CFO Studio Magazine with Alison Cornell

16 WWW.CFOSTUDIO.COM Q1 2017 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 Globally When 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 CEOChris 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 firmmay 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 Election Baldwin 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