CFO Studio Magazine, 3rd Quarter 2012
By Julie Barker
A GOOD CFO WORKS FOR INVESTORS, EMPLOYEES, CUSTOMERS AND ALSO SOCIETY
When Barry Rowan talks business, he talks about responsible value creation.
In conversation, you might hear him say business serves society by creating opportunities for people at the bottom of the pyramid. For him, value cannot be divorced from values. The two are as closely entwined as the why and the how that confront any decision-maker in any business question.
“Work should provide an opportunity for people to express their innate gifts and talents,” he says, a pronouncement that can sound a little old-fashioned in our cynical age. But Rowan, who has been in the business world for more than 30 years, with the titles CEO, CFO, and Treasurer, has a track record in telecom and tech businesses that proves he does not have his head in the clouds.
At his previous job, CFO of Nextel Partners, he arrived when the company’s stock was trading for a low $7–$8 a share, and set to work growing the valuation of the company. Three years later, in June 2006, the stock price was up to $28.50 per share. He took his leave after the company was sold to take a “purposeful pause” in his career, though he continued to contribute his knowledge while sitting on boards and giving back to the community. He then joined Vonage Holdings Corp. in March 2010.
Rowan operates in a rapidly changing world from a foundation of rock-solid principles. In a time when lack of trust in business is widespread _ ethics questions having been raised over the actions of Apple (child labor), BP (disregard for employees’ lives), Barclays Bank (rate manipulation), Countrywide Finance (influence peddling), Morgan Stanley (a skewed earnings forecast for Facebook), Monsanto (environmental damage), and many other companies _ his values-based leadership is refreshing and his conversation provides perspective for anyone searching for meaning in their work. But Rowan’s not just a nice guy who makes character central to his work, he loves business challenges and has an impressive track record of growing and turning around companies. In the crucible of business, he has arrived at a philosophy that other CFOs should find provocative _ maybe even worth emulating.
Importance of Performing Profitably
Rowan, whose title is Executive Vice President, Chief Financial Officer, Chief Administrative Officer and Treasurer at Vonage, was brought in to help guide an operational, financial, and reputational turnaround at the Holmdel, NJ–based company. He was drawn to the challenge. Result: The company’s Q1 financials show revenue of $215.9 million, and after five consecutive quarters posting EBITDA of $40 million or better, that measure slid slightly to $31.8 million in Q1, as the company warned investors would happen when it turned to investing in strategic growth initiatives during 2012.
“The bottom line has grown about $200 million from a negative $47 million prior to the turnaround to $168 million in EBITDA last year,” says Rowan. Vonage achieved a similar $200 million improvement in net income and free cash flow, driven by the two comprehensive refinancings that Rowan led.
Now that the bottom line is healthy, Vonage is working on strengthening a relatively flat top line (see sidebar, “Finding Growth During Rapid Change”). One of the first voice over internet protocol (VoIP) providers, Vonage took advantage of a breakthrough technology and the lack of regulatory constraints hindering the existing telecoms but absent in an internet environment. But the company stumbled in the process and almost went bankrupt. With its current growth strategy, Vonage is looking at leveraging its existing competencies and using its old tactic, price disruption. “That’s been Vonage’s heritage,” Rowan says, using disruptive technologies like delivering phone service over broadband to dramatically lower consumer costs in large existing markets. Now the company is looking to disrupt the major telecoms’ income from international long distance, text messaging, and roaming with its digital voice services.
Rowan is immensely pleased by the company’s turnaround for the obvious reasons, but also because he believes that the primary purpose of business is to serve society through what he calls “responsible value creation.” This is not the same as saying the purpose of business is to make money. In an interview with Ethix, a business magazine focusing on technology and ethics, Rowan said, “I am not saying that having more money is all we need to make the world a better place. That’s simply not true, and to say it is would be promoting a hollow materialism that leaves many wealthy people aching for more.” But it is through business – originally trade, then manufacturing, inventing, and investing _ that people without goods to trade or land to farm can earn a livable wage.
Speaking to CFO Studio Magazine, Rowan says, “Business is the only institution that creates economic value. Every other institution distributes it.” For customers, the result is goods and services at a reasonable cost; for employees, the result is a positive environment where they can grow their skills and steady, healthy paychecks (see sidebar, “How Business Serves Society”).
Defining the CFO’s Role
As a steward and a strategist, the CFO is the individual in the company charged with responsible value creation and telling the truth. In order to stay focused on the main goal, “performing profitably,” Rowan suggests a test: “At any moment of every day can I make a connection between what I’m doing in this moment and a purpose for business that connects to my purpose in life, which includes contributing to a better society?”
And in order to keep others from inflating figures or failing to report negatives (for instance, when it comes to SEC _ lings), a CFO might remind the people in the finance and legal departments who are preparing the documents that investors are making multi-million dollar decisions based on the accuracy of those numbers. “I think people take their responsibility seriously if you raise the bar for them,” he says.
Rowan believes that it is up to the CFO to be the truth teller. If senior leadership or a board of directors is making powerful arguments for a course that seems dangerous or wrong, the CFO’s role is to “present the information, the numbers, the data in a way that portrays the realities of how the business is doing and where it’s going.” He speaks of bringing people to “see the story that is in the numbers,” and cites Jim Collins, whose book Good to Great advocates “facing the brutal reality” in order to make the hard decisions that ultimately make good companies great.
Making Hard Choices
At a previous job, Rowan was running a startup in South America (he has done three startups and three turnarounds in his career). This was the only job he has had at which he was not successful and it clearly bothers him that he was not able to save the business. It was a “massive startup where we raised $2.5 billion and hired 4,000 people in two years to build a communications system in Brazil.” For many reasons, the company foundered, requiring him to move to Brazil and in the role of CEO lay off 1,500 of the workers. “It was by far the hardest thing I’ve had to do professionally.”
In these times when most companies are not appraised primarily for the products and services they provide but as investment opportunities, CFOs frequently have to argue for reduced headcount. So how would he reconcile that reality with his understanding of business as contributing to a better society? Rowan says that in his Brazil disaster, he came to realize that it was the time for drastic action, without which the company was going to go bankrupt, “so I viewed my job there as saving 2,500 jobs as much as eliminating 1,500.” Additionally, he says, the layoff s were handled with sensitivity, and the workers who were let go were offered an outplacement service to try to get back into the workforce. “We tried to be sensitive to the people and to treat them with the dignity they deserved.”
When a company needs shoring up and hard choices have to be made, he says, “that work is not fun, but there is a sense of satisfaction at the end of the day from doing what I believe is the right thing.” He also finds solace in “accomplishing significant results with people I enjoy and respect … Not doing it alone [but] being connected with other people as we have to make the inevitable challenging choices in these senior leadership roles.”
Guiding and Mentoring Others
Early in Rowan’s career, he struggled to find a sense of what his life and his work meant. He admits that if he hadn’t been able to come to an understanding of what he was doing in life and why he was doing it, an understanding that brought meaning to his work, he would have quit corporate America. “It was too painful to me not to be able to make those connections about purpose.”
He believes that a company has a role in helping employees who are wrestling with the question of what they should be doing and whether what they’re doing really matters. Vonage has a mentoring program, and Rowan has spoken at town hall meetings and recently spoke to employees at a brown bag lunch about “connecting our heads and our hearts.”
He enjoys investing in the younger generation, both inside and outside the company.
“I don’t call these mentoring relationships but holistic friendships,” he says, because mentoring implies that it is a connection that goes in one direction and “I get at least as much from those relationships as the young people get from me.” Tied to this reluctance is his belief that he is still learning about life and growing in understanding.
Throughout his years of corporate life, Barry Rowan has pursued answers to existential questions. One of the most exciting realizations he has had is relevant for all of us: that satisfaction and joy can be derived from “using our careers to shape society [even as we are] being shaped by our careers.” Connecting his work boosting the value of an asset to his efforts ameliorating the lives of people in poorer areas is a significant step, but only one of many on his life’s journey.
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