Interview with Paul Mallen
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, Paul Mallen, CFO of Amalgamated Life Insurance Company
Visit www.CFOstudio.com to read about this interview and to watch the entire on-camera interview.
Today’s CFO: A Driver of Corporate Strategy and Key Initiatives
Zezas: You’re watching CFO Studio and I’m your host Andrew Zezas. I’m joined today by Paul Mallen, executive vice president and chief financial officer of Amalgamated Life Insurance Company. Mr. Mallen holds an MBA in finance from NYU Stern School of Business and a BBA in Accounting fromEmoryUniversity. Paul is a CPA and his background includes over 25 years of experience across a wide range of industries and in various corporate finance activities including transaction advisory services, capital structuring, and credit and financial analysis. Paul has held positions at FTI Consulting, Deloitte & Touche, and Citibank and joined Amalgamated as CFO in 2005. Based in White Plains, NY, Amalgamated Life Insurance Companies has its roots dated back to 1943 when Amalgamated Life Insurance Company was founded to provide the financial well being of working men and women. Today, Amalgamated Life offers a broad range of insurance solutions including group life, disability coverage, accidental death and dismemberment, medical stop loss insurance, and voluntary benefits. Through the company’s affiliates, it offers third party administration for self funded health and welfare funds, pension funds, medical cost management, printing services, main frame computer outsourcing, and property and casualty brokerage. Paul is here to talk today about a very interesting topic: Today’s CFO: A Driver of Corporate Strategy and Key Initiatives.
Mallen: Thank you. Glad to be here.
Zezas: Paul you have a very dynamic career. You’ve been Amalgamated’s CFO for 7 and a half years. You’ve been through two CEOs. That says a lot about you and a lot about your company, especially a time where mid market and large market CFOs are expected to be in transition every 14 – 22 months. Based on that experience, share with me if you will, your view of how the CFO’s role has evolved in terms of corporate leadership.
Mallen: The CFO used to be pretty much responsible for financial reporting and constantly looking at the past, are the numbers right and that was pretty much it.
Zezas: Rear window type.
Mallen: Absolutely. Now, a CFO has a lot more responsibility. He has to be strategic thinking, forward thinking, analytical, but also needs an operational bent to it. There are certain advantages that a CFO has as compared to many executives in that a CFO is being responsible for all the financial information in the company, you have to understand what drives it. You have to learn the operations and you understand what impacts the business. I look at my situation at Amalgamated where I’m fortunate to grow with the company and I started out primarily responsible in that financial reporting function, but over the 7 and a half years that I’ve been there, I’ve picked up increasing responsibilities. So, now I’m ultimately responsible for IT, underwriting, policy services, our eligibility department, facilities. So, with that obviously comes more responsibility, different way of thinking, more decision making. I would say with respect to your question, with increased operational and strategic responsibilities, the role has clearly and naturally evolved in terms of corporate leadership.
Zezas: Well, you proved a fundamental belief that we hold dear at CFO Studio that a good CFO, especially at mid market and large market, is really a COO in terms of the diverse skills that he or she has to apply to the company. It sure sounds like you’re heading in that direction.
Mallen: Well, that’s exactly right. Especially in smaller companies, mid-sized companies, they don’t have the luxury of being able to hire a COO.
Zezas: That makes perfect sense. So, as the CFO’s role evolves, how closely should CFO and CEO be aligned?
Mallen: They definitely need to be on the same page and they need to be aligned. The roles really complement each other. I’ve been fortunate now for the past 5 years or so for David Walsh, our CEO, who has this open door policy I would say. He’s constantly looking for my view points whether they differ from his or not. What’s important from my perspective is to be able to express those views because at the end of the day, we’re a team and we’re looking to do what’s best for the company. In terms of alignment, once a decision is made, whether you agree with it or not, you fall in line for lack of a better term.
Zezas: The buck has to stop somewhere.
Mallen: The buck stops somewhere. You focus on execution and you move on to the next issue.
Zezas: So, it sounds like you have in Mr. Walsh, a very dynamic CEO and one who understands the relationship between CFO and CEO because you’ll also agree that while the CFO and CEO need to be aligned, even the CFO gets that, it’s the CEO who has to permit it and not all of them do.
Mallen: Well, that’s right. I view it as the old cliché, “There’s no I in Team”. You can’t do it by yourself. So, the same way that I expect my direct reports to express their views whether they agree with me or not, I would hope my CEO would do the same and in this case he does.
Zezas: Sounds like he has. Let’s talk about profits. Paul, share with me your views of the steps that companies are taking in the current economy and in the previous economy I should say, to maximize gross profit.
Mallen: That’s a good question. I mean, essentially, in my views, it shouldn’t really matter on the economy. You always want to increase sales and reduce costs. I mean it is simple basics here. One thing we won’t do in terms of our company and you mentioned it before, our insurance company, printing business, medical cost management, we won’t increase our sales at the cost of profit or at a loss. We’ve run into situations where we know competitors are underpricing and are taking sales at a loss. We won’t do that. It doesn’t make sense. That’s not us and is not in our culture at our company. So, it’s clearly to increase profitable sales. On the operating cost side, there’s a few things we do and other companies do, we have a very disciplined budget process and that’s obviously very important. But one thing we’ve done in the last 4 and ahalf to 5 years, we’ve invested a significant amount of money in technology and good people. People who can think analytically and help with the business. I use this as an example. This sounds like an increase in cost, but it really helps reduce over time and the example that I use is with respect to our call center, we created a new call center about 4 and half years ago and we call on someone from the outside. He’s done an excellent job setting it up. Now, while we have metrics that we can understand, we know we’ve increased our metrics and performance significantly in terms of average speed to answer, well under a minute, first call resolutions, well above 95%. So, what happens in that case is customers aren’t calling back 2, 3, or 4 times. Now, over time you can reduce your cost to attrition. Not only do you have a happier customer, which helps on the sale side and you have metrics that you can pitch, but it also helps reduce costs. I would say the third thing in this area of maximizing profits, is culture for the corporation. We’ve really focused in the past 4, 5, 6 years to embed a culture in the company to keep their eye out on cost. Even though we go through the budget process, if a department may have certain costs in their budget or are allowed to spend certain things, we want that department manager to be thinking, “it may be my budget, but do I really need it anyway. Maybe I can hold off on this item.”
Zezas: What I’m hearing from you as it relates to gross profit maximization, as CFO, you have evolved from the role of financial manager to financial leader and it sounds like you’re empowering everybody in respect to almost being a CFO.
Mallen: That’s right. It’s hard to do it by yourself and people need to be part of that decision process.
Zezas: It sounds like it works. Let’s talk about metrics because it sounds like you were going in that direction and how the company has been performing better. You know we’ve got a funky economy right now and I’m interested in knowing your view on which metrics have emerged or will emerge as key performance indicators for private companies.
Mallen: Every company is different and every company is going to have different metrics.
Zezas: There are some general ones.
Mallen: There are some general ones and obviously in our case, we’re not looking at inventory, keeping metrics around inventory. In terms of private companies, a lot depends on ownership and board point of view, what you need to manage the company. I would say, generally, sales growth, profit growth, and increasing profit margins.
Zezas: How about at Amalgamated?
Mallen: At our company, we look at a lot of different metrics in terms of financial and operational. I mentioned a couple with the call center in the last question. In terms of some more operational, we have medical claims paying business and we’re constantly looking at claims paid, under 15 days, between 15 and 30 days, and over 30 days. We manage the business that way. We look at our auto judication rates, which is basically claims that go through the system that aren’t touched by human beings. So, the higher that rate, the lower the cost. On the financial side, we clearly look at sales growth, we’re looking at operating margin, profit growth, things of that nature. As an insurance company, we have to look at our loss ratios, which is how much benefits we’re paying as compared to our net premium as well as our over the space capital.
Zezas: So, it’s apparent that Amalgamated is very focused on metrics and it sounds like you got some very precise KPIs. It’s a very interesting way of running your company. Let’s talk about the financial executive for a moment. There’s been a lot of talk about the evolution of the finance executive and the CFO in particular. But, as it relates to value to a company, is a CFO more valuable as a specialist or multi-disciplined?
Zezas: Yes, both.
Mallen: Both. I think every CFO has their specialty, whether they came up on the accounting side or the finance side.
Zezas: A good one anyway.
Mallen: That’s the nuts and bolts and basics, but I think the CFOs we talked about before, they have to understand the business. To be effective, you have got to know the business. You have to understand the operations, where the company is headed, be a part of that in the decision process where the company is heading. So, there is that generalist bent to it. If there are specific things that a CFO needs to learn, I mean before I came to Amalgamated, again I use this as an example, I didn’t know anything about insurance companies. I was never involved in the industry. So you get in, you learn it, and you get effective at it. When you need certain specialties or expertise, you try to learn it on your own, you hire a consultant to help you out or if you need someone permanently, you hire an employee to take care of that.
Zezas: So, foundationally, CFOs should be multi-disciplined. In most case, they have their own area of skill or expertise. If they need more, they are capable of learning if they are any good or they can hire it. That makes sense. Paul, 7 and a half years in the same company. You’ve got to like what you’re doing. What do you enjoy most about it?
Mallen: It’s a challenge every day. It’s different every day. I love going in and working with the people.
Zezas: You enjoy the people?
Mallen: Absolutely. If you don’t like the people who you work with, it makes going to work very difficult. So, there are a lot of good things about going into the office every day.
Zezas: I have time for one last question before we close. When I was in your office, I saw a really cool photo of you in an aircraft carrier, but it was recent. So, tell me about that.
Mallen: Do we have an hour?
Zezas: No, but we have a few quick moments.
Mallen: So, real quick. About four years ago, I was fortunate to attend a leadership course where there was a four star admiral. He’s now the chief naval operations, which is pretty impressive in and of itself. Anyway, he invited the class out. The navy runs some programs. He invited the class out to an aircraft carrier while the navy was at sea. I had the opportunity to fly out to the Harry S. Truman while it was off the coast ofFlorida doing a rested landing. I spent 24 hours on the ship, beyond the flight deck, which was pretty awesome as they were launching and recovering aircrafts. But one thing that was really interesting about it was that I got to spend a lot of time with the sailors, the men and women who were enlisted to the senior officers. They are impressive people. The sacrifices that they make, the working conditions that they’re in every day, and the positive attitudes that they have is just incredible. So, it was a great experience. When the trip ended, we were in the aircraft and we were catapulted off the aircraft carrier. It was great fun.
Zezas: But you were in a plane when they catapulted you off?
Mallen: Fortunately yes.
Zezas: Ok good. Wow! I can only imagine what that experience must have been like.
Mallen: Something I’ll never forget.
Zezas: That’s great. Paul, you’ve been wonderful. I want to thank you for appearing with us on CFO Studio and sharing your views with us. I would like to wish you continued success and invite you to come see us again sometime.
Mallen: I would love to. Thank you very much.
Zezas: It’s been wonderful.
Mallen: I appreciate it.
Zezas: This is Andrew Zezas, your host at CFO Studio with Paul Mallen, executive vice president and Chief Financial Officer of Amalgamated Family of Companies saying thank you very much for watching, we’ll see you again.