CFO Studio Q12017

1st Quarter 2017Vol. 6, No. 4

Trust...a CFO!

Alison Cornell Chief Financial Officer

Pros and Cons Of a Centralized Treasury36

What’s on the Table As CFOs Refine Budgets14

2017 CFO INNOVATION AWARDS: Nominations Close Dec. 15

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Alison Cornell set a goal and developed top-notch skills to rise to the CFO rank at a global public company

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CONTENTS 1st Quarter 2017, Vol. 6, No. 4

Q1 2017 WWW.CFOSTUDIO.COM 1

6

10 Tackling Systems Head-onDan Crumb, CFO of the Kansas City Chiefs football team, wanted the sports franchise to benefit from a more efficient and transparent business planning system — so he built oneBy Julie Barker

14 Budgets: What’s on the TableCFOs say the election and other issues complicate year-end planningBy Martin Daks

18 Business & MoneyMatters of interest to the CFOs we’re talking with daily

20 Q&A: Finance in the Tax-Exempt SectorA chat with Anna DeJesus, chief financial officer for the Family & Children’s Service of Monmouth County

FEATURES

10

TRUST...A CFO! LEARN MORE AT WWW.CFOSTUDIO.COM

6 Cover Story: Best-laid PlansOn a well-designed career path, a Finance executive makes smart choices to control her future — but encounters an unexpected twistBy Julie Barker

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CONTINUED FROM PAGE 1

Attend the CFO Breakfast Learning Series The CFO Breakfast Learning Series, held quarterly, taps subject-matter experts to teach hour-long classes that award CPE credits.

Share Your KnowledgeSign up to take part in a CFO Studio On-Camera Interview on topics such as: M&A Trends and Challenges, Women in Finance, CFOs as Chief Sales Officers, and Mid-Cap and Large-Cap CFOs.

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WHAT’S NEW ON WWW.CFOSTUDIO.COM

CFO STUDIO EVENTS22 Business as Usual — No Matter WhatStimulating financial growth in the face of economic unknowns is the key to success By Michelle Gillan Larkin

24 All Together NowThe CFO can be the driving force behind company alignment, even when one area outperforms another 26 Cyber-VigilantCybersecurity continues to be a top concern among CFOs

28 Principles for Growth The CFO of Johnson & Johnson links ethical decision-making with steady, strong returns

CFO 2 CFO

34 ÜBER-ControllingWhy businesses with global concerns need a new dynamic on the executive team By Georg Annen, Chief Financial Officer, Unger / USA & Europe 36 Financial RiskCentralized or decentralized treasury: Which works best for your company?By Walter Cirillo, Treasurer, Novitex Enterprise Solutions, Inc.

EXCLUSIVE COLUMNS

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CONTENTS 1st Quarter 2017, Vol. 6, No. 4

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30 What’s My POB?Like it or not, most of us have and need an online brand By John Moskonas

32 No More Fuzzy NumbersMonetize talent-related growth strategiesBy Aldonna R. Ambler

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PUBLISHER’S NOTE

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Congratulations….I think! The U.S. has a new president in the White House. Ir-respective of which candidate we leaned toward, during the election process many

were reminded of the opening verse in Frank Sinatra’s old standard, My Way:…“And now, the end is near…” Sending good thoughts to the White House in the hopes that our great country will rise above the mess of the last eight years and will achieve greatness during the next four.

The CFO Innovation Awards nomination deadline is rapidly approaching…December 15, 2016. There is no better way to promote a CFO’s insights and experiences and his/her company, at the same time. An independent panel of judges will select 12 Award Recipients, who along with Finalists, will participate in the CFO Innovation Dinner and Awards Ceremony at the 2017 CFO Innovation Conference on May 24, 2017, at the New Jersey Performing Arts Center, an elegant venue in Newark, New Jersey. If you are a CFO, get nominated, nominate yourself, or contact us to arrange to be nominated. If you know a CFO, cast your nomination and have a positive effect on his/her career and company. Visit www.CFOstudio.com.

In this quarterly issue of CFO Studio, our cover story is about an extremely accomplished finance executive, Alison Cornell. Alison’s career has been a case study of strategy, preparation, and drive. I know you will enjoy reading Alison’s story. Continuing our focus on sports franchise CFOs, you will enjoy “Tackling Systems Head-on” a dynamic story about Dan Crumb, Kansas City Chiefs’ CFO, and his focus on planning and constructing the systems needed to achieve the team’s goals. We highlight recommendations for 2017 by three highly respected CFOs from Atlantic Health System, Kepner-Tregoe,

and Vonage, in Budgets: What’s on the Table. For CFOs interested in the tax-exempt sector, read the article about Anna DeJesus, and then, visit www.CFOstudio.com to watch her On-Camera Interview. This issue spotlights exciting discussions that took place at Executive Dinner Series events in Business As Usual – No Matter What, All Together Now, and in Cyber Vigilant. If you haven’t attended a CFO Studio Executive Dinner, you are missing out on a great way to share insights, learn from CFO peers, and forge relationships with colleagues and a select group of best-in-class service providers like CFGI, Bank of America Merrill Lynch, JLL, PwC, Yorktel, and others. Read Principles for Growth, to learn about how Dominic Caruso, CFO of powerhouse Johnson & Johnson links ethical decision-making with strong returns

The CFO Breakfast Learning Series, CFO Studio’s newest series, having achieved positive results in New Jersey, this past quarter launched in Manhattan, North Texas, Philadelphia, and Stamford, with additional markets scheduled for 2017. Reserve your seat at www.CFOstudio.com...no cost to CFOs and senior finance executives. CFO Studio continues to expand into multiple markets around the U.S. Remember, at all CFO Studio conferences and events, CFOs are welcome to attend as guests of CFO Studio, and just as important, are encouraged to Invite CFO Friends to Attend!

If you have ideas for an article in which your CFO peers might be interested, please contact me, as CFO Studio is always seeking great insights into the role and trends of CFOs.

I hope that your holidays were full of fun, friendship, family, and love. May you and yours be blessed and enjoy peace, prosperity, and greater profits!

It’s Been Quite a Year


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ON A WELL-DESIGNED CAREER PATH, A FINANCE EXECUTIVE MAKES SMART CHOICES TO CONTROL HER FUTURE — BUT ENCOUNTERS AN UNEXPECTED TWIST

BY JULIE BARKERPhotography by Matt Furman

Best-laid Plans

There’s an irony at the top of the Finance ladder, as Alison Cornell learned two years ago. Up to that time, in an

almost 30-year career, she had been steadily accumulating the skill set and accomplishments she would need to hold a CFO position at a publicly traded company — a role where she envisioned herself advising and guiding the CEO, joining in counsel with the board and investors, and being a top — if not the top — valued member of the corporate decision-making team. When she reached that culminating moment, the surprise was finding that there’s another horizon beyond.

Starting as an AT&T intern in 1983 and progressing through

roles with increased scope and responsibility (moving to a different position approximately every two years), Cornell ultimately achieved the title of AT&T’s Financial Vice President, Forecasting Performance & Investment Analysis, a leadership role for a $30 billion business unit. There, she was actively involved in helping the AT&T leadership team realize cumulative savings of over $3 billion between 1999 and 2003, by identifying and implementing a series of recommendations to reduce operating deficiencies and associated costs and to streamline processes.

Then, after almost two decades in Finance at AT&T, Cornell left to pursue her dream of securing a position as the CFO of a publicly

traded company. It took about one year and

75 interviews to find the right opportunity. During that time (2003–4), Cornell achieved her Certified Treasury Professional designation, a Six Sigma Green Belt, and helped her cocker spaniel puppy become a show dog. (No slouch himself, Cornell’s cocker spaniel went on to attain his Championship and then receive an Award of Merit at Westminster the following year.) Then, while interviewing for the job of VP, Finance – Late Stage Development Services at drug-development services organization Covance, Cornell told that company’s CFO that her goal was to have his job someday — which she secured eight years later, in 2012. (“As

COVER STORY



Alison Cornell told the chief financial officer in an interview that she

wanted his job someday — and she got it



Advice for CFOs Looking for a Global Perch


I had wanted to be the CFO of a publicly traded company since I was about 25 years old,” says

Alison Cornell. Following a methodical career plan, she attained her goal in 2012 at a mid-cap company, Covance.

She says she achieved her career objective by working hard, being persistent, making personal sacrifices, making the most of each opportunity given, being fearless, building strong teams, being a good teammate, maintaining faith and humbleness, and by helping people along the way. She also credits her husband, Dave, who supported her career aspirations and to whom she has been married for 25 years.

Astutely, Cornell studied an AT&T colleague who was good at advancing his career (she worked there from 1984–2003). She questioned other associates about how they got where they were and what skill sets she would need; then she took jobs that would provide those skills. She even met one-on-one with the CFO at AT&T while she was a Division Manager and asked, “If you had one piece of advice, what would it be?” He answered, “Have a good tax person.”

Now, she understands the value of that advice. Her pointers for others include: Get a system-

wide understanding of all parts of the business, especially operations. Take time to develop and enhance your team, so you “have the best players on the field.” Also: “Develop the skill of asking questions from all angles in a disarming and thought-provoking way.” And, “Find balance and be present with family and friends, because they need your best, too.”

it happened, they were looking for a potential succession candidate for that role,” she says. “It was somewhat serendipitous.”)

But barely two years after she’d achieved that career goal, as she was in the midst of considering the merits of executing an acquisition — the target having been chosen — or doing a share buyback, a suitor from North Carolina, LabCorp, approached, and made an offer for the Princeton, NJ–based Covance.

It fell to Cornell, the Corporate Senior Vice President and CFO, in a tense roughly month-long period in the fourth quarter of 2014, to give the LabCorp team a thorough enough understanding of Covance financials so LabCorp could do its own financial modeling. What she needed at her fingertips was not just the current and forecasted numbers for eight business units, but “what’s going on in each of the different markets.”

On November 2, LabCorp entered into a definitive agreement to acquire Covance, and in February 2015, in a $5.7 billion transaction, completed that acquisition.

“What really became pronounced were the principles of duty of loyalty and duty of care that the Board takes in making all decisions in their capacities as Corporate fiduciaries,” Cornell says. “It was up to me to present the best set of information possible, a comprehensive set of analytics, so that the Board could weigh everything possible to make the right choice. My job became informative.”

She knew, of course, that there was a likelihood that the acquiring company wouldn’t keep her as CFO, and yet she immersed herself in gathering research and information to facilitate the decision. And so in her last weeks as Covance CFO, “The role pivoted,” Cornell says. “It became more about helping [the board members] do their best job.”

Reputation as a Go-to PersonCornell has always used her positions to make a meaningful impact. When she was at AT&T, as CFO of the Business Network Services unit, she delved into the sales figures, so the company could understand its customer-level profitability,

then introduced a sales-contribution model, and linked that to the business plan. “It changed the way we ran the sales force,” she says.

In the late 1980s when AT&T sold computers, she was forecast manager for the marketing and sales operations in the Data Systems group. She noticed that inaccurate demand forecasts, based on sales projections, were hurting profitability, because they were used for manufacturing. She developed a forecasting process after gaining an understanding of what the right drivers were, and “we increased our forecast accuracy to 99 percent.”

At Covance, she spearheaded a project to significantly improve profitability and Days Sales Outstanding (DSOs) for the Late Stage Development unit.

In 2015 Cornell received the prestigious CFO Innovation award from CFO Studio, having been selected by an independent panel of judges. Her noteworthy achievement was introducing a “cash neutral” approach that convinced Covance’s drug development customers to provide advances, a practice that was not the customary standard for the clinical trials the company managed for them.

The cash neutral plan was radical, and might not have occurred to an industry insider. “Sometimes it’s helpful not to be from the industry, as you have a fresh perspective and don’t take things as a given,” says Cornell, who sold the idea to customers on the merits of its fairness. “If you have a conversation with a businessperson that essentially says we should get paid for the work when we do it, it’s very hard [for them] to argue, especially someone who’s your customer and wants you to be successful [in delivering services to them],” she says. “[The plan] essentially laid out the math and showed them that absent the advance, we would have been “in the hole” for the trial cash-wise. With the advance, we were just neutral.” Industry practice changed as a result, she says.

“For me, it’s all about making a difference wherever you are. And every day,” says Cornell. When she wasn’t driving the Finance agenda, she was the Executive Sponsor to a maternal and infant health program sponsored by the Covance Charitable Foundation and operated by CARE Nepal, which established 15 birthing centers and

COVER STORY



It’s All About Visibility

Coming up from a business unit to Corporate Finance, Alison Cornell,

who was named CFO of Princeton-based Covance in 2012, knew that having only short-term information available, managers tended to make short-term decisions. The 18-month rolling forecast she instituted gave management a longer-term perspective.

“When I was in the business unit, it was very frustrating,” she says. But with the rolling forecast, people had greater visibility into what lay ahead.

At the same time, she introduced a business unit operations review, attended by the top five or so leaders of each business unit. This consisted of a 90-minute meeting held once a month that looked at each business unit holistically. “We talked about financials, people, process issues, technology issues, customers. We looked at the business from every angle,” she says. With eight business units in the portfolio, “if you knew what was going on in what time frame, you could make trade-offs.”

The two initiatives resulted in “many fewer fire drills,” Cornell says. Not just the leadership benefited from the shift away from reactive. Everyone had a better sense of business needs and challenges.

five school bathrooms within the poorest regions of Nepal.

With verve and solid accomplishments, she has navigated a career path through three diverse industries, her most recent CFO post being at a multinational firm in the chemical/consumer products industry. She leveraged her past experience and expertise, taking up several initiatives including obtaining 500 million Euro Bond financing at a substantially lower rate, and identifying opportunities to build upon her Finance organization’s strengths.

“Each industry and company has a culture of its own,” she says. “You need to be adaptable while maintaining your authenticity.”

Lifelong LearnerRaised in Sayreville, NJ, the daughter of an Army major and a stay-at-home mom, Cornell amassed extra-credit points and predominately straight A’s

all through school — receiving her undergraduate Psychology and MBA degrees at Rutgers University — both with honors. Approaching college graduation, she had an internship at AT&T’s Center for Education and Training, but the company had a hiring freeze. She got into Finance by pure chance: When the freeze was lifted, the first job to open up was Financial Systems Analyst. Cornell applied and was hired.

She did not realize until after she left AT&T that during her time there she “developed skills that could be used anywhere: leadership, multitasking, process design, execution, project management, influencing, problem solving — all applicable to be successful as a Finance leader,” Cornell says.

Still, it takes a particular type of individual to build a career on the opportunities presented. Cornell needed to leverage her hard work and every bit of networking; furthermore, she had to develop teams to help her “get the right things done,” as Peter

Drucker put it, describing the archetypal effective executive.

One of her longtime practices is to discuss with each team member individual career plans in her first meeting with him or her. She told CFO Studio magazine in 2015, “Each person needs to own their career and have an individual development plan in place that you need to help enable. An individual development plan should be a living document, not just ‘check the box,’ but very thought-out and well planned.”

When she moved into her Corporate VP – Global Financial Planning & Analysis role at Covance, “it just so happened I had 365 people in my group. That was the inspiration for [taking 365 days and] meeting literally everybody [live or by phone]. In my prior jobs, I always made it a point to talk to a lot of people. The 365 went above and beyond. It helped me understand them as individuals, what their challenges were, what I

could do to help.”And then she shifts to a more personal tone,

speaking about helping fulfill the aspirations of people who have worked on her team. “I think people tend to pigeonhole other people,” she says. “They think, ‘Oh, you’re in Finance, you don’t care about people things.’ ” But she does; she was a psych major, after all. She says she has spent “a ton of time with people talking about what their career aspirations were, about how do you even think about a career plan. I created my own template on how to do that and walked people through it.”

In her own career, she says, she was fortunate to have “great internal teachers who were willing to answer my million questions.” But learning answers to questions isn’t enough. She had to prove herself again and again as she moved through the career path she had envisioned.

And she’s still learning. “I do a kind of self-assessment every day.” C

“Each industry and company has a culture of its own. You need to be adaptable while maintaining your

authenticity.”



FEATURED CFO

The most exciting part about being a chief financial officer, says Dan Crumb, the Kansas City Chiefs CFO, is the ability to play a strategic role in the organization.

“We touch every department,” he says. “We’re involved in the overall business, from budgeting to business planning.”

For him, the years 2015 and 2016 have provided

exhilaration, not so much because of the way the team performed (and the Chiefs did have a great 2015 season, turning in 10 consecutive wins and landing a wild-card berth in the playoffs), but because Crumb pushed for and oversaw the design of a business planning system that is now used by the entire Chiefs organization. Its capabilities and dashboard give him what a football scout might

DAN CRUMB, CFO OF THE KANSAS CITY CHIEFS FOOTBALL TEAM, WANTED THE SPORTS FRANCHISE TO BENEFIT FROM A MORE EFFICIENT AND TRANSPARENT

BUSINESS PLANNING SYSTEM — SO HE BUILT ONE BY JULIE BARKER

Tackling Systems Head-on


call “arm talent” — in the finance world, it’s an ability to be strategic.

Up until the 2016 fiscal year, Crumb received business plans from the 20 departments (IT, retail, marketing, security, corporate partnerships, and ticket sales & services, among them) that support the team, each plan in a separate three-ring binder. The plans used no uniform software program — Microsoft Word and Excel and Adobe Acrobat were all employed — in describing the departments’ objectives for the year, how they planned to accomplish the objectives, the capital and operating budgets, and other resources that every department would need.

Each department head would then have three binders assembled: one for Crumb; one for the ball club’s president, Mark Donovan; and one to keep. It was an ungainly process.

Crumb wanted the mission statement and long-term goals to be top-of-mind during the entire planning operation. He believed the best way to do this was to ask that the department’s objectives link directly to the strategic goals that support the mission statement. An automatic prompt should ask, “ ‘What goal does this objective support?’ ” says Crumb.

So he set out his objectives: Make the business planning process more uniform, make it more strategic, make it more visible, make it more efficient.

No off-the-shelf product gave Crumb all he needed. “We’re sort of a specialized business,” he says. “There are only 122 professional sports franchises in America.” So, he looked at the Chiefs’ internal resources.

The SharePoint SolutionThe company uses Microsoft’s SharePoint in most departments for content sharing

and collaboration. Crumb, who oversees IT, knew he had a couple of good programmers on staff, so he gave one of them the vision and the assignment. He also okayed hiring an outside consultant who, like the programmer, had experience with the Microsoft application.

“We’ve got the resources, and [the software application] gives us a really good platform, so I felt we could do this,” says Crumb.

The programmer created a prototype. Crumb asked department heads to provide feedback. And the final prototype debuted for all to review and critique at the annual planning colloquium. The entire process took around four months.

“We knew exactly what we wanted this to do ... and I think having the other department heads weigh in and help out in the process was critical,” he says.

Besides eliminating the stacks of binders, one of the things Crumb is most excited about is the “accountability layer” via a dashboard that gives Crumb and the Chiefs considerable visibility into where department heads are at any particular stage in the planning cycle, and insight into how well they are doing in accomplishing their objectives.

In December 2015, the new system launched. It was used throughout the process of creating and approving FY2016 business plans (the sports franchise’s fiscal year began April 1). Crumb has checked the dashboards quarterly to see how departments’ plans have met reality.

A Personal ConnectionDan Crumb watched Super Bowl IV on television back when he was just shy of six years old. He has a sharp recollection of that event because it was the first football game he can recall watching,


“Having the other department heads weigh in and help out in the process was critical.”

— Dan Crumb, Chief Financial Officer of the Kansas City Chiefs

Asset to Two Communities“You walk around the parking lot on a game day, and you smell all the great barbecue, and you see people just having a great time, getting excited about going into the stadium for the kickoff,” says Kansas City Chiefs CFO Dan Crumb. That’s what it’s like to be the CFO of a professional football team (at least the one in Kansas City, MO).

Before he took a job in professional sports, Crumb was CFO for New Orleans–based Abita Springs Water Company, which had its bottling plant destroyed by Hurricane Katrina. He considers the time surrounding that episode, and the results that were born from chaos, as the biggest success of his career, as well as the biggest challenge.

Crumb and the company’s leaders transformed their business plan, changing from that of a bottler to a distributor of other sources’ water, a solution “we had to invent on the fly.” Meanwhile, the company’s leadership “had to be the glue” to hold the tenuous bits of normal life together and to help employees get back on their feet, says Crumb. The company survived, and ultimately the owners decided they wanted to sell. Subsequently, he worked for three years for the New Orleans Hornets and in 2010 became CFO for the Chiefs.

“This is arguably the richest history/tradition–oriented organization that I’ve worked for,” he says. “To be part of what I view as a community asset — that’s very exciting and that’s what separates it from just a regular corporate business…. It makes it really gratifying.”



and it was being played at Tulane Stadium in his hometown of New Orleans. He remembers the team that won: the American Football League’s Kansas City Chiefs, by a lopsided score (23–7) over the National Football League’s Vikings. It was 1970, the last year the two leagues held a playoff game; they merged a few months later under the NFL organization.

Forty years on, Crumb was CFO of the National Basketball Association franchise, the New Orleans Hornets, when the Chiefs came calling, looking for a chief financial officer. The team “ultimately made me an offer, and it was an offer I could not turn down,” he says. In no small part, he was excited to be working for the Hunt family and to work for an organization that “has such a rich tradition, such a rich history as the Kansas City Chiefs.” The late Lamar Hunt founded the AFL and the Chiefs, as well as Major League Soccer, and coined the name “Super Bowl,” among other accomplishments.

Crumb, who earned a Bachelor’s degree in Finance from the University of New Orleans and an MBA from Tulane, initially worked for KPMG, and has since had six successive CFO positions, prior to joining the Chiefs. He says the most challenging part of the CFO’s job is that with technology constantly advancing, it is difficult to identify “where to put your

technology investment.” Both from a financial and a personnel perspective, the CFO has to determine which technology will best support the organization in achieving its objectives as both the technology and the organization evolve. It’s a tough call.

At the Chiefs, he has made significant investments to upgrade connectivity at Arrowhead Stadium, which was built in 1972 and is leased by the Chiefs. “We put in a complete Wi-Fi system, and we put in a DAS — a distributed antenna system — for cellular coverage,” he says, adding, “People want to be able to post photos, they want others to know they’re at Arrowhead Stadium watching a Chiefs football game, so we had to deliver that.”

A husband, father of two, and a community volunteer, Crumb is also an avid historian, a horseman, and an amateur welder. He gets a kick out of working in operational jobs, and it’s more fun when no one knows his true identity. He once went “undercover,” making balloon animals and tossing T-shirts to the fans during a Hornets game; he has also wielded his welding torch incognito in the repair shop of another company where he was CFO. Recently, he sold tickets in the Chiefs’ 50/50 raffle. “It’s a good way for me to understand the business,” he says, adding that taking on such initiatives can be very helpful in getting to know some of the people in the organization.

While in his CFO role Crumb gets a charge out of throwing himself into “looking at ways to improve.” Rethinking the business planning system, he says, was very appealing because it involved “how to improve processes and be more efficient. Those are things that I’m passionate about.” C

Dan Crumb (center) at the Souper Bowl of Caring, packing food for Harvesters — the Community Food Network

Crumb, who serves on the Board of Trustees of the National WWI Museum & Memorial, presents a check representing the nonprofit’s share of one game’s

50/50 Raffle receipts to Dr. Matthew Naylor, the museum’s President & CEO

Every quarter, the CFO Breakfast Learning Series, with CPE credits. Reserve your seat at www.cfostudio.com +

Nominations Deadline December 15, 2016

Nominate a CFO for the 2017 CFO Innovation Awards

FEATURED CFO



PREPARING FOR 2017



In late Q3 2016, as CFOs worked on their capital budgets for the upcoming year, they faced a trifecta of uncertainties: a so-so economy,

lingering concerns about possible interest rate hikes, and an election that presented a choice between two starkly different candidates. Of course, that was on top of the usual concerns about competition, regulation, and other issues that keep CFOs on their toes. To see how financial executives are dealing with these multiple issues, CFO Studio spoke with chief financial officers from businesses that represent three significant industries: technology, health care, and consulting. From taxes to strategy, they shared their thoughts about 2017.

“Fortunately, the state of the economy has not affected our capital planning,” says Dave Pearson, CFO of Holmdel, NJ–based Vonage, a leading provider of cloud communications services for consumers and businesses. “We’re continuing to commit capital into our unified communications cloud segment. We’re basically putting in as much capital as we can effectively deploy.”

Vonage’s expanded focus from Internet-based telephone services to cloud communications services for both the consumer and business markets gives the company new capital needs. Pearson notes that Vonage’s consumer network doesn’t consume much cost, “Since it’s already in place and we can basically maintain it,”

so the cash it generates frees up funds to invest on the business side. “Currently, the cloud unified communications market has less than 20 percent penetration, so there’s a lot of room for growth,” he adds.

Health Care, BorrowingBut Pearson’s budget-planning plate is filled with a variety of other issues, including rising health care costs, which continue to be a big issue for many businesses. He says Vonage is trying to rein them in with the company’s first-ever self-insurance plan. “We implemented it in 2016 — with a backstop insurance plan that kicks in after a certain level — and so far it seems to be the right way for us to go. We plan on continuing the self-insured health plan in 2017.”

BUDGETS: WHAT’S ON THE TABLE


CFOs SAY ELECTION, OTHER ISSUES COMPLICATE

YEAR-END PLANNING

BY MARTIN DAKS



He’s also tracking interest rates, noting the likelihood of at least a slight increase in the benchmark prime rate in 2017.

“We’re prepared for that to happen,” Pearson says. “We have not hedged, but we are borrowing at LIBOR [a benchmark interest rate index] plus 3 percent, so we feel good about floating right now. We do expect further rate hikes and have built that scenario into our capital plans.”

He doesn’t believe that the outcome of the presidential race will change Vonage’s day-to-day operations, either. “I don’t think that the difference between a Democrat or Republican as president will be too dramatic for businesses,” Pearson explains. “I do hope, though, that Congress and the next president can work together on general business issues, particularly on a plan that would reduce the tax rate on repatriated foreign earnings [which are currently taxed at about 35 percent].”

Challenging Times GloballyWhen Bill Baldwin, CFO of the Princeton-based multinational management consulting firm Kepner-Tregoe, worked with his team on the 2017 capital budget, they took a global view.

“As CFO I work with the CEO, and with five regional worldwide managing directors, each of whom works with five worldwide controllers,” he explains. “We also work with service focus leaders who oversee services, operations, and general training. We get input from key functional leaders in information technology, marketing, and product development. So there’s a comprehensive feed of information, which is important.”

Kepner-Tregoe’s initial 2017 budget plans were distributed to key executives in mid-September 2016. They have been reviewed and refined — and will continue to be worked on until mid-December, when the final proposals will be presented to the Board of Directors for their consideration.

During that review period, Baldwin and CEO Chris Geraghty visited the company’s remote offices to review and polish the firm’s three-year financial and strategic plans.

“We continue to see challenging times,” he says. “It’s not just the U.S. presidential election, but there are issues with economies throughout the world, including the British exit from the European Union, and unrest in Southeast Asia.”

Thus, his firm has to consider a variety of global political, social, and economic factors. “Of course, it’s not just us,” he adds. “In 2017 and beyond, the clients that we work with also have to deal with issues like the changing workforce, as baby boomers retire and millennials enter the ranks of management.”

Addressing the Workforce Mix These and other kinds of change mean that companies have to be prepared to innovate when it comes to their own work and management practices, and Baldwin says Kepner-Tregoe is gearing up to help them.

“We’ll probably add some people, but as part of our budget considerations we continue to fine-tune our workforce,” he reports. “We’ve been balancing the mix between full-time employees and independent contractors. We used to have more full-timers, and expect to add to them in 2017 and beyond, but we are continuing to balance the mix.”

As a professional services firm, Kepner-Tregoe is not as capital-intensive as some other categories of businesses. “Most of our hard assets are laptops and software,” explains Baldwin. “But because we maintain leased offices around the world, we’ve been reviewing our real estate footprint.”

In a bid to reduce lease costs, he says the firm may consolidate space, adding that one option is to let more employees, especially those in support functions, work from home.

Rising health care costs prompted Kepner-Tregoe, in 2011, to move its 48 U.S. employees into a PEO, or professional employment organization, a third-party firm that becomes the employer of record, maintaining employee benefits, payroll, workers’ compensation, and other services. “Becoming part of a larger firm enabled us to obtain better benefits and overall pricing,” Baldwin says. “We pay 85 percent of our employees’ health care premiums, but we had to find a way to reduce the costs.”

GDP and ElectionBaldwin is also concerned about the sluggish pace of economic growth — Gross Domestic Product rose at an anemic rate of 1.1 percent in the second quarter of 2016, according to the most recent data released by the federal Bureau of Economic Analysis. “Businesses need to be more innovative to grow,” says Baldwin. “But many industries have not been embracing innovative change. We need tax and regulatory reforms to help create growth and drive innovation.”

He would also like to see a reduction in the federal corporate tax rate, which he notes “is much higher than international rates.” He suggests a lower rate would spur more companies to repatriate profits and increase their domestic investment. It’s an issue of growing concern, since published reports indicate that U.S. companies have parked more than $2 trillion overseas to shield the profits from high U.S. taxes.

PREPARING FOR 2017

Dave Pearson, CFO, Vonage

Bill Baldwin, CFO, Kepner-Tregoe



Baldwin believes the outcome of the presidential election will likely have a big impact on the economy.

Both candidates suggest more action on the corporate tax front. In a bid to bolster the economy, Republican candidate Trump has proposed a low, 10 percent tax on corporate profits that are repatriated back into the U.S. According to Clinton’s website, Hillary will close tax loopholes like inversions that reward companies for shifting profits and jobs overseas, but her proposals do not address repatriated profits directly.

“The candidates’ approaches to business and economic stimulus are starkly different,” Baldwin asserts. “A Democrat as president will continue some or many of Obama’s current policies. The question is whether you’re happy with the performance of the U.S. economy over the past seven or so years, or do you want change to stimulate economic activity?”

Wellness EmphasisDespite the uncertain economy, Morristown, NJ–based Atlantic Health System — a not-for-profit health care organization that comprises six medical centers and hospitals, in addition to Atlantic Rehabilitation,

and Atlantic Home Care and Hospice — continues to “make investments in our services, facilities, and employees to develop the infrastructure necessary to be successful for the future,” according to Kevin Lenahan, Senior Vice President and Chief Financial and Administrative Officer. “Our capital and budget plans are developed with the objective of creating a trusted network of caring to serve our communities and ensure every patient can access the right care, in the right place, at the right time, at the right

quality, and at the right cost.”But, even health care providers have to

keep a close eye on their own health care costs, he adds.

“Internally, we are aligning our benefit structure with an emphasis on wellness. Our successful and nationally recognized Atlantic Accountable Care Organization is making strides to better manage and reduce the overall cost of care.”

As the company plans for 2017, Atlantic Health “will continue to manage its cost structure and look for opportunities to grow as health care reimbursement transitions from fee-for-service to value-based care,” Lenahan details. “We are building an economic engine

able to support the infrastructure needed to provide high-quality, outcome-focused care. We will continue to recruit and retain highly qualified, talented staff.”

Head Count, Interest, TaxesAtlantic Health System’s 2017 budget provides for more internal investment, he adds. “Our workforce planning analytics from 2013–2015 shows a steady increase in the number of hires. In 2015 we showed a 14 percent increase from 2014. For 2016, based on our hires to date

and anticipated hires for the rest of the year, we project a slight increase. We continue to steadily recruit for new and replacement positions across the system. In addition, our internal hires continue to be strong and are trending about the same or a slight increase from 2015.”

Still, he’s concerned about the prospect of higher interest rates in the near future.

“I think interest rates will go up in 2017,” reports Lenahan. “Atlantic is preparing for an interest rate increase by taking advantage of current rates and going to market for a $225 million bond refinancing [in September].”

Lenahan is also closely monitoring tax issues in New Jersey, where hospitals have been roiled by cash-strapped municipalities’ and private citizens’ challenging their tax-exempt status — Atlantic Health System’s Morristown Medical Center among them.

“Atlantic Health System had supported the proposed legislation which would have provided much-needed clarity on the fair-share community service contribution from New Jersey’s not-for-profit hospitals to their host communities with predictability,” he says, referring to failed proposals like a fee-based formula of $2.50 per day per bed, or $250 per day for satellite facilities, in lieu of traditional property tax assessments. “We continue to work closely with legislators and the New Jersey Hospital Association to define a clear path on how hospitals and host towns can agree on a fair-share community service contribution. However, in its absence, Atlantic Health System has opted to begin this process with its own host communities, and has reached agreements in both Morristown and Newton.”

For CFOs who are annually asked to be their organizations’ financial navigators despite limited visibility, challenges like these simply represent the latest in a long list of obstacles they’re expected to overcome. But most CFOs would probably agree with Kepner-Tregoe’s Baldwin, who says the review, forecast, and planning that go into a year-end budget are a significant part of the task of creating positive growth. C

“We do expect further rate hikes and have built that scenario into our capital plans.”

— Dave Pearson, Chief Financial Officer of Vonage

Kevin Lenahan, CFO, Atlantic Health System


MONEYBUSINESS


Finance – HR Collaboration Is Key, But Management Sees Difficulties in Alignment

Management and Leadership: What’s the Difference?

Aggressive Goals and Leadership Failures at VW, Mitsubishi, Wells Fargo

78% of Finance execs consider HR a strategic partner, however:

32% expect HR to go over budget

34% expect mismanagement of Affordable Care Act reporting

35% expect to have to pay IRS audit penalties

IN ADDITION:97% of Finance execs have significant concerns with benefits costs

93% have significant concerns with HR’s missteps on executive liability

88% have significant concerns with HR’s Affordable Care Act audits

Under pressure from the U.S. Environmental Protection Agency, Volkswagen admitted

last year that the company faked data on diesel vehicles’ emissions. Confessed the company’s chairman (and former CFO) Hans Dieter Pötsch, engineers could not design a legitimate way to meet U.S. emission standards within VW’s time and budget requirements.

At Mitsubishi fuel-economy readings were manipulated by falsifying tire pressure. The precipitating factor for that dishonesty: That automaker, in a two-year period, increased its fuel-economy targets for certain models five times. Those were the models where cheating occurred.

And then, Wells Fargo confessed to opening 1.5 million fake bank accounts and creating 565,000 fraudulent credit card applications. The Wells Fargo employees who engaged in this

swindle did so because they felt “pressure” to meet targets.

Who is to blame for all this malfeasance? Employees who pervert the truth to meet improbable goals, or leaders who set the goals?

Setting big goals is one of the primary jobs of leaders. Helping managers and their teams meet those goals — motivating and listening — is another part of leadership. Addressing Wells Fargo’s delinquent behavior, Richard Cordray, director of the Consumer Financial Protection Bureau warns, “Financial incentive programs, if not monitored carefully, carry serious risks that can have serious legal consequences.”

How could management have foreseen the results of their actions? By keeping an ear tuned to receive bad news, and then learning from it. As John F. Kennedy once said, “Leadership and learning are indispensable to each other.”

In theory, managers and leaders are viewed as performing very different roles, but do they really? A recent study based on semi-structured interviews with eight leaders from business, government,

and NCAA Division I sports that was reported in the Harvard Business Review raises this question. “We think of managers having a different focus from leaders. And yet this distinction blurs

significantly when we look at the daily activities of these people in charge. The majority of the activities described were very similar, or even identical — delegating, learning, motivating, and so on,” writes the study’s author, John O’Leary, in HBR.

The major difference between leadership and management seems to be whether the behaviors are others-focused or results-focused.

Differences described by interviewees:Leaders’ Interest Managers’ InterestTrusting people ..................................................Gaining trustEngaging people .................................................Being accountable Motivating & encouraging people .......................Being optimistic, Being visible, Providing recognition and rewardDelegates to empower subordinates ..................Delegates to increase efficiency

SOURCE: Hub International Limited survey of more than 400 senior-level HR and Finance executives at U.S. companies with 50–1,000 employees (“Employee Benefits Barometer: SMB Perspectives and Priorities in an Era of Disruption,” conducted December 2015)

While finance executives consider HR a strategic partner, these same executives’ assessment of the job done by HR in the employee benefits area reveals a shaky partnership:


MONEYBUSINESS

Adopting a Digital Business Model

Delete the Phone Data in Your Rental Car


The cloud is enabling companies to move more rapidly toward new business models that engage, enable, and support increasingly tech-savvy customers and workers:

Lack of Sleep Can Kill Your Charisma

Sleep-deprived followers are not apt to notice the boss’ positive emotion

(aka “charisma”), and leaders who don’t get their essential slumber are less likely to display charisma as they go through their day. That’s the conclusion of a recent study testing whether the perception of a leader’s charisma is undermined when either of these two conditions exists: sleep-deprived leaders or sleep-deprived team members.

The scientists, who reported their results in the Journal of Applied Psychology, first manipulated the sleep of “leaders,” giving them about two hours less sleep than the control group of “leaders.” The sleep-deprived leaders, who were told to prepare and deliver a speech, rated their own

feelings of enthusiasm, excitement, and attentiveness before speaking and after. In addition, evaluators rated the charisma of each speaker.

In the second part, the subordinates were deprived of sleep and then asked to rate videos of those “leaders” as to their charisma. Sleep-deprived followers attributed less magnetism to any of the “leaders” whose speaking performance they were shown.

Real-world business leaders may be sabotaging their own success by requiring subordinates to check smartphones late at night, proposes the lead author, Christopher M. Barnes, an assistant professor of management at the University of Washington’s Foster School of Business.

Connecting a mobile device to a rental car can result in the inadvertent sharing of your call and message logs, contacts, and text messages, warns Lisa Weintraub Schifferle, an attorney with the

U.S. Federal Trade Commission.The system may “keep locations you entered into the GPS or visited when traveling in the rental

car — like where you work or live,” she warns.To be safe:•Do not use the USB port to charge devices; instead use the cigarette lighter.•Do not ok access to your contacts if you just want to play music. Give the system as few permissions as you can.•Do delete your data at trip’s end. The settings menu of the infotainment system is where you’ll find your device’s code name. Follow prompts to delete your device.

SOURCE: The Wells Fargo Insurance 2016 Network Security and Data Privacy Study, conducted from June 3–9, 2016; answered by 100 decision makers in the area of cyber and data privacy risk.

72% of executives see a digital business model as critical for success

15% view their organizations as nimble enough for full digital businesss

55% of the companies’ apps are already in the cloud

88% cite cloud security as a top priority for competitiveness in the digital world

SOURCE: Unisys survey, June 2016, of 175 IT and business executives in the U.S. (125), U.K., Germany, and France whose organizations employed 1,000 employees and up.

Private data leaks are the No. 1 concern of decision makers at companies with $100 million or more in annual revenue. Here are the data breach issues that most worry business executives:

» 47% Leaking private data/loss of data

» 26% Hackers/outside threats

» 26% Security breach

» 9% Maintaining reputation/keeping compliant with regulations

» 7% Viruses/disruption of operations

» 7% Software vulnerabilities

» 7% Employee misuse of technology

» 7% Other While one of the biggest areas of vulnerability is employees clicking on links in phishing scams, a sophisticated twist is when a directive purports to come by email from a senior executive, requesting that payment be made to a specific bank account.

Everyone’s Worried About Network Security — for Good Reason



Interview by Andrew ZezasQ A

Anna DeJesus, the Chief Financial Officer for the Family & Children’s Service of Monmouth County, joined Family &

Children’s Service in 2011. FCS is the oldest not-for-profit service agency in Monmouth County, caring for 18,000 underserved individuals and families annually, from children to seniors. Andrew Zezas, Publisher of CFO Studio magazine and host of CFO Studio On-Camera, spoke with Ms. DeJesus about the role of the CFO in the tax-exempt sector.

n (ANDREW ZEZAS) Your organization services the whole gamut, from young children to seniors. What is the most unique feature of FCS and its mission?

DEJESUS: Without us, our clients would have nowhere else to turn. It’s extremely unique because there aren’t any other agencies in Monmouth County that provide some of the services that we do. We have a “Rep Payee” program in which we manage Social Security monies for clients who may not be able to handle their own budgets. Going on right now is Operation Sleighbells. It’s a great program. It provides toys, clothing, and even gift cards for the parents of children in the Christmas season.

Other programs are KIDS Corps, offering opportunities for teenagers to volunteer; and Reading Buddies, where seniors go into slightly underprivileged schools and read to children to spread literacy.

n How do you think the role of CFO differs in the not-for-profit world vs. the for-profit?

DEJESUS: It is similar on the level of reporting finances, as my role is to be sure that the agency is fiscally sound. Management of revenue and expenses — that’s all very similar to what a CFO does in a for-profit.

n But you’re not just a rear-view compliance officer.

DEJESUS: No, I am not. My goal is to keep this agency fiscally sound so that we can continue to serve our clients. I don’t have to worry about the bottom line, so to speak; or making sure that our stockholders get a dividend at the end of the year. I have to be sure that this agency stays in a position where we can continue to operate.

n What are the most important steps that a CFO can take to have the greatest positive influence within their tax-exempt organization?

DEJESUS: When I first came into the agency, there were no reports. A lot of our departmental managers and directors are nurses and social workers — not businesspeople. So, it’s important to me, to explain to them how their departments are doing, but also how to keep everyone solvent.

n Would you characterize your management style as aggressive? tough? You explain it.

DEJESUS: I think it’s a combination of a lot of things. I try to be fair and honest. I can be direct. I like to get to the point, especially with finances. What I strive to do is show a path. C

Finance in the Tax-Exempt Sector

Anna DeJesus

Watch the Entire Interview on www.cfostudio.com

n Mariano Balaguer Taro Pharmaceutical

n Joe Budd Reagent Chemical n Blake DeSimone WebMD Health

n Matthew Ellis Verizon n Mark Erceg Tiffany & Co.

n Jennifer Fleissner Relayware

n Gordon Lavalette New York Racing Association n Ralph Nicoletti Newell Brands

n Jane Nielsen Ralph Lauren

n Michael Vesey Wayside Technology

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EVENTS EXECUTIVE DINNER SERIES


BUSINESS AS USUAL,NO MATTER WHATSTIMULATING FINANCIAL GROWTH IN THE FACE OF ECONOMIC UNKNOWNS IS THE KEY TO SUCCESS

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

BUSINESS DEVELOPMENT PARTNERS



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 SpeakingMr. 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 LineIn 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. C


Jason MullinerChief Financial OfficerEdmund Optics

Discussion Leader

Catherine Adams Baldry Senior Client Manager and Senior Vice President, Bank of America Merrill Lynch Elaine Cheong Senior Vice President, Global Commercial Banking, Bank of America Merrill Lynch Michael Muccio Partner, CFGI

Matthew Pantera Partner, CFGI

Curt AllenVice President & CFO, Subaru of America

William CurnanChief Financial & Operating Officer, Advancing Opportunities

John FoodyFinance and Operations, Double H Plastics

John HaganCFO, Procacci Brothers Sales Corporation

Dennis McGrathPresident & CFO, Photomedex, Inc.

John (Jay) RobertsCFO, VirMedica, Inc.

CFO Studio hosts the Executive Dinner Series, including World-Class Companies CFO Dinners and Middle Market Companies CFO Dinners quarterly in New Jersey, Manhattan, Philadelphia, Chicago, San Francisco, and other markets around the U.S. CFO Studio hosts the CFO Breakfast Learning Series in multiple markets, as well, and hosts online Diginars, CFO Studio Receptions, the annual CFO Innovation Conference and the CFO Innovation Awards. The comments made by these guests are their own and may not reflect the opinions and/or policies of their companies or of CFO Studio and/or its promotional partners.

CFO GUESTS


EVENTS EXECUTIVE DINNER SERIES


AllTogether Now

THE CFO CAN BE THE DRIVING FORCE BEHIND COMPANY ALIGNMENT, EVEN WHEN ONE AREA OUTPERFORMS ANOTHER

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 OrderThe 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. C


David ChambersVice President Finance and CFO, Jaguar Land Rover, North America, LLC

Discussion Leader

Jacob Buchanan Senior Manager, Private Company Services, PwC

Brett Hertzig Director, Private Company Services Practice, PwC

Lalit AhluwaliaVice President and CFO, Ferring Pharmaceuticals

Debi ChirichellaSenior VP and CFO, Hearst Magazines

William FlynnSenior VP and CFO, SHARP Electronics Corporation

Sas Mukherjee Executive VP and CFO, York Risk Services Group, Inc.

Paolo TombesiCFO, Novartis Pharmaceuticals

David Wyshner President and CFO, Avis Budget Group

Burkhard Zoller CFO, Evonik Corporation

Special thanks to Bob Varettoni for assistance with reporting.


“IT ALLOWS YOU TO EXERT A LEVEL OF CONTROL...” CFO GUESTS


EVENTS


EXECUTIVE DINNER SERIES

Cyber Vigilant CYBERSECURITY CONTINUES TO BE A TOP CONCERN AMONG CFOS

Fran Shammo was prepared to talk about digital media and corporate communications in a virtual world that is rife with

cyber criminals, and found the roomful of financial executives a more-than-willing audience. “I am very interested in knowing if CFOs at other companies are experiencing the same kind of apprehension and worry,” explained Mr. Shammo, who stepped down as Verizon’s CFO at the end of October in anticipation of his retirement at the end of the year. Less than a week after he spoke, Yahoo, which, two months earlier, Verizon announced it had plans to acquire, revealed that half a billion user accounts had been compromised.

Mr. Shammo spoke on “Delivering Your Company’s Message in a Digitally Risky World — Communications and Media from the CFO’s View,” at a World-Class Companies CFO Dinner, part of CFO Studio’s Executive Dinner Series, held recently at The Bernards Inn in Bernardsville, NJ. CFOs from select New Jersey–area companies attended the

invitation-only dinner. Mr. Shammo said the intense discussion that followed his opening remarks on the cybersecurity concerns that plague him proved that “As CFOs, we’re all in this together when it comes to dealing with the very real and constant threats posed by cyber-attacks.”

Mr. Shammo cited statistics from Verizon’s recent Data Breach Investigations Report, which shows that, among other things, passwords are still the weakest link in the chain. “Sixty-three percent of confirmed data breaches involve using weak, default, or stolen passwords,” he said. This resonated with dinner participants who said they do, indeed, take the issue of passwords very seriously, and noted that password-enforcement programs are in place at each of their respective companies. Mr. Shammo mentioned that Verizon forces automatic password changes on its corporate network every 30 days, which elicited several nods of agreement around the table.

Participants expressed curiosity about the kinds of attacks that have taken place

at Verizon. “Given the scope of service Verizon provides,” Mr. Shammo said, “we see almost every kind of attack on a regular basis, and we’re constantly trying to find ways to educate employees to be ever-wary of phishing scams and ransomware.” The group was familiar with the more common phishing scams in which a fraudulent email, appearing to come from a legitimate source, requests personal information. However, ransomware needed a bit of an explanation, which Mr. Shammo provided: “It’s a type of malicious software, or ‘malware,’ that prevents users from accessing their system until a sum of money is paid.”

This caught the attention of Greg Douglas, Vice President of Sales for Eatontown-based Yorktel, a video-communications and managed services provider, and a CFO Studio Business Development Partner. “It’s so important that everyone be informed and trained on cybersecurity. It’s not just for the people in Information Technology (IT), as the threat is huge.”




CFO StudioAdvisory Board & Technical Review

Committee

Tim AnglimYesCFO> Founder and President

Andrew Savadelis> Finance Executive

Michael Eldredge> Finance Executive

VIEW PROFILES AT www.cfostudio.com

Bert MarchioEdge Therapeutics> Chief Accounting & Operations Officer

Howard RebaMarlin Equity Partners> Finance Director

CYBERSECURITY CONTINUES TO BE A TOP CONCERN AMONG CFOS

He continued, “Financial executives are choice targets for hackers because of their authority to control company funds. They need to be particularly vigilant in their actions to avoid being compromised.”

Mr. Shammo agreed, and offered his fellow finance execs a sobering reality: “There is a high probability that every one of your companies has been hacked.” He added, “Most of you just don’t know about it, nor do you have any idea about who has been in your system, when they were there, or for how long.” In order to combat such cyberattacks, Mr. Shammo recommended long-term contracts with security firms.

Does Privacy Still Exist?The conversation then shifted to mobile devices: “Years ago, we were all issued a company device that was for business purposes only, and secure. Then, we started bringing our own devices to work,” Mr. Shammo said, acknowledging that this resulted in a whole host of security concerns and problems for the IT department.

“I see things coming full circle,” he opined, “with a return to company-issued devices.” Attendees were in agreement; just about everyone in the room had a personal phone and a work phone in their pocket. “This is actually a good sign,” said Mr. Shammo, recognizing that “we are simply becoming more mindful about keeping personal stuff personal, and business strictly business.”

Mr. Shammo predicted that the next wave in security is going to be triple authentication procedures. “Double authentication,” he explained, “in which you log in to a website and receive an access code to enter will no longer be sufficient.” He continued, “It’s going to come to a point where, in order to get into a site, you’re going to have to allow location services to be enabled on your phone for an extra layer of protection.” This led to a consensus that, as years have gone by, there is simply no privacy anymore.

A Rock and a Hard PlaceThe evening was coming to a close as Mr. Shammo finally addressed digital media. “Verizon is a network company as well as a digital media company,” he said, “so there are different regulations that apply to different parts of our business, and different regulatory agencies that apply them. As a company, we are very focused on protecting our customers’ privacy across the entire company. From a regulatory perspective, however, it doesn’t make a lot of sense for consumers to have different rules and different regulators dealing with different parts of the Internet ecosystem.”

Mr. Shammo concluded that it’s a “fascinating world” right now. “Things are converging, and our ability to regulate or control privacy is just not keeping pace. We must be extremely careful about protecting the work we do.” C


Daniel Apel CFO, Bayer Healthcare Pharmaceuticals

Sas Mukherjee CFO, York Risk Services Group, Inc.

Han Kieftenbeld CFO, InnoPhos, Inc.

Claude Draillard VP, Finance, Dassault Falcon Jet

Sandra Clarke CFO, Daiichi Sankyo, Inc.

Fran ShammoCFO, Verizon

Discussion Leader

Greg Douglas Executive Vice President, Sales Yorktel

Bill FlynnCFO, Sharp Electronics Corp.

BUSINESS DEVELOPMENT PARTNER

CFO GUESTS




Principles for GrowthTHE CFO OF JOHNSON & JOHNSON LINKS ETHICAL DECISION-MAKING

WITH STEADY, STRONG RETURNS

Dominic Caruso, CFO of Johnson & Johnson, told CFOs gathered at a recent CFO Studio Reception held in his honor that the company bases

all its important decisions on the Credo that General Robert Wood Johnson II wrote in 1943. But he said he realized that the audience might be a little bit skeptical. They might wonder “How stringent are you? Do you ever bend? Do you ever flex?”

“We do flex these principles,” he said. “We constantly challenge ourselves. We go to Credo challenge sessions to make sure we understand what [the Credo’s wording] means in the new environment. … But we generally stay pretty

close to those principles.”He noted that the Credo is “not an

aspirational statement,” but a set of responsibilities by which “we live our lives at Johnson & Johnson and make business decisions.”

Each of its four paragraphs talks about “what we must do for each of our constituencies.” First, for patients; then for employees — their welfare and careers; next for the communities where the company lives and works around the world; lastly, for shareholders. General Johnson was a shareholder, “and he placed himself last.”

Mr. Caruso said that the 32 consecutive

years of adjusted earnings growth that J&J has returned is “the proof in the pudding” that the company’s firm principles are properly guiding J&J through turbulent times and changes in economic circumstances.

An attentive group of around 60 finance leaders from New Jersey and the tri-state area formed the audience at the Heldrich Hotel in New Brunswick, NJ. CFO Studio Publisher Andrew Zezas introduced Mr. Caruso, who was profiled in the Q4 2016 cover story, stating that under Caruso’s stewardship, Johnson & Johnson has strengthened and built upon its position as the world’s largest and most diversified health care company.

RECEPTION

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A L. to R.: Andrew Zezas, Dominic Caruso B Mr. Caruso C Della Cherchia D Daniel Loughlin E L. to R.: Patrick Toussaint, Subhas Wessels, Michael Schley F L. to R.: James Derasmo, Christopher Borgese

EVENTS


The CFO Studio Reception is an invitation-only event held quarterly at elegant venues in New Jersey in honor of the CFO whose cover story appears in CFO Studio magazine in that same quarter. Visit www.cfostudio.com to request an invitation.



G

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G Mr. Caruso H L. to R.: Bill Curnan, Bob Barry, Michelle Findeis, Andrew Zezas I L. to R.: Donna Bernard, Craig Fallon, Elizabeth MillerJ Montgomery Emmanuel K Kathleen McGowan


“During his 10-year tenure as CFO, Johnson & Johnson’s share price has appreciated over 90 percent,” said Mr. Zezas. “Speaking as a shareholder, thank you, Dominic.”

Finance’s PillarsIn his remarks, Mr. Caruso said, “I owe a lot of credit to my predecessors. I’m fortunate to be in a long line of previous CFOs at Johnson & Johnson who have done outstanding work.”

He went on to enumerate the four principles by which J&J’s Finance organization operates. These are: to drive competitive profitable growth, generate sustainable cash

flow, allocate capital to maximize shareholder value, and manage enterprise risk.

Regarding that third principle, allocating capital to maximize shareholder value, Mr. Caruso said, “We have very strict principles by which we do this. We have a set of hurdle rates and analysis that we use to ensure that each decision we’re making is maximizing the value that we set for the deployment of our capital.”

Mr. Caruso runs a global finance team of 5,000. He spent part of his time at the microphone discussing the role of “the great financial people at Johnson & Johnson.”

Finance professionals at J&J “are asked to do three things,” he said: “To drive sustainable, superior financial performance.

And, I say that very clearly: to drive it, not to monitor it, or to measure it, or to report on it. To actually drive it. They’re also asked to develop great leaders,” he said. “And they’re asked to do one more thing, which is without compromise the most important thing that they do: To assure the financial integrity and compliance in what we do as a finance organization for Johnson & Johnson.”

Mr. Caruso and the finance leaders at J&J have assured the company’s financial integrity such that Johnson & Johnson remains one of two companies in the world with a AAA credit rating. The CFOs in attendance gave him rousing applause for that accomplishment. C


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GUIDANCEADVICE

John Moskonas is president of ARExecutiveSearch, a search firm dedicated to accounting, finance, and audit search services for the insurance industry, helping clients identify executive talent for critical needs. John has over 20 years in the search business with the last 17 years heading up his own firm. He has helped countless finance executives through the thought process of making their next career move. John can be reached by email at [email protected] or by phone at (646) 688-2985 or through his website at www.theargrp.com.


Here’s a new acronym to learn: POB. It’s shorthand for Personal Online Brand. Many people you meet as you network will search online to

view your POB. So, although you won’t find this word in a dictionary, it’s extremely important. Your POB is the snapshot of who you are. It includes your online friends, points of view, and professional accomplishments. If you haven’t thought about how your POB stacks up, now might be a good time to work on it. After all, year-end and the beginning of the year are the best times to assess, start anew, and focus.

But before you do that, why do you want an online brand at all?

A strong POB mitigates your risk. Let’s face it, the work environment is uncertain. You want to be seriously considered for any potential career opportunities that may arise. You should have a solid online brand presence that highlights who you are professionally and personally. This way, you’ll be found if a hiring manager or recruiter is looking for someone like yourself; you’ll be taken seriously when your accomplishments are being assessed; and your POB will support the message you are trying to convey about yourself, your expertise, and the value you can deliver. The best part is that your POB, your online brand, is mobile, so you don’t have to start over each time you begin a new job. Now, when you decide to

strengthen/focus your POB, you should keep one thing in mind:

A strong POB provides consistent messages about you. If you go to a fine restaurant that was recommended by a friend, you can expect a certain experience. As a matter of fact, that experience is what makes you come back or not. If you go back a second time and you have that great experience again, you’ll solidify your feelings about the restaurant and you’ll keep going back. Why? Because you’ll know what to expect.

How does this translate to your POB? People want consistency when they think about you and your brand and when they consider engaging you for an executive position, project, or otherwise. So, be consistent in your POB and cognizant of the messages you send when you highlight your accomplishments when posting to your online accounts, because those who

will consider engaging you like to know what to expect.

If you’re unsure of how your POB reads right now, just google yourself and you’ll find out pretty quickly. The online world is transparent, so the consistency of the message you send about yourself should carry through to your LinkedIn, Facebook, Twitter, and other online brand platforms.

Create a strong POB yourself, or get help with it. When you do decide to strengthen your POB, you can do it yourself or you can hire a professional online marketer who can do it for you. If you decide to do it yourself, you can get tips online and/or, since imitation is the best form of flattery, you can certainly see how peers in your industry are building their POB, and then replicate their approach.

Whichever way you choose, however, keep asking yourself: What is my POB and how well is it working for me? C

What Is My POB? Like it or not, most of us have and need an online brand

JOHN MOSKONASPresident, The ARGroup of Search Companies


http://www.theargrp.com/


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GUIDANCEADVICE

No More Fuzzy NumbersMonetize talent-related growth strategies

Being able to attract, engage, and retain top talent is an important growth strategy of young or realigned companies. Yet most organizations still struggle when talent-related investments are involved because the discussions generally rest on vague

information (fuzzy numbers).Think about what happens when the CFO tries to get quantifiable

answers to these HR questions: o How can we tell if a stay bonus was necessary? o Do career development programs pay off or are we just training people to leave and be productive at competing companies? o What degree of fit with our corporate culture does a job candidate need to be hired? o How can we tell if an employee is sufficiently engaged? o How much should our business invest if the typical millennial only stays with an employer a few years?

o How much turnover is acceptable to us? o How do we know if we should be utilizing outside search firms or building our own recruitment department? o How much progress do we lose when key position vacancies linger?

Where You Can StartThe Society for Human Resource Management (SHRM), which provides professional certification for human resource professionals, leads the improvement of talent-related measurement, but there is a long way yet to go.

It pays to help your company’s HR professionals generate talent-related ratios to convey their proposed approaches to achieve your goal-related ratios. With such ratios in place, when your HR department wants to invest in a new engagement program, as CFO you can monitor its impact on retention, productivity, and capacity utilization.

Examples of Talent-related Ratios:$___ cost for recruitment, screening, selection, onboarding/hire$___ cost for engagement and retention/employee$___ cost for incentives and bonuses (above base salary or wages)/employee#___ average months or years with our company/employee%___ job vacancies OR %___ capacity

Examples of Company Growth-related Ratios:% ___improved capacity utilization$ ___ productivity increase%___ reduction in people-related operating costs/gross revenue

Increasingly, HR directors must be involved in the process of monetizing desired outcomes. It makes sense to establish realistic baselines for talent-related ratios now, or your company’s decisions revert to fuzzy numbers, and your truly major investment decisions will be based on wishes, hopes, and guesses. C

Known as The Growth Strategist®, Aldonna Ambler founded, built, and grew a global suite of companies to help midsized B2B companies to achieve accelerated growth with sustained profitability®. A Certified Speaking Professional (CSP), Ambler has addressed over 2,000 audiences and hosted a syndicated online talk show about growth strategies for 9 years. As a growth financing intermediary, Ambler has raised over $1 Bil for midsized companies. The winner of over two dozen prestigious national and statewide “entrepreneur of the year” awards, Ambler was inducted into the New Jersey Business Hall of Fame in April 2015. She is available to speak about “profitable resilient growth” and/or serve on the board of a growth-oriented B2B corporation (NACD Board Leadership FELLOW).

ALDONNA R. AMBLER CMC,CSPThe Growth Strategist®



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CFO 2 CFO

To navigate a company through rough market conditions requires knowledge, experience, and leadership. Management teams rely first of all

on timely and accurate financial data and detailed business analytics. ROI calculations, valuations, and future cash-flow predictions are other critical factors. All this can give a company a vital competitive edge — and this is where controlling comes into play. Such prognostic information is so essential to management decisions, and the responsibilities of the controlling function are so extensive that I prefer to call it “ÜBER-Controlling” (“über,” the German word meaning “in excess of,” “above,” or “over,” not to be mixed up with Uber, the mobile taxi service!).

Basically, ÜBER-Controlling consists of three functions:1 Sales & Marketing Controlling:Information about revenue development by customer and product as well as volume/price/mix effects; success of marketing campaigns and price sensitivity; market-related versus cost-plus pricing models; price entry points for new-product development, etc.

2 Production Controlling: Information about material, labor, energy, freight, and other manufacturing costs in total and by unit; make-or-buy decisions; margin comparison based on standard costs and variance analysis; discounted cash-flow calculation for capital investments, depreciation alternatives, and inventory optimization.

3 Overhead Controlling: Information on so-called fixed costs per department (Selling, Marketing, R&D, Supply Chain, Admin) and cost category (Personnel, Travel & Entertainment, Consulting, etc.); comparison to budget and prior year expenses.

An ÜBER-Controller does not just collect data from these three

functions. He or she adds another dimension to it: Instead of looking just backwards or at today’s performance, he or she concentrates on looking forward. Through strategic and mid-term planning, annual budgeting, and rolling forecasting systems, the future of the company is being shaped by the ÜBER-Controller’s involvement and expertise.

ReportingNevertheless, ÜBER-Controlling can only be successful when it works hand-in-hand with the financial accounting department under the leadership of the corporate CFO. Statutory financial statements for external information

purposes (looking back) and management reports for management decisions (looking forward) are closely intertwined. Modern, fully-integrated ERP systems with new general ledger concepts and dedicated FI and CO modules can provide a multitude of management reports. For improved management reporting purposes, it is important to use notional costs for depreciation, interest, taxes, and asset and liability amounts based on actual market valuations.

The ÜBER-Controller’s role and responsibilities are critical for the success of a company. They transition the typical conservative finance function into a future-orientated, vibrant think tank. The more specialized and entrepreneurial the controlling knowledge is, the better is this individual’s support as a business partner.

The function of the ÜBER-Controller and his or her entire controlling team is highly delicate, because they are a hybrid in an organization. Whenever I discuss my concept of an ÜBER-Controller, the question comes up: Are they part of finance or of an operational business function? The best way to deal with it is to have controllers sit next to the sales and production managers and be their day-to-day “sparring partners.” However, it is best for the ÜBER-Controller to report into the CFO function, thereby guaranteeing complete independence and objectivity in their judgment. C

ÜBER-ControllingWHY BUSINESSES WITH GLOBAL CONCERNS NEED A NEW DYNAMIC ON THEIR EXECUTIVE TEAM

GEORG ANNENChief Financial Officer, Unger / USA & Europe

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CFO 2 CFO

During the last global economic downturn, many companies were caught unprepared by the speed at which events

impacted their business. Many CFOs asked questions like, What is our current cash balance globally? In which financial institutions are these balances invested? and, What is our counter-party risk?

Companies with centralized treasuries typically had better visibility and information relating to these questions. However, decentralized treasuries deliver other benefits for many companies.

Will a centralized or decentralized treasury function be best for your company? That depends on the nature of the business. Factors such as global geographic footprint, the similarity of business operations across geographies, and management’s philosophy all weigh in this decision.

Pros and ConsTreasurers are responsible for managing a company’s assets and liabilities, financial risks, and banking relationships. For businesses with operations around the globe, managing these components is complex.

Some of the benefits of a decentralized treasury structure are: (1) Flexibility, as local operating units or subsidiaries manage treasury in line with local conditions, and the solutions are specific. (2) Knowledge of local markets provides advantages for selecting appropriate debt or investment vehicles,

foreign exchange hedging instruments, and banking partners. (3) Local staff may have more intimate knowledge of local regulations, and business/legal/tax/banking environment. (4) Local staff likely takes pride in managing all aspects of the operations.

On the other hand, some of the benefits of a centralized treasury structure are: (1) Economies of scale. (2) Rationalization of costs. (3) Standardized cash flow forecasting. (4) Identification of company’s cash balance and risk. (5) Closer control over investment performance and risk. (6) Greater access to financing and liquidity. (7) Ability to leverage banking and other relationships. (8) Local staff can focus on growing the business.

A particularly strong argument for a centralized treasury is that such a structure allows integrated payables and receivable solutions to achieve straight-through

processing, which can help improve a company’s working capital position.

Consider SpecificsA centralized treasury structure seems more efficient, but a key question to reflect upon is leadership’s philosophy toward managing the assets and liabilities of the company. A company’s specific situation, such as degree of international presence, type of business, growth prospects or business cycle, sophistication of ERP system, availability of Treasury Management System,

and external factors (global/regional financial crises), all play a role.

Facilitating the trend toward centralization is technology (more sophisticated treasury workstations interconnected with ERP systems), as well as legislation or regulatory changes (i.e., the Eurozone’s move from national payment instruments to SEPA, Single Euro Payments Area, and easing of controls in several emerging markets), and globalization of markets.

However, centralization is not without its challenges. Treasurers need the communication and cooperation of local staff to provide valuable knowledge and information on local rules and regulations. Ultimately, the company that implements a centralized treasury approach will likely be better prepared to manage the risks of the global marketplace. C

Financial RiskCENTRALIZED VS. DECENTRALIZED TREASURY: WHICH WORKS BEST FOR YOUR COMPANY?

WALTER CIRILLOTreasurer, Novitex Enterprise Solutions, Inc.

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