CFO Studio Magazine with Robert Falzon, CFO, Prudential

THE COOLEST PART 8 WWW.CFOSTUDIO.COM Q2 2017 W hat’s really cool about being the CFO of Prudential? Robert Falzon, who has held that position since 2013, answers that it’s the “ability to make a difference in people’s lives through developing them and helping them reach their potential.” When he goes to bed at night, that impact is what he thinks about. Sure, there are other parts of the job that make him feel good — particularly the strong reputation of the company he works for. He also takes pride in the complexity of financial services, and insurance in particular: “There’s a mastery associated with that.” But he makes a point to allocate time on a day-to-day basis to support ”the talent equation.” As each class of new college hires arrive, he meets all the individuals, whether at luncheons, small group meetings, discussions, or while providing an instructional segment. At the end of their three-year rotational program, Falzon wants to “look up on the stage at the people completing the program and make sure I know all those people.” Falzon serves in mentoring relationships with about 20 individuals. He views the time he spends on talent development as essential to ensuring a successful enterprise. to Prudential’s Newark headquarters as Treasurer in 2009; three and a half years later he was named executive vice president and chief financial officer, watching over one of the world’s largest financial services institutions, with over $1 trillion in assets under management as of Sept. 30, 2016. His vision as he builds his own high-performing Finance team is based in part on his own experience, which has beenmarked by fascinating opportunities but no set path. He believes the unusual direction he took has not just broadened his skill set, but has sharpened it, too. It’s no surprise, then, that he advocates individual mobility in career development. But beyond that, something else has resulted from his peripatetic years: He tends to view the Finance organization as a new frontier. He sees enormous possibility in what Finance does, saying its complexity and potential for impact is underappreciated. He looks at this function— and those who know its language and are fond of its clarity—as a means to enhance value for the entire organization. Financial Role in Driving Performance Falzon, 57, is particularly proud of an initiative his department undertook to ensure, as he puts it, that there’s “a good line of sight between operating performance of the businesses and the reported results that we provide, whether to shareholders, bond investors, or to regulators.”The Finance team looked back over five years at adjusted operating income, the main business earnings performance measure, and GAAP reported income, noting the “breakage” between the two. The analysis identified that 85 percent of that breakage came from two areas: 1) the treatment of currency exchange rates in Prudential’s international business, and 2) the way guaranteed lifetime income living benefit features were treated in the company’s retirement business. Falzon viewed “breakage” in the retirement product line as having no small importance, as guaranteed lifetime income solutions offer growth potential for Prudential, given the demographics of the U.S. and the paucity of Americans’ nest eggs. In the case of currency exchange rates, Prudential revamped the Japan organizational structure to alleviate the problem, where solid business trends were sometimes obscured due to non-economic volatility included in GAAP net income. In the case of the retirement product, says Falzon, “where market developments created volatility in our hedged risk, we revised the asset- liability management strategy and combined the management of risks essentially into a single entity.”This approach helped improve stability while contributing to higher free cash flow. The exercise set out to make sure the operating performance of the businesses and the reported results were reasonably aligned. “Reducing complexity and volatility, and improving predictability and clarity, can have a significant impact on…how investors value the company,” says Falzon. “That’s an important issue for the company, not just for Finance.” According to public disclosures, the company’s book value per share grew nearly 14 percent in 2015, the year Prudential took steps to mitigate the effects of foreign exchange rate re-measurement on reported results. Skill Sets for the Future In order for the Finance organization to enhance value in that way, Falzon says his teammembers needed a mix of skills. Those skills fall into two areas: the traditional, technically oriented skills, like accounting and reporting of results; and business performance and growth skills, such as strategy and analysis. “Our best people are the ones who can do both of those really well,” he notes. Continuing on this skills categorization tack, he says technical accounting and corporate finance skills are table stakes —everyone in Finance needs those. Interpersonal skills are what will help individuals “rise in the organization and lead— leadership and creative problem-solving require the development of soft skills.” Falzon considers developing talent to be so important that he devotes a significant part of his time to it (see sidebar at left). Because the talent needs of his and all businesses are under constant pressure from disruptive forces requiring new proficiencies, he is a strong believer in taking a long-term view of needed competencies, and serves on the advisory board for Rutgers Business School. Falzon distinguished himself at COVER STORY