The Certainty Of Change
By Eric Krell© Business Finance Magazine. November 2001.
Divestitures, downturns and costly application development projects shake the already unstable ground beneath the corporate finance professional's feet. This year's survey finds that change is a constant career concern and one that nimble finance executives use to their advantage.
Bob Dylan got it half right in his anthem about changing times. Given the stormy economic forecast, the ever-quickening pace of technological innovation and the evolving state of the global marketplace, an updated version of Dylan's song might proclaim that change itself is a-changing.
The 2001 Finance Executive Compensation Survey reflects that the pace and nature of change directly affect CFOs and other corporate finance professionals. This year, survey respondents are focusing their energy on cutting costs and managing working capital, struggling to define their role in managing IT investments, facing uncertainty about the scope of e-business investment, and leaning toward staying in their current job (if they have that option, anyway). A majority of the corporate finance sources contacted about the survey's findings have experienced a significant career shift within the past 12 months. Those who can leverage change drive their compensation and career to a higher level.
"I'm putting together a résumé for the first time in 25 years," says Michael Fishoff, CFO of Clairol, a personal care company in Stamford, Conn., and a division of Bristol-Myers Squibb Co. that, at press time, was being divested to Procter & Gamble. A crucial player in the divestiture, Fishoff understands that his likelihood of remaining with the company after the sale is "slim to none" due to the expected elimination of infrastructure. While Fishoff's 25 years of corporate finance experience with Bristol-Myers -- which include time spent abroad and leadership roles in several divestitures, mergers and acquisitions -- assure that his résumé will attract eager eyes, he faces a challenge that is typical for finance executives in a time of change. "Last year at this time, the overwhelming majority of us in the executive recruiting business were bursting at the seams," notes Gary Kaplan, president of Gary Kaplan & Associates, an executive search firm in Pasadena, Calif. "The change was very abrupt earlier this year, almost as if someone had flicked the light switch.
"The dot-coms have become the dot-gones," Kaplan adds. The percentage of survey respondents working for an Internet start-up declined by 50 percent between 2000 (6 percent of all respondents) and 2001 (3 percent), reflecting the fact that the lights went out in many dot-com companies.
Both good and bad news accompanies the economy's dimming prospects. CFOs are in demand, but they also occupy the hot seat. "CFOs and their CEOs often take the fall when their company does not hit its numbers or fails to please Wall Street," Kaplan adds. "That churning keeps that sector going; we still have an active job market for CFOs. There are not large quantities of people with this kind of talent. Any recruiter works very hard to find a top-flight CFO. They're in demand, they're very well-compensated, and there are not legions of future CFOs out there on the farm team," he says.
You Bet Your Company
The survey results suggest that CFOs and their finance colleagues remain ambivalent about how to manage and respond to major agents of change, such as the growing importance of IT investments. Until early 2001, conventional wisdom demanded that companies invest heavily in IT and e-business to stay competitive. Now companies are questioning that spend-or-die strategy. All executives, particularly those atop the finance and IT functions, seek to strike the most effective balance between cost control necessitated by the economic downturn and the need for continued IT investment, which can bring about greater efficiencies and create competitive advantages if managed shrewdly.
"The shift that e-business enables is a move from the value chain to the value net," says Don Schulman, senior partner in the financial management solutions practice of PricewaterhouseCoopers LLP in New York City and author of "eCFO: Sustaining Value in the New Corporation" (John Wiley & Sons, 2001). "The bubble burst because that move was too difficult. You have to walk before you can run," he says. "I don't think there's any question that we're going down that path. We'll eventually get to the value net concept, but let's first Web-ify our transactions."
In 2000, 61 percent of survey respondents reported that their company engaged in e-business activities. This year, only 52 percent of all respondents said their companies are involved in e-business activities. While that marks a significant decline, this year's survey results point to a compensation gap connected to e-business activities. CFOs who reported that their companies are actively pursuing e-business strategies earn, on average, 21 percent more than CFOs whose companies are not pursuing e-business. Vice presidents of finance and finance directors whose companies have e-business strategies outearn their counterparts at companies that are not currently pursuing e-business strategies by an average of 23 percent.
While 59 percent of this year's respondents reported that their company measures and manages its IT assets and investments, the value of that activity as it relates to the rest of the CFO's responsibilities remains uncertain -- even though a majority of CFOs (53 percent) count the information systems function as a direct report. In ranking drivers of both current and future compensation, CFOs placed managing/measuring IT dead last, behind creating value, business and financial reporting, strategic planning, and managing/developing people. But the CFOs who place importance on IT-related activities earn more than those who don't.
Technology did not fare well either when CFOs were asked to choose their top priorities over the next year. Their choices, in order from most to least frequently selected, were managing growth; cutting costs; managing working capital; raising capital; working on mergers and acquisitions, which tied with streamlining/outsourcing business processes; investing in new technology; and preparing better forecasts. However, when priorities are reshuffled according to the average total compensation of CFOs who selected them, investing in new technology leapfrogs four spots; CFOs with the highest compensation chose raising capital, investing in new technology, working on mergers and acquisitions, managing growth, managing working capital, streamlining/outsourcing business processes, cutting costs, and preparing better forecasts, in that order.
Bradford C. Violette, executive vice president of AOC, a financial staffing and recruiting firm in Charlotte, N.C., names IT financial management in the handful of skills and experience he believes most directly contribute to a CFO's value. "Those specific experiences include participating in a successful IPO or arranging some sort of external financing, being Street savvy, and leading M&A integration and IT systems conversions," Violette notes. IT activities of highly compensated finance executives most often fall into these categories, regardless of company size.
Personal Changes
So IT, while increasingly important to highly compensated, strategy-minded CFOs, at times must play second fiddle to more pressing concerns, such as managing divestitures in which finance executives synergize themselves out of a job. Given the rough economic times and the increased vulnerability of the CFO position, the next 12 months may bring more opportunities for both solicited and unsolicited career transitions.
Diane Downey, founder and CEO of Downey Associates International Inc., a consulting firm in New York City, and author of "Assimilating New Leaders: The Key to Executive Retention" (Amacom, 2001), says many executives who would have moved on eight to 12 months ago are staying put until the economy improves. "At one of the companies I've worked with," she notes, "I would say half of their executive-level people will be ready to go as soon as the economic conditions change. But because the market is not good right now, they're not leaving yet."
Forty percent of respondents to the 2001 Finance Executive Compensation Survey reported that they are less likely than they were 12 months ago to change jobs. Only 14 percent of CFOs work for the company at which they began their careers. And while some compensation consultants note that year-end bonuses will significantly decline this year, the economic slump for the most part had not affected finance professionals' compensation levels when the survey was conducted this summer. Sixty-seven percent of non-CFO titles reported they will earn more in 2001 than they did last year. Fewer CFOs, 57 percent, reported earning more this year, but only 10 percent said they will earn less than they did in 2000.
Although many executives are waiting for better economic times to test the market, some boards of directors may force their CFOs to move on during this time of disappointing earnings reports. Regardless of the reason -- whether because of a divestiture, a firing or a call from a headhunter -- finance executives are more frequently finding themselves in new roles today than in the past. And how well they handle those changes in responsibilities, positions and companies directly influences how well they are compensated.
S. Craig Huke, CFO for Apogee Networks Inc., an Internet and enterprise software solution company based in Saddle Brook, N.J., utters a common refrain when he recalls how he joined the organization last May. Huke was the CFO of software company Bluestone, which had just been purchased by Hewlett-Packard, when an Apogee recruiter called. "When they contacted me, I really wasn't considering a job change," he says. But his subsequent research identified three reasons to pursue an offer. First, Apogee, a pre-IPO company, received a substantial investment from Cisco Systems during the first quarter of this year. "Any company receiving funding at that point was special," he notes. Second, he liked what he saw in Apogee's customer base, which includes Texaco, Fidelity Investments and Citigroup. And third, Huke says, Apogee's product addresses critical issues, such as rising network and bandwidth costs, that he had dealt with in previous positions.
Huke explains that Apogee valued three elements in his CFO tool belt: his experience with software revenue recognition, his cost-control abilities and his money-raising activities in the public markets. "Revenue recognition is probably the single most important item within the financial structure of a software company; it's where companies blow up or have problems," he notes. "And the fact that I led Bluestone through the IPO process also served me well. I set up an investor relations function to deal with the company after the IPO and then went through the acquisition by Hewlett-Packard. That basically covered the potential gamut of things that could happen at Apogee."
The term "gamut" is an apt one for finance professionals to gather 'round. As the scope and breadth of their responsibilities increase, the traditional, specialized role of finance executives is rapidly fading and the pace of that change, as Mr. Dylan might note, is rapidly a-changing.
What Skill Will Make You More Valuable in the Next 12 Months?
"I want to integrate financial accountability into each of the functional areas in which I work with my business partners. If you explain what they're doing right and what they're maybe not doing right while helping to educate them, they will immediately get on board. The natural inclination of good business groups is to become the best, but they don't always know how to get there. Or they don't know how to translate their performance numerically so that they can get the attention of senior management."
-- John McAlpine, CFO, AmerisourceBergen Drug Co.
"Demonstrating versatility of communication skills is the one skill that would be most helpful in moving to the CFO level. Not only do you need to communicate with different levels internally within a company and thereby tailor your message appropriately to different skill levels, you need to demonstrate your ability to communicate appropriately to Wall Street. Wall Street communications take many different forms, such as presentations, interviews, earnings conference calls and one-off questions. That challenges a person to think quickly, be knowledgeable and, above all, to be factual."
-- Kathy Crusco, vice president finance, Documentum
"The most important thing for me right now is to articulate a vision, and then gain buy-in and consensus on that vision. In a bull market, as we've had for 10 years, you can be reactive and do very well. But with what we're going through now, the companies without a vision are struggling."
-- G.M. Stetter, executive vice president, marketing and strategic planning, Fundtech Corp.
"I want to fully understand the business and to understand what our salespeople and operations people are going through. Understanding the product completely requires really getting into the nonfinancial side of the business, into sales and operations."
-- Dave Wolf, senior director, finance, Global Knowledge Inc., Knowledge Products Division
"I'm cultivating stronger, broader leadership and influence skills. While I'm picking up technical skills on a very technical IT project [a global SAP implementation], those technical skills will not readily provide leverage for me to get into another assignment. It's the ability to influence global senior management. And that's my role in this particular project: to take a very technical solution and to translate it into customer needs, and to work very closely with our global financial and nonfinancial senior management."
-- John Harkey, director of finance, global business integration project, Eli Lilly & Co.
