Corporate Governance and the CFO


As Seen in CFO Studio Magazine Q3 2015 Issue

A discussion of the good, the bad, and the ugly in dealing with corporate governance

Navigating the relationships between members of the board and the company’s executives is an important skill for a CFO to master. In order to successfully fulfill their leadership roles within their organizations, finance executives have to refine their approach to corporate governance.

Recently, CFO Studio hosted its Executive Dinner at Al Dente in Piscataway, NJ, where guests gathered over food and drink to discuss their experiences working with and serving on boards. The dinner meeting was one of a series of gatherings of CFOs, which was underwritten by BDO, an assurance, tax, financial advisory, and consulting firm; and hosted by Real Estate Strategies Corporation, a corporate real estate advisory and consulting firm.

Michael Mardy, executive vice president and CFO of Tumi Holdings Inc., a wholesaler and retailer of a range of travel and business products, led a discussion entitled “Corporate Governance: The Good, the Bad, and the Ugly.” Mr. Mardy has served on several boards throughout his career, including Green Mountain Coffee Roasters, Inc. and ModusLink Global Solutions, Inc.

“Once they hit a certain point in their lives, a lot of people want to become board members,” said Mr. Mardy. “But, it’s probably vastly overrated as a gig you can have in retirement. Generally, it is a lot of work, it exposes you to legal liability, and it exposes you to working with other people who might be problematic.”

“When you manage a board, you realize the world of corporate governance is imperfect, at best,” said Mr. Mardy. “It can be dysfunctional. It can be contentious. It can be counterproductive to managing the business.”

Private Equity vs Venture Capital

The executives discussed governance under private equity (PE) and venture capital (VC) structures, with guests agreeing that the goal of both types of firms is to improve the company’s financials and move on, leaving the company stronger than when the investors entered.

“Venture capital firms tend to have a very long-term horizon, whereas the PEs manage year-to-year and quarter-to-quarter,” said Andrew Savadelis, CFO of Angion Biomedica, a biotech company.

“Private equity firms are not interested in just betting on a venture,” said Mr. Mardy. “They’re interested in betting on a business. They’re not only dealing with the leverage, but they develop a strategy, and actively manage that strategy to get the company into the right kind of business model. In approximately five years, they have liquidity, and take their money to the bank, before they raise their next fund. VCs are completely different.”

Michael Van Patten, vice president at Smart Tuition, a software company for managing tuition and school enrollment, has worked with PE-owned companies, VC-owned companies, and public companies. “I’ve got a lot of experience with different corporate governance bodies,” said Mr. Van Patten.

He added that PEs tend to be more interested in managing the business, but this can create the danger that they will be micromanagers. “They want to control the company, and would leverage the company to the hilt. They don’t have as much invested,” said Mr. Van Patten. “The VCs would put more money in and not worry about the leverage, so they don’t have to have control of the company.”

Leveraging the Strength Of the Board

“The CFO’s ability to manage a board is critically important to the success of the organization, both on the private equity side, as well as the public company side,” said Mark Giamo, partner at BDO. “You can’t underestimate the ability of the executives to manage the board. Managing the board means taking as much from the board as you can, finding their strengths and leveraging them to run your business, for governance purposes, or whatever it may be. Get everything you can out of your board. But managing also means managing their expectations.”

Lisa Van Patten, principal consultant at NetSuite, an integrated cloud business software provider, offered a different perspective. “To me, it’s the other way around,” she said. “It’s not that I want to manage my board. I want my board to manage us. As a CFO, your biggest fear is that you’re going to have a rogue CEO and a board with absolutely no oversight. You want to know they are really watching our backs. You want to know that they’re making sure, ‘Have you covered yourself here, because there’s a risk?’ That is what corporate governance is supposed to be. As a CFO, I could be personally liable for what the CEO does.”

“The biggest leverage that you have is the 404,” said Bob Dennerlein, executive vice president and CFO of Dialogic, service providers and application developers, referring to a section of the Sarbanes-Oxley Act that deals with internal controls. “You’re partnering with the CEO at that point. It’s a great defense mechanism against any kind of pressure that you might feel. If you had a strong audit committee chairman, you’ve got an advocate on the board, and that makes it easier.”

Ray Cardonne, CFO of DLB Associates, a privately held engineering consulting firm, has past experience in finance roles at public companies. He explained that when he and the CEO at a public company would disagree about a strategy, the board’s audit committee served as a neutral advisor.

“The audit committee meeting was typically the day before the full board meetings,” said Mr. Cardonne. “The general counsel and I would attend the audit committee meetings and it was a way to work things out without having to go in front of the full board. After the audit committee, the GC and I would have a telephone call with the CEO to explain the outcome and say, ‘This is what the outcome is, just so you know what to expect going into the board meeting the next morning.’”

Mention of a pre-board meeting preparation sparked more dinner conversation about how decisions involving the board are really made — before the actual meeting. “I think many CFOs need to gain a better sense of how to be more politically savvy,” said Lalit Ahluwalia, CFO of biotech company Ferring Pharmaceuticals. “You have to be able to build a network with the board members, so that you build your own credibility with them.”

Brian Giambagno, CFO of Action Environmental Group, a provider of waste collection services, agreed. “More big decisions are made at the bar before or after the board meeting than during the board meeting,” he said. “Everybody knows everybody.”

Is the Board’s Decision Final?

The group also acknowledged that there are many times when the CFO cannot press the board on what he or she truly believes is the right decision. In fact, many times, a CFO has to back down.

“You can say you will do the right thing [for the company’s financial health] even if you have to lose your job, but at the end of the day, it’s much easier said than done,” said Walter Cirillo, treasurer of AeroGroup International, a privately held company.

“It’s all about the personalities, and, I hate to say it, but in many ways, it’s survival. The bottom line is, unless you’re being asked to do something illegal, most of the time, you’re just going to go along with the CEO, or with the board, because that’s part of the job.”

Baldeep Dua, CFO of Kirusa Inc., an international software company, agreed with Mr. Cirillo. “Unless it’s illegal, you’re made to go along with the CEO or the board,” she said. “As a CFO, you’re a strong voice in the boardroom. All you can say is you have an opinion. If there are five or 10 people who agree on a strategy, and you disagree, your voice is important, but may not be the loudest. Ultimately you have to do what the team says. You should have a strong opinion, but you cannot override, no matter what your reservations may be.”

Andrew Zezas, publisher of CFO Studio and CEO of Real Estate Strategies Corporation, summed up the consensus of the group. “However the decisions are ultimately made, it is important to fight when necessary to do what you believe is right for the business,” he said. “Ultimately, the board may know about financial engineering, but you know how to run your business.”

Machine-to-Machine Technology


As Seen in CFO Studio Magazine Q3 2015 Issue


Machine-to-Machine technology — also known as M2M, or the Internet of Things — is bringing about huge changes to manufacturing, logistics, and many other business, according to CFOs who took part in a panel discussion titled, “The Evolution of Manufacturing: Machine-to-Machine Technologies, Predictive Analytics, and More.” It took place at the CFO Innovation Conference, attended by more than 400 CFOs and other executives.

The panel was moderated by Greg Libertiny, senior vice president, finance and business operations, of Theorem, a Chatham, NJ–based global digital marketing partner that works with some of the world’s most recognizable organizations.

M2M systems use sensors and other devices to capture temperature changes, movement, and other events, instantly alerting human or other operators about the changes. Panelists gave examples.

“If oil companies had an M2M sensor on the choke mouth [a device used to control pressure] of their oil wells, some serious accidents in the Gulf of Mexico and elsewhere may have been avoided, because monitors would have known that a problem was about to occur,” noted Michael Eldredge, a cofounder of American Sensor Technologies. The Budd Lake, NJ–based company manufactures pressure sensors, transducers, and transmitters.

“It’s getting easier and less expensive to monitor and track assets, like 56,000 WalMart trailers,” added Ned Mavrommatis, CFO and treasurer of I.D. Systems, Inc., a Woodcliff Lake, NJ—based global provider of wireless M2M solutions. “You can easily tell whether they’re fully loaded, and where they are at any time.”

M2M may also help companies to cut costs and increase productivity, chimed in Rob Weingartz, vice president finance at Arrow Fastener, a Saddle Brook, NJ–based leader in manual, electric, and cordless fastening tools. “Some companies move to low-cost countries to enhance productivity and cut costs, but M2M can help them do that right here,” he reported.

M2M can make a big difference for manufacturing companies, noted John W. Kennedy, CEO of the New Jersey Manufacturing Extension Program, a Cedar Knolls, NJ–based not-for-profit that offers guidance to New Jersey’s small to mid-sized manufacturers. —Martin Daks

Managing Business and Legal Risks


As Seen in CFO Studio Magazine Q3 2015 Issue


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