Transcript of Bill Hendry’s Interview
Interview with Bill Hendry
Interviewer: Andrew Zezas, SIOR
Following is the transcript of a CFO Studio interview between Andrew Zezas, CEO of New Jersey based Real Estate Strategies Corporation and finance executive, Bill Hendry.
Visit www.CFOstudio.com to read about this interview and to watch the entire on-camera interview.
CFO in Forward Motion
Zezas: Hi this is Andrew Zezas, your host at CFO studio. I am joined today by Mr. Bill Hendry. Bill is a public company CFO with a background in startups, established companies, and turnarounds in industries including professional services, software, and distribution. Bill got his start in public accounting at Pete Marwick in Maine and has held finance positions for WR Grace, Virgin, Quarterdeck, and a host of other impressive companies. Bill’s here today to talk to us about the “CFO in Forward Motion.” Bill it’s great to have you hear on CFO studio
Hendry: Thanks Andy, it’s a pleasure to be here
Zezas: Bill, there’s an awful lot of cool stuff going in the world today both in finance and other areas of corporate America, but I am curious to get your opinion as to what you think is the single most important issue facing publicly held companies today?
Hendry: Andy, there are a number of them, but I think the single most important issue is the regulatory environment. Over time, say since the year 2000, in the early 2000’s, when we had the disasters with Enron, WorldCom, and some of the other major companies that went bankrupt; the regulatory environment has shifted and has become a lot more stringent. The pendulum where may have been in the middle years ago, in terms of the amount of work and effort required for public companies to report the information that was being received by the investors, has really swung to the right. And, in doing that, the regulatory environment has come to the point where there is a lot more personal liability involved with the CEO, CFO, and other signers of the documents, as well as much more stringent reporting requirements and expansive requirements on that reporting
Zezas: So, the new regulations have required more time and more effort, they really are a burden to a publicly held company? More cost as you mentioned, but also a distraction I’ve got to believe as resources are focused on reporting and maintaining regulatory compliance that it takes the focus off the ball?
Hendry: Absolutely, no question about it.
Zezas: So what does a dynamic CFO do to help a company navigate through this, because you really can’t go around it?
Hendry: No, you can’t go around it. You really need to figure out how to work within the requirements in terms of producing the document that ultimately needs to be filed with the Securities and Exchange Commission. As a result, what I found is that the best way to handle this is to be organized, have the information transmitted from each constituent that needs to review the document, and there are a number of review points given that this is a legal document that needs to be filed, so that you’re organized, and that the document is completed at each stage where each person or group of people that need to review the document have the opportunity to think about it, to review it, to recommend any changes that are necessary prior to going to the next step, and allow them the time to do their job. As of result, you have good relationships with your outside accountants and auditors as well as attorneys, and make sure that they’re all on board and ready to accept the document when it’s ready to be transmitted to them so they have time to provide comments.
Zezas: So from a compliance perspective, what you’re really describing the CFO as the compliance leader almost and the project manager if you will?
Hendry: It’s a project, and yes absolutely no question about it. And ultimately, in being organized and producing a good document that is valuable to the investors it will also minimize the work required and the “fire drills” involved in getting the document completed, and therefore freeze up the CFO during that time process from solely focusing on creating the document to wanting to be able to have a dynamic process where the document is going through its steps. But you’re able to focus on the business at the same time.
Zezas: Not only handle compliance and making sure everything in the rears are done, but to have that forward motion?
Hendry: Absolutely, absolutely.
Zezas: Understood, understood. In keeping with the discussion about reporting and compliance there’s been a lot of talk about what we know, there’s been discussion about GAAP migrating over to IFRS in the US, but there’s also discussion about big GAAP and little GAAP and having a different set of standards for private or privately held smaller companies. What are your views on that?
Hendry: This is a topic, Andy, that’s had a lot of dissention and very, very much discussion throughout the profession in the last few years. As you mentioned, we’ve got IFRS on the horizon, we’ve had generally accepted accounting principles that provide a host of literature for not only generally accepted accounting for the majority of companies, but there are industry carve outs. There are additional carve outs for various types of transactions and the accounting for those transactions as well, and recently as you mentioned, there is something that has been referred to as little GAAP. In my opinion, I don’t think we are at a standpoint or situation where we need to have another full set of standards, and I really am not a proponent of that. I think Generally Accepted Accounting Principles provides a framework for doing the accounting. There are opportunities, if necessary, for companies to have an exception to GAAP if they’re not following GAAP in a certain respect. Additionally, there’s the ability for smaller or private companies to report on another comprehensive basis of accounting such as a tax basis if they don’t have the where with all to report on their GAAP. Having said that, I think it’s very important to look at both the profession and the people that would be producing these documents and the burden that would be placed on them in terms of trying to make sure that they are complying with the correct set of literature when they are preparing the documents, in addition to the readers of the financials whether it be investors or outside constituents having a basis for comparability. And if we actually have three sets of literature on basis of reporting, then it really muddies the water, and people can really get confused. We’ve already seen some of that confusion just with the changes in Generally Accepted Accounting Principles, if we add several other basis of reporting to that it could really muddy the waters there.
Andy: So less complication, keep it as simple as possible, less regulation, less compliance, less reporting? That’s your mantra?
Hendry: I believe we should stay under one basis of accounting and Generally Accepted Accounting Principles. Now going forward, we are going to have to work in IFRS assuming that is phased in the next few years.
Andy: So, we’ve talked about reporting and compliance. Employment has also been a big issue for the last few years, and I think it’ll continue to be. Given what’s been going on in the company, do you think that companies will be able to retain their best employees as things start to improve?
Hendry: That’s a great question. Since 2008, as you know with the recession, many employees have been laid off. Those who have been lucky to have jobs, in many cases, have been subject to a salary freeze, bonuses cut out, and other benefits cut back. However, they’ve been able to maintain their jobs. With the “thawing” of the economy or as the economy comes back, I think we really need to look at the situation where companies should target the employees that they really want to keep, those who are most valuable to the organization in providing the most value to the company, and target some type of a plan to provide them with salary increases or bonuses or some perks to show them that they are valued and incent them to stay. Otherwise, I’m afraid companies are going to see many of their good employees start leaving the company, and looking for opportunities to better themselves, and obtain those increases and raises they haven’t seen for 4 years now.
Zezas: So, there is a way to retain, but it sounds like it’ll require an active effort on part of most companies?
Hendry: I believe so.
Zezas: Yeah, I think I agree with you. Bill, there has been a lot of discussion in industries, specifically in the finance industry, about budgets versus rolling forecasts. Give me your views about how rolling forecasts versus an annual operating budget would better serve the company, and you can give me that perspective from the enterprise wide, from the perspective of the finance department, CEO, or however you view it.
Hendry: Sure, sure. An annual operating budget is generally prepared in the 4th quarter of the year whether it’s a fiscal year or a calendar year. It generally takes up to a couple months’ worth of time of the organization, of the executives, etc. It’s a very time intensive process. At the end of which, you have a document which is the plan for the upcoming year. In my experience, in many cases that document is obsolete the day it’s approved.
Hendry: As a result, you have a significant amount of time that’s spent by the accounting and finance staff in the upcoming year reconciling variances to the budget. Whether it’s sales, or costs, or what have you, “why aren’t we where we said we were going to be when the budget was approved?” As opposed to that scenario, a rolling forecast I’ve found, is a better tool for me especially in partnership with the CEO of the company, so that we can make sure that we are keeping our finger on the pulse of the organization. With the rolling forecast, you have the ability to update the assumptions. The budget may have obsolete assumptions in it that that just become part of those explanations every month as to why we have variances, but the rolling budget you can update the assumptions. You are also including the best information that you have that time whether it is new products it’s been introduced, new customers, most significant customers, or what have you.
Zezas: Because it’s current?
Hendry: Exactly. And as a result, all information that you’re trying to provide, and all decisions that you are trying to make can be based on the best information you have at the time. Additionally, it takes much less time of both the finance department as well as the other executives in the company to update for adding one quarter on the end of a rolling forecast, as opposed to trying to create a full year budget.
Zezas: So, your focus of a rolling forecast is consistent with the theme of our discussion, that rolling forecast really is rolling forward, it is a “forecast”. It takes in account historic information, but it’s not based squarely and only on historic information like an annual operating budget is.
Zezas: So, I’m hearing this theme throughout our whole interview today about looking back versus looking forward. On that basis, tell me what you see is the real role of the corporate CFO at a public company?
Hendry: In my opinion Andy, again, the real role of the corporate CFO is to add value to the organization and to be a true partner to the CEO and the other members of the leadership team in the other functional areas of the company. Obviously, the reporting and the accounts payable, and what have you needs to get done, but that should be something that just happens. The CFO should be forward looking, should be relying on forecasts, and being a true partner to the CEO in terms of determining strategy, in terms of determining what the next few months and upcoming months are going to look like, whether they be investor discussions or presentations or what have you, so that you have the best information that you can have at the time and no surprises.
Zezas: And it sounds like the CFO should be focused less on what happened yesterday and more about generating profits for tomorrow?
Zezas: I couldn’t agree more. This has been wonderful, I hope you’ll come back and see us again on CFO Studio sometime.
Hendry: I’d love to Andy, thanks for having me.
Zezas: It’s been a pleasure. This is Andrew Zezas, your host at CFO studio with Bill Hendry, saying thank you very much for watching. We’ll see you again.
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