Interview with Peter Derrick
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 finance executive, Peter Derrick, Co-CEO and CFO of Sun Farm Network.
Visit www.CFOstudio.com to read about this interview and to watch the entire video interview.
CFO Skills Transfer
Andrew Zezas: Hi, this is Andrew Zezas, your host at CFO Studio. I’m joined today by Peter Derrick. Mr. Derrick is Co-CEO and CFO of Sun Farm Network in Flemington, New Jersey. Mr. Derrick’s here to talk to us today about the transferability of CFO skills. Mr. Derrick’s got a very interesting background, having arranged more than 10 billion dollars in finance, having managed teams across the world in excess of 150 people, and having a background in telecom, banking, healthcare, and energy. Peter, it’s a pleasure to have you here today on CFO Studio.
Peter Derrick: Andy, it’s a pleasure to see you again.
Zezas: Skills transferability. That’s a very interesting topic. We’ve heard for years that the perception in industry is that if you’re a Fortune 500 CFO, or if you’re a big-cap CFO, it’s not going to work if you’re trying to move down to mid-caps to small-caps. Do you agree with that?
Derrick: No, I don’t Andy, and obviously I’ve made the change, as you indicated, from large to small. The traditional view was that running a large company is a very complex environment, there’s a whole series of challenges that you don’t face in a small company; that running a small company is frankly less complex, easier. I don’t agree with that.
Zezas: Be specific. We’ve got to contend with things like credit crisis, globalization, Sarbanes-Oxley, etc. Isn’t it just more complicated at a larger company?
Derrick: Well again, that’s the perception, but when you peel back the onion as they say, and you look at the challenges that a small business faces, they face the same regulatory kinds of issues, even now if you’re in a private organization, for example. Since the advent of Sarbanes-Oxley, the halo effect of the umbrella of regulatory requirements is now reaching way down into your customers, into your supply chain, into all areas of business, such that a small company is now facing many of the same disclosure, regulatory requirements, that a larger company faces. In addition, and again even in private firms, shareholders, bankers, investors, are now requiring, for their own benefit, the same kind of disclosure, the same kind of compliance, and governance issues.
Zezas: And, even publicly held companies are demanding their suppliers, whether they be public or not, the same transparency and the same kind of reporting, so that they can maintain their own compliance.
Derrick: Exactly. And as we both know, compliance goes much farther than just quote the numbers. They’re also looking at your governance issues, how you manage the company, your policies and procedures, so again it’s a fundamental review of the company. It’s not just – oh what are the numbers. You also touched on globalization. Again, that used to be a “big company issue.” It was only the Fortune 100 companies that needed to worry what was going on in China, what was going on in Mexico, what are the Asian markets doing, etc. That’s not the case anymore. Again, we’ve talked about the interlinkages between large and small companies. A small company will have the same kind of impact, in many cases, it can even have a larger impact on small companies, what’s going on out there with their supplier in Asia, for example. The credit crisis you also talked about, that was obviously a fundamental impact on the economy from – certainly from large to small. Your cost of borrowing, liquidity, cash-flow issues, all of the critical things a CFO has to look at, that’s all impacting small companies as well.
Zezas: So, I have to agree. Large, small, it doesn’t really make a difference unless we’re talking about a local corner retail store. The reality is that CFO skills are required to be very thorough, very detailed, and very sophisticated, and they really aren’t impacted by the size of the company. But, let me ask you about industry to industry. I think we’ve just dispelled that large and small, the transfer of skills works. How about from going one industry to another as a CFO?
Derrick: And, I think that’s critical as well. As you mentioned in the intro, I’ve moved across many industries, most of which people would not think are obvious moves from telecom to banking, things of that nature.
Zezas: Can’t get much more diverse than that.
Derrick: It’s a pretty diverse mix. And, again the traditional view has been one of: you need to have industry experience, particularly at the senior executive level. And there’s obvious benefits to that, I’m not disputing that, you know, a senior management team has to have industry experience. But there are benefits, there are huge benefits, to having a balance in your senior management team in as much as it can give you a perspective coming from other businesses, other experiences that may have gone through a whole set of challenges that hasn’t yet been faced by this particular industry. So, I think perspective is important and having that different industry overview really does add value to the management team.
Zezas: I agree. So, I think we’ve both concluded that large to small, CFO skills, typically transfer, industry to industry, not only do they transfer, but there’s a tremendous advantage to bring to a company the diversity of other industries.
Derrick: Right. And, I think the issue that binds them together is complexity. What the people have traditionally viewed is that smaller companies are less complex. My analogy is my ’72 Mustang, which may be a strange one. But I had a ’72 Mustang which I loved, it was a very simple machine. It was a three on the floor –
Zezas: What color was it?
Derrick: It was brown. It was ugly. I’ve got to tell you, it was an ugly color. But I loved that car, it was three on the floor, but I could do anything with that car. Those were the days when I could open the hood, I could get in there, I could do my own oil changes, I could do the spark plugs, all that stuff.
Zezas: And quickly.
Derrick: And quickly! Right. And, I could do it in the driveway. You know, what Ford has done is bring out the new Mustang, which I enjoy, and they’ve done a great job of making them look exactly the same so it appeals to a guy like me – you have my old ’72 Mustang. And they do look great. But, my comparison to big company and small is the complexity of the new Mustang, it may look like the same car, but it’s completely different. You open that hood and you need a computer to just do an oil change on the car.
Zezas: Well, that’s typical of most cars, sure.
Derrick: So, my analogy with my Mustang is that a 20 million dollar business in 1972, is completely different from a 20 million dollar business today. The complexity is completely different.
Zezas: And, it requires sophisticated skills, irrespective of the size.
Zezas: I would agree. Let’s turn to energy. We’ve got solar, wind, geothermal, few other technologies, your being at a solar company – tell me your thoughts about how alternate energy technologies will affect businesses’ ability to compete globally.
Derrick: I think that is a big issue. And, that in fact is why I sought out my current position in energy. Because I see there are a lot of changes going on in energy, and I foresee that they are going to continue to happen. And, the essence of what we do and what I enjoy doing is change management. And, I think energy is going to be a big factor, not only from a societal point of view, which is talked about a lot, and which I support and I think there is a lot of sustainability issues that we’ve talked about from a societal point of view. But those same sustainability issues, again, back to the numbers, are going be applying to business. Energy is a big component of many a business’s costs and investors, bankers, shareholders, are now going to be looking at business to say: is that business-sustainable? And energy is going to be a big component of that.
Zezas: So, energy will have the ability to affect a company’s competitive edge.
Derrick: I think it absolutely will, I think we’re already seeing the impact of that, and with some of my customers that I’m dealing with now. Again, it’s not just environmental considerations, it’s do the numbers work and make sense for their business? That’s why they’re making changes to things like solar, or wind, or other, because the numbers do make sense over a very long period of time.
Zezas: So, let’s stay with numbers and cost – let’s look forward to next year. If you had to predict companies in general as to the greatest element of incremental span, where do you see that?
Derrick: Well, we already touched on one, which is energy. And as I say, I think energy is going to be a major factor. Obviously with companies that are energy intensive, it’s going be a huge element of, again, their sustainability. Their ability to be competitive, their ability to compete, and to provide products that are reasonable-cost. And the trend, obviously, is up. I mean we can all debate the price of oil, I’m not going to pretend I’m an oil analyst, but the long term trend is clearly up.
Zezas: Unfortunately, I have to agree.
Derrick: The other issue beyond cost is just availability, which we’ve seen is becoming an increasing issue. So, the whole sustainability issue is not only going be one based on cost, but also on is the energy readily available, for my business, at a reasonable cost. The other issue is just fiscal issue with governments, state governments, etc. And, I’m not making any political comments here beyond the fact that there is a huge burden on the economy at this point. Governments are going to need to, to use the finance term, “restructure their financing”. And that is going to become a bigger burden on all taxpayers, including businesses. I’m not debating how, where, when, or how much, but that’s going to become an issue.
Zezas: Sounds like most governments could use a good CFO. Peter, we’re about out of time. Let me ask you this. You’ve got a tremendously diverse background, you’re tremendously successful as a CFO, you’ve been at this for a while, tell me -what do you love most about being a CFO?
Derrick: Well, what I love about the CFO is two things. One, you’re at the hub of the wheel, you’re the hub of the wheel in terms of all business decisions eventually need to come down to numbers. I’m not saying the other aspects of the business are not important, that’s obviously not the case. But, whatever investment you’re making, whatever change you’re making in the business eventually needs to make sense from a numbers perspective. That puts the CFO in what I call the hub of the wheel, which I enjoy. I enjoy that aspect. I love being part of that management decision making process. And secondly, a lot of what we’ve talked about today really boils down to change management. And that’s what I enjoy. You know, I spent a lot of time in banking, telecomm…huge changes. I enjoy being part of the change management team.
Zezas: In the last few decades, given the industries you’ve been in, I’m sure you’ve seen and managed tremendous change. Peter, it’s been great having you here on CFO Studio, I want to thank you for your time, I hope you’ll let us invite you back sometime.
Derrick: Thanks Andy, it’s a pleasure as always. Take care.
Zezas: Nice seeing you. This is Andrew Zezas, with Peter Derrick, your host at CFO Studio, saying thank you very much for watching, we’ll see you again.
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