Interview with Jay B. Style
Interviewer: Andrew Zezas, SIOR
Following is the transcript of a CFO Studio interview between Andrew Zezas, CEO of New Jersey based Real Estate Strategies Corporation and financial executive, Jay B. Style, Senior Vice President and CFO of Mathematica.
Visit www.CFOstudio.com to read about this interview and to watch the entire on-camera interview.
ESOPs and the Role of CFO
Zezas: This is CFO Studio, and I’m your host, Andrew Zezas, and joined today by Mr. Jay Style, Senior Vice President and Chief Financial Officer of Mathematica. Mr. Style has been with Mathematica for 27 years. He began his career in government accounting at the Pennsylvania Department of Labor and Industry and then at the US Department of Labor. During Mr. Style’s tenure, Mathematica has grown from under 8 million dollars in revenue to approximately 200 million dollars in revenue. Employment has grown from 75 to 940 people around the country. Mathematica is in the business of evaluating public policy programs for federal and state governments, as well as private foundations. Clients of Mathematica include the Robert Wood Johnson Foundation and the Bill and Melinda Gates Foundation, among others. Today, Mr. Styles is here to talk to us about ESOPS and the Role of a CFO. Jay, it is so nice to have you here on CFO Studio, thanks for joining us.
Style: Thank you for having me, thank you.
Zezas: So we are here today to talk about ESOPs, not the fable, but the corporate structure and the role of the CFO. But before I ask you to talk about that, give us some background on Mathematica; tell me about the company and what it does.
Style: Mathematica began its work about 45 years ago. We do evaluations of public policy programs, mostly for the federal government, but also state government and private foundations. We do research looking at the impacts of programs for the department of education, education programs, or healthcare reform, programs which are a growing area right now, also nutrition programs, employment and training, welfare reform and we recently are looking at issues like teacher effectiveness and providing technical assistance to some of our clients also.
Zezas: So, in evaluating programs you are measuring effectiveness?
Style: Yes. That’s right.
Zezas: And your programs are short term/ long term in nature?
Style: It can be either short term/long term contract for us; it would be about a year long, and maybe even 100-200,000 dollars in contract value. We have a few contracts that go on for 5 more years and it can range up to 50 million dollars with a very large contract.
Zezas: Wow. That’s impressive. So how is Mathematica different from other countries?
Style: I think in a few ways, but, the key difference is that I see it as its ignition. Mathematica is in the business to improve the public’s wellbeing by providing the highest quality objective research to our clients. All of our work is non-partisan it has to stand up to other researchers and strictly to report onto what the data about what that program show.
Zezas: So it is very high level research?
Style: It is.
Zezas: Now the company structure is unusual as well, I believe the company itself is ESOPs?
Style: That’s correct. We have been employed for a really long time beginning in 2005, we changed our ownership form and became by our own employees and by ESOPs. ESOPs is a retirement plan, a retirement trust, regulated by ERISA (Employee Retirement Income Security Act) and all of our 900 and something employees are owners of the company through that form of ownership.
Zezas: 900 something employees. Wow. Okay, so employee stocked ownership plan. Okay, so how does that work? Give me a little more detail and I remember that you told me something about the origin or the most common uses.
Style: Yeah, I think many ESOPs as I observed and began in the Midwest, family owned companies. I am saying Midwest because of having old line manufacturing, firms there and the original owner many of done a nice job and molding the company now he or she is getting ready to retire and pass on ownership to the company to someone else. The ESOPSs structure enables the owner to sell the company to the employees of the company for certain tax advantages that the seller can take advantage by doing that and it provides an ability for the employees of that company to continue to operate the company the way the owner had carried it forward under their ownership.
Zezas: So very common with family and entrepreneurial run companies. Tell me a little bit about Mathematica ESOPs, because if my memory serves me correctly, it has some unique components to it.
Style: That’s correct, and we were never a family owned company but like I said we are employees through other structures actually through ownership through our profit sharing plan all the way back through its origins. When I joined the company in 1985, we were originally owned by the Martin Marietta Corporation for a brief period of time and became employee owned when we did a management bio. But in 2005, we changed that structure to an ESOP form of ownership so around that time all of the employees became owners through the ESOP plan and a second transaction to acquire all of the shares that were held outside of that ESOP trust at that time and in 2007 we did a second transaction after which we had converted from a C form of corporation to a S corporation and that enabled the company to obtain certain tax benefits as you know. C Corporation is taxed at the corporate level; under an S Corporation, tax flowed to the shareholders of the company. Since our ESOP owns 100% of the shares of Mathematica and the ESOP is a tax deferred retirement trust there is no federal income taxes that is paid by Mathematica or by the ESOP trust and the cash flow that’s generated by the tax savings has enabled the company continue to grow, to invest in itself and build value on behalf of its shareholders. Now to get to the end of that story, the shareholders do eventually pay taxes when they take their distributions from their retirement trust as they would from other qualified retirement plans.
Zezas: We all pay taxes.
Style: Correct, we will.
Zezas: So, Jay, tell me what special challenges exists in running the business as you do today?
Style: Well we have about 300 hundred concurrent projects so from…
Style: Yes, from a management standpoint we need to make sure that we are performing on all three hundred of those projects. We have a substantial review process and an accounting process that is all geared towards project accounting. We provide very detailed financial information on that performance of the project to the project directors, and we review projects on a monthly basis with the project director to make sure the project is on time, on budget, that the client relationships are good, and that we are delivering the work that is within the scope of work on that contract.
Zezas: Ok so this is really a people business, personal service delivery vehicle.
Style: Exactly. The thing that really drives our business is that we sell our time. The staffs that are engaged on our projects need to be deployed efficiently across on all of our projects in order for us to be profitable and successful.
Zezas: So, that is how you manage the drivers and profitability by staying close to each of the employees.
Style: That’s correct, yes.
Zezas: Tell me the issues that are of significance to Mathematica that are years to come. What are you guys thinking of the future.
Style: Well we have a fairly immediate issue right now because of the federal deficit concerns and we know that there are plans and place to attempt to reach some budget resolution going forward that might enable the federal government to find a way to put into that deficit since we are reliant on federal spending in order to get our contracts we have some concerns about what the impacts of deficit reductions and solutions might be on us. Now we do feel because we are very able to inform the government through evidence on the projects that we’ve studied on projects that work and projects that don’t work that our work might still might be in demand and even in light of reductions, federal spending to be able to provide that evidence to decision makers who are looking to know what projects to cut and which ones to find. But that is certainly one of the concerns we have going forward. Another thing that I would mention is the importance of maintaining confidentiality and privacy over all the data that we gather in the performance of all of our work and we have an opportunity to get what is called personally identifiable information or in the case of HIPPA, private health information in the conduct of our analysis and there are increasingly complex regulations that govern how that data is handled and the privacy of the individuals that are protected. We need to make sure that we are always out in front of those regulations and ensuring that we are in compliance with those.
Zezas: So it is a very sensitive matter says the least. Jay, let me ask you about your role as CFO and I actually want to jump back to the issue of an ESOP. How is the job of a CFO affected in Mathematica’s case by the company being an ESOP. Well you come into the doors with all the owners of the company everyday so since you are working in that type of culture with your employees, we tend to be very open. We like to share as much information about the performance of the company including the financial information and communicate with our employees on a regular basis and let them know how their company is performing as a result to the work that they are doing.
Zezas: Well Jay, we are almost out of time. I have time for one more question actually and staying in that lane with the role of CFO. How has your job changed over the years, 27 years in the company is a long time, and I am sure with technology and everything else there is a lot of evolution?
Style: That is correct and I think with the growth that causes strains in any organization, we strive to maintain the consistency of that special culture that we have at Mathematica, both since the time we have been much smaller company up through now and I think there are two or more areas that are in common. Lots of CFOs now are using technology more and more to communicate information, we work on data analytics and dash boards in order to try to get the information that the managers need out in front of them as real time as possible to help them do their jobs.
Zezas: So as CFO, you job has become much more complex.
Style: It has and one last item I would like to add to is that we become more risk managers also overtime. It is not about number crunching anymore, it’s always looking forward to seeing what are the threats of your business are and taking the appropriate steps to mitigate them.
Zezas: Well Jay, Mathematica certainly sounds like an incredibly dynamic company. It grew from 8-200 million from 75-940 employees, 27 years with the company says an awful lot about you as a financial executive. I truly appreciate the comments you shared with us today. I hope you permit us to invite you back in again.
Style: Thank you. I appreciate it.
Zezas: It’s been great to have you here.
Style: Thank you.
Zezas: This is Andrew Zezas, your host at CFO Studio joined by Jay Style of Mathematica, saying thank you very much for watching, we will see you again!
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