Capital Markets

Strategic Inquisitions

We ask CFOs what it takes to become a true partner in setting company strategy.
Russ BanhamDecember 1, 2010

It is an old question that is certain to acquire new urgency in 2011: How will CFOs step up their game and provide more of the hard-edged strategic insights that their companies will need in order to grow again?

As challenging as the recession has been and will continue to be, it has also offered CFOs a silver lining in the form of renewed respect for their skills and expertise. In a September 2009 CFO survey, about one-third of senior finance executives said that the recession had improved their positions within their companies by highlighting their skills and providing the finance-specific challenges that enable them to both demonstrate and refine their talents (or, in some cases, enhancing their appeal in the job market). And when we asked which specific skills had proven most important at that point in the recession, two-thirds cited their “management/leadership ability” and nearly 40% pointed to their “ability to think strategically.”

That would seem to leave CFOs ideally positioned to capitalize on the higher profiles they have earned. And no doubt many would love to move away from the relentless focus on cost containment and instead think about ways to reinvigorate their companies. But rather than leave one priority behind in favor of another, CFOs seem far more likely to have to figure out how to manage costs and help drive growth. As Darden Restaurants CFO Brad Richmond says, CFOs will have to balance “traditional responsibilities with the ability to provide analytical truths and points of view that help shape overall strategy.”

Or, put another way, it’s not enough to simply collect and report on financial data — you also have to figure out how to help your companies capitalize on it.

That’s what Richmond is doing. His company operates the Olive Garden, Red Lobster, and LongHorn Steakhouse chains, among others, a $7.2 billion restaurant empire that is virtually ubiquitous in the United States. Where to go from there? The Middle East. In 2010, Darden made an agreement with franchise operator Americana Group to develop at least 60 of its restaurants in Bahrain, Egypt, Kuwait, Lebanon, Qatar, Saudi Arabia, and United Arab Emirates.

Although Richmond’s analysis of customer data revealed that casual dining within the United States still presents strong growth opportunities, it also indicates that this growth will decline from historical norms. “Using predictive insights, we saw the opportunity to capitalize on nontraditional growth areas to help capture the full potential of our brands,” he says. “The Middle East market is growing and has a strong affinity for American dining brands. International expansion to this region and others is one of a number of strategic initiatives we’ve vetted and are beginning to play.”

Redefining the Role

Many CFOs would love to lead exactly that kind of charge, and often they can. When they can’t, it is frequently because their companies have limited them, almost literally. “CFOs do what the job description tells them to do, and it often says to focus on the numbers,” says John Kotter, professor emeritus at Harvard Business School and author of the new book Buy-In: Saving Your Good Idea from Being Shot Down. “They become very good at this, and at all the sub-aspects of finance, but that makes them specialists, much like chief technology officers.” And, Kotter adds, an ill-conceived job description leads inexorably to the CFO becoming “the ‘numbers person,’ simply because this is what is expected of him or her — and, thus, the stereotype.”

Escaping the stereotype requires a very developed sense of nuance. A CFO is highly unlikely to be able to — or, for that matter, want to — leave behind the analytical role completely in favor of perpetual brainstorming or evangelizing the trend du jour. That task almost always falls to the CEO. For CFOs, being “strategic” often hinges on addressing the many tasks that turn an idea into a reality.

Chris Trimble, adjunct associate professor of business administration at Dartmouth College’s Tuck School of Business and author of The Other Side of Innovation: Solving the Execution Challenge, says that “the typical executive in the thick of launching a new product or moving into a new market needs a partner who can be a little detached and yet insightful. It becomes hard to see the forest for the trees — to know what to pull back or where to move forward. CFOs, both by nature and by training, often provide the essential analytical insights” that drive strategy.

“CFOs,” Trimble adds, “are the executives best-equipped to analyze, test, and elevate the critical assumptions that prove the new product or service will be viable, and to measure progress along the way.” This, he points out, is a very different job than making sure the company hits the numbers every week and every quarter. “With an [innovation] experiment, you’re trying to prove or disprove a theory, and it takes tremendous financial and analytical insights, which only your best finance person can provide,” he explains.

Overcoming the “Bad Cop” Rap

“The most important thing a CFO does is to quantify and contextualize a path, to myth-bust and to disrupt the status quo,” says Rose Marcario, chief operating officer and CFO of Patagonia Inc., a $400 million designer and manufacturer of outdoor clothing and gear (see “I Hate CFOs Who Always Say No,” On the Record, October). “You become relevant when you have intellectual curiosity and a capacity to understand the needs of your colleagues and businesses, and the courage to then have a point of view. This is not about being the bad cop, it’s about having the willingness to engage in a healthy debate over a strategic direction, to listen to others’ views, and then to help effect compromises to move the strategy forward.”

At this point, it’s worth noting that this may not be the job that many CFOs signed up for, and not every CFO will have what it takes. But, increasingly, it will be what is required.

“If the CFO is primarily focused on crunching the numbers, doing the annual plan, and interacting with the Street, you won’t get much value out of that person to move the organization where it needs to go,” says Scott Di Valerio, CFO at Coinstar Inc., parent company of the Redbox DVD rental and Coinstar self-service coin-counting brands, with expected 2010 revenues of more than $1.4 billion. “The way you do this is by seeing yourself as a business partner who solves complex issues, and not as the finance person or the accountant. You have to get out of the ivory tower and spend time on the front lines.”

Research by executive recruitment firm Russell Reynolds Associates finds that companies are increasingly seeking finance chiefs who can truly partner with the CEO. “In the 2003-to-2006 time frame, a lot of positions were labeled ‘CFO,’ but what clients really meant was ‘controller’ or ‘accounting-based financial officer,’” says Christopher Langhoff, managing director in the financial-officer practice at Russell Reynolds. “Companies were struggling with Sarbanes-Oxley responsibilities, and that shaped what they sought and what a lot of CFOs ended up doing. They spent very little time on strategic activities.”

This has now changed. “I can’t think of a single CFO search in the last 18 months where the client said, ‘I don’t want a strategic business partner; I want a bean counter,’” says Langhoff. “The pendulum has swung because CEOs need partners in charting strategic growth.”

No Lemmings Need Apply

If the game is coming to you, how can you be sure you’re ready to play? There is no set path for a CFO to distinguish him- or herself as a strategy ace, but the CFOs we spoke to did have some notable traits and experiences in common.

The most conspicuous by far is a résumé that combines finance with operations experience — often favoring the latter. While Richmond of Darden Restaurants has CPA and accounting-firm experience, he also worked in culinary operations at Darden, “literally helping develop the menus,” he recounts. “Then I was rotated to marketing and helped create and buy media. It was the broad experiences I gained before becoming controller and then CFO that helped make me a good business-strategy partner.”

Richmond says his career progression made him biased — in a good way. “My operations experience gave me great respect for the other disciplines as I engaged them from an accounting standpoint,” he says. “I learned firsthand their resource-allocation needs, which is invaluable to me as CFO today. I am better-equipped and more confident in how I support and fund the growth initiatives that come out of the strategic-planning process.”

Rose Marcario has an MBA in finance and gained significant operations experience at past employers, hence her dual role as COO and CFO. “The dual titles may be unusual, but they underscore that a lot of my work is on the operational side of the business,” she says. Scott Di Valerio is a CPA and former partner at PricewaterhouseCoopers, yet he, too, has spent substantial time running businesses. Before joining Coinstar, he was head of the OEM division at Microsoft and led the Americas division of Lenovo.

It also helps to work for a company where the finance chief can “feel comfortable voicing an opinion, where management supports collaborative dialogue and the idea that ‘we all fail or succeed together,’” says Andy Rose, vice president and CFO at Worthington Industries, a $2 billion diversified metals-manufacturing company. “You need that independent mind-set [of the CFO] at the table, to question whether an investment is the best use of the company’s resources.”

Rose, whose career also spans operational positions — he was a co-founder and partner of Peachtree Equity Partners — says not all companies permit such open debate. Fortunately, “our CEO [at Worthington] wants independent opinions; he doesn’t want lemmings,” Rose says. “More companies need to realize that their CFO’s finance training allows them to understand the business, end-to-end. They are able to look at a strategic idea and see how it will connect across the company, in terms of impacting current business or accelerating it. I don’t know why companies divide ‘financial analysis’ from ‘business analysis.’ They’re the same thing.”

Opportunity in Ambiguity

Not all CFOs will be given the opportunity to spend parts of their careers running businesses, but there are other ways to get in the operational trenches. Eight years ago, Karen Daniel, CFO at Black & Veatch, was given the opportunity to co-chair a committee charged with formalizing the strategic-planning process at the $2.7 billion global engineering, consulting, and construction company. “Each year the other co-chair was the head of a particular business unit, like our energy division or our water business,” Daniel says. “This facilitated our understanding of the interdependence of each other’s goals.”

That experience gave Daniel an in-depth understanding of the business units’ growth initiatives to better guide strategic resource allocation. “I have now become the critical bridge in the value-creation process between the CEO’s overall strategy and how this is implemented by our different business units,” she says. “I now have the knowledge and the opportunity to sit back and be part of the whole thought process around which strategies make sense and which don’t.”

Like the other CFOs we spoke to, Daniel feels fortunate to be given a chance to assess the entire company from a high level. “I think it’s the assignments we get beyond our traditional finance responsibilities that really help develop our business acumen,” she says. “It’s a good thing when the CFO can exercise curiosity about what else is going on in the organization. You’re able to approach ambiguity as an opportunity to provide a solution.”

For all the talk of CEO-CFO partnerships, however, it has to be acknowledged that the relationship doesn’t always play out that way. Many CEOs are mavericks — they and they alone establish the strategic direction, and they expect other senior managers to get on board with no debate. CEOs and CFOs often aren’t cut from the same cloth, and there is plenty of data from the world of Myers-Briggs and related personality assessments to back that up.

While it is great when a CEO and a CFO simply click, when that doesn’t happen it’s often incumbent upon the CFO to “depersonalize the debate,” says Cesar Mainardi, senior vice president at Booz & Co., by “using facts to drive agreement on what is essential to the company’s competitive advantage.” Otherwise, as Jeff Burchill, CFO of insurance giant FM Global, notes, “if you’re not strategically aligned with the CEO, you won’t be around long. That might explain why there has been such turnover in CFO ranks lately.”

If you’ve got the skills and vision, a supportive corporate culture, and a good relationship with your CEO, there is no limit to the strategic contribution you can make. And smart CFOs will make it now, before the wheel turns again. As Burchill notes, CFO skill sets come in and out of fashion, and there’s no telling when a compliance king or cost-cutting whiz will suddenly be back in vogue. “You need both finance and business talent,” he says, “because you will be shifting your focus back and forth.”

Right now, the shift is clearly in the direction of strategy. If you have the skills, use them. If you don’t, get them. You’ll be glad the next time around.

Russ Banham is a contributing editor of CFO.



Strategy of a Different Sort

When it comes time to jump ship, should you alert your boss?

When Shirley Wiliani, CFO of Menemsha Development Group, a commercial construction company based in southern California, decided it was time to seek a new job earlier this year, she took an unusual step: with no new position in sight, she told her boss about her plans, and even helped him craft an e-mail alerting all Menemsha employees to her intentions.

“The market being what it is, I really needed time to network,” says Wiliani. “And I just hated the thought of having to try to hide every interview.” She also knew how long it might take to hire and then train a replacement, and she didn’t want to leave the company in the lurch by giving only two weeks’ notice.

No doubt many CFOs are ready for a change. Recruiters say that a large number of executives have stuck with their job through the downturn simply because of the difficult job market, but are now ready to leap.

Most, however, are likely to stay mum about their plans, and for good reason. “In a traditional employment market, we wouldn’t recommend that anyone launch an active search while employed,” says Gail Meneley, principal at Shields Meneley Partners, an executive-coaching firm. Not only could it pose ethical conflicts, but a search can essentially amount to a second full-time job, she says.

Timing can also create problems. Meneley points out that given the large supply of finance executives and the relatively low demand for them, it’s more likely that a company will find a replacement before the outgoing CFO gets a new job.

But other CFOs have followed Wiliani’s path. Steve McElhinney, who worked for various New Balance companies for close to 10 years, most recently as CFO of lacrosse product maker Warrior Sports, even had his employer foot the bill for an outplacement firm in Boston when he decided to move back to New England. In exchange, McElhinney agreed to stay with Warrior Sports until he could train his replacement. — Alix Stuart