Interview with Michael Eldredge
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 Michael Eldredge, Chairman and CFO of American Sensor Technologies.
Visit www.CFOstudio.com to read about this interview and to watch the entire video interview.
The Mid-Cap CFO as Entrepreneur and Orchestra Leader
Zezas: Hi, this is Andrew Zezas, your host at CFO Studio. I have the pleasure of being joined today by Mr. Michael Eldredge. Mr. Eldredge is Chairman and CEO of American Sensor Technologies. Mike is here today to talk to us about the Mid-Cap CFO Entrepreneur and Orchestra Leader. Mike has also recently been named 2011 NJ Biz CFO of the Year award finalist. Mike, it’s great to have you here on CFO Studio.
Eldredge: Great to be here today, Andy. Thank you for inviting me.
Zezas: Mike, it’s been our experience that mid-cap CFOs are probably among the most diverse executives in corporate America. In fact, most CFOs that we encounter are actually COOs. Interestingly enough, in addition to your chairman and CFO title at American Sensor Technologies, you are the COO. Given that diversity, and the breadth of expertise that required of a mid-cap CFO, what should the role of the CFO be in that kind of company?
Eldredge: Well, as you point out, typically, CFO is someone that is worried about the accounting, the finances, the risk management of the business, but more importantly it takes someone with broader experience; can they come in, and as you point out, an orchestra leader within the organization, execute what is the business plan, what is the desire of the board of directors, partners within your business. Are you helping bring to the party a host of talents that you can now also bring to your staff, encourage your managers, and run your business.
Zezas: So you’re not only a leader, you’re an inspirational leader in some respects, it sounds like when you’re juxtaposed between the board, your management partners, your employees and your customers, you’re also spearheading communication for the company as well.
Eldredge: Absolutely. And the thing is also, be a mentor to these people. Show them what your expectations are. What I expect of them and what they expect of me in return.
Zezas: That’s very interesting, what they expect of you in return. Okay. So, let’s talk about where mid-cap companies go, exit strategies, future events, specifically going public. Fewer and fewer mid-cap companies seem to be going public. I know you’ve considered IPO in your experience in various companies you’ve been involved with. Tell me why mid-cap companies are staying away from going public.
Eldredge: Well, there’s several reasons. One is what’s involved with going public, having the books and records of the organization in place for years that could be audited to set the stage for going public. But, there’s also the cost of maintaining going public, and then what you’re focused on is courting the expectations of the shareholders and not really focused on running your business. A quarter does not create a trend within a business; it’s truly what is on the broader scale of what the accomplishment is going to be of the organization. But worse yet, in a public forum, how much information are you required by statute and law to disclose? That’s in the hands of your competitor.
Zezas: Oh, that’s very interesting. So, you have to basically maybe give up the recipe to the secret sauce.
Eldredge: So to speak, yes.
Zezas: I heard you loud and clear that what it does is basically takes management’s focus off the ball, takes their eye off the ball, in terms of growing the business and puts them in the position of having to be reporters.
Eldredge: Exactly. And you start to become more focused on the shareholder return and that you’re pleasing your board of directors. But the problem is you start doing that, take your eye off the ball, the business takes off on a different course. If the business can be focused on the business plan and what you’ve set out to do, by natural growth of the business, by natural profitabilities that come off of that, shareholder value will be returned.
Zezas: I agree, I agree. To that end, reporting. Budgeting and forecasting, there’s a debate, which is more appropriate, especially for a mid-cap company. What are your views?
Eldredge: Well, budgeting is a very stagnant type of forecast that by definition is wrong on day one, when you present it.
Zezas: Wait a minute, say that again.
Eldredge: Budgeting is wrong from day one that you submit it. The economy is changing rapidly, it changes hourly. The volatility of today’s economic climate, you publish something and it’s wrong. It’s like driving a car looking out the windshield versus a budget is something you’re looking at historic trends and trying to drive the car looking out the rear window. You have to look forward and be ready to make decisions, sometimes on the spot, and you hope it’s going to be the right thing.
Zezas: So, you are a very strong proponent of rolling forecast versus budgeting.
Zezas: Okay, that makes sense, I understand that. You had a very interesting way of discussing the approach at American Sensor Technologies and your personal approach to nurturing employees. It was not necessarily hiring and paying for experts, but it was something about growing experts. Tell me your view about that.
Eldredge: With a young company, particularly a smaller company, to a midsize, you can’t always afford to employ the top notch person in their field with the high salary and the high benefits that go with it. Sometimes you have to be able to find a diamond in the rough, so to speak, and mentor them and nurture them so as your company is growing. Hopefully, you can bring that person along with you, and not create too much of a gap between their abilities and knowledge and the needs of the business. It’s a kind of pay as you go mentality.
Zezas: Well I would imagine it’s not only pay as you go, the value that goes to both employee from the focus on a part of the company, and the value that comes back to the company as the employee grows, it has got to be tremendous.
Eldredge: Well, the employee starts to feel the reward that they’re earning more money, they’re becoming more valuable to the organization, and then as the company can afford them, the high salary levels, why not give it to the person that brought you along in the organization.
Zezas: That’s a fantastic view. It’s a very inwardly focused view and I have to believe that your employees really appreciate that.
Eldredge: Well, we always have those that really understand it and really appreciate it, and then you have some that sometimes they’ll just never get it. But that’s okay, you try to work with them and you still deal with that. Never leave anyone out.
Zezas: Understood. I love it. Let me turn to taxes. There’s been a lot of debate about the Bush tax cuts, whether or not they should be extended. What do you think?
Eldredge: I think they should be.
Eldredge: Well, the reason for that is because it’s the investor that is looking for making good investments, and having a lower tax rate on their success of return. Young companies, smaller companies, often times do not have a venue of getting traditional banking or funding, and are looking for the investors that are willing t0 take the risk along with you, knowing that the risk and reward ratio is higher elevated if they’re going to pay a lower tax on it at the end of the day. You don’t want to take those people out of the game.
Zezas: Okay, so you believe they should be extended, without a doubt?
Zezas: Understood, understood. Let me take you to our last question: banking. I know you have some very strong views about the banking industry vis-à-vis their ability to serve the needs of mid-cap companies. Tell me what your thoughts are.
Eldredge: Well, the problem with banking is they think like bankers.
Zezas: Bankers think like bankers. That says a lot, by the way.
Eldredge: They’re very risk-adverse, looking for guarantees, there are no guarantees in life. But they try and build a program that would be the most guaranteed loan or investment that they could ever make. The problem is that under the rules and regulations they have to follow strict guidelines on how they can make a loan and while the current Obama administration is out there saying, we want to encourage the banking industry to do more lending to companies, they haven’t changed any of a regulations, so while the money is available, it’s not being eked out to companies such as ours.
Zezas: So, in essence, what we’re hearing from the government is that we want to encourage lending, but by not changing the rules by which they’re demanding bankers live by, they’re really tying the bankers hands.
Eldredge: Where do bankers look at? The strength of the balance sheet. And a young company does not generally have strength in balance sheet at that point. They’re just building their business.
Zezas: Right, right. And those are the companies that need fuel, financial fuel.
Eldredge: Absolutely. When you look across America, its not the Fortune 500 or the Fortune 1000 that is employing the vast majority of the people. It’s anywhere from the Mom and Pop Shop to the mid-size companies that are employing this country.
Zezas: Absolutely right. Mike, you’ve got some very interesting views and it’s apparent as to why American Sensor Technologies has done well. I’ve enjoyed this and I hope you’ll come back and see us again.
Eldredge: I hope I am invited back.
Zezas: Well, you will be, sir, and I want to thank you for joining us at CFO Studio.
Eldredge: Thank you so much, Andrew.
Zezas: This is Andrew Zezas with Michael Eldredge of American Sensor Technologies, saying thank you for watching us at CFO Studio.
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