CFO Brings Big Ideas to a Small Company

Colleagues and friends told Jeff Richard he was crazy to give up his career as a finance executive at big public companies to take a job with a small private firm. But Richard, though mindful of the potential scar that such a move could leave on his résumé, could not resist the appeal of a meaty turnaround situation and a likely future ascension to CEO.

That was three years ago, and things are going according to plan. Richard is both CFO and chief operating officer at Pavestone Company, a Dallas-based provider of stones for patios, retaining walls, lawn edges, and other uses, both residential and commercial. While the recession has driven revenue down about 20% from a high of $360 million in 2007, profits have continued to flourish, he says, though he declines to quantify the bottom line.

That result was achieved in large part by squeezing waste out of Pavestone, a company that previously had no strategic plan or even a formal budget, according to Richard. He credits his ability to direct the transformation to his 20 years of experience at large companies. That's one reason why finance executives shouldn't too-hastily dismiss similar opportunities to move down in size but up in authority. "Big-public-company experience works well in smaller companies," Richard tells CFO.com.

Much of that experience, after he started out as an internal auditor for Pennzoil and Cooper Industries, came at Tyco International, where Richard landed a role as finance vice president for an Asia/Pacific division. He stayed at Tyco for 13 years in various jobs, including divisional and segment CFO, where he says he was far removed from the schemes that resulted in long prison sentences for one-time Tyco CEO Dennis Kozlowski and CFO Mark Schwartz. Following briefer stays with Jacuzzi Brands and Electronic Data Systems, he encountered the opportunity at Pavestone.

Pavestone's Jeff Richard: Spreading the Wisdom.

Richard was told that he would be in line to be Pavestone's CEO when the company's owner, who's now nearing 60, became ready to step back. Just as attractive was the idea of spending most of his time running the company and making a difference — formulating and executing a strategic plan, visiting plants and customers, and working on product development and acquisitions.

By contrast, at the public companies, Richard says, three-quarters of his time was spent on "being Sarbanes-Oxley compliant, answering analysts' questions, and fighting with auditors — things that didn't necessarily bring a lot of value to the company. What I really wanted to do was see the fruits of my labor."

Indeed, in his due diligence before accepting the job, Richard got the clear idea that drawing from his experiences would make Pavestone more valuable. Large public companies like the ones he worked for have more and often better talent from which to learn, he notes. They also have money to spend on implementing efficiency-enhancement programs such as Six Sigma and Lean Manufacturing. And they tend to have more robust business analytics and stronger internal controls.

All of those things contributed to the changes at Pavestone. The ideas Richard brought to the table, he says, "were just the ones I'd been running with for many years."

Getting under Control
To be sure, some of those ideas were fairly straightforward, though in some cases they produced seismic changes in the Pavestone culture. For example, Richard instituted controls over capital expenditures where there had been none. "The first meeting I had with the management team, one of our transportation guys came up to the CEO and said, 'I want to buy 15 trucks for $2 million, what do you think?' And the CEO says, 'Sounds good, go ahead.' I was floored."

Now, he says, an expenditure request must come along with an analysis of how there will be an adequate payback on the investment within 18 months. But he has adjusted the control for the small-company environment. "We don't have 16 approvals to buy a piece of machinery," he says. "We want to be able to make a decision in hours rather than weeks."

It's not only big capital expenditures that undergo the microscope treatment. Any discretionary payable has to go across Richard's desk.

For example, the company had a history of treating customers to sporting events and trips. Now, if there is a request for 10 tickets to a football game, Richard asks for a list of the customers and what business they are expected to provide. "What I found is that many times there would be seven Pavestone guys and three customers going," he says. "That's a non-starter."

While sporting events don't in themselves have a huge impact on the company's profit performance, they are emblematic of the kinds of savings identified from a Six Sigma-like approach to analyzing the business. The company has lopped $1 million per year off its former tab for attending trade shows, simply by analyzing the leads that derived from each show. "Most of them didn't produce many leads at all," Richard says. "We don't go to those anymore." And for the shows Pavestone still attends, it is buying smaller booths.

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• Tyco |
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• Jacuzzi |
• Pavestone