VideoOn a wider scale, "our people down in Venezuela are teaching the operating people daily about how significant finance is to our project," he says. "These are people who are good at putting up bricks and mortar, and good at drilling." And now, four years after a landmark $1.45 billion in nonrecourse debt was arranged for the giant Petrozuata oil and gas venture with the South American country, Goldman says they also have "a much greater sensitivity to the role of the bondholders" in a high-risk project that never could have flown without them.
Whatever the venue, says Francis, the very act of having finance executives share their perspective can inject a positive spirit and "remove the confusion and distrust" that sometimes exist. It helps "people feel included," she adds.
The Power of Credibility
The benefits of having CFOs educate in a formal way cannot be denied, however. And since there's a finance component to nearly every company training program, including those conducted by the corporate university, more finance executives are finding themselves at the lectern in some form.
Goldman, for example, teaches a course in creating shareholder value at Conoco University's "Trailblazer" executive program. The course, presented four times a year at the London School of Business, is appreciated for both its style and its substance.
"He talks enthusiastically about his subject," including such items as the need to integrate exploration and refining, says Don Robertson, general manager for extraction for the upstream group of Conoco UK in Aberdeen, Scotland, who attended Goldman's Conoco U. class last October. "But more than that, he's interested in the audience and what they're getting out of it."
One essential element that Goldman brings to his lessons is credibility. Robertson recalls how the CFO punctuated his presentation with a promise. "He said, 'You bring forward the right opportunities, and I will fund them.' " This was a striking pledge for a company that had often shied away from such investments before the 1998 initial public offering that made it independent from DuPont Inc. "That stays in the memory," says Robertson.
In addition, Goldman is blunt with employees about the outside limitations and pressures that exist on his company, a quality that is imperative in teaching finance to people without a finance background, says Harvard Business School professor Samuel Hayes. "They need to understand that the company is a captive of the financial marketplace, answerable to the markets, from both an equity-value point of view and a credit point of view," Hayes says. "They need to understand the risk of carrying debt in the capital structure, but also to see that equity has a cost and a risk, too. If you fail to use debt, you're robbing investors of some degree of value added. You've left money on the table."
At Young & Rubicam, says former finance chief Greene, there were 350 business units globally, each with its own balance sheet — and a tendency to be overcapitalized. Managers had the idea, he says, "that capital is free." To rectify that, Greene had to provide examples of well-designed capital structures among the unit managers. And today, one of the big lessons he imparts in executive education programs at Indiana's Kelley School is that "equity is the most expensive capital you can have, and leverage is not necessarily a bad thing."
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Harvard's Hayes suggests that in a more formal setting, especially, finance executives can also increase their impact by "explaining things with visual symbols or pictures that get people thinking in terms of proportions." In fact, he's known as "Debt Limb Hayes" because of his fondness for one particular illustration. When depicting a balance sheet, he uses an arboreal metaphor to show how unnatural it can be for companies to become unbalanced.
"If the amount of liabilities gets much larger, compared with net worth, you get further out there on the limb, and it starts to wiggle and sway," says Hayes. "And if there's any wind — which I demonstrate as external economic changes — you can get dizzy, and you could fall off."
Another image he uses in his efforts to make the balance sheet understandable is that of a giant sponge, which can soak up all the elements of assets and deposit them in equal measure in liabilities. And wherever possible, he suggests, CFOs should use ratios to increase understanding of how one accounting component affects another.
"People can get anything, if you get rid of the jargon and break it down into pieces they can understand," says Francis. And especially if you make the finance lesson relevant to their own work. "Everybody wants to know how what they do affects the performance of the company," she says. With the growth of sophisticated software, she adds, operating people now have more tools to understand how their specific businesses fit with the whole. But they still need someone in finance to help them make the connections.
Wherever the teaching takes place, says Chris Paisley, the former 3Com CFO, it has benefits for the teachers, too. "It makes you much more self-confident about speaking in front of an audience," he says, "which is a huge advantage for CFOs," many of whom have a fear of public speaking. In addition, he asserts, it's "the best way to learn something yourself. I always found myself taking information away, just from the questions people asked."
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