BUSINESSWEEK ONLINE : AUGUST 28, 2000 ISSUE
THE 21ST CENTURY CORPORATION -- THE NEW LEADERSHIP Up from Bean Counter The role of CFO is expanding to strategist, venture capitalist, and chief communicator To: John Seekings From: Sam Leap Re: CFO Search Hi, how's my favorite headhunter? Enjoyed our lunch last week to discuss the placement of a new chief financial officer at my company, Ultimate Progressive Corp. Fitting that we met at the ''21 Club''--got me thinking about the 21st century, or specifically, the type of CFO we need to lead our company in this new millennium. (Not to mention the $21 tuna appetizer I ate!) Just wanted to pontificate on paper a bit about that subject. First off, let me be blunt: Bean counters need not apply. As we discussed, I need a strategic partner, a visionary, someone with global ties who can fill a much broader role than just supervising transactions and keeping tabs on employee expense reports. He or she should be a strategist, deft communicator, dealmaker, and financier. An expert in information technology and risk management, too. Your competitor over at Korn/Ferry International, vice-chairman Peter D. Crist, tells me that as CFOs increasingly step outside of the accounting role and focus on bigger issues, they are gaining more power and respect. Ultimately, he says, just the CEO and the CFO will be at the helm of the corporation. Take a look at Worldcom Inc. (WCOM), where there is no president or chief operating officer. Instead, CEO Bernard J. Ebbers' chief confidant, adviser, and strategist is CFO Scott Sullivan. Scott's an ace when it comes to customer trends and market share, and he does most of the dealmaking for Bernie, negotiating the purchase of dozens of companies. I read an article where Bernie said, ''I don't think Worldcom would be where it is today without Scott.'' At other outfits, the CFO is helping to build new businesses from within, by acting as the company venture capitalist. ''If someone has a new product idea, they shouldn't have to go outside of the company to exploit it,'' says Philip B. Livingston, president and CEO of the Financial Executives Institute. I see CFOs increasingly creating and heading up incubators and venture-capital arms within their own companies. Dell Computer's (DELL) former CFO, Thomas Meredith, recently became the managing director of 16-month-old Dell Ventures, which has invested around $700 million in some 90 companies, such as Red Hat (RHAT) and StorageNetworks (STOR). That's what I want--a CFO who's a catalyst for change, not just a reporter of information. That's not to say information doesn't matter. Now that the Internet is reshaping how companies like ours create value, investors are demanding more and better information. As financial markets become more global, that's especially key for any CFO. Just look at us: We're expanding into Europe; we're considering joining a business-to-business Internet site that will market our products directly to wholesalers; and we're thinking about a spin-off of our Nanosecond Technologies division, something we'll need to sell investors on. I'm looking for a CFO who can really take the lead on efforts like these. My friend Peter McLean, vice-chairman at Spencer Stuart Management Consultants, said to me recently: ''The role of the CFO will continue to grow much broader, requiring a set of skills that goes far beyond accounting and cost control.'' Heck, these days, you can get a computer program to do a lot of the more mundane accounting tasks. That should free up our new CFO to become that ''strategic partner'' that I mentioned before. Enterprise Software Products already has programs that allow many accounting and financial-modeling tasks to be performed effortlessly and in a fraction of the time it took just five years ago. The sophistication of these programs will only increase. Thornton May, a corporate futurist at Cambridge Technology Partners Inc., says that soon every company will have ''CFO-in-a-box''-type technology. Here at Ultimate Progressive, we already use Web-based software, such as NetLedger and TimeBills.com, that performs online invoicing, budgeting, and expense-tracking services with the click of a mouse. And speaking of those employee expense reports, I want our new CFO to develop a system like the one at Oracle Corp. (ORCL), a leading innovator in enterprise software itself, where expense reports are filed on the company's intranet, axing out loads of paper and labor costs and allowing reimbursements to be paid directly into bank accounts a week faster than was possible back when they used old-fashioned forms. According to a consultant we have been working with, Richard T. Roth, the managing director of AnswerThink's Hackett Benchmarking & Research, the top financial managers spend 29% of their time supervising such mundane transactions as billing and procurement, while their lesser counterparts spend around 50% of their time on this. I want my CFO to be in the 29%-or-lower camp. I also need my CFO to be a risk-management wizard, ahead of the pack in figuring out all the things that could possibly go wrong at Ultimate Progressive and finding ways to limit those risks. It's a given that in the 21st century, macro, less-tangible issues, such as the environment and employee health and safety, will fall increasingly under the risk-management umbrella. Litigation in these areas is only going to become more prevalent. I'm really concerned about this kind of stuff, John. A former employee of ours is threatening to sue, saying his back is out of whack for good because we didn't have ergonomically correct workstations a couple of years ago. We have them now, but I need a CFO to anticipate those kinds of things before someone gets hurt. Risk-management tools like derivatives and other hedging instruments will continue to become more complex, especially as financial markets become more global and more intricately linked. These newer tools include fancy things like catastrophe bonds--you know, those corporate bonds designed to protect against exposure to losses by hurricanes, earthquakes, and the like. They're fast replacing the use of conventional insurance to limit risk. If my CFO can't figure out what kinds of instruments will be best for Ultimate Progressive, then who can? Sure, technology is increasingly revolutionizing risk management, taking out some of the guesswork. Still, I need a CFO who can figure out which technology to purchase, how much to spend on it, and when to update it or ditch it for better stuff. It would be great if we had a CFO who could help develop financial software specifically for us. Enron Corp. (ENE), one of the most progressive companies in managing risk, has developed software that monitors risk profiles of each of its investments on a real-time basis. According to Gary T. Moran, a partner at Arthur Andersen whom I met recently: ''At any given moment, Enron knows how the value of falling currency is affecting that particular investment as well as the company's overall balance sheet.'' Gary says that J.P. Morgan & Co. (JPM), which is considered cutting-edge in the hedging and derivatives department, has developed a system that gauges and monitors the impact of market risks for events up to three years out. John, I'm excited about another traditional CFO task that's being revolutionized: the reporting of a company's financials and periodic closing of the books. Ultimately, financial information will be available in real-time fashion, making it possible to close the books almost instantaneously. AnswerThink's Roth tells me: ''This will allow companies to identify weak spots or competitive threats as they occur and to make necessary changes midstream.'' I was reading about Cisco Systems Inc. (CSCO) CFO Larry Carter, who, along with CEO John T. Chambers, is credited with developing the ''virtual close.'' Cisco is the first company to generate hourly updates on revenues, product margins, discounts, and bookings. Carter credits real-time financials with allowing Cisco to enter the Japanese market in late 1999, just in time to profit off a robust first quarter. I want a CFO like Carter, someone who can use this instantaneous information to gain a competitive edge or to steer us from disaster. Did you know it now takes Cisco just one day to close its books, while it takes us five days and some companies as many as 14? Ultimately, the virtual close will turn earnings reporting on its ear. For one thing, it should mean basically zilch-o earnings surprises. Cisco, for example, has met or slightly beaten consensus estimates for 41 straight quarters. Real-time financials also mean that the quarterly earnings dance with Wall Street could simply vanish, becoming ''a throwback to the Dark Ages, like a Celtic or Druid ritual,'' as futurist May predicts. With financial information becoming more abundant and transparent and constantly updated, CFOs will need to be able to communicate the meaning of such data to Wall Street in an even more adept manner. They will also need to develop a really good rapport with the media, so it won't hurt if they're telegenic and well-spoken. With my never-failing ability to forget any number as soon as I go in front of a camera, and my comb-over looking pretty tired, I need a CFO who can go on CNBC to explain our financials. John, because I'm looking for a financial superhero, I'm willing to pay up. I know a lot of other companies are looking for exactly the same kind of talent as I am. Recently I read in CFO magazine that CFOs' median total pay last year was around $1.1 million, almost double what they received four years earlier. So let's make that salary in the low-seven-figures range. What kind of a resume will command that price tag? For starters, I want to see a much more broad-based educational degree. ''Marketing, information technology, finance, economics, and accounting--future CFOs must be expert in all of these,'' says Dennis R. Beresford, an accounting professor at the University of Georgia and former chairman of the Financial Accounting Standards Board. Beyond that, I'd love a candidate who has run a business or a division of a large corporation--a combination of operating experience and finance is almost a requirement these days. I'd also be willing to talk to folks who've worked on Wall Street as leading analysts, venture capitalists, or investment bankers. My friend Crist at Korn/Ferry says that ''dealmakers are starting to be in great demand.'' Finally, my perfect candidate will have a truly global perspective. I don't mean just a familiarity with global issues; he or she will have lived in various parts of the world, done business there, and experienced different financial cultures. Oh, and there's something else. The candidate must have energy, unlimited energy, to do all the things s/he needs to do. I know that's an attribute that's about as hard to come by as good genes. Who knows, maybe by the end of the 21st century, we'll be able to clone top CFOs. Meanwhile, please accept my order for a financial superhero. How fast can you deliver? Regards, Samuel ''Sam'' K. Leap Chief Executive Officer Ultimate Progressive Corp. By MARCIA VICKERS _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS The New Leadership The Boss in the Web Age TABLE: The Boss in the Web Age TABLE: Now and Then: How CEOs Will Change over the Next 20 Years See the World, Erase Its Borders TABLE: Going Global: The Growing Importance of Worldwide Markets Up from Bean Counter TABLE: Desired Skills An Executive Whose Time Has Gone From Gearhead to Grand High Pooh-Bah TABLE: Not Just Any CIO Mining a Company's Mother Lode of Talent TABLE: What Does a Knowledge Manager Do for a Living? Hey, Are You Listening to Me? 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