, features business profiles and strategic advice for CFOs in the New York, New Jersey, and major metropolitan areas including Philadelphia and Chicago. Andrew Zezas is the host of CFO Studio and the Publisher of CFO Studio magazine. The company’s third annual CFO Innovation Conference & Awards will be held in spring 2017. Nominations are now open at www.CFOstudio.com

Visit www.CFOstudio.com to watch interviews with New Jersey area CFOs, and to register for Executive Dinner events in New Jersey, Manhattan, Philadelphia, Chicago, and San Francisco, and for the CFO Breakfast Learning Series. All events are available to CFOs at no cost. To read articles that have appeared in CFO Studio magazine, or for subscriptions and advertising opportunities, visit www.CFOstudio.com

 

About Rufhaus Designs

Rufhaus Designs provides creative and editorial services for custom publishing projects, magazines, books, newsletters, and brochures. With a proven track record of designing publications, developing story ideas, and writing compelling copy, Rufhaus Designs is the publishing partner of CFO Studio. www.RufhausDesigns.com

De-risking Pension Plans

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As Seen in CFO Studio Magazine Q3 2016 Issue

NO ONE-SIZE-FITS-ALL APPROACH BUT GUIDANCE NEVERTHELESS

De-risking benefit and pension plans, a trend set in motion by the recession, new reporting requirements for pension liabilities, and waves of baby boomers reaching retirement age, was the discussion topic at a World-Class Companies CFO Dinner held recently at MetLife Stadium, and hosted by CFO Studio. The unfunded liabilities that pensions represent on a business entity’s balance sheet can hurt the company’s ratings from debt agencies and its attractiveness to investors. De-risking strategies are intended to mitigate three primary issues: the effects of market volatility on monies invested in the pension fund, interest rate risk, and consequences of events that do not meet actuarial assumptions, such as having a large number of employees reach retirement at the same time.

“There are always differences between reality and those assumptions,” explains Claude Draillard, Vice President, Finance, Dassault Falcon Jet Corp., the evening’s discussion leader. Two frequently encountered discrepancies are “when the population changes dramatically and when the rate of return on the assets is much lower than planned. In both cases, you need to fund those differences at some point … and that could impact your cash.”

There is no one solution related to de-risking a pension plan. “De-risking can take widely different forms once you have analyzed your population,” said Mr. Draillard.

Some de-risking strategies include offering retiree buyouts or purchasing an annuity that effectively transfers pension obligations to a private insurance company. “Is it in your company’s best interest to offer retirees a lump-sum payout instead of monthly pension payments? These are questions that must be kept in mind,” says Mr. Draillard. “It’s important to analyze the situation all the way to its final outcome.” He adds, “Decisions made today about pensions will have their full effect for the company’s financials in as long as 30 or 40 years.”

New Job for CFOs

Pension plan management, once an assignment of the benefits department, is now on the finance agenda. The actions the CFO takes depend on the circumstances of the company’s populations and how the pension plan relates to your long-term strategy, explains Mr. Draillard.

“There are many questions regarding this. Where is the emphasis in your company? Is it in keeping cash for the short term or is your company more interested in making sacrifices with an eye to the future?” he asks.

“Pensions are an important tool in the box to help with retention,” says Mr. Draillard. His company’s plan is richer than most in order to do so. “It has become not only a retention tool but it helps us attract seasoned professionals. Aircraft mechanics make up a shrinking population. A pension is meaningful to a mid-40s [FAA-licensed] professional. It isn’t as important to millennials as it is to these seasoned professionals.”

Cash-flow Negative

According to Cerulli Associates, a leading research firm specializing in asset management and distribution trends worldwide, America’s pension system will turn cash-flow negative this year. This deficit will continue to increase as baby boomers retire. “This has significant impact on CFOs and must be kept in mind when creating a de-risking plan,” asserts Mr. Draillard.

A CFO Studio business development partner, Isaac Buchen is Leader of PwC’s Pension Risk Management practice. At the dinner he recommended “a series of steps that will allow plan sponsors to understand the nature of risks embedded in the current plans, establish key risk-management approaches, and embed a culture of periodic monitoring to make sure that the risk-management steps are having the desired effect.”

Mr. Buchen explained in an interview that “plan sponsors generally have four levers at their disposal to address pension risk:

• Benefit lever or changes to the plan design, including offering lump sums to terminated vested participants,

• Investment lever or changes to the overall asset allocation,

• Contribution lever or developing a strategy of how to fund the plan and potentially making non-cash contributions, and

• Insurance lever or buying annuities for participants from an insurance company.”

As the dinner discussion drew to a close, the group gathered in the Jets Green Room at MetLife Stadium overlooking the field where the CFO guests watched the New York Jets play the Buffalo Bills.

Participants left the discussion with an understanding that there is a clear trend toward de-risking benefits and pension liabilities, and that the actual approaches taken are many, depending on the industry, the composition of groups covered by the pensions, and strategic priorities.

Road Tested

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As Seen in CFO Studio Magazine Q3 2016 Issue Cover Story

CFO DAVID CHAMBERS WAS THERE WHEN FORD SOLD JAGUAR LAND ROVER TO TATA MOTORS, AND, WITH A HANDFUL OF OTHERS, HELPED BUILD A NEW COMPANY

BY JULIE BARKER – PHOTOGRAPHY BY MATT FURMAN

The BlackBerry chimed shortly after David Chambers had made his way from Nevada and into Utah while driving along Interstate 15. It was August 2008, and Chambers, Vice President of Finance and CFO of Jaguar Land Rover North America, then based in Irvine, CA, was on a family trip to Colorado Springs, CO. The summer trip was a break from the tumult of creating a new company — a startup, essentially — from the frames of three other carmakers: Ford Motor Company, Jaguar, and Jaguar’s sibling, Land Rover. When Chambers stopped his 2007 Ford Edge and checked his email, he had a message from the CFO of JPMorgan Chase’s automotive business: “I need you to call me.”

Chambers had a good idea what he would hear when he phoned. “We were working on our first financial services deal with them,” he says. It involved a contract that would give Chase exclusivity in the auto loan and leasing market for Jaguar Land Rover ( JLR) in the U.S. But automotive sales in July had been down more than 10 percent on average from a year earlier (with General Motors off 22.2 percent and Chrysler off 21.4 percent) and SUV sales, in particular, had plunged (54.4 percent at Ford). On top of that news, gas prices had struck $4 a gallon and overall consumer confidence had plummeted from 111.9 a year earlier to 51.9 in July. Chase’s CFO wanted a signed deal before any more damaging news spooked buyers.

“The banks were in as tough a position as we were back then,” says Chambers, but he worked out a deal with Chase, to this day JLR’s U.S. financial services provider. By its own analysis, without that agreement allowing buyers to finance and lease vehicles, JLR North America, then just two months old, would have seen 30 percent lower sales volumes and hence fewer dollars for investment, with shattering impact on the infant company.

Today, JLR North America is riding high with growing sales of both its Jaguar and Land Rover lineups. Moreover, while both did well in 2015, the Land Rover brand set a new high-water mark in the U.S. But back in the summer of ’08, the company had no track record.

Ford Motor Co. had acquired Jaguar in 1990 and Land Rover in 2000, but started shopping the brands in mid-2007. Ford needed to focus its investments in core brands and was looking for buyers for non-core brands. When Tata Motors of Mumbai, India, came forward, Chambers, then working for Ford as U.S. vice president of finance for these brands, was a key individual from North America working on the JLR sale.

“I had a lot of Ford loyalty, but I said it then and I’ll say it now: It was the right answer for both companies,” Chambers said recently in an interview at the JLR North America headquarters in Mahwah, NJ. “Within Ford, Jaguar Land Rover would have never gotten the capital it needed to survive — or to survive and thrive like we’re doing today — because the demands on Ford from a capital perspective were always going to be huge to support its core business.”

Today, JLR is effectively a British company, with headquarters in Coventry, England. The North American branch is a licensed distributorship. All the vehicles come from the U.K., but Chambers and a handful of top execs in New Jersey create the best go-to-market strategy for North America.

“I don’t think of myself as a hugely creative person, but I think of myself as an individual who can help influence within the business and sit with the operating teams and come to what I would call the right answer, with everybody walking away saying, ‘We did the right thing for the business,’” says Chambers.

Midwestern Sensibilities

Chambers, 51, grew up in Fremont, OH, population 18,000. He played sports, was active in Boy Scouts, and was known as the kid who always raised his hand in class. In looks and attitude, he seems typically Midwestern, even bearing a passing resemblance to Christopher Reeve’s Clark Kent of Smallville in the first two Superman movies.

Self-confident and never doubting he’d go to college, Chambers received a BS in Finance from Miami University in Oxford, OH, in 1987, worked a few years in banking, and returned to school for an MBA from Ohio State. There he met an executive from Ford and somewhat casually agreed to an interview with him. That led him into an industry he took to from Day One.

Chambers says that he loved that his bosses put him right to work as a financial analyst at Ford’s Dearborn, MI, world headquarters, and that the products were so tangible. (“Everyone knows Ford.”) He married a Dearborn girl (a second-generation Ford employee) and they have a son, 13.

Chambers rose through various finance jobs at headquarters and at the St. Louis manufacturing plant. Back in Dearborn, he worked his way up to director, car and truck pricing. Altogether, it was a thorough grounding in finance operations in the U.S. automotive industry. That being said, he found himself in new territory when the sale went through in June 2008.

In his first months at Jaguar Land Rover NA, Chambers created organizations for treasury, tax, accounting, compliance, dealer audit, and purchasing. This was “a great learning experience,” he says with Midwestern understatement. “Rarely do you get to come into a large organization — large from a revenue perspective — and get to basically start everything over again.” ( JLR North America’s starting team dwindled to 14 sales and marketing employees and Chambers when the group moved from Irvine in January 2009 to a Mahwah, NJ building owned by JLR.)

One of the challenges was to keep everything running while putting the right people in place and starting systems. He focused on the top post in each area and let those he hired decide on next steps. For example, he hired a director of accounting. That individual went out to Detroit and worked with Ford until he understood what the Ford accounting people did. “Then he came back and started working through, ‘What would my accounting organization look like?’ and we started building it from there,” says Chambers.

After getting through the stages of survive and stabilize, Chambers and the team’s next focus was to promote growth, especially for the popular Land Rover luxury SUV brand. A high-level committee, including Chambers, set Land Rover’s strategy at the end of the financial crisis. The record-setting 2015 results, up 37 percent, made Land Rover the fastest-growing brand in the U.S., fulfilling the promise of that plan.

At the end of 2014, Chambers; Joe Eberhardt, CEO of JLR North America; and the product marketing organization began meeting to create a plan for a next generation of Jaguar. New models were to be launched in 2015 (a new XF and a freshened XJ) and two models come out this spring (the 2017 Jaguar F-PACE, the brand’s first performance SUV, and the XE, a compact sports sedan). The high-level team took a look at customer concerns with the Jaguar brand and spent six months devising a strategy to dramatically increase the presence of Jaguar in North America, essentially the brand’s best opportunity for success.

With more competitive prices, Jaguar is attempting to broaden its market by appealing to millennials and lure buyers of, say, Audi and Volvo. In addition, the strategy addresses a key negative among potential purchasers: the outdated reputation for reliability problems. The team brought in consultants, debated adding costs, and looked at the levels of risk associated with each element proposed. They agreed to a “best in class” five-year, 60,000-mile warranty with complimentary scheduled maintenance on all models and named it Jaguar EliteCare. Chambers and Eberhardt ultimately took the new customer care plan to the U.K. where it was again debated and finally approved.

Although for competitive reasons he can’t detail all the adjustments JLR will make to balance out the strategy’s costs — including a big boost to the marketing/P.R. budget to communicate Jaguar EliteCare —Chambers says more than one traditional automotive payback is applicable. For instance, by having more competitive prices in the market and thus achieving more demand, “you’re likely to achieve better residual values on your products and then you’re going to incur less cost when you lease your product.”

He adds, “Conceptually, the comprehensive coverage should add perception of the vehicles’ value as well, but that one’s harder to quantify because you have to let it run through the system.”

Asking Questions

From his early days at Ford, Chambers started watching people he thought were good leaders and asking himself what they did that made them successful. He tried to see how they acted and reacted, and how they looked at things and were able to analyze the business. He was only three years or so into his career when he realized that he had to take charge of his career himself, that it was up to him to ask his boss how he was doing. Today, he asks his direct reports, “What can I do better?”

“I think you have to have that kind of mindset: be self-aware and be willing to take a risk and take on tough jobs. Those are the kinds of things that really help you.”

Chambers views himself as an influencer, and to be that, he has made an effort to develop the respect of people outside the finance organization: the operating teams.

As a thought leader, he believes it’s one of his duties to raise questions regarding any presentation he sits through. And as CFO, questions come naturally. “A finance person always asks why,” he says. “My team has a standing little joke about me that it’s impossible to get anything through without at least a question.” He uses questions, he says, to help mold his team. “I’m always going to ask the question ‘Why?’ It’s trying to help them see how I look at it.”

Curiosity is one of the traits he has identified as key to a good finance executive. He says that CFOs should be wondering: “‘What’s going to happen a year from now?’ ‘We want to do this now but what’s going to happen down here?’ ” he says.

Chambers believes that JLR North America’s finance organization can influence the success of the company by asking and answering questions no one has tried to solve before. Data analytics can help JLR see what the dealers are ordering versus what Jaguar and Land Rover are building, getting into specifics like the mix of powertrains (V8 vs. V6) or the regional differences in consumer preferences. He says the data is all there; it’s just a matter of bringing it together: “My personal view is that’s probably one of the biggest areas of opportunity…. We have the ability to influence up front, during the product development, but once the vehicles are here, mastering local market dynamics is where our opportunities are.”

Chambers is clearly pleased to have been part of assembling the people of JLR North America, defining and executing the strategies, and “getting to see my fingerprints on things that happen within the organization.” And now he can anticipate being able to invest in “untapped areas” in which larger competitors are involved. The company has come a long way since 2009 when it sold 38,000 Jaguar and Land Rover vehicles. In 2015, U.S. sales totaled 85,048 vehicles, a 123 percent increase since the sale to Tata Motors.

Chambers is proud of what he and the team around him have done and excited for the future, taking it one five-year plan at a time.

Copyright 2017