VideoLaureen DeBuono may be the ideal turnaround CFO. She's smart, meticulous, and she's a damned good securities lawyer.
After earning a bachelor's degree from Duke University, a master's from Stanford, and a law degree from NYU, DeBuono launched her career at Bronson, Bronson and McKinnon, a San Francisco law firm. But it wasn't long before she decided to enter the nonbillable world, moving first to Varian Associates, a Palo Alto, California-based semiconductor equipment manufacturer. In 1987, DeBuono joined household-products maker Clorox, where she became more involved in the actual running of the business. In fact, in her next position as vice president general counsel at Nellcor Puritan Bennett Inc., a medical-device manufacturer, DeBuono helped negotiate that company's $2 billion sale to Mallinkrodt Inc.
Soon after, DeBuono leveraged the Nellcor Puritan Bennett sale. In 1998, she landed the top finance post at ReSound Corp., a manufacturer of hearing devices and communications products. At the time, ReSound was not so sound. "The company had about $150 million in revenues but no market cap, no analyst coverage, very little cash in the bank, and a lot of businesses that were not rationalized," she recalls. "But we were able to clean it up quite successfully." Later, DeBuono oversaw ReSound's sale to GN Great Nordic, a Danish telecom company, in late 1999.
In September, DeBuono signed on at yet another struggling company — this time, the aptly named Critical Path. When she joined the Internet messaging specialist as interim CFO in September 2001, Critical Path was in serious trouble. The company had gone through several CFOs, and earnings had fallen well short of fourth-quarter estimates. Worse, some managers at the company admitted to having improperly booked revenue, and the company was forced to restate earnings for the prior two quarters. In the aftermath of the restatement, Critical Path was slapped with 52 — count 'em, 52 — shareholder lawsuits, along with an SEC investigation. The company was also carrying some $300 million in debt, yet barely generated $27 million in revenues in the first quarter of the year.
Under DeBuono's tenure, however, Critical Path has stabilized. The company reduced its debt load to around $38 million, and is now sitting on about $70 million in cash. The Net operator has also expeditiously settled its cases with shareholders and the SEC, proving that it doesn't hurt having a CFO who knows his or her way around a legal brief.
In January, Critical Path management rewarded DeBuono for her hard work, naming her Critical Path's permanent finance chief. DeBuono recently spoke with CFO.com's Jennifer Caplan about lawyers as CFOs, what it takes to save a sinking company, and the challenges of managing through an accounting scandal.
It's uncommon for a CFO to have a legal background. Do you feel your knowledge of the law has made you a better CFO?
My legal background has been critical in making me the type of CFO that I am. As a lawyer, I believe you develop the best possible analytical and risk-assessment skills that you can — even better than in business school or going directly into an accounting situation.
My move to becoming a CFO has been relatively deliberate — but evolutionary. It's been quite an easy move for me from legal into the finance area. After all, I have been working within companies for the past 20 years.
Prior to joining Critical Path, you were at ReSound Corp., a manufacturer of hearing devices, which was struggling financially. You went into that company, turned it around, and sold it off. Has your experience at Critical Path been similar?
Yes, ReSound was very similar to Critical Path in that, when I came in, we still had balance-sheet and convertible-debt issues to resolve, we needed to raise additional cash, and we still had pieces of the restructuring left to do. So the skills that I had developed at ReSound were right on. I won't say it was easy, but I had all the experience to do it.
Becoming a "turnaround CFO" can be a double-edged sword. You take a big professional risk by going into a company that has the potential to tank. At the same time, if you are successful, you become a hot commodity. Would you say the risk is worth taking?
It definitely has been worth it. We have been extremely successful with our turnaround. If you look at our balance sheet, we had $69 million in cash at the end of Q4, and we retired almost all of our debt — we now have about $38 million left on the books. We've reduced our workforce by 50 percent, closed two-thirds of our facilities, and have been able to rationalize our product base.
There's always some risk involved with a turnaround situation. But I do think that the rewards outweigh the risk. I do believe that Critical Path will be successful and that the reward will come.
Critical Path got in trouble because of some questionable revenue-recognition practices. The company's new management team now faces the challenge of rebuilding an ethical culture at the company. How have you played a role in that area?
As a CFO, you are right in the middle of crafting what the corporate culture should look like in terms of policies and procedures. We have spent a lot of time over the last six months rebuilding our corporate policies as well as our financial and accounting practices. I feel extremely confident that we now have the right policies and procedures in place to be successful.
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