Interview with William Craig
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 financial executive, William Craig, CFO, discusses Creating Value as a CFO.
Visit www.CFOstudio.com to read about this interview and to watch the entire on-camera interview.
Creating Value as a CFO
Zezas: This is CFO Studio, and I’m your host, Andrew Zezas, and joined today by Mr. William Craig, CFO. Mr. Craig has been a financial executive for more than 30 years. He has been on both side of the street as a lender and an investor with a company such as GE Capital and 5th Street Finance. He also has considerable experience in operations in diverse manufacturing and distribution in medical devices, industrial gases, consumer products and more. Mr. Craig has led a considerable number of equity offerings ranging from IPOs and multiple secondary’s. Bill is here today to talk about, Creating Value as a CFO. Bill it is really great to have you here on CFO Studio.
Craig: Andy, it is great to be with you.
Zezas: You have a pretty interesting background.
Craig: Yes, we have talked about this. I have had a funny start in the finance business. I started as a field representative for the General, what is now known as the Motors Acceptance Corporation. Field representative is a euphemism for a “repo-man.”
Zezas: Hold on a second, you repossessed cars?
Craig: Absolutely. Absolutely, I did collections and my job was to go out and skip chaser and a repo man and I either collected the money or collected the car in central Texas. But what most don’t know is that in Texas the law was that you can still shoot the repo man after sun down.
Zezas: After sun down.
Craig: After sun down. And I think it goes back to the wrestler era but I did not find out about that until I was well into my program.
Zezas: No kidding! How long did you do that?
Craig: For several years. I actually had a great mentor, the manager who trained me and brought me along the way who I reported to, he said, “Listen, GM has a great benefit program and one of which is tuition reimbursement. You should think about going to school. “And I started going to school and that is where I got my accounting and finance degree in.
Zezas: You got your business degree as a repo guy and you never got shot after sun down?
Craig: I never got shot after sun down, right. I’ve been shot at, but not shot.
Zezas: Well, I don’t think we ever had a finance executive who started out getting shot at as a repo guy, but that is a whole other story. But in seriousness, you have had a pretty interesting career. You have raised a great deal of capital in your career, I understand that you have done one IPO, you have done half a dozen secondaries, half a billion dollars, I mean that is a big fat check….
Zezas: Tell me about the successes or how the successes have impacted your ability to create value for the companies that you have worked for?
Craig: Well, it is a great process and when you study it and when you learn about it, it’s sort of the book version and then there is the reality version, and the reality show of these things is really, really stressful and educational. And it’s one of these a CFO may do once or never and you sort of wish you done it more because of the experiences you have so many people involved in the process. There is the company, your own management team, there is the people working for you because we are all trying to get things together. And then there are the bankers and just the process of selecting bankers in its own right is a challenge because Banker A won’t work to the left side of Banker B and you want to be sure that you have adequate dissemination, but then you also need to get into the whole pricing. What is the price going to be? So you really have to understand evaluation. You need to understand there process, you are never going to get as good as they are but you need to really understand why and how they are marketing you and to who.
Zezas: These are the service providers that you are talking about?
Craig: Yes, especially the banking side of it because at the end of the day you are going to go into a room and they are going to put your offering onto a board and you will have pick your top institution on the board and you are going to buy some or not, and there are names you have seen from your road show and you are going to have to figure out whether this is the right price. And we have seen lately, you look at some of the offerings with Facebook where it was sort of where they went up too high and the argument is sometimes is if it is too low and there is too much pop that it wasn’t priced right so you are sure it is a no-win situation but you really have to be totally up to speed with what the bankers are doing, how you are being marketed, and at the same time what the auditors are doing because they are always concerned about the filing and getting the filing right, red hearing and getting the numbers right. So, you have to be in so many different places and understanding the different games that are going on. And I don’t mean games in derogatory way but the different discipline involved.
Zezas: Agendas; discipline, yeah, sure!
Craig: Yeah, in terms of the underwriters want this, the bankers want this, management needs this, and it is quite a challenge and it all comes through to you.
Zezas: And your job as CFO is to balance all of that out.
Craig: Yes, and try to advise your own management team because the CEO says, “Gee, you know they want the price to be up by $2, or whatever, should we do that or should we up the offering, should we increase the numbers of shares. “Well there is follow on the issues there as in terms if you sell more are you going to get the right float and a lot of things to consider. One time experience really is huge and then the next one gets easier and then the next one gets easier but they never get common place, there is always something.
Zezas: I also have to believe based on some of the comments that you made before you have to make sure that the server providers are all aligned with the objectives of the company. So you may have service providers that are there for different reason especially when it comes to investment banking, it can get crazy.
Craig: Right, it can get really crazy and you got the SEC, now you got your lawyers and the SEC lawyers and all of that in the background too in terms with are they signing off on the filing, do they agree with your disclosure, particularly if it is an IPO. If it is the first time through you want to make sure everything is done to their level and if it is a start-up or a fairly new enterprise, on some cases it is a stretch because is not like you have tons and tons of resources or you have been doing it very, very long. When I did an IPO, it went from effectively me start-up to an IPO in 9 months.
Zezas: Oh, wow!
Zezas: Oh, wow. That is tremendous! Tremendous amount of work!
Craig: Building an infrastructure, really understanding the regulatory environment and what you have to comply with.
Zezas: With limited resources, I’m sure.
Zezas: So you have spent a lot of your career in small and midmarket companies?
Zezas: What is unique on those companies relatively to what we have just discussed?
Craig: Well, I think as you mentioned I started at Deloitte and then General Electric, and General Motors and you tend to take for granted the kind of people and the kind of background and training they might have because these types of places are typically recruiting on the top schools.
Zezas: The best of the best, right?
Craig: Right. And as you go down market in size you often are dealing with people that have an experience based on that one company or maybe a smaller set of those companies. They have not been in the big world and that is not necessarily a bad thing because a lot of companies can’t make the transition from big company to small. So you have to wear more hats and get more out of your people. It’s like going from a military operation at West Point to a guerilla fighter in some jungle. So you really have to know what you are doing.
Zezas: And I would think you would agree with a lot of other folks who have appeared on CFO Studio, the common theme is that the middle market CFO because we are talking about middle market companies. Middle market CFO is never merely a CFO. He/she is a COO through and through.
Zezas: I mean it is so diverse the responsibilities of a middle market CFO now how can you not be considered COO?
Craig: Well, you have to work hand in glove with you COO if there is somebody there.
Zezas: If there is one, right.
Craig: Also, with the CEO because you cannot afford to have a really big organization, a fortune 100 company. The CFO has an agenda that involves a lot of global issues. In a smaller, middle market, you are trying to drive the business forward and give people the information that they need to ensure that risk or being managed or mitigated and the right decisions are being made. You can’t be a scorekeeper and tell somebody 15 days after month’s end that we had a good month or wow we didn’t and then they want to know why and that is not my job.
Craig: So I call it going upstream. When I started as a turn-around, in a turn-around I realized that very quickly you have to go up and change the behavior if you are going to change the results. You couldn’t just tell people oh, you had a good one or you had a bad one. You have to move up and figure out why and help activate those decisions to move things around. One of the best experiences of my career was we had to take a dollar of cost out of the big wheel, you know that tricycle plastic tricycle….
Craig: ….Walmart said they will buy 500,000 if you can take this out. I knew enough about the costing and the processes software and spent a very long sweaty night on the shop floor with my operations team literally moving the machines around so we can get the right alignment so it can go through and take that out.
Zezas: Oh wow, cost accounting at its best.
Craig: Absolutely. But then you are working and just talking to people about the numbers and you can’t just say you need to take a dollar out of the cost, and let me know how you do it. Because, people need to understand is that labor is that overhead, is that materials? You know, you can make a big wheel out of thinner plastic but then it collapses. And you have to be there to really help. So, it’s that type of relationship.
Zezas: Big wheel is a great toy! So, small companies/large companies, you have had some great experiences in other aspects in business such as transitions, you mentioned start-ups and turnarounds, what unique challenges have you encountered with those instances?
Craig: Well, I think the key to all of them is trying to get a sense of where you are going to go. You know, start up or turnaround. But in a turnaround, you have the additional bulk strength and weakness of how did we get here. Obviously we are in trouble what did we do. So, you can’t get too wrapped up in the history, but you need to understand. But the fundamentals don’t really change. It is what business are we really in? Who is our customer?
Zezas: Right, and where are we going?
Craig: Where do we serve? Where do we get the value? And then often times in a turn-around, typically what you are doing what I call triage, you are going to jet us in things that you are doing what are wrong, where you may not be making money. Even on a gross profit basis let alone an activity basis. I was at this toy company as I mentioned before, they had lost approximately 60 million dollars in pre-taxed on 150 million-ish in revenue? That is really hard to do but they meant well by doing it, they just kept increasing the top line. If we just increase sales.
Zezas: Just increase a few more.
Craig: We will absorb the overhead. Well, it doesn’t really….
Zezas: Make it up on volume.
Craig: So it didn’t work.
Zezas: Wow. Bill, you always struck me as someone who is not very opinionated, not very passionate about things, now I know you are an adjunct professor at the Rothman Institute in Farleigh Dickenson University, what are your thoughts on the state of accounting and finance education?
Craig: Right, well you know I do teach some there and also have young sons that are in school and are going into college and things like that, so I have that and then some of the jobs I’ve had I had some young people coming right out of school and what I find what frustrates is we are all now in the admin of some software packages in the good old days you could be just the CPA and understand the rules because you’re accounting system was sort of batch processing. You might get a green bar report and tie your numbers down, whatever. Now it is all ERP and things like that.
Craig: So you really have to understand the whole business dynamics of how is this information flowing through my whole system and to really understand that.
Zezas: Is the educational system teaching that?
Craig: I think not. I think what accountants have started out at in order to get people to pass the exam is they compartmentalize and they sort of create a lot of rules. So if you really want to pass the exam today, you really have to understand you FAS statements which is useful, but there are a lot of people out there that don’t necessarily need to understand the nuances of lease accounting to be able to tell somebody if we are making money on this or not. And that becomes it should not be a trick question. Everybody in the organization should understand are making money here and if not, why not, or how? It’s becoming more that way because it’s too rules based.
Zezas: And that promotes that whole rear view mirror, financial reporting, compliance, bookkeeper mentality. It probably makes it more challenging for a lot of new, I should say, future finance executives who are coming out of an educational system like that to really focus on the windshield verses the rear view mirror.
Craig: Yeah, and it’s definitely countered to sort of the culture because right now you think about in what is called the post-Enron world where we had Sarbanes-Oxley, lets come up with more rules. We have to come up with more rules. And now we have Dodd Frank another new whole set of rules.
Zezas: Yeah, that is exciting.
Craig: Yeah, well nobody stepped back and said gee, well every time we have a big systematic failure or near failure, we come up with a new set of rules. How many times are we going to do this before we figure out there is a different dynamic here to make it work here?
Zezas: Failure, rules, failure, rules, failure. The failures keep happening.
Zezas: Talk to me about the SEC in that theme rules the SEC and in the insider trade and that sort of thing as we have seen in recent history.
Craig: Yeah, well, I have a somewhat off the wall thought on the insider trade and stuff. When it started in the thirties, the 33 Act and 34 Act, noble premise that we want to have information and we share it fairly and properly and decimated it to the public. Well it is 80 years later and we now have Twitter, we have Linked In, we have Facebook….
Zezas: Everybody has a video camera in their pocket.
Craig: Yeah, and that entire sort of stuff. So we went from having information that you can definitely keep it in your briefcase and somebody knows it and they want to pass a secret to somebody else they can benefit, well that’s not fair. Well, now we have information everywhere. So I would almost push that in the other direction which is to say not so much give up but get less concern about trying to keep a lid on the information and let it flow and I have sort of a weird model but it’s sort of let it flow and then evaluate the companies on basis on how well they disseminate their information. So you and I can have the same business and investors might think I am better at disseminating it and I am not only better at it also that I am clearer, my stock trade in a premium to yours because they don’t trust your numbers. It changes the whole way things are looked at. The SEC can promulgate, I call it a restaurant model. The SEC becomes like the public health, they rate you an A or I’m a B, or you’re a B and I’m an A, and the investor can see that and then you have sort of the yelp or the Zagat view which is the public information that is saying Zezas does a really good job at communicating the information, there is no information. And then they become more…. it changes the whole dynamic of it.
Zezas: The world is all about communication. You know I like the idea, I like the idea. But we are almost out of time, I have time for one more question for you and I am dying to ask you this question. Any thoughts on occupying Wall Street?
Craig: Oh, how much time do you have?
Zezas: Well, a couple of moments.
Craig: Well the snippets of information, you feel badly for some of the interviewees that you and I saw you have young kids right out of school, you have a mass of a six figure debt and cannot get a job and that is terrible. There is no question socially that we have more and more of halves and halves not.
Zezas: And we are going to have huge problems.
Craig: There is no argument there. I mean the one story that I relate is recently I was on a college tour with one of my kids and by some fluke had the tour given by the president of the university. Long story I would not go into it and he is walking around and he is really proud and he shows me this gleaming new dorm. Well, the economy is bad and you know who I am and I said not for nothing but how did you happen to build this? And he said, we have a great rate on our bonds.
Craig: Everybody, everywhere, I mean Wall Street and Main Street are intertwined with one another you are foolish if you think you can separate it.
Zezas: Without a doubt.
Craig: Hardware store, everybody needs, the guy on Main Street has a mortage…
Zezas: Retiree and a pension, bond and his pension plan.
Craig: Yes, so to try and sort of say that these guys are good and these guys are bad I think you short sided, obviously I think there have been disincentives and people took some bets and made some money that maybe they shouldn’t of have.
Zezas: And there have been some good guys and some bad guys.
Craig: Absolutely, without a doubt. I think maybe instead of trying to demonize one group and maybe make another group feel better about it, there is a more systemic way to look at it where it would be quote more fair.
Zezas: Yeah, I think you’re right. I think you’re right. Well Bill you know what, that will be our next discussion.
Zezas: I want to thank you for appearing on CFO Studio this has been great and you have shared some great ideas with us.
Craig: Oh, Andy, thank you.
Zezas: It’s been wonderful.
Craig: Great. Thanks.
Zezas: This is Andrew Zezas, your host with William Craig, saying thank you very much for watching CFO Studio, we will see you again.
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