It's unusual to come across debt issues, dividend increases and share buybacks much these days. And even more unusual to see a company doing all three. But that's what Dutch telecom group KPN has been up to in recent months.
"Our consistency is a great value," claims its CEO, Ad Scheepbouwer. That said, the decision to maintain pre-recession practices during deepening economic turmoil hasn't been easy. Two years ago, when "you could get money at any moment you wanted it," Scheepbouwer recalls, approving such actions was relatively routine. Now, the CEO spends a lot more time with Marcel Smits, KPN's finance chief, devising strategies to steer the company through the downturn. "I see him more often, because there are so many more issues to talk about," notes Scheepbouwer. "As the news gets more grim, the role of the CFO grows in importance."
Already enjoying a close relationship, Sheepbouwer and Smits aren't the only CEO-CFO team getting closer in hard times. While every CEO reacts to adversity differently, there is one thing every finance chief can be sure of: they will be spending a lot more time in the corner office in the coming months.
What this entails depends on the CEO. For Scheepbouwer, the key is "fast, correct and detailed information." He cites cash flow, margins, taxes and other basic financial data as the information he now tracks most closely. "In hectic times, the basics become more important," he says. Patrick Kron, chief executive of French engineering group Alstom, acknowledges that the traditional metrics are important, but he expects his finance chief, Henri Poupart-Lafarge, to keep him abreast of macroeconomic and capital-markets information as well. In a fast-changing world, such a perspective is as critical as an internal one, he notes. For Ben Noteboom, CEO of Randstad, a Dutch recruitment firm, his conversations with Robert-Jan van de Kraats, Randstad's CFO, are "the same as in the past, only a bit more." Though his priorities have not changed, he says, "execution has become a lot more complicated."
Support Services
It's a good thing that his office is right next door to the CFO's, jokes Noteboom. Since taking over similarly sized Vedior last year, Randstad must now service nearly €2 billion of debt. "The short-term worries are obvious," the CEO says. The long-term prospects for the temporary staffing market, particularly in Europe, are good, but to ensure that Randstad can take advantage of them, Noteboom is relying on his finance chief to engender cash-consciousness throughout the company. "We have to make sure that we save costs without killing growth opportunities," notes the CEO. "This requires a sophisticated system where we delegate cost-cutting and investment decisions to as low a level in the organisation as possible." The finance function is a critical partner in this exercise, as the information it provides helps to "make sure that we do what we have to do fast," Noteboom says.
Amid volatility and uncertainty, comments about boosting the frequency and speed of information generated by finance are common to all CEOs at companies of all sizes. The chief executive's readiness to delve into the nitty-gritty of cash management, including details of working capital processes, is also a sign of the times. In reporting for this story, it was sometimes difficult to tell if CEOs were describing their relationships with their CFOs, treasurers or supply chain managers.
This doesn't surprise David Lovett, a managing director at turnaround consultancy AlixPartners in London. "No company is going out of business by making losses," he says. "They go out of business because they run out of cash."
As this becomes clear to all but the most blinkered CEOs, they are embracing an aspect of the CFO's role that many once mocked: "the natural pessimism that comes with the finance function," as Noteboom of Randstad puts it. "As the markets fall, they add another layer of how bad it could get," he adds. "It gets your attention, that's for sure." Whereas in the past such gloominess may have been criticised for slowing a company down, these days it may end up saving it.
Executive Decisions
At Draka, a cable manufacturer based in Amsterdam, CEO Sandy Lyons is grateful for Frank Dorjee, a CFO who "thinks there's something bad around every corner." In contrast, Lyons describes himself as a natural optimist, casting the company's executive team in the usual roles.
When the duo was finalising its annual budget in late 2007, they believed that in 2008 or 2009 the economic cycle would turn. Dorjee refinanced credit lines, arranging a new facility that covered the firm's financing requirements through to 2012. Without it, the company would have had to renew this year, a considerably more difficult and expensive exercise, Lyons says.
The company also enacted a capital-spending and hiring freeze in last July, avoiding more severe actions had it waited for the drop in activity later in the year. In addition, leading a project to cut working capital from nearly 30% of revenue three years ago, the CFO helped bring it down to between 16% and 18% in recent quarters, standing the firm in relatively good stead as cash flow becomes critical. All of which makes the CEO beam.
When it comes to the ideal finance chief, Lyons says that "hopefully the primary strengths of the individual line up with the primary responsibilities of the role." As far as his current CFO goes, Lyons describes him as "calm, conservative and courageous." As it happens, the company's themes for this year are similarly alliterative: "customers, costs and cash." It is a good match, which is lucky for the finance chief, as Lyons notes that his father, a physician, used to joke that the best way to ensure good health is to pick your parents. In a similar vein, "the best way to deal with economic stress is to pick your CFO," he says. Indeed, some companies are responding to a financial slump by replacing their finance chiefs. (See "Friendly Fire" at the end of this article.)
Reader Comments» Post a comment