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The CFO as Chief Service Officer

As Seen in CFO Studio Magazine Q3 2016 Issue

THE CFO AS CHIEF SERVICE OFFICER

Fifteen CFOs, mostly from tax-exempt organizations, gathered at the Community FoodBank of New Jersey where they sorted and repacked food for distribution to more than 900,000 hungry people in New Jersey. What made this volunteer endeavor particularly impactful was that it was held two days before Thanksgiving. They came together as part of the CFO Studio Executive Dinner Series, and though this one was held in an unusual location, it featured excellent conversation and food for thought for CFOs of tax-exempt organizations — as well as an impressive dinner prepared by a culinary team that is part of the Community Kitchen, the FoodBank’s Food Service Training Academy.

Bob Barry, Chief Financial Officer of the Community FoodBank of NJ, led a tour of the facility, explaining all that goes into running such an expansive operation, and then hosted the dinner. Cheryl Marks Young, Chief Financial Officer of Easter Seals New Jersey, led a lively two-hour discussion of “The CFO as Chief Service Officer —Balancing Internal and External Customers, Partners, and Other Beneficiaries in Tax-exempt Organizations.”

“In our roles as CFOs, we are not just number crunchers, we are not just data crunchers,” said Ms. Marks Young in an interview. “We are human beings who serve others. The numbers and the data help us tell a story about the impact we make on the consumers we serve. That’s the story we have to get across.”

The group discussed all that goes into becoming a charity of choice. Mr. Barry gave specific examples from the Community FoodBank. He explained that Kathleen DiChiara, who started the organization by feeding the hungry out of the trunk of her car in 1975, instilled in the staff the fact that “no” is not an option.

Ms. Marks Young’s mantra is similar. “There is no room for failure in our roles because we need to continue to provide quality services to those most in need.” Since 2006, Ms. Marks Young has overseen all of the financial functions for Easter Seals New Jersey, ensuring its resources are properly allocated to achieve its long-term strategic goals.

Easter Seals New Jersey is a 501(c) (3) not-for-profit organization that since 1948 has enriched the lives of people living with disabilities and special needs, and those who care about them, by providing opportunities to live, learn, work, and play in their communities. Annually, nearly 9,000 people or families in New Jersey affected by developmental disabilities, including autism, physical disabilities, and mental illness, participate in programs designed to help them address life’s challenges and achieve their personal goals on the path toward independence.

Among Ms. Marks Young’s accomplishments is boosting funding for services by $22 million, enabling the organization to increase by nearly 20 percent the number of people with disabilities or special needs served. She has also served as a consultant and advisor to other Easter Seals affiliates across the nation by sharing her expertise in cash management, financial systems, and financial leadership.

“In my discussions, I use the numbers to tell the story about how what we do impacts those we serve and support,” she said. “It’s the lives touched that is most important. We all have state-specific and regulatory issues to contend with as well as business model issues. At the end of the day, it’s not really about all that. It’s about how we, in all of our individual businesses here, serve that end-consumer.”

Many in the group admitted not-for-profit work was not on their radar while they were in school. “My goal was to be the CFO of a Fortune 1000 company making money for shareholders,” said Mr. Barry. “Here I am in a not-for-profit for 30 years, working for shareholders who are the people we serve. We have to be there to help our respective organizations remain financially viable so we can continue serving those who are impacted by our mission.”

The participants agreed that running a not-for-profit can be a balancing act. A solid infrastructure is vital, as is balancing overhead costs. Transparency is key as well. Open communication with donors, the executive leadership team, staff, and board of directors is important, but there are many more populations that must be addressed.

Many in the room referred to the book Uncharitable: How Restraints on Nonprofits Undermine Their Potential, by Dan Pallotta, which examines the constraints put on not-for-profits by the public. A parallel theme in the book and at the CFO Studio Executive Dinner was that not-for-profits must be allowed to use the tools of commerce to thrive and accomplish their missions.

A successful Chief Service Officer doesn’t just talk the talk but walks the walk, said Ms. Marks Young. “Bob [Barry] shared a story about his staff coming in on a weekend to make sandwiches during Hurricane Sandy. That’s being of service internally to the staff as a role model and externally to the consumer we all service,” said Ms. Marks Young. “That’s what it is all about.”

She said it is important to focus on the population being ministered to. “It’s about how we serve our end-consumer or customer to live their best life, to have what it is they need, what brings value to them, and that holds true whether you are for profit or not for profit.”

Leading by Example

As Seen in CFO Studio Magazine Q4 2015 Issue

SUCCESSFUL LEADERS HAVE SUBSTANCE, INTEGRITY, AND VISION

“To Lead, or Not to Lead,” that was the question, during a CFO Studio Small Markets and Emerging Growth Companies Executive Dinner, held recently at Red Knot at Galloping Hill in Kenilworth, NJ. Bill Craig, Chief Executive and CFO of Tarantin Industries, a wholesale distributor of propane equipment, heaters, and hearth products, was discussion leader, and Andrew Zezas, Publisher of CFO Studio magazine, and Host of CFO Studio, facilitated the conversation.

Mr. Craig’s perspective is an interesting one as he is both a CEO and CFO at Tarantin Industries. “As a CEO, your foot’s on the gas; as CFO, it’s on the brakes,” said Mr. Craig. “The challenge has been to try and balance those two things in terms of motivating people. Everyone wants to do well. They want to be appreciated. They want to be taught. They want to be led. Leading is about resolving uncertainty. … As the CFO, you’re the risk manager. …As a CEO, you’re leading the way.”

Leadership for CFOs at middle-market companies presents added challenges, as the CEO is setting the agenda, but, said Mr. Craig, “You’ve got to figure out how to lead and also do your job.”

The 22 CFOs in attendance offered their tried-and-true strategies for becoming successful leaders, with a few rejecting the premise that certain people are born leaders and others are not. What successful leaders have in common, the group agreed, is substance, integrity, and a vision — not just style and image. Leaders establish connected relationships and inspire colleagues. They bring teams together around a shared purpose and a common set of values. When you look at great leaders, whether in the military or in business, they are willing to put themselves at risk, if necessary, and to lead by example.

Effective leaders are transparent. “I start my day by saying good morning to everybody. That’s important because it’s my opportunity to say, ‘How’s it going? What do you have to do today? Any problems that you had yesterday? Do we need to talk about anything?’ It’s my first chance to interact with everyone. I lead with communication,” said Ron Tassello, CFO of Bardwil Industries, based in Hasbrouck Heights, NJ, a textile manufacturer of fine kitchen and bath products and linens.

Leadership is not static; it is constantly evolving. “I’m required to demonstrate multiple types of leadership, because if I’m dealing with the factory workers and managers, they need one type of leadership. When I deal with IT, they require a different type of leadership,” said Eric Wukitsch, COO and CFO, Vantage Custom Classics, an Avenel, NJ–based manufacturer of identity apparel.

A common challenge is dealing with business owners, the attendees agreed. When leading a group where one has established authority, those whom you lead are compliant to a certain extent. Leading a leader creates a different set of challenges. “I don’t think anybody in this room will dispute that there are times when ownership has grandiose plans and we have to bring them back to reality,” said Mr. Wukitsch. It’s important to know when to push and when to back off, when to lead and when to serve.

“You’ve got to get them on the same wavelength, then you can lead. That is so important,” said Ed Schultz, Principal of Allendale, NJ–based Highland Business Group, a consulting firm.

Born to Lead

“Is one born with the capacity to lead or is it an acquired skill?” a question that has been debated for decades, became an important component of the conversation during this CFO Studio Executive Dinner.

“You are either born with it, or you’re not. If you don’t have it, you can develop it a bit, but you’re never going to be an effective leader,” said Walter Cirillo, Vice President, Treasurer of Edison, NJ–based AeroGroup International, which designs, imports, and distributes Aerosoles footwear. “Leadership traits are not learned in school. You are born with the ability to know when and how to get in front to rally your troops to victory,” added Robert Berkowitz, CFO of Pine Brook, NJ–based Wilmington Paper Corporation, specializing in recycling-management programs.

Creating an environment of empowerment is one of the ways successful leaders lead. Employees know they are being heard and respected and that the organization values their contributions.

Dancker, Sellew & Douglas (DS&D), a Somerville, NJ–based interior solutions firm, has been in business for more than 180 years. In 2012, the current CEO became the majority owner of the company and implemented a six-person leadership team from all different backgrounds with varied skill sets, said William Hendry, DS&D’s CFO. In order to ensure the leadership team is working as a cohesive unit, company leaders participate in leadership training every Wednesday for two hours and during two off-site events held every spring and fall.

“As an executive team, we’re really focusing on the customers first. Then, we are focusing on our employees — empowering them…” said Mr. Hendry. “We do whatever we can to build morale and inspire employees to enjoy coming to work and pulling together to do a better job for our customers.”

Employees who are engaged and feel good about the environment in which they work will be more productive. It’s important to remember that when it comes to employee engagement, a one-size-fits-all mindset can be an ineffective approach. “I have lived in many countries, and have learned that what worked in one part of the world would not necessarily work in another. For example, in Chile you have to be a very formal leader, because even the doorman wears a suit in the summer. In Puerto Rico, I would take my people to a bar for drinks some Friday evenings to build camaraderie and to get them engaged with each other,” said Javier Daly, CFO, TerraCycle, a Trenton, NJ–based recycler of post-consumer waste.

A successful leader is authentic, genuine, and recognizes the motivations of those he or she leads.

“Understanding the culture of an organization, either as it exists or as it should become, and then making sure that the style of leadership coincides with that culture, is essential,” said Mr. Zezas.

Genuineness and authenticity are important traits of a great leader, agreed Tobey Rumack, CFO, Universal Marine Medical Supply International, a Staten Island, NY–based maritime industry supplier. “One can be a great communicator, but if that person is not genuine, their followers will eventually become disenchanted. When there is not trust, followers will not go the extra mile,” said Ms. Rumack.

Visionaries

Another hallmark of successful leaders is that they have a clear and concise vision and are able to communicate that vision. “People will respond better if they understand why you’re changing what you’re changing, why you’re going where you’re going, and what the vision is,” said Eileen Black, Controller, Stevens Institute of Technology, in Hoboken, NJ. “A successful leader will lay out ‘Here’s why we’re taking this approach and heading in this direction. And then, it goes even deeper than that,” she added. “We’re the bridge between that vision and employees. Great leaders help their people overcome barriers that may stand in the way of achieving the objectives and succeeding.”

Discussion leader Bill Craig pointed out the nuances of leading in an institution like Stevens, versus a public company. “When I led a public-company turnaround, it was easy, because everybody saw the numbers and knew every quarter what we were doing. When you’re a leader, and specifically a CFO, in a private company, often ownership prefers not to share sensitive information, so it’s really important to be articulate and communicate well to get the buy-in.”

Gift cards, cash, merchandise, and travel as incentives are effective business tools that promote or encourage specific actions. Successful leaders understand the power of incentives; James Emmerson, CFO, Oradell, NJ–based Huntington Learning Corporation, is one of them. “Our company is privately owned. So, the only people who see an entire P&L are the owners, my controller, and me. Basically, we give each department its own P&L, and we incentivize them to achieve predetermined results. I learned a long time ago that if you incentivize somebody to do something important, that is what they will focus on.”

Timothy O’Donnell, CFO of The Falk Group, a New York City–based marketing agency, also recognizes the importance of incentives. “One of the things that I found to be successful is when you create goals and incentives for employees, they have more of a buy-in. It’s also important to remove any barriers that may exist that may prevent them from reaching their goals.”

Leaders and Empathy

It has been proven that empathy goes a long way toward encouraging employees to perform at their best. “I care deeply about all the people that I oversee, and they know it. It’s genuine. I get to know the employees and get to know what makes them tick, and if they need to cut out at four o’clock, they know they can do so. I don’t overstep the employer/employee relationship, but they know I care,” said Darrin Shamosh, CFO of Newark, NJ–based Interport, a company that sells and rents intermodal shipping containers. “The other thing I have found to be successful is to give people some rope. Let them make a mistake. It’s okay, if … you don’t make the same mistake twice.”

Improving their own listening skills, decreasing conflict, and controlling impulsive reactions help leaders develop. These traits are often referred to as emotional intelligence. “There are three legs to success. One is your IQ that you are born with. Second is your acquired knowledge. The third leg is the one that I find so many people overlook. It’s probably the most important one — emotional intelligence — the ability to relate with people,” said Howard Reba, Finance Operations Group Director of California-based Marlin Equity Partners, a global investment firm.

Empathy is used day in and day out by Lisa Strassman, Director of Finance, CAO, for Orangeburg, NY–based Daikin America, which develops, manufactures, and sells fluoropolymers, fluoroelastomers, fluorochemicals, and fluorocoatings. “I focus on understanding the varying perspectives of all involved in a situation. I get in there and I figure out what really stresses them out, and work with them to improve their day-to-day life,” said Ms. Strassman. “I show them that management does care, that we do get it, that we can help them, and that we can improve technology. … I think that they respect me as their leader because I understand them and know what they’re doing.”

Mr. Craig asked Ms. Strassman if there has ever been a time when an employee took advantage of her help. “I make sure that they don’t use me as their assistant. I challenge them.…I don’t give them the answers all the time,” said Ms. Strassman. “There are folks in leadership positions who don’t agree with my methodology because they think I may be too much in the trenches. What they don’t understand is that I’m building team morale and I’m helping the day-to-day process, and I’m also working to prevent employees from quitting.”

“Your comment about leaders not being assistants is a brilliant statement,” said Mr. Zezas. “I see new leaders very often taking on too much responsibility, because they figure, ‘I’m going to do all the work.’ Leadership and doing all the work are two very different things that, with the right balance, have to come together.”

Ms. Strassman concurred. “I’ll take every criticism from the executive leader saying that I’m too much involved. I’ll take that any day over being so far removed that the team doesn’t appreciate me, doesn’t respect me or what I know. I need to be there for them. That’s how I lead.”

Rob Guerrera, Senior Vice President and CFO, Kline & Company, a Parsippany, NJ– based consulting company, joined in. “Lisa, what really resonates with me about your comment is that leadership grows; it needs to be opportunistic, yet you need the inherent skills and the comfort level of putting yourself out there and taking advantage of the opportunities. We need to do what Rudy Giuliani did and find what is easy to fix. Fixing the squeegee problem that existed on Manhattan’s streets is what he decided was his first order of business as mayor, and he built a path of success. The hard jobs become easier when the little jobs are taken care of.”

Not only are empathy and emotional intelligence important, but so is trust. You can have a clear-cut vision, an ironclad strategy, and successful communication skills. But if the team doesn’t trust you, you will not be effective. “When you build a relationship, that person will go the extra mile for you,” said Fred Guerra, Vice President, Finance of Rockleigh, NJ–based Takasago International Corporation, a flavor and fragrance company.

Talent Development

Employers are gearing up for millennials, a generation that is not afraid to move from one job to the next. “My dad worked 40 years in the same place. Our kids will be far different,” said Michael Roth, CFO, Beefeaters Holding Company, a North Bergen, NJ–based manufacturer of dog treats.

An effective leader must understand not just the millennial generation, but all those he or she leads. Glenn Turell, CFO of New York City–based Elias Arts Holdings, a music, sound, and audio branding collective, said, “My company is private equity–owned. We have two subsidiaries and two Boards of Directors. But we are a company made up of creative types who don’t necessarily respond to business communications, especially if coming from someone not seen as a creative. The way I communicate with the Boards and senior management has to be very different than the way I communicate with the company’s creatives, especially those who are more junior. In certain cases, I’ll look to our head of operations, who is also the executive creative director, to drive home certain specific business points that I know will not get through to the creative staff if seen as coming directly from me or the Boards.”

Some have perfected their leadership skills by being exposed to ineffective leaders. “When I was coming up in the ranks, there were times when I wasn’t treated well by some leaders, and I think that impacted me to be respectful of people. When you’re respectful, you’re going to get more out of people than by pounding a hammer,” said Carey Heber, CFO of Carlstadt, NJ– based Advanced Polymer, a specialty chemical company.

Mr. Craig had a similar experience. “I learned what to do by learning what not to do,” he said.

“What this is all about is creating a culture within an organization that allows and promotes cream to rise to the top, for lack of a better analogy. You are allowing employees to become leaders.

…You are allowing them to blossom,” said Mr. Guerra.

Good leaders make the tough decisions that need to be made. “They say, for the greater good, this person needed to go,” said Mr. Tassello.

The most successful leaders are authentic, the group agreed, they are self-aware and genuine and mission-driven and focused on results. They lead with their heart, not just their minds, with substance, integrity, and a vision — not just style and image. Some are born, some are made. They establish connected relationships and inspire colleagues. They bring teams together around a shared purpose and a common set of values. They lead by example.

Preparing for Private Equity

As Seen in CFO Studio Magazine Q1/Q2 2016 Issue

WHAT COMPANIES MUST DO TO RAISE CAPITAL

Going after private equity funding was the focus of a CFO Studio Executive Dinner held at Blue Morel in Morristown, NJ. Luke McKinnon, recently having served as Chief Financial Officer of a global engineering services company, was the discussion leader.

“Going out and raising private equity is a huge effort,” said Mr. McKinnon.

Successful private equity firms have financial controls in place that focus on the basics of performance— revenue, operating margins, and cash flow. McKinnon was tasked with finding a long-term minority-interest investor for the global engineering services company he was part of, one who would be willing to have a seven- to ten-year relationship. “We found three firms interested in this length of term. Although they are called private equity, many of those investment companies are more family-run type places,” explained McKinnon.

The company McKinnon was with was global in nature, with operations in countries including Afghanistan, Iraq, Sudan, the Congo, Vietnam, Thailand, and Indonesia. “At one point, I had 2,000 bank accounts around the world,” said McKinnon.

This wasn’t the only challenge the private equity firm had to contend with. “They are focused on Day Sales Outstanding (DSOs) and cash flows,” said McKinnon.

This comment led to a discussion about DSOs. Bill Baldwin, Chief Financial Officer, Kepner-Tregoe, Inc., a Princeton, NJ–based capability development and consulting solutions company said, “Our most troublesome country is India, whether it’s with a major IT company or another Fortune 500 client that we deal, in India it’s a very, very long payment cycle.”

Delayed payments have become the norm. Historically, government agencies are known to be sluggish. “We provide engineering and consulting services to the government sector, mainly municipalities and counties, and they’re always dealing with funding and processing issues, so we’re probably at 115 to 130 days,” said Michael Dentici, Senior Vice President, Chief Financial Officer, T&M Associates, an engineering, planning, and environmental consulting firm based in Middletown, NJ.

Procurement and finance are becoming more interwoven than ever. “We’ve been involved in deals where the client’s procurement executives say, ‘We require 60- to 90-day terms, to which we counter that our prices will go up 15 percent, to which the client often agrees. This makes absolutely no financial sense, because the 15 percent fee increase is much more than the cost of money. There is a disconnect in the performance systems and communications between procurement and finance when this happens,” said Mr. Baldwin.

Peter Pfreundschuh, Vice President Finance and Chief Financial Officer, Immunomedics, Inc., a Morris Plains, NJ– based biopharmaceutical company, said not only are payments in each country unique, but they are ever changing. “When I first audited payments with some French companies, we were seeing 360-day payment cycles. A law was then enacted in which companies were required to pay on time.”

John McAndris Jr., Chief Financial Officer and Vice President of Finance, JJM Consulting, LLC was previously in charge of Latin America for Pfizer/Wyeth. “Venezuela is a country that is very tough, as many companies there never release money. You have to go to the government to get a special dispensation to get the money out of the country,” he explained.

This discussion put things in perspective for Andrew Wood, Chief Financial Officer, J. Fletcher Creamer & Son, Inc., a Hackensack, NJ–based contractor. “About half of our work is with government agencies and the other half is with private companies. Most of our work is with utility companies, which are semi-regulated. I used to complain…until I heard you guys. Our DSOs are in that 65- to 68-day range, which is not that bad, compared to all of you,” said Wood.

Selling accounts receivable is a standard form of managing cash flow and is something with which Gunther Mertens has experience. Mr. Mertens is President, North America Region of Elmwood Park, NJ– based Agfa Corporation, the North American arm of global imaging leader Agfa-Gevaert N.V. “Our DSO is actually 45 days, which is good. But what we see is that some bigger companies are asking us to offer extended-payment terms beyond the standard 30 days, in exchange for a supplier-side financing program,” said Mertens.

As an example, Mertens explains that if a customer owes Agfa $1,000 and payment term is 60 days, the customer’s bank will pay Agfa $995 after only 10 days. The customer in turn will pay his bank $1,000 after 60 days. “So the customer achieves his goal of improved cash flow by keeping his cash 30 days longer,” said Mertens. “The customer tries to make this palatable to Agfa by not deteriorating vendor’s cash flow by 30 days and instead improving vendor’s cash flow by 20 days. But there is a cost to the vendor similar to if the vendor were to sell its receivables.”

Prioritizing revenue cycle issues was of paramount interest to most CFOs at the CFO Studio Executive Dinner. “If you don’t bill them, they don’t pay. The start-up time is in the invoice. If you change the terms of your agreements, so that your billing point is earlier, you can actually move forward the payment,” said Barry Lederman, Chief Financial Officer, Whippany, NJ–based Halo Pharmaceutical, a contract development and manufacturing organization that provides scientific and development expertise.

A steady billing cycle is key to success. “When I was in professional services, one of the things we changed right away was, instead of billing at the end of the month, we started billing every two weeks,” said Michael Roth, Chief Financial Officer, Chief Operating Officer, Beefeaters Holding Company, a North Bergen, NJ–based manufacturer of dog treats. “We dramatically increased cash flow by billing major customers every two weeks.”

The Right Partner

“One of the most important lessons for everybody is to get the right people to invest,” said Ed Schultz, Principal, of New Jersey–based Highlands Business Group, a consulting firm. “It’s important to make sure the due diligence is right, that the fit is correct, and that you’re not going to get beaten up. A lot of deals go south because the private equity firm didn’t listen and didn’t gain a solid understanding of the business. Sometimes, they only want to do the deal and aren’t thinking about who they’re investing in.”

The correct fit is important. “There are two things to consider: style and strategy. Does everybody agree about what the company is going to look like in the future? Is there knowledge of the industry and can you really get along with these folks? What is their style going to be on a tactical basis, too?” ponders New York City–based Curt Cornwell, Partner, Transaction Services, PricewaterhouseCoopers, a leading professional services network, and a CFO Studio Business Development Partner.

Andrew Savadelis, Chief Financial Officer, Angion Biomedica Corporation, a Uniondale, NY–based biopharmaceutical company, pointed out the uniqueness of the arrangement made at the company McKinnon had worked for. “It’s not private equity in normal terms. It sounds like it is more Venture Capital than Private Equity. VCs tend to take a longer-term perspective, but they also look for higher returns on their capital gains.”

Many agreed with Savadelis. “I concur, as the VC model typically includes raising a fund that is very industry-centric,” said Gregg Kam, Chief Financial Officer, Sonneborn, a Parsippany, NJ–based manufacturer and supplier of high-purity specialty hydrocarbons.

When preparing for private equity, sell-side reports have become a trend, according to PricewaterhouseCoopers. A selling company has an accounting firm come in, prepare a quality earnings analysis, a debt analysis, as well as details on trends being experienced, and that book goes out.

Allen Lane, Senior Vice President and Chief Financial Officer, Solix, a Parsippany, NJ–based provider of program administration, eligibility determination, and call center services, said, “I’ve been reading through a lot of these recently. There is a definite marketing slant on the part of the seller in these documents. They are a nice road map to begin your discussions with, but you still have to do a full due diligence review.”

Mr. McAndris of JJM Consulting said sell-side reports help from another perspective. “You can steer the course of where you want the buyer to look. You’re controlling the conversation,” he added.

In some instances, these procedures are not necessary. “We were headed down the road of going public and [our investors] came along and made us an offer that was about 50 percent above our projected IPO price. That’s what we call a no-brainer,” said Bert Marchio, Chief Accounting and Operations Officer, Edge Therapeutics, a Berkeley Heights, NJ–based clinical-stage biopharmaceutical company.

There are cases where acquirers don’t see the forest for the trees. “Every due diligence sale that I’ve been through, some companies got involved and looked at minutiae that didn’t really mean anything. For example, ‘I see you spent $22,000 on a particular purchase. What was it? Oh, it was a Christmas party,’ ” said Mr. Kam. “They often miss the big picture about the business in due diligence, focusing on immaterial items.”