Interview with David Kindlick
Interviewer: Andrew Zezas, SIOR
Following is the transcript of a CFO Studio video between Andrew Zezas, CEO of New Jersey based Real Estate Strategies Corporation and David Kindlick, CFO of South Jersey Industries.
Visit www.CFOstudio.com to read about this interview and to watch the entire video interview.
The Tactical CFO
Zezas: Hi, this is Andrew Zezas, your host at CFO Studio. I have the pleasure today of being joined by David A. Kindlick. Mr. Kindlick is the CFO of South Jersey Industries, a publicly-held energy services company with operations across the country. Mr. Kindlick has had a very interesting career, having started on Wall Street with 32 years in the energy services industry. He’s here today to talk to us about “The Tactical CFO”. David, it’s nice to have you here on CFO Studio.
Kindlick: Thank you for having me.
Zezas: So, the tactical CFO, most CFOs we talk to consider themselves to be strategic. I’m not sure I follow. Tactical CFO vs. a strategic CFO. Share with me.
Kindlick: I think the strategic piece is there, but I think that happens between senior management and board of directors. Once that is set and that strategy is in place, the tactical part is how you implement it. And, that’s where my focus is; how you implement that strategic plan and then also, not to get too far into the weeds and dig into the operations of the business lines.
Zezas: So, how to balance things out.
Kindlick: How to balance it, yea.
Zezas: Alright, so let’s talk about the tactical CFO in context of where companies are in terms of the economy. Bank financing has been on the minds of a lot of people. How has the current economy adversely affected companies’ abilities to secure bank financing especially those that have been looking to grow?
Kindlick: Unfortunately, it’s a different world. It’s a world of “the haves” and the “have nots”. It’s a world of flight to quality. I’ve been very lucky. Our company has a strong growth history. We’re in great financial shape. I can get bank financing easily at this point in time. The “have nots” are the people who are trying to go to a new business model and they have a lot of difficulty getting into banking. Even to the extent that you’re talking about growth, the project finance market had all but disappeared a few years ago. It’s starting to come back. It’s available to people again.
Zezas: From traditional lenders?
Kindlick: From the traditional lenders, yes. They’re back in play and the prices are pretty good. So, we feel good about and I think it’s maybe the light at the end of the tunnel. It’s going to take some time still, but it’s starting to happen.
Zezas: It’s on its way.
Kindlick: It’s on its way.
Zezas: Ok, so the economy has made funding and lending challenging, but you’re feeling good about it and companies are poised for growth. Growth from existing customers, upselling to existing customers, or do you think growth will be all about new customer acquisition?
Kindlick: I think more than ever now, it has to be both. We are in a new era where even items that are not commodity like consulting type services, for us, energy consulting services are being treated like commodity. People are looking at price. Just about, they’re looking at price. So, we’re in competition with a lot of different companies. If we don’t pay attention to upselling to our current group and also going out and finding new ones, someone else is going to eat our lunch. We don’t want that to happen.
Zezas: We don’t want anybody eating your lunch. So, we’re talking about growth, we’re talking about financing, and we’re about existing customers. Cost cutting has been the way of the world for the last 3 or 4 years. Have companies been able to maximize growth and profit by reducing cost alone and will continue to be able to do so?
Kindlick: I think if they do that, they can get into a lot of trouble. I think you have to look at growth, incremental revenue, and cost cutting. If you cut too far, you’ll kill the patient. And, that’s very dangerous to do. If you’re healthy, like I said, my company is very healthy, you don’t have to do that. You can keep a little bit of the fat in reserve, but someone who is in financial difficulty has to do that cost cutting. If they get down to the bone, as I said, they can kill the patient. So, you can only go so far with cost cutting before you ruin your future.
Zezas: We also don’t want to kill any patients.
Kindlick: We don’t want to kill patients.
Zezas: As companies have cut cost, they also have seen their employee productivity soar because part of the cost cutting has been on the employee base. And, employees are having challenges with their own issues, productivity to compensation, but I know you guys have taken some very impressive strides in how you look at bonuses. Has the measurement criteria for bonuses changed not only for your company, but generally speaking?
Kindlick: Our first step was that we changed it from bonus, which has a connotation of entitlement to salary at risk.
Zezas: Say that term again.
Kindlick: Salary at risk.
Zezas: Salary at risk.
Kindlick: Yes, we call skinning the game. So, we started it out at the executive level and we moved it down through senior management, down through the management team. We even have a little bit of it in our union contract at this point, we’re just getting into that. But, the productivity issue is key and people have a different reaction. Even very good employees, when the salary is at risk, they tend to step up and perform. That increases productivity and that’s another case where we haven’t cut. They may get more, but they did something that we set up to say, “if we do that, the company will be better off.” So, we’ll spend a little bit more, but it’s at risk.
Zezas: So, even just the term, if I were one of your employees and I was told that my salary or a portion of my salary is at risk, the emotional response is that I need to make sure that I get that salary because I may not get it as compared to the bonus as something I am entitled to.
Kindlick: That’s exactly what we want.
Zezas: And, I’m sure it sounds like it’s working.
Kindlick: Oh, it’s working. It’s absolutely working.
Zezas: How long have you had this approach?
Kindlick: We probably started it as far back as 10 years ago with senior management, but as I said, even with the union level, we’re just starting to put that in the last 2-3 years during this recession, we’ve dropped it down into our lower level management team. But, they’ve responded. They’ve definitely responded.
Zezas: That’s great. Getting back to the tactical CFO. I love the concept with the tactical CFO. In today’s economy, what should be a tactical CFO be doing to improve internal communications, external communications, interactions with the boards and stakeholders?
Kindlick: Well, I think the first thing you have to do is get away from the old idea that the CFO controls the cost. Like I said before, you have to move away from the operations and step back or up to the tactical level. And, I say the tactical level as taking the strategy, implementing it, and seeing what the line managers, the line vice presidents do to create the operating results. My primary job is to take those operating results and our vision of the future and take that out to Wall Street, take that to the banks, and get it to the point where people believe in us. That’s worked very well for us. We’ve grown income over the last five years by 10% per year. Our total shareholder return is like 18%, so we’ve done that well. If you can focus on taking that message, working with the board, taking that message out and getting away from the old green eye shade, controlling cost, that’s where I believe the tactical CFO should be.
Zezas: That makes an awful lot of sense. That’s the way you’ve been doing business.
Kindlick: That’s the way we’ve been doing business.
Zezas: As a New Jersey company, you’ve got ideas and you’ve got thoughts of how this State is going to become a success yet again, and it will. In your mind, what steps does Governor Christie need to put in place and what does the State need to do, not only for business, but for the State to become competitive?
Kindlick: He just has to continue what he’s been doing. This governor gets it. There’s not doubt he gets it. He knows what has to be done. The challenge is operating in that political environment and moving ahead the way he has to. I think the most impressive thing I saw him do: he’s the first governor with a lieutenant governor. The first thing he asked her to do was take over economical development.
Zezas: That says a lot about where his focus is.
Kindlick: And, she’s done that. I’ve talked to her a couple times about it. She is so focused on maintaining business in New Jersey, going outside of business and getting new businesses into New Jersey. That is her primary focus. She’s very responsive to that. Keeping taxes under control, reducing government costs, regulations that aren’t necessary, knocking all those out are key. I think Mitch Daniels from Indiana said, “You be surprised how much little government is missed.” So, it doesn’t all need to be there. There are ways to cut it out. The main thing that I think he needs to do is put confidence back into the state of New Jersey. Just like we need to do at a federal level, once that confidence is there and people start reacting to it, this whole thing will start flowing, businesses will hire new people, jobs will come about. He has to stop to the extent that it’s always been there. The entitlement mentality has got to go away. He’s definitely focused on that. There’s no doubt about it. The old saying, “It’s not my fault”, has got to go away. That’s just not the way he operates. We’re very encouraged by what he’s doing and how he’s running New Jersey. We’re definitely on the right track and I believe the State will come back under his guidance.
Zezas: I agree with you and I think a lot of people are encouraged. It sounds like a lot of things that Governor Christie is doing here are keeping in line with what you’re doing with the company. You’re removing entitlement as it relates to your bonus plan and you’re telling people, “it doesn’t matter who’s fault it is, let’s fix it and move forward.” That makes a lot of sense. We’ re almost out of time. This has been great. I want to ask you one last question. It’s really just about you. What do you like most about being a CFO?
Kindlick: What I like most about it, whether it’s at my job at South Jersey Industries or I’m the Treasurer of Virtua Health Systems, is the pure finance. I guess at heart, I’m a finance geek.
Zezas: Finance geek. Does it say that on your card?
Kindlick: No, but I might put that on there. I love to get down and dig into the investments, the pension investments, and all that. You can only go so far, until you’re eating too much time with it. But, what I love to do is spend more time with that.
Zezas: I can appreciate that. Well, David, this has been great. You’ve shared a lot of great ideas with us. I hope you’ll come back and see us again on CFO Studio some time.
Kindlick: I’d love to come back.
Zezas: It was a pleasure having you.
Kindlick: Thank you.
Zezas: This is Andrew Zezas with David A. Kindlick, CFO of South Jersey Industries, saying thank you for watching us here at CFO Studio.
Copyright Real Estate Strategies Corporation 2011. All Rights Reserved.