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Financial Makeover 101

As Seen in CFO Studio Magazine Q2 2017 Issue

GETTING THESE GLITCHES FIXED CAN YIELD A HIGHY EFFICIENT FINANCE OPERATION

They say “there’s always room for improvement,” and this holds true even in the case of successful businesses that begin and end every fiscal year in the black— large, brand-name companies among them. “While there are many tight ships in the sea, it’s not uncommon to find some finance departments working with nonstandard and manual processes and controls, coupled with suboptimal systems and tools,” according to Alison Cornell, a senior-level Financial Executive and experienced business leader.

Ms. Cornell spoke on “Driving Finance Transformation—Higher Performance, Better Intelligence, Greater Confidence” at an invitation-only dinner discussion attended by CFOs from New York–area world-class companies. The event was held recently at Maloney & Porcelli in New York City, and is part of CFO Studio’s Executive Dinner Series.

Calling on her time spent in the C-suite at several multibillion-dollar companies, Ms. Cornell developed a multifaceted finance transformation approach, and she shared its key points with dinner attendees.

The Long View

“Before you can transform a subpar working environment into a high-functioning financial engine, you need to envision what you want your future to look like,” said Ms. Cornell. She suggested executives direct their focus to the most rudimentary—yet crucial—processes and controls that make up the backbone of their finance departments.

“I’ve seen a broad array of processes in my career,” she said, “and they’ve ranged from those that were tight and automated to ones that were ill-defined, nonstandard, mostly manual, and local.” In the case of the latter, “you often find calculations performed outside the system in Excel spreadsheets, with many of the controls also manual,” and the associated systems and tools “suboptimal and incomplete.”

Ms. Cornell said this often adds up to an unnecessarily high level of resources and complexity “with each region, and sometimes country, having their own staff, process, and code set.”

As part of her transformation approach, Ms. Cornell recommends that processes be standardized, simplified, globalized, and automated. “Beyond that, these key processes should be performed by the fewest number of people in the fewest places,” she added. Controls should also be automated instead of manual, thereby leveraging system capability. “If the system can do it, why not have the system do it?” she asked attendees.

Ms. Cornell said such basic and fundamental changes would result in a “consolidated, de-layered, and lower-cost organizational structure.” Audit fees would go down and resources could be reduced or redeployed to more value-added work. “In the end, finance teams would have the freedom to spend more time on thoughtful and insightful analysis that’s based on drivers.” Plus, mechanizing processes and controls also takes a great deal of the potential for human error out of the equation, and “that’s a huge positive,” she said.

All Aboard

While Ms. Cornell’s formula for finance transformation made sense to dinner attendees, many wondered how to broach the subject in cases where management is resistant to change. She said deciding whom to involve in the buy-in process tends to be closely tied to the culture of the organization. “Is it a command-and-control culture, or is it more relationship-based?” she asked, pointing out that “processes usually adapt to whatever the culture is at the company.”

Either way, it became abundantly clear from the dinner conversation that “today’s CFOs are embracing finance transformation as a catalyst to drive change and add strategic value to their businesses,” noted CFO Studio Business Development Partner Chris Nyers, a Partner at CFGI, a finance and accounting consulting firm with offices in Boston, New York, and Philadelphia.

He said it also was clear that there is no “one-size-fits-all” model to create a more effective and cost-efficient finance function. “Whether it be through the standardization of processes across geographies, integration of systems, leveraging of shared services, or the elimination of inefficient, manually intensive processes, each organization seemed prepared to approach their challenges in a different and unique way.”

To that end, Ms. Cornell offered a recommendation: “Start with a clean sheet of paper, and build processes that are best-in-class, instead of trying to fix or tweak existing suboptimal processes.” She said this approach results in the need for people to “think and act differently,” which is the first step toward a true transformation, be it financial or otherwise.

Performance Boosts

As Seen in CFO Studio Magazine Q2 2017 Issue

AN INCENTIVE PLAN THAT REWARDS ALL EMPLOYEES IS PAIRED WITH BROAD TRANSPARENCY

Morale is high, people work hard and seem content, and every employee knows what’s going on behind the scenes at Kepner-Tregoe in Princeton, NJ. The multinational management consulting and training services firm implemented an incentive program as the market started to rebound after the global financial crisis of 2008 – 2009, and, at the same time, took the opportunity to offer employees greater transparency into its financial performance. As a result, “People are motivated in their roles, responsibilities, and decision-making; they’re educated about the business, and all that adds up to a sense of empowerment among the staff,” said Bill Baldwin, CFO and a Kepner-Tregoe Principal.

Mr. Baldwin spoke on “Driving Employee Performance and Engagement – Sharing Financial Intelligence and Insight” at an invitation-only dinner discussion attended by CFOs from New Jersey– area middle market companies. The event was held recently at Agricola Eatery in Princeton and is part of CFO Studio’s Executive Dinner Series.

Mr. Baldwin said the company instituted the incentive plan as a way of rewarding employees for their loyalty and sacrifice during a difficult time that, as at many organizations, included belt-tightening and cost-containment measures. And that naturally led to greater financial transparency. “It just seemed right to let people know if they’re on track to making their goals.”

A Pat on the Back

When the incentive program kicked off about seven years ago, every employee received a 10 percent bonus at the end of each quarter if the operating profit plan within their region was met. “This really registered with people,” said Mr. Baldwin. “It was motivation for them, and it changed their behavior in the business.”

While some incentive plans are based on revenue, “ours is centered around operating profit, and that has significantly altered the way employees view their decision-making when it comes to expenses,” said Mr. Baldwin. “They may reconsider the type of hotel they stay at, or choose a different beverage while dining or meeting with a client.” It’s up to the employee, he noted, “and that’s been empowering.”

These quarterly incentives are now team-based, he noted, since an annual incentive program has been adopted as well, to reward employees according to their individual performance record at the end of the year. “It’s all paid off because people take more ownership and accountability in the overall success of the business.”

Crystal-clear Reporting

With all employees striving to achieve personal and team-based incentives, “we thought it only fair to provide them with greater financial transparency” in an effort to eliminate what Mr. Baldwin called the “surprise factor.” He explained: “We don’t want to reach the end of a quarter or the year and have people surprised that the company or the region has not done as well as they might’ve thought.”

So for the past several years, Mr. Baldwin has been issuing a weekly report to all employees detailing the bookings for the current and next quarter, and comparing that number to the quarterly plan and forecast by region for the entire company.

The report also highlights anyone who has sold a new piece of business over a certain dollar amount in the past week. “When people see their name in lights, so to speak, they love it,” said Mr. Baldwin, who also calls or sends an email congratulating those high achievers. “That’s been very motivational, and great for morale.”

In addition to this weekly report, Mr. Baldwin and the CEO hold quarterly WebEx events (open to all employees) to provide an update on how the company is doing — both regionally and as a whole —what the future looks like, and how the incentives are shaping up. “We try to be as forward-looking as possible to give people an idea of what we expect the results to be for the year,” all in an effort to keep everyone informed from a strategic, operational, and financial standpoint.

“We are as open and honest as we can be with our messaging, and we’ve learned that it has to be repetitive and in terms to which people can connect.” To that end, employees are routinely educated on how to interpret the data contained in the reports, what the trends mean to them, and how the numbers are used by management. “We know we’ve been successful when folks start asking questions, and it becomes more of a two-way conversation. We’ve engaged them, and nobody has been kept in the dark,” said Mr. Baldwin.

Joseph Tammaro, Sector President at TD Bank, North America, and a CFO Studio Business Development Partner, pointed out that one of the biggest challenges in any organization is an “us vs. them” mentality. “It’s encouraging to hear the ultimate outcome of such transparency. A strong cultural foundation has been established, along with buy-in from the employee base who, as a result, will do what needs to be done to secure the viability of the company to move forward.”

Too Much of a Good Thing?

Overall, dinner attendees responded positively to Kepner-Tregoe’s methods, but a few questioned whether it was possible to be too transparent. Mr. Baldwin responded by acknowledging that there are, indeed, risks to transparency. “If a region is having a quarter where they don’t think they’ll make their results, but the next quarter is looking strong, we have to be careful that people don’t manage earnings from a soft quarter into a good quarter, or from one year into the next year.”

In addition, he said, there’s a fine line between being open and honest, and not creating anxiety or panic when business is not as good as usual. “We have to be very careful about our delivery because the last thing we want is people worrying about possible cost-containment actions or that their jobs may be cut.”

Mr. Baldwin believes the frequency of the messaging helps to quell any real fears. “We’ve been doing this for several years now, and people have matured in their thinking and do understand that there are cycles to any business and sometimes there are soft quarters.” And it doesn’t hurt, he added, that “in good quarters, every employee is recognized with a reward for a job well done.”

Cyber Vigilant

As Seen in CFO Studio Magazine Q1 2017 Issue

CYBERSECURITY CONTINUES TO BE A TOP CONCERN AMONG CFOS

Fran Shammo was prepared to talk about digital media and corporate communications in a virtual world that is rife with cyber criminals, and found the roomful of financial executives a more-than-willing audience. “I am very interested in knowing if CFOs at other companies are experiencing the same kind of apprehension and worry,” explained Mr. Shammo, who stepped down as Verizon’s CFO at the end of October in anticipation of his retirement at the end of the year. Less than a week after he spoke, Yahoo, which, two months earlier, Verizon announced it had plans to acquire, revealed that half a billion user accounts had been compromised.

Mr. Shammo spoke on “Delivering Your Company’s Message in a Digitally Risky World—Communications and Media from the CFO’s View,” at a World-Class Companies CFO Dinner, part of CFO Studio’s Executive Dinner Series, held recently at The Bernards Inn in Bernardsville, NJ. CFOs from select New Jersey–area companies attended the invitation-only dinner. Mr. Shammo said the intense discussion that followed his opening remarks on the cybersecurity concerns that plague him proved that “As CFOs, we’re all in this together when it comes to dealing with the very real and constant threats posed by cyber-attacks.”

Mr. Shammo cited statistics from Verizon’s recent Data Breach Investigations Report, which shows that, among other things, passwords are still the weakest link in the chain. “Sixty-three percent of confirmed data breaches involve using weak, default, or stolen passwords,” he said. This resonated with dinner participants who said they do, indeed, take the issue of passwords very seriously, and noted that password-enforcement programs are in place at each of their respective companies. Mr. Shammo mentioned that Verizon forces automatic password changes on its corporate network every 30 days, which elicited several nods of agreement around the table.

Participants expressed curiosity about the kinds of attacks that have taken place at Verizon. “Given the scope of service Verizon provides,” Mr. Shammo said, “we see almost every kind of attack on a regular basis, and we’re constantly trying to find ways to educate employees to be ever-wary of phishing scams and ransomware.” The group was familiar with the more common phishing scams in which a fraudulent email, appearing to come from a legitimate source, requests personal information. However, ransomware needed a bit of an explanation, which Mr. Shammo provided: “It’s a type of malicious software, or ‘malware,’ that prevents users from accessing their system until a sum of money is paid.”

This caught the attention of Greg Douglas, Vice President of Sales for Eatontown-based Yorktel, a video-communications and managed services provider, and a CFO Studio Business Development Partner. “It’s so important that everyone be informed and trained on cybersecurity. It’s not just for the people in Information Technology (IT), as the threat is huge.” He continued, “Financial executives are choice targets for hackers because of their authority to control company funds. They need to be particularly vigilant in their actions to avoid being compromised.”

Mr. Shammo agreed, and offered his fellow finance execs a sobering reality: “There is a high probability that every one of your companies has been hacked.” He added, “Most of you just don’t know about it, nor do you have any idea about who has been in your system, when they were there, or for how long.” In order to combat such cyberattacks, Mr. Shammo recommended long-term contracts with security firms.

Does Privacy Still Exist?

The conversation then shifted to mobile devices: “Years ago, we were all issued a company device that was for business purposes only, and secure. Then, we started bringing our own devices to work,” Mr. Shammo said, acknowledging that this resulted in a whole host of security concerns and problems for the IT department.

“I see things coming full circle,” he opined, “with a return to company-issued devices.” Attendees were in agreement; just about everyone in the room had a personal phone and a work phone in their pocket. “This is actually a good sign,” said Mr. Shammo, recognizing that “we are simply becoming more mindful about keeping personal stuff personal, and business strictly business.”

Mr. Shammo predicted that the next wave in security is going to be triple authentication procedures. “Double authentication,” he explained, “in which you log in to a website and receive an access code to enter will no longer be sufficient.” He continued, “It’s going to come to a point where, in order to get into a site, you’re going to have to allow location services to be enabled on your phone for an extra layer of protection.” This led to a consensus that, as years have gone by, there is simply no privacy anymore.

A Rock and a Hard Place

The evening was coming to a close as Mr. Shammo finally addressed digital media. “Verizon is a network company as well as a digital media company,” he said, “so there are different regulations that apply to different parts of our business, and different regulatory agencies that apply them. As a company, we are very focused on protecting our customers’ privacy across the entire company. From a regulatory perspective, however, it doesn’t make a lot of sense for consumers to have different rules and different regulators dealing with different parts of the Internet ecosystem.”

Mr. Shammo concluded that it’s a “fascinating world” right now. “Things are converging, and our ability to regulate or control privacy is just not keeping pace. We must be extremely careful about protecting the work we do.”