CFO Studio Magazine, 3rd Quarter 2012
Interview By Andrew Zezas
Global challenges from Europe and China and volatility in the economy overall have presented plenty of difficulties to financial executives. But by embracing the right strategies, a CFO is able to mitigate risk while positioning the company for greater growth in the long run. David Drillock, Vice President and CFO of Woodland Park, NJ–based Cytec Industries, a specialty chemicals and materials manufacturer serving diverse markets including aerospace, mining, and general industrial, has worked to ensure his company can thrive during a time of economic uncertainty.
He sat down with Andrew Zezas, host of CFO Studio and CEO of Somerset, NJ–based Real Estate Strategies Corporation, to discuss how the role of CFO has broadened and deepened in recent years, and why an economic downturn is no excuse to curtail innovative thinking. Below are highlights from their conversation.
ANDREW ZEZAS: Dave, it’s great to have you here on CFO Studio.
DAVID DRILLOCK: It’s great to be here, Andy, thank you.
Dave, we are talking about uncertain economics and also about leadership, which are very important components of business today. Share with me, from a global perspective, what economic issues concern you.
DRILLOCK: Sure, thank you. Everybody knows what’s going on in Europe with the debt crisis and how they are in a recession already. We can’t escape the news or radio or TV talking about it. We also have a slowdown in China, and while that economy was a great engine of the world for many years, the impact of that downturn could lead to a slowdown in this country.
So, those are the things that the CFO today should be aware of, and quite frankly, needs to make sure the company is prepared to deal with in the uncertain times ahead.
There is a lot of uncertainty, and there’s a lot of diverging information that’s going off in a lot of different directions. A lot of very smart people are trying to make sense of it.
DRILLOCK: Yes, that is correct. Flexibility is the key.
What’s your company been doing to minimize risk and reduce risk, but not depress growth?
DRILLOCK: I think the first thing a CFO needs to do is look at the balance sheet: Do they have proper liquidity? working capital at the right levels? Also, look at the infrastructure of the company. If there is a downturn, look at the different scenarios and what can be done. You want to make sure that you have liquidity to keep funding the things you want to do. And cut back on the things that you know are sort of temporary that don’t need to get done right away, and push them off. So, I think through proper contingency planning and some of the things like that, you can minimize risk and also take into account what might happen to your customers and vendors.
For instance: working capital management. I want to know that my key vendors are viable financially.
So, it doesn’t hurt to do some credit checks on them like you would do with a good customer. The same thing with my customers: I don’t want to be the bank during a crisis. If I am shipping to them on time and on schedule, then I want to make sure I am being paid on time. Also, you want to make sure you are building the right products, that you are not letting dollars sit in inventory, because that’s not doing anybody any good.
So, earlier in our conversation you said something about contingency planning. Do you mean in case there is a _ re, how do we put out the fire?
DRILLOCK: I think contingency planning goes both ways. You want to plan for the worst and sort of hope for the best, but you also want to plan if there is an upturn. What if there’s not a downturn and things start to pick up? You don’t want to cut back so hard that when the economy does pick up, your company is not prepared to meet that demand.
So contingency planning in both directions?
DRILLOCK: It goes both ways.
Something I heard you talk about is that at a time when most CFOs and business executives in general are concerned about battening down the hatches and protecting what they have, you’re using innovation as a means of protecting growth. Elaborate on that.
DRILLOCK: I think one of the mistakes companies make during downturns is that they start cutting out any innovation and marketing that goes on. And then when things turn around, those who kept doing those things had the edge. So, what you want to do is cut down in such a way that doesn’t stop the innovation or the enthusiasm of employees that want to be part of a growth company.
At the end of the day, every company has to grow and generate good cash flow to go forward. The CFO has to make sure that you don’t overreact to one extreme and miss the other when the growth comes back.
Tell me, Dave, your thoughts about the CFO’s role in that realm, in leading a company through this very, very confusing period.
DRILLOCK: I think what a CFO can do through this type of period is, first of all, they look at the big-picture view of what’s going on in the economy-“Here’s what I see, here’s what the data is showing, here’s the metrics, and here’s the leading indicators”-but they can also look at what is going on in the company to make sure they have the right metrics.
There are a lot of techniques today that are out there, such as Six Sigma and lean manufacturing, that you can even use on your administrative processes and global processes that make a company more efficient. A CFO, because of the world he is in, can bring a lot of things to the table in making sure these things are being utilized throughout the company.
I am hearing a combination of both backward- and forward-looking. The traditional CFO role was historic and was reporting. It kind of stopped at today, but I am hearing innovation, I’m hearing forward-looking.
DRILLOCK: The CFO’s role is really changing today. You are going from really just being a compliance master to one where you’ve got to go out there and really understand what’s going on in the market. You’ve got to be a strategic thinker and you’ve got to be a partner with the CEO.
It’s not just sitting in the office, but getting out there and understanding what’s going on, being that partner to the rest of the executive team at the company, and giving them those insights after that. You really have to understand what’s going on in the business, and I think those are the ones that are more successful.
So, partnership in a lot of different directions, not just with the CEO, but with the rest of the executive team as well?
DRILLOCK: That’s correct. You have to get out there and relate to the hourly employee as well as you do to the C-suite executives.
That makes perfect sense. Dave, we are very interested in understanding how CFOs can become influential. What steps can a CFO take to have the greatest positive influence over the company, their industry, or the finance community?
DRILLOCK: One thing is they can’t be too insular. They can’t just be around a company. They have to get out there and network, whether it’s through trade associations, CFO Studio like this, getting online, or chatting with other CFOs in this industry. But I think what CFOs can do to really be influential, not just in their company, but in their industry, is to just get out and see what else is out there. I do not have the best ideas out there, but I want to know I’m smart enough or hope I’m smart enough to know who to go to in order to get those ideas.
I have time for one last question before we sign off, and it is not a business question. When you’re not CFO, when you take your CFO hat off, what do you do with your time?
DRILLOCK: Well, I am lucky enough to have a small farm in Long Valley, NJ. I have a couple of horses, some donkeys, some chickens, grow hay. When I want to get myself completely away from what I do, I go out to that farm and just enjoy the great land and just enjoy nature.
A far cry from being a finance executive.
DRILLOCK: That’s correct.
Dave, this has been fantastic. I truly appreciate you joining us here on CFO Studio. I hope you’ll come back and see us again.
DRILLOCK: I will. I enjoyed it myself. Thank you very much.