All Together Now


As Seen in CFO Studio Magazine Q1 2017 Issue



Keeping everyone in an organization on the same page with all eyes on a common prize can be quite an undertaking. But it’s an even heftier effort when running a business with two similar, but very distinct, high-end products that are directed toward separate consumer markets with similar characteristics, but varying demands. “This has been a challenge at every organization I’ve ever worked for,” says David Chambers, Vice President Finance and CFO of Jaguar Land Rover, North America.

Mr. Chambers, who appeared in the cover story of the Q3 2016 issue of CFO Studio magazine, spoke on “Driving Growth: Two Luxury Brands at a Time!” at a World-Class Companies CFO Dinner, part of CFO Studio’s Executive Dinner Series, held recently at Blue Morel in Morristown. CFOs from select New Jersey–area companies attended the invitation-only dinner.

Mr. Chambers began the discussion with a rhetorical question: “How do you manage growth vs. profitability with two luxury brands that could be somewhat divergent in terms of their targets and performance?” Interviewed later, Mr. Chambers said, “There was a pretty strong view in the room that margin comes first, and you should always manage to profitability instead of volume at any expense.”

Although this “refusal to sacrifice profitability” was the answer he expected from his fellow CFOs, Mr. Chambers noted that it often results in ongoing tensions within an operating organization. “The sales guys are going to have numbers they’re trying to hit, while the finance folks are attempting to keep some level of credibility in the system.”

In other words, he explained, “There are pressures in the system to hit sales, but at the end of the day, it’s your job as CFO to put the right data in front of people, and ensure that that data is discussed so that only the best sales decisions are made.”

And that’s why “things naturally get tense when you say, ‘Yeah, I know you want to do this, but it may not be the best thing for us to do,’ ” he acknowledged.

Along similar lines, the group then had a question for him: “They asked me about my process for evaluating the potential of a product, and how resources are allocated,” recalled Mr. Chambers. “I explained how we weigh the cost of what we’re willing to put into the product vs. the revenue we think we can get out of it. We then consider whether or not that generates an acceptable margin for us.”

Law and Order

The discussion then naturally morphed into an examination of how to keep discipline and control in an organization if there is rapid growth in one area, but not the other. “We have seen a tremendous amount of growth with Land Rover, and although we’re preparing for an uptick in Jaguar sales with two new models on the road, we’d been losing people out of that sales funnel,” said Mr. Chambers.

So about three years ago, Mr. Chambers and his CEO adopted what he referred to as “a new system to help us manage at the rate we’ve been growing.” He described it to the group as an organization within the organization. “We call it the executive review board, and it’s composed of the CEO, CFO, and the heads of marketing, sales, operations, HR, and customer service.” All major decisions go through that committee, he said, which “allows us to have an aligned view, and a fully vetted approach in terms of how we allocate our resources.”

In addition, Mr. Chambers noted, the system prevents a couple of things: “It avoids moves outside of the process, which tend to occur as you’re growing.” And, he added, it presents a very disciplined and unified approach within the organization. “It allows you to exert a level of control and discipline in the company without being too bureaucratic, because once something’s come through this organization, and it’s been reviewed and approved, it moves forward. There’s no further discussion.”

Mr. Chambers said the new process has been “highly successful” because it’s forced that “alignment” within the company.

This resonated with Jacob Buchanan, Senior Manager, Private Company Services at PwC, and a CFO Studio Business Development Partner, who noted that, “It can be very difficult to achieve organizational alignment to a goal across functional areas of management.” He continued, “For example, marketing and finance may have the same overall goal; however, aligning on the path to reach that goal requires strategic thinking.”

Mr. Chambers responded by noting that such “organizational alignment to a goal” can be accomplished in one of two ways: “You can either have a CEO that’s very strong in forcing that, or you can come up with your own process working with your CEO and heads of operations to put something in place that everyone will align upon.” This, he said, has been the key at Jaguar Land Rover, North America. “It’s the big difference in how we’ve tried to manage the brands because they sit in two different positions.”

Mr. Chambers added, “It’s all about having the right parties in the room and then having the discussions.” He pointed out that everyone gets a voice in the process, and then, once a decision is made, “it’s not about whether you like it or not, it’s about execution, plain and simple.” And an outcome reached by that method should go a long way, he said, toward keeping everyone in the company in the fast lane to success.

Business As Usual, No Matter What


As Seen in CFO Studio Magazine Q1 2017 Issue


Most executives would agree: In order to stay in business and outpace competitors, companies need to grow and expand, regardless of what is going on in the world market, or their own backyard. How that’s accomplished, however, is a “challenge and a good question that may not have one definitive answer,” according to Jason Mulliner, CFO of Edmund Optics, a supplier of optics, imaging, and optomechanical components, based in Barrington, NJ.

Mr. Mulliner spoke on “Driving Domestic and Global Growth Despite Currency Swings and Economic Uncertainty” at an invitation-only dinner discussion attended by CFOs from middle-market companies in the Philadelphia and New Jersey areas. The event was held recently at Morton’s The Steakhouse in Philadelphia and is part of CFO Studio’s Executive Dinner Series.

Mr. Mulliner began the discussion by acknowledging how “economic uncertainty can be very much domestic in nature.” For companies based in the U.S., he said, “there are so many things that can create uncertainty — like what’s going to be the gross domestic product growth for the upcoming year, and what might the Fed do with interest rates?” He continued: “How about the unemployment rate and its effect on the cost of employees?” And, naturally, he didn’t stop short of mentioning the veil of ambiguity that typically surrounds a new president in the Oval Office.

With those questions dangling in the room, Mr. Mulliner then posed the most important one to his fellow financial executives in attendance: “How do you budget and plan for the upcoming year in the shadow of so much uncertainty?” That question was answered with more questions, and an observation agreed upon by all: “It’s a considerable, yet exciting challenge.”

Most companies, Mr. Mulliner noted, begin budgeting for the next year in September, with such calculations continuing until December. Any good plan, he said, “probably needs to be amended every three or four months anyway, which is a good thing when so much is up in the air.”

At a time like this, Mr. Mulliner suggested “rolling forecasting” could be considered a best practice: “You always have a 12-month plan ahead of you, as opposed to working with a plan that is very calendar-year focused,” which forces everyone to be constantly thinking ahead.

While it sounds positive, he called the process of creating a rolling forecast an “arduous, but important task” that takes a huge amount of time and resources, as “every organization within the company has to sit down about once a month to think through the plan and project out.” A fair deal of grumbling is often the result of such “reforecasting,” but Mr. Mulliner opined that “only good can come from repeatedly going back to the drawing board during unclear periods.”

Michael Muccio, Partner at CFGI, a finance and accounting consulting firm with offices in Boston, New York, and Philadelphia, and a CFO Studio Business Development Partner, discussed his dilemma over whether or not to slow hiring in the New York market or change the strategic direction. “Our New York office is experiencing rapid growth, including an increase of more than 200 percent in head count over the last 18 months.” Mr. Muccio said that while there is concern about the growth trajectory of this market, “it’s difficult to pump the brakes and pass up good talent.”

Responsible for growing CFGI’s New York office, Mr. Muccio admitted his nerves were calmed by the overall sense of optimism in the room for sustained growth: “CFOs in attendance felt an economic slowdown or significant change were not likely on the horizon even with a new president, and more of the status quo is expected.”

Globally Speaking

Mr. Mulliner moved the discussion to a global focus. “It’s been a very interesting time, as the U.S. dollar has had one of its largest moves ever in terms of strengthening against all currencies.” However, for global companies based in the U.S., “this has added incredible volatility to their financial statements.”

He explained: “As you’re selling in other countries in different currencies other than the U.S. dollar, you’re basically getting fewer dollars for every foreign currency that you sell, so on your financial statement it looks like you’re selling less or contracting as a company, but that may not be the case at all.”

For companies with both sales and expenses (manufacturing, salaries, etc.) overseas, a shift in the currency can also “artificially take away growth” on their financial statements. Mr. Mulliner said financial instruments like forward hedging contracts can help preserve natural growth, and can remove volatility from the reports. “Such agreements allow businesses to purchase a foreign currency at a pre-established and fixed rate based on the current market.” He continued, “So if the currency moves during the prescribed period in the hedging contract, the hedge will mitigate the actual financial gain or loss occurring in the company resulting from the currency move.” This will decrease volatility in the company’s financial statements, he said, “which is typically a good thing.”

The Bottom Line

In the end, the group agreed with Mr. Mulliner that “if you want to grow, despite currency swings and economic uncertainty, you have to fund growth.” To do this, he said, “Companies typically need banks.”

Elaine Cheong, Senior Vice President and Senior Relationship Manager at Bank of America Merrill Lynch, and a CFO Studio Business Development Partner, offered: “Part of a company’s risk-management strategy should be negotiating with their lenders realistic covenants that reflect earnings fluctuations due to cyclicality of business conditions.”

In terms of a budget plan, Mr. Mulliner said the banks understand that it’s just a plan and it will change, but “they like to see that some rigor, thought, and strategy have been put into it, and that it’s consistent with past performance and you’re not just making things up.”

And he added: “Don’t surprise your banker.” Constant communication and “a good relationship with your banker can help a business weather most any kind of storm.” Whether you know one is coming or not.


A Hot-Button Item


As Seen in CFO Studio Magazine Q4 2016 Issue


No longer just the responsibility of IT professionals, the threat posed by cyber attacks is in the CFO’s bailiwick


The issue of cybersecurity has become a matter for entire organizations, from the IT department through all of its layers. “It’s now discussed upstairs at the Board level. It’s that serious,” said Paul Mallen, CFO of Amalgamated Life Insurance Company, as he talked about “CFO Perspectives in Managing Cyber Risks” at a Middle Market Companies CFO Dinner, part of CFO Studio’s Executive Dinner Series, held recently at Blue Morel in Morristown, NJ. CFOs from select New Jersey–area companies attended the invitation-only dinner discussion.

“Detection,” Mr. Mallen pointed out, “is just as important as prevention.” He cited an intrusion at an insurance provider in the Pacific Northwest that made headlines last year. “Hackers were in the system for several months before anyone knew it, accessing an estimated 11 million customers’ personal, financial, and medical records.”

In terms of how to detect such a breach, Mr. Mallen said, “There’s really no silver bullet. And the hackers are typically one step ahead of the rest of us. Multiple layers of technology and processes are necessary.” Still, from what he called “a low-hanging fruit perspective,” there are a few hot-button items to consider when attempting to defend against a cyber attack. “Only allow approved software to run on employees’ computers, and minimize administrative privileges by preventing individuals, except those authorized, from making changes in the system.” In addition, he advised keeping applications, plug-ins, and software up-to-date and operating systems current with the latest patches and updates.

The CFO’s Role

Increasingly, CFOs are paying more attention to such measures and controls because, as Mr. Mallen stated, “Typically, our job is to manage corporate resources and risk. …CFOs think in terms of risk vs. return, but when it comes to the issue of cybersecurity, you can’t quantify the return. And the risk could be reputational, financial, and/or customer losses.”

To begin laying the groundwork for a more secure computing environment, Mr. Mallen suggested attendees ask themselves a couple of critical questions: “Where is your data? What data are you trying to protect? Who has access to it, and should everyone in a department have access to the same data?” Once answers to these questions are reached, he said, it’s an opportune time to conduct a risk assessment and a gap analysis. “Then you can methodically approach where your gaps are and attempt to [protect the assets] cost-effectively.”

From a finance perspective, Mr. Mallen said CFOs should determine the amount of money that can be allocated to cybersecurity efforts. “You have to spend your funds appropriately; you can’t allocate capital to all IT requests.” In addition, “As middle market CFOs, we have a unique challenge in the areas of managing capital, and finding and retaining top talent,” he said. He pointed out that it can be difficult for mid-sized companies to hire all the knowledge workers necessary to deal with cybersecurity, due to the many and varied systems most enterprises use and competition for resources from big-name firms.

As a result of this predicament, Mr. Mallen noted that many companies are outsourcing a number of their IT functions as well as turning to cloud computing, which brings along its own set of issues. To that point, he cautioned: “Before picking a vendor to store your invaluable data, attempt to determine if that company is taking all the right measures to secure it.” He recommended compiling an “appropriate and comprehensive questionnaire” in order to glean an understanding of the vendor’s overall security system. “Some of those inquiries should include: How do they segregate data? Who has access to the data? And what are all of their security controls?”

In terms of managing third-party vendors, he added, be sure to get the appropriate reports. “Many CFOs receive a Service Organization Controls report, or SOC 1 report, from a vendor and think that it’s adequate in this area, but it’s not,” as it mainly focuses on financial reporting controls. Mr. Mallen advised requesting a SOC 2 report, which is centered around a business’s other controls as they relate to security, confidentiality, and privacy.

Risk Prevention

The issue of USB drives, or so-called “thumb drives,” came up at the dinner and, as Mr. Mallen pointed out, there is a “ton of risk” associated with these handy little gadgets. “An employee can inadvertently unleash a virus onto the organization’s network by plugging in a thumb drive that is, unbeknownst to them, infected.” In addition, an employee could download sensitive information onto a thumb drive and then leave the company, or simply lose it.

One way to mitigate this kind of risk, Mr. Mallen said, is to use encrypted thumb drives. A more aggressive approach would be to “lock down your computers so they don’t accept outside drives,” only those that have been issued by the company. To take it a step farther, “Provide thumb drives only to employees that department managers approve” to receive them. In this vein, he said, “You begin to minimize and narrow down your areas of risk.”

From a non-gadget standpoint, Mr. Mallen said, “One of the most important things you can do that is not technology related is to make sure your staff is continuously trained and educated on phishing emails and websites. Links in emails and websites are one way that hackers install malicious software on a computer, which then allows the hackers access to systems and data. Mr. Mallen also recommended that staff be expected to adhere to all prudent cybersecurity policies and protocols.

Mr. Mallen acknowledged that cybersecurity adds complexity to the system, and “if you make it too complex, there’s more chance for human error or misconfigurations.” In addition, he advised the attendees to “build cybersecurity into new systems that are being put into place, so that it’s already a part of the process for your business units.” You don’t want to create changes in the workflow, he said, nor do you want to make it harder to operate your business. The hackers have that angle covered for us already.

Copyright 2017