Being Global Has Its Challenges


As Seen in CFO Studio Magazine Q3 2016 Issue



In today’s global economy the role of a CFO is more complex than ever before. Successful CFOs must be able to operate in markets all over the world, with different currencies, cultures, time zones, tax structures, and regulations.

This was the basis for conversation during a recent World-Class Companies CFO Dinner Series event, entitled, “Challenges, Opportunity, and Driving Growth in a World-Class Enterprise; CFO Optics and Insights.” The evening was hosted by CFO Studio and the discussion leader was Richard Veldran, CFO at business-to-business data provider Dun & Bradstreet. Mr. Veldran manages a global finance team of 450, doing business in more than 200 countries.

“The global landscape and the challenges of increased regulations outside the United States were foremost in the thoughts of the CFOs who attended the dinner,” Mr. Veldran said in an interview.

Heightened regulatory requirements are having an enormous impact upon the role of the CFO, and Mr. Veldran has a unique vantage point on the challenges companies face complying with myriad new regulations that differ by country. Dun & Bradstreet has compiled the world’s largest commercial database, with information on more than 250 million businesses around the globe. The company supplies some of the largest global organizations with the tools they need to help them manage compliance on a global basis.

“Compliance is a new, fast-growing area of our business. With our vast global database and expertise in identity resolution we help companies with compliance regulations from KYC (know your customer) to FCPA to FATCA,” said Mr. Veldran, referring to foreign regulatory and tax compliance.

It’s no surprise that in this evolving regulatory environment the relationship between the CFO and the general counsel has taken on added importance. The general counsel is responsible for all aspects of regulatory compliance, and the CFO must manage all risk across the enterprise, including regulatory risk.

“CFOs are tighter with the general counsel than ever before,” said Mr. Veldran. “As the regulatory environment has gotten more intense, the chief financial officer and the general counsel need to help each other to manage risk so they can maximize the growth of the company. The bond between the two of them has become stronger than ever.” Conducting business across the globe brings increased complexity to the role of the chief financial officer.

High Stakes Regarding Talent

“We live in a world where the actions of one rogue employee could cause enormous financial upheaval for a company. It’s not possible to be everywhere at once when managing global operations. CFOs must make sure they are operating with a robust system of controls and oversight in place,” says Mr. Veldran. At Dun & Bradstreet, enterprise risk management is embedded in every function throughout the company, reaching well beyond the Finance and Legal departments. All business leaders recognize that they need to manage risk to achieve their performance goals.

With such high stakes it is important to have a team in place that is both educated and accountable. A discussion of talent-related challenges followed, with the major issues being acquiring the best talent, developing the individuals, and having measures in place to retain them for the long term.

“Talent retention is of the utmost importance, especially in large, complex, global organizations,” said Mr. Veldran.

Technology and the Customer

Modern financial management systems are providing instant insight into the full value chain of a company, agreed the participants. This goes beyond the four walls of the organization and gives access to customers, suppliers, banks, and the entire workforce, including external and contingent employees.

To better serve customers, Walmart, for example, uses innovative technology to track inventory, said Henner Schliebs, Finance Expert and Vice President at SAP, a CFO Studio Business Development Partner. “On Black Friday, Walmart optimized West Coast store shelves based on the East Coast early-morning experience and predictions [for Black Friday sales]. This is only possible with 21st-century technology,” explained Mr. Schliebs.

Customers are expecting a fully digital experience, he added. “A leading consumer brand enables its customers to find a song on the Internet, download it instantly, and have shipment and invoice/collection automatically embedded into the whole process. And again, it’s only possible with modern technology in real-time,” he said.

Real-time business intelligence like this is the way of the world. It’s also a defense against disruptive technologies and business models, said Mr. Schliebs. “Live business is imperative in all finance-transformation programs, especially as the threat of the next Uber-ization in all industries is high. A strong CFO has to be empowered to lead the strategy of a company,” said Mr. Schliebs.

JLL, a global real estate services firm, is hearing of these same issues from its clients. “Not only is retention critical, but locating solid percentages of targeted labor is also very important. Providing real-time technology tools that allow our clients to optimize their workforce-segmentation model and screen locations through high-level labor analytics helps us to support them in talent requirements,” explains Andrea Van Gelder, International Director, JLL.

At the dinner, which was held at Morton’s The Steakhouse in Chicago, the camaraderie was evident as all the attendees remarked on how similar their circumstances were. The very complexity of the finance and operational processes in business today “make a live environment and the real-time insights offered at this dinner very satisfying,” concluded Mr. Schliebs. “[Such insights are] a must-have in all aspects of the CFO role, specifically in combination with the need for a truly global solution (local compliance) focused on the particular industry (vertical compliance) and risk management embedded in any finance process.”

Behind a Turnaround


As Seen in CFO Studio Magazine Q3 2016 Issue


CFO Andreas Rothe was prepared to talk to a roomful of financial executives about a number of ways to revitalize a business that is struggling, but the discussion kept circling back to this one point: The people. “Finding the right people to steer the ship, especially one that is sinking, is paramount,” said Mr. Rothe, who currently works in the Matawan, NJ, office of Fragomen Worldwide, the world’s largest immigration services provider, but has played a key financial role in the successful turnarounds of three companies that were floundering.

Mr. Rothe spoke on Achieving Best-in-Class Financial Performance with Limited Resources —Lessons from Turnarounds, at a Middle Market Companies CFO Dinner, part of CFO Studio’s Executive Dinner Series, held recently at Blue Morel in Morristown, NJ. Mr. Rothe opened the dialogue with the words, “First who, then what,” quoting business author Jim Collins, whose best-seller Good to Great advised corporate leaders, “Get the right people on the bus, then figure out where to go.” Mr. Rothe elaborated, saying, “Tomorrow you can decide what you’re doing with the people, even trying them out in different positions. Today, get them in the door.”

He moved the discussion along by asking if this can be accomplished if “you’re driving an old, unattractive school bus.” The answer, several in the group said, is a yes: “There will always be people who are interested in a tough environment because they see it as an opportunity to make the biggest impact.” These individuals are firm believers in the saying, “You can only go up.”

But this doesn’t mean, Mr. Rothe and others cautioned, that leaders of struggling companies should clean house in one fell swoop. Instead, “take small steps, attempt quick wins.” And, while acquiring the right people for managerial positions and some key functions is indeed possible, “you’re not going to find the right person to play every role.” That, he and others said, is where those in charge must work to retain existing staff when attempting to turn around a difficult business situation.

“You need to accept and work with some of the people who are already there, or they will leave and you will have nothing.” And it is imperative that managers make every effort to be inspiring, to motivate their teams, and to celebrate the successes of both new and current hires, alike.

Mr. Rothe then attempted to move the conversation toward a couple of other ways to breathe new life into a business that is slipping away, such as focusing on structure, processes, and technologies, but the group went right back to the question of personnel, particularly how to attract and keep the right people when the compensation that the company can offer is not competitive and the outlook uncertain.

Gregory Choi, Senior Vice President of Middle Market Banking at Capital One Bank in Edison, and a CFO Studio Business Development Partner, said he was impressed with one participant who managed to secure a top performer though the salary being offered was quite low. “This executive purposely hired someone who had the academic credentials he wanted, but was rough around the edges; a real ‘diamond in the rough,’ so to speak.” Mr. Choi went on, “He admitted it was someone he thought might have fewer options, and in a perfect world, he might not have given him a shot.”

Mr. Choi said this manager thought: “If I can see through his rather blunt and gruff exterior, I might get someone who can really make a difference.” As it turned out, that’s exactly what he got. “This new hire has brought all the desired intellectual firepower to the party, and is proving himself to be invaluable.”

Mr. Rothe applauded this move and reiterated the need to “focus on a few stars, but to be always thinking of new and unique ways of keeping everybody on board motivated and working toward the same end.” However, a good mix among people, processes, systems, and organizational structure, he continued, will help lead suffering companies to a successful turnaround, and “one that is sustainable over the long haul.”

In an interview after the dinner, Mr. Rothe expressed his pleasure and surprise over how the discussion centered entirely around people, but was never repetitive. “Everyone had the same personnel concerns, but each brought a slightly different flavor to the exchange.” He laughed, saying, “We could’ve talked about people all night.”

Ownership Issues


As Seen in CFO Studio Magazine Q3 2016 Issue


In general, being a CFO is a lot harder than it used to be,” says Howard Reba, Finance Director – Portfolio Operations at Marlin Operations Group, Inc., an exclusive consulting firm affiliated with Marlin Management Company, LLC, based in Hermosa Beach, CA. “CFOs today have their hands in so many things that used to be relegated to other people, and over time, the job has become much more complicated.” And this holds especially true, he points out, for the CFO of a company that is owned by a private equity firm.

Mr. Reba spoke on The Private Equity CFO —Challenges and Opportunities, at a Small Market and Emerging Growth Companies CFO Dinner, part of CFO Studio’s Executive Dinner Series, held recently at Roots Steakhouse in Morristown, NJ.

He began the discussion by asking the attendees what they felt were some of the different challenges the CFO at a private-equity-backed company faces. By an overwhelming margin, the response was the “virtually insatiable demand for information and insight” from the private equity group (PEG), he reports.

Attendees questioned what PEGs do with that high volume of facts and figures, and were surprised by the simplicity of his answer: “PEGs use the information they receive from their portfolio company CFOs to make decisions and pull different levers, much the same as any company does.” The group seemed to be hoping for a more complex explanation, so Mr. Reba added, “[A PEG] can only pull the same levers any company can, though it does bring additional resources, experience, and insight to help evaluate alternatives and make decisions.” As a matter of fact, Mr. Reba shared that he insists the reporting to the PEG and to the management team be aligned because they should both be interested in the same things.

Short Time Horizon

Another difference discussed related to how strategic planning is particularly tricky in the private equity environment where CFOs deal with a shorter or more defined time horizon. “[PEGs] typically target selling their portfolio companies after four or five years, which greatly impacts decisions involving investments, especially in infrastructure matters,” said Mr. Reba.

The challenge of having “two bosses” was discussed, as private-equity-backed CFOs are usually accountable to both the CEO of the portfolio company and the Board, which is typically controlled by the PEG. Mr. Reba advised CFOs in this spot to be “always conscious of the potentially competing priorities of the CEO and the Board.” While many companies have matrixed organizational structures today, CEOs in the small-cap private equity space are often the original company founders, who are very entrepreneurially oriented, and unaccustomed to not having total control of the company. The CFO often finds him- or herself addressing the CEO’s emotional adjustment.

Finally, the group brought up the topic of job security. “I was surprised it took so long to get to this,” remarked Mr. Reba, as the CFO is usually in the most tenuous role, particularly at a private-equity-backed company where management and other changes occur every four or five years. He explained, “Whenever an ownership change occurs, there is a chance of a change in management, and often it is a new CEO or a new PEG who wants to have their person in the CFO role. But that is no longer as automatic as in the past. “I am thrilled when a decision is made to keep a strong management team in place,” said Mr. Reba.

Still, for many, the risk of having to look for a new job after only four or five years is outweighed by the reward that comes with a successful exit for the PEG. “Usually the CFO has been incentivized with a piece of equity and can realize a nice payday,” said Mr. Reba. The cash compensation/equity ownership tradeoff with accompanying risks and rewards is more commonly seen in the private equity space than in other arenas.

Furthermore, Mr. Reba added, “If you did a good job, if you were successful and increased value, an active private equity firm may likely have another opportunity for you.”

Mr. Reba noted that over the course of his career he has worked in private, public, and private-equitybacked organizations and particularly enjoys working in the small and middle markets when a PEG is involved. “In addition to the financial leader sitting in a prime position to create value for the company, the ability to leverage the financial and operational capabilities of a strong PEG makes coming to work every day a fun assignment for the CFO.”

Rules for Success

As the discussion wound down, Mr. Reba took a moment to share his rules for being successful as a CFO at a company that is owned by a PEG. “First and foremost,” he said, “transparency.” He continued, “If there is bad news, inform the PEG immediately. It won’t get better with time, and nobody likes surprises.”

Second, Mr. Reba said, “keep an eye on the amount of cash and watch bank covenants.” Finally, Mr. Reba encouraged CFOs at companies with private equity owners to be on top of their numbers. “Be aware of how you are tracking against the plan and the trends in key performance indicators. Are you where you’re supposed to be?” He pointed out that getting back on track can take time, so measure constantly and adjust quickly; don’t wait.

In closing, Mr. Reba reiterated, “While the challenges and risks of the private equity CFO job are great, the rewards and opportunities can be far greater. “The CFO of a small company is often an island unto him- or herself, whereas the CFO of a company that is backed by the right PEG has much greater resources at his or her fingertips.” And that, he said, is indeed a bonus.

Copyright 2017