Today’s CFO

Share

As Seen in CFO Studio Magazine Q4 2016 Issue

 

THE MODERN CFO MUST FOCUS ON BUSINESS STRATEGY AND GROWTH

 

“A business that is not growing is probably a business that is dying.” Strong words from Arlen Shenkman, CFO of SAP North America, the world’s largest enterprise application software company, and a CFO Studio Business Development Partner. And he’s not done: “The demise rests squarely on the CFO’s shoulders, at least in part, if all he does is stare at spreadsheets.”

Mr. Shenkman spoke on “Operations, Risk, and Finance: The CFO as Growth Strategist” at a World-Class Companies CFO Dinner, part of CFO Studio’s Executive Dinner Series, held recently in the SAP Suite at Levi’s Stadium in Santa Clara, CA. CFOs from select Bay Area companies attended the invitation-only dinner.

He opened the discussion by asking those in attendance to join him in recognizing how the job description of a chief financial officer has evolved over the years and across industries to the point that “the CFO is far more than the steward of the assets of a business, or in place solely to ensure compliance and assess risk.”

Mr. Shenkman noticed heads nodding rapidly in agreement, so he continued: “These days, anyone who wants to be a CFO must understand that the role is much more multifaceted than it ever has been, and in order to be effective, you need to understand — and be able to explain — your business model, value drivers, competitive differentiators, and your customer needs, as well as the strategies that are in play.”

That means today’s CFO has to stand ready to “help the business determine the most advantageous way to continue growing.” In other words, and “this is key,” he said: “The CFO must decide on the strategy of the business to ultimately ensure its long-term vitality, while at the same time helping the organization understand the financial ramifications of those strategic decisions.” That’s a heavy portrayal of the job, he acknowledged, and one that, like so many in the current environment, requires a balancing act. “Keeping the company strategy in mind, CFOs have to determine how they can align the financial return for the shareholders with the long-term growth prospects of the business.”

Stepping It Up

Mr. Shenkman noted that this characterization of the finance leader’s role is a radical shift away from the traditional and stereotypical description of the CFO as the prototypical “bean counter,” and opined that it’s due, partly, to the “automation” of certain aspects of the job. “There is a piece of what, historically, a CFO would do around reconciliation and aggregation of data that is now addressed in our systems and analytics that, frankly, free up the CFO’s time to be more proactive in operating or running a business.” And the best way to be action-oriented with an eye to the future, he said, is to “understand where the business is headed, rather than just merely looking back at the numbers and knowing where it’s been.”

Francois Delepine, CFO of Venafi, a cybersecurity software company, attended the dinner and in an interview afterwards summed up Mr. Shenkman’s assessment of the current role of the CFO by simply saying, “The job of the CFO is to be a problem solver and to find solutions,” while Liyuan Woo, former CFO of Bebe Stores, an upscale fashion retailer, went a step further and likened the modern-day CFO’s role to that of a “co-pilot to the CEO and other senior executives.” In her view, “the Board and the CEO are looking to the CFO more and more to really drive strategies and direction for the company.”

Ms. Woo had a theory about the CFO’s more demanding job description: “Traditionally, the CFO has been seen as a very objective person who comes to the table from the rational side that deals with the numbers. Given that knowledge base and, typically, a very even-keeled temperament, there is much more of a push for the CFO to be the change agent for the organization, to kind of rally the troops and work with senior-level counterparts to make sure everyone is executing in the same direction.”

Peter Derrick, who runs his own CFO consultancy, Peter Derrick, LLC, said that the conversation “struck a chord” with him. “I always considered my role as one of a key strategist and as a change agent and growth agent for a company.” But he added that not everyone sings his same tune. “I’ve certainly been around long enough to know that some stakeholders embrace that and others do not.”

He admits it was quite difficult at times, over the years, to get people to understand where he was coming from, but “it’s become easier and more common now for the CFO to operate in the ways in which I have consistently done, because I think there is a greater recognition broadly with shareholders and Board members to that evolving and growing role.”

The Malfeasance Theory

Paul Kirincich, CFO for One Medical Group, said in an interview after the dinner: “The way I see it, there’s now a COO component to the current-day CFO role.” And he, too, had a theory: After Enron, a 2001 scandal in which top executives at the Texas energy company hid billions of dollars in debt from auditors and the Board of Directors, “there was such an excessive amount of attention on compliance and control and fraud prevention, which caused all of us to be more narrowly focused to avoid a similar scandal.”

Mr. Kirincich pointed out that the business economy has been operating for some time now under the controls put in place by the U.S. Securities and Exchange Commission (SEC) following Enron, and “things are relatively stable, so CFOs can focus more broadly now than we did 10 years ago.”

Mr. Shenkman said that CFOs today have more systems at the ready to address those necessary and critical operations like internal controls and processes, but cautioned attendees to “keep their eye on the ball,” pointing out that, “Compliance, risk, and accuracy of financial statements are the price of admission. These are your core responsibilities; they are foundational. And the more diverse and global your business is, the more complicated it gets.” He went on: “If you’re a great CFO who understands the strategy of your business, but your financials are wrong and you have a compliance issue, you’re probably not going to be a CFO for very long.”

Pointing out that industry-wide acceptance and recognition of the CFO as a growth strategist within an organization doesn’t necessarily come with a free key to the boardroom, Mr. Shenkman said, “The onus is on us as CFOs to ensure our relevance and that we have a permanent seat at the table.” The first step, he said, is to develop and cultivate a strong relationship with upper management. “You need to be a valued member of the senior executive team in order to reach your full potential as a CFO,” which is to provide insights and assist in decision making, he added.

He advised CFOs to think creatively and resist hanging on to their old ways that offer a sense of security. “I find a lot of finance people revert back to what their comfort level is, which is often, ‘I want to get back into my spreadsheet and find the right answer.’ ”

In an interview, Ms. Woo echoed this: “No longer is the day where you can just repeat what you learned from the past. Changes are everywhere, and companies rely on the CFO to step up the game and be anticipatory instead of just focusing on the past.”

Mr. Shenkman advised new and veteran CFOs alike to keep their “crunched numbers” accurate, embrace good processes that can be modified to the changing needs of the business, but also to focus on spending a portion of their time with customers and vendors. “This will go a long way toward proving to upper management that you’re not myopic about the business, and that you really do have a larger view of the organization, you do deserve a seat at the table, and that you can help influence decisions which you’re very likely in a good position to influence.”

Now, welcome to the new age.

The Road to Cybersecurity

Share

As Seen in CFO Studio Magazine Q4 2016 Issue

 

THE HACKER THREAT IS A TOP CONCERN, BUT CFOS CAN PUT MEASURES IN PLACE TO PROTECT DATA

 

Keeping an organization’s computer network safe from hackers used to be in the hands of the IT department, but as cyberterrorism becomes a bigger and bigger threat, more CFOs are shouldering a large part of the responsibility. According to Lynn Calhoun, CFO of BDO, USA, LLP, which provides assurance, tax, financial advisory, and consulting services: “This shift is due, quite simply, to the costs and risks involved in a cybersecurity breach.” While IT people certainly play a critical role in preventing and responding to such an attack, “the CFO—as well as others in the organization— is getting pulled into the discussion to balance costs, risk, and overall investment.”

Mr. Calhoun spoke on “Digital and Info Risk: Threats, Cost, and Opportunities for World-Class Companies” at a World-Class Companies CFO Dinner, part of CFO Studio’s Executive Dinner Series, held recently at Morton’s The Steakhouse in Chicago. CFOs from select Chicago-area companies attended the invitation-only dinner.

Mr. Calhoun began the evening’s discussion with this eye-opening observation: “Nobody really knows where the next threat is coming from.” He continued, “The sheer number of people out there spending volumes and volumes of time trying to figure out ways to hack into your system is far greater than the time you’ll ever have available to get into position to respond to those threats or prevent them from happening.”

He noted some of the typical, more common threats to cybersecurity, such as the ability to gain access to passwords, bank accounts, and credit card and social security numbers, but pointed out that today’s cyber terrorists are coming up with some unique and creative ways to solicit funds directly from an organization. “They have become quite adept at creating false emails that appear, on the surface, to be from someone of great authority in your company.” In most cases, the email is purportedly from the CEO, authorizing the CFO to make a payment to a particular entity with instructions to “get it done, and [you’ll] be filled in on all the details later.” Close inspection reveals such emails to be fakes, he said, but “they do look quite authentic to the untrained or very busy eye.”

An Ounce of Prevention

In an effort to stay a step ahead of the hackers, Mr. Calhoun said every organization must attempt to determine the source of real and perceived risk. “On a broad scale, you’ve got risk everywhere. But if you can narrow it down a bit, you’re more able to focus on what kind of breach in which sectors of the company will be most detrimental to your business.” This could be a direct attack where access to funds and resources has been acquired, he explained, or an indirect hit to reputation and brand.

While an organization can potentially guard against resource or monetary risks, it’s very difficult to do the same in the area of reputational risk. As an example, Mr. Calhoun cited the massive data breach at a large, national retailer about a year and a half ago, in which upwards of 110 million people had sensitive, personal information stolen or compromised during the holiday shopping rush. “Immediately, the public thinks the retailer isn’t protecting its data. That’s not necessarily grounded in the facts, and there’s no knowledge of what steps were taken before and after the attack, but all of a sudden their reputation is at risk of becoming tarnished.” All any company can do, he said, is “address the risks as best as possible to ensure that few, if any, breaches occur, and that damage to reputation is limited.” He added, “It’s a real challenge to balance the risks and the costs to prevent such occurrences.”

Jim Willard, an Executive for California-based Tidemark, a private-enterprise performance management company, and a CFO Studio Business Development Partner, found it thought-provoking that attendees seemed most concerned with the damage an attack could cause to their brand. “It almost outweighed the concern of the actual breach itself, and the impact on the data and the ensuing monetary consequences.”

Mr. Willard noted that “attendees seemed to feel they could effectively mitigate the risk of the tangible and monetary damages through their practices, procedures, and infrastructure improvements, but the open-ended risk of damage to brand is still out there.”

Mr. Calhoun questioned whether the public cares about cyberterrorism threats and attacks anymore, as there are so many instances of these in the news. He noted that even the media seems to have stopped focusing on the topic. “It’s become almost a way of life, and people, themselves, have had their individual systems hacked, so it’s possible we’ve become somewhat numb to it.” He said perhaps the risk of reputational harm is lower than before, just by “the pure numbing of the public.”

Up in the Air

The discussion really heated up when Mr. Calhoun questioned whether or not storing data in the cloud offers a greater or a reduced risk of cybersecurity attacks. “We were all unclear which was safer,” he recalled in a subsequent interview. Some attendees felt that the cloud environment might be the more secure option, because the third-party organizations providing cloud storage have a great deal invested in preventing attacks, as their future and livelihood depend on it. On the other hand, “Some of us, myself included, thought there was increased risk when your data resided somewhere other than where you can directly control it,” said Mr. Calhoun.

Scott Settersten, CFO of Ulta Beauty, a retailer of cosmetics and salon services, attended the dinner and said in an interview, “My perception always was that I’m more at risk if I keep my data in the cloud than if I keep it under my own lock and key, but that’s probably not the case because the people that are maintaining this data have better security than I’ll ever be able to afford, simply because that’s their core business.” (Settersten, the subject of an article that recently appeared in CFO Studio magazine, will lead a discussion at a CFO Studio Executive Dinner in Chicago later this year.)

Shiwali Varshney, CFO at Vosges Haut-Chocolat, a super-premium chocolate manufacturer and retailer, said that regardless of her uneasiness with cloud computing, “we have to go there eventually, because that’s where business processes are headed. Plus, it’s more cost effective to do so.” While she is confident that the companies providing the storage service are encrypting data and making every effort to ensure that data is secure, “I know there is inherent risk when data is stored in the cloud. But I know that if we want to be productive, we need to utilize the cloud-based solutions to be more collaborative and efficient.”

Ms. Varshney went on: “How we manage that risk, and how much money we spend managing it, is becoming crucial to understand. This is where my concern lies.” She also noted that “there has been a big change toward how we handle operational risk management and training. It’s shifting more toward cybersecurity training” with disaster training programs focusing on responding to data leaks. She called it a “sign of the times,” and added, “I want to invest in training people to move into this next millennium.”

Insuring Up

As the conversation continued, some in attendance revealed that they had purchased cybersecurity insurance. This is a relatively new marketplace, Mr. Calhoun noted, and “it’s really evolving for those selling it and those buying it, as both try to figure out what exactly they’re insuring and how much to charge and pay for it.”

He added that the idea of insurance coverage against cybersecurity threats is a pretty good one, given the uncertainty of it all, and because it is possible to identify how some costs relate directly to certain risks. “Whether it’s the cost of notifying individuals who may have been impacted, or the expense of taking additional steps within your networks to correct it and prevent it from happening again, there are indeed some areas where you’re better off having insurance coverage to protect yourself than not having it at all.”

As for the extent of that coverage, Mr. Calhoun advised companies to “lean toward buying more than you need, just because of the uncertainty of what’s really necessary.” Better to have more than you’ll ever need, he said, than to be caught with less.

Silver Linings

The increase in cybersecurity threats and attacks is providing an opportunity for organizations to take a good, long look at increasing their level of security, said Mr. Calhoun, “which is definitely a good thing.” And it happens to be a good time, he said, to “take a step back and examine, for example, access into your systems: Do you use password security and what do you do with that? What information do you actually store? Would it be better to not store some data on a permanent basis? Do you use firewalls or VPNs (virtual private networks)?”

These are all ways, he pointed out, to be more alert, attentive, and aware of security issues. “You may have looked at some of these items, like firewalls, for instance, as an inconvenience to personnel, or as an additional cost layer that you just don’t need. But when you start viewing them from a cybersecurity standpoint, those digital barriers become very good things to implement within your organization for all the right reasons.”

Mr. Calhoun said he hoped participants walked away with an appropriate level and balance of fear that may have gotten accentuated, based on what was discussed. “In addition, maybe a little clarity was gained around potential solutions that exist to address that fear, whether that be in the area of insurance coverage or a new way to look at cloud computing.”

Peg Koenigs, Senior Vice President and CFO at the Federal Reserve Bank of Chicago, said in an interview after the dinner that she believes a majority of companies across the globe are concerned with the ever-increasing threat of cyberterrorism. She added that it was interesting to see that “CFOs are taking an active role in this, and that it is clearly a new responsibility for CFOs across the board.”

Ms. Koenigs said she assumes that, universally, every organization is thinking about, experiencing, and making efforts to shore up cybersecurity, and some of this is happening in the office of the CFO. “It’s expected of all of us CFOs to protect the data. Certainly, it’s a risk we think about and it sure is part of my responsibilities.”

Mr. Calhoun closed the discussion by acknowledging that cyberterrorism is “one of those areas that tends to get pushed to the back burner as other issues take precedence and you get busy in your routine day-to-day.” He admits it’s easy to lose sight of it a little bit, but cautions that “it does need to be elevated within your organization to the appropriate level to get people’s attention.”

The Power of Passion

Share

As Seen in CFO Studio Magazine Q4 2016 Issue

 

IGNITING PASSION IN YOUR CUSTOMERS AND EMPLOYEES CAN CREATE A WINNING BUSINESS

 

Most diehard sports fans will tell you they “eat, sleep, and breathe” their teams, but that’s not something you usually hear a finance executive say about his or her job. But for Frank Gumienny, CFO of the Philadelphia Eagles, it would be an understatement.

Mr. Gumienny attends all events at Lincoln Financial Field, the team’s home stadium, from each concert, lacrosse, and soccer match to every Eagles game. He even goes so far as to visit tailgate parties in the parking lot. He explained this, saying customer service is at the very heart of what he does. “Game days are very special to me because it’s an opportunity to spend quality time with those who are tied very closely to the organization.” He continued, “The fans are our customers, and they all come for the same reason. I take advantage of this time and use it in a way where I can engage and connect with them before the festivities start.”

Mr. Gumienny has been with the NFL franchise for 19 seasons, four as CFO, and every single day, with everything he does, he tries to build the passion for his team. “We are creating and cultivating a culture where everyone is an Eagle. Not an Eagles fan, an Eagle.”

He made these remarks on “CFO Leadership in Managing Operations, Finance, and Risk…69,000 Customers at a Time!” at a Middle Market CFO Dinner, part of CFO Studio’s Executive Dinner Series, held recently at Lincoln Financial Field in Philadelphia.

Those in attendance were surprised to learn that the CFO would be so involved with drumming up team spirit. “My whole job, this whole business, is about experience,” Mr. Gumienny said. “What we sell is passion and experience. I sell it, we all sell it.”

That resonated with Dominique Bernardo, CFO of Congreso de Latinos Unidos, a nonprofit organization that aims to strengthen Latino communities. “The personal touch of a CFO can make the difference in the experience of the consumer,” she said in an interview after the dinner. And she cautioned: “The CFO cannot afford to sit in the office and not be seen or not interact with staff and even customers.”

Mark Quinn, CFO of the Advertising Specialty Institute, a membership organization supporting the success of suppliers and distributors in the promotional products industry, said that he and his fellow CFOs need to recognize that they are in business to make their customers successful. “If you are committed to the success of your customers, it will be evident to them and your company will, in turn, be a success.”

This similarity with other businesses having been acknowledged, Mr. Gumienny made note of how unique his industry is: “Not many companies get their customers to show up on one day and share the same passion that others are showing,” he said. “They come wearing your colors, painting their faces, investing time and energy in what you do.” So part of the passion is already there, he said, but, “Our job is to continue that, to just keep fostering that passion, and above all, to show we care.”

Inside Out

To do that, he advised — and this can be done in any business — you start from within and work your way out. “Our staff members don’t just work for the organization, they are becoming it.” Mr. Gumienny added, “We do everything we can to instill that in the people we hire, making sure they come in with that attitude.” At the end of the day, “It’s just the mentality that every single one of us must have at all times and live out in every move we make.” To put it simply, he said, “Everyone inside the building has to feel the passion before anyone on the outside can feel it.”

This will only work, Mr. Gumienny pointed out, if employees are empowered. “I don’t believe that when you give people power, they abuse it. Most people want to do what’s right, and the right people are going to do the right things. If someone is going to abuse their power, you’ve got the wrong person.”

Mr. Gumienny continued, “When someone calls the stadium to see if they’re allowed to bring in an umbrella on game day, they are not talking to an operator, they are talking to the Eagles. So every staffer has to be empowered in the same way.”

Mr. Gumienny told the story of a stadium usher who went to his boss upon learning that a longtime season ticket member —whom he had seen at every home game for years — had died. The usher’s concern resulted in a memorial gesture for that fan’s loyalty to the team: “We removed the seat he had sat in and gave it to the family.” After all, said Mr. Gumienny, “that was not our seat, that was Grandpop’s seat.”

Mr. Gumienny said the usher was celebrated for knowing that this was something that should be brought to the attention of management, “which is impactful.” At the same time, the family will be fans forever. “We did this because it was the right thing to do, but the by-product is that they are fans for life. They’ll never forget it, and they’ll never let their kids forget it.”

William Curnan, CFO/COO of Advancing Opportunities, a provider of services and support for people with intellectual and developmental disabilities and their families, attended the dinner and in an interview afterward said he was genuinely impressed with the way the Eagles organization thinks of themselves and their fans as part of the team. “They build a home for them and they treat them like family, with respect and with pride to have them as fellow Eagles.”

Also in an interview, Curt Allen, Vice President and CFO of Subaru of America, made a comparison between his company and Mr. Gumienny’s Eagles. “The passion that the Eagles organization shows to their fans is what Subaru calls the ‘Love Promise.’ Subaru builds relationships with its employees, business partners, and customers by treating them the way we would want to be treated in order to create a culture with a sense of belonging.”

Close Encounters

This is something any business can do, Mr. Gumienny said in response to Mr. Curnan’s and Mr. Allen’s points: “Get your customers to feel that they are a part of the organization, to really be a part of it, and to get them on the inside, not just operating as a fringe player.”

Mr. Gumienny said generating devotion to the team is practically a mantra among his colleagues, “always on our minds as we go about our day-to-day,” and they take every chance they get to touch the fans and ignite the passion, be it on a grand scale or a very small one. “We might invite 500 season ticket members to the stadium to meet the new coach, or just one kid with autism to get an autograph from his favorite player.”

He said there are hundreds of opportunities to get tight with the fans and to bring them in closer to the Eagles, and “we go above and beyond at every turn, whenever we possibly can, to give them that ultimate connection to the team.”

This may sound minor, said Mr. Gumienny, but “guest services” at the stadium is now referred to as “fan services.” But that’s actually a big deal because “they really are fans, not guests, and we want them to feel at home when they come to a game.”

In an interview, Arlen Shenkman, CFO of SAP North America, the world’s largest enterprise application software company, expressed fascination over Mr. Gumienny’s varied and unique role: “his focus on the experience of the customer and how that experience weaves through everything the organization does, from finance to operations to game day.” He noted that every core operation within the organization relates to the customer experience. “It’s amazing to me that even the CFO is responsible for the quality of the experience a fan, a ‘customer,’ has on game day. But it makes sense.”

Mr. Gumienny said every single person who works for the Eagles is responsible for that experience, though he recognized that you can’t make all of the fans happy all of the time. “But if we continue to try to do what’s right, when we can get a win and make an impact, we definitely do it.” And that goes a long way, he added. “This kind of customer service really becomes who you are as a company. And we’re always mindful that each and every one of us within the organization has different powers to do that.”

The Business of Football

In addition to building the passion for the team and reinforcing a fan’s loyalty, “the goal of everyone on staff is to win,” he said, of what drives the organization and how it is ultimately perceived by its customers. “All decisions tie back to winning.”

He acknowledged that, “For most businesses the goal is to make money, but our primary goal is not to drive revenue and make money, it’s to win.” He pointed out that, in some ways, “You need to drive revenue and make money in order to win,” and that sometimes those two things are at odds. “Decisions to make you better on the field aren’t necessarily the same decisions that will make you money,” he said, citing an example: “We traded up to become the second pick of the draft, which comes with a much higher price tag than if you were 10th.”

In an interview, Anthony Conte, CFO of EPAM Systems, a provider of software product development services, commented on the business goals of Mr. Gumienny compared to those of his fellow CFOs. “At the core, we are all trying to accomplish the same thing, which is to make our companies the best in our respective industry. Obviously, we all go about that slightly differently, but that’s probably the one thing we have in common.”

Peter Miller, Executive Vice President and CFO of Binswanger Management Corporation, an international real estate firm, agreed: “As businesspeople, we are all trying to do one thing —more business.” He went on: “Even though the Eagles are a larger-than-life brand, it is still a business. And, like most of us, it fits the profile of a ‘big’ small business.”

In response to that, Mr. Gumienny said: “We’re not a business, but we’re almost a business.” He explained: “It’s the challenge that we’re faced with in dealing with the business side” of a sports franchise. “As CFO, you just have to balance conflicting needs and keep things moving in the right direction, which allows us to do whatever the owner and the head coach want, giving them every opportunity to win and be successful.”

Corey Smith, CFO of Dechert LLP, a global specialist law firm, attempted to sum up the discussion. “While Mr. Gumienny is in a unique industry and position, it’s clear that the role of an organization’s financial executive is ever evolving. CFOs becoming more involved outside the financial suite is critical and adds value to the organization, regardless of the industry or client base.”

Elaine Cheong, Senior Vice President and Senior Relationship Manager at Bank of America Merrill Lynch, and a CFO Studio Business Development Partner, echoed that. “We have observed over the years that the role of the CFO has evolved dramatically.” She added, “In the 25 years that I have been in the industry, CFOs are now acting very much like COOs. They’re no longer just the finance folks. The industry, and the world, really, is moving and changing very quickly.”

Not as fast as Eagles fly, but perhaps close.

Copyright 2017