VideoAt first glance, one might think that the changes in a CFO's responsibilities during the past two decades have been radical. After all, the world of finance moves much faster now than it did in 1985, even as rules have tightened and stakes have climbed.
But when we asked three CFOs who took companies public in 1985 to tell us what they learned in the ensuing 20 years, their answers revealed that in essential ways, the job has remained the same. At the same time, the career paths of these three men have been very different — reminding us that the past two decades have offered unprecedented opportunities for talented financial executives.
Keep It Simple
Carleton Holstrom
Age: 69
1985: CFO of Bear Stearns
2005: Entrepreneur, board member, philanthropist, "retired"
Carleton Holstrom began his career in 1962 as a commercial banker, but he came to dislike his prospects. So he jumped to investment banking seven years later, when the bull market of the time was about to peak. "I figured everyone was making tons of money in investment banking," says Holstrom, "and the minute I got there, the market crashed."
He soon found himself to be a mediocre investment banker as well, an opinion apparently shared by his bosses at Bear Stearns. They asked him to move to an administrative position. And until 1977, the year he took on the CFO role at Bear Stearns, "we managed the firm from the trading desk between 4 p.m. and 4:15 p.m.," he says with a laugh. "The business was getting too complicated to have an informal management structure."
By the start of the 1980s, Bear Stearns faced two challenges: Older partners wanted to cash out and retire, and the company needed more capital to keep up with the competition. Holstrom had secured loans from banks and insurance companies, but Bear Stearns had limited access to capital markets. Going public was an option, but the partners faced a big potential tax hit and weren't eager to publicly disclose the firm's financials. Soon, "we were using Band-Aids and baling wire to allow the firm to grow," he says.
Between a rock and a hard place in 1985, Holstrom and his controller, Bill Montgoris, eventually devised a way to create a corporation while temporarily retaining the partnership and going public for a good price — all without creating taxable gains for the partners. "At the time, there was very little precedent for doing a tax-free exchange between a partnership and a corporation," recalls Holstrom. The partnership continued to exist for several years after the stock sale, and held the stock on behalf of the partners until it was clear that there was a stable market for it. "That opened up the public markets to us," says Holstrom, "and that became increasingly important as the business exploded."
Holstrom retired two years later, leaving the CFO's job to Montgoris, who moved up in 1993 to become Bear Stearns's COO. Holstrom went to work for several charities, became chairman of Rutgers University, and served on two boards at the University of Wisconsin.
Soon Holstrom and several new business partners set out to launch an educational software firm, Scientific Learning Corp. He says that obtaining venture capital for it was as hard as anything he did at Bear Stearns. He estimates that he and the company's co-founders visited at least 100 venture-capital firms before one, Warburg Pincus, agreed to provide funding. "Everyone was focused on the Internet," says Holstrom, "and we didn't have a dot-com at the end of our name." But the company managed to go public in 1999, and unlike many dot-coms, it's still in business today. Holstrom continues to sit on the company's board.
His experience leaves him skeptical of many financial products. "Don't get too fancy," he advises. "There's a place for derivatives, interest-rate swaps, and that sort of thing. But you don't want to go too far down that path. You have to remember that selling those things is Wall Street's business. Understand that when you're sitting across the table from someone trying to sell you a new financial instrument, they're selling you something that is guaranteed to make them money."
But Holstrom says the single most important rule he kept in mind during his career was to remember to have a life, which for him meant spending more time with his family. He learned that back in April 1978, when he and the other 40 partners in Bear Stearns assembled at the Harmonie Club in New York to celebrate the famous career and impending retirement of Salim "Cy" Lewis, the firm's 69-year-old founder and chairman.
Holstrom, then 42 and the newly installed CFO, remembers the event like it was yesterday. Senior partner John Slade was presenting Lewis with his ceremonial retirement watch. "John said to him, 'Cy, I know you've always wanted a watch. By the way, you're not supposed to give older people watches. Bad luck. Besides, it's no fun getting old anyway.' Cy got up and said, 'Well, it sure beats the alternative,'" says Holstrom. The words had barely left his lips when Lewis dropped to the floor, leveled by a massive stroke. He died several days later.
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