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Tales from the front lines in CFO and controller recruiting—what’s expected these days

A CFO who is good at financial integrity management but struggles with assessing situations and being visionary won’t be a CFO for very long. I see CFOs facing this challenge in companies of all sizes, from Fortune 500 companies to startups.

In my role on the RoseRyan management team, which includes interviewing candidates, and as a CFO consultant at various companies, I get the chance to interface frequently with other CFOs and recruiters. It’s a great way to stay on top of trends in senior finance roles. CFOs who take a strategic approach to the position have been in demand for awhile now at the largest of companies, and now smaller and medium companies are following suit. And controllers, another key role in finance organizations, are expanding the skills they need as well.

Starting at the top

During a recent FEI event in San Francisco that focused on the state of the market for Fortune 500 CFOs, executive search recruiters revealed that, not surprisingly, these companies take a different approach to recruiting CFOs than smaller companies. Many of them, in fact, recruit from within. Today’s recruiters spend more of their time assessing talent than finding it. This makes sense, because today more than ever, CFOs need to be strategic and analytical.

And CFOs aren’t the only ones getting held to a new standard. Controllers need to acquire these skills, too. Basic accounting has become so automated that the art of being a good controller has changed from just closing the books to understanding and interpreting the information at hand and navigating through lots of different situations.

In many cases, controllers and CFOs need to gather new information to help with their decision making. Technical skills are in great demand—but “technical” in this instance means the ability to gather and interpret new data from various databases and other sources. Needless to say, great communication skills are essential for anyone wanting to secure a senior finance role. To build a well-rounded and influential finance team in any organization, such capabilities are a necessity.

The takeaway for smaller companies

Fortune 500 companies that recruit from within focus on placing CFOs who have a proven ability to build relationships. This isn’t usually an inherent skill—it can take a number of years to achieve. They also look for a CFO’s understanding of the internal machinations of the organization, and they want a good cultural fit. These are all areas that smaller companies should consider, too. I find that a lack of cultural and emotional alignment is the biggest reason CFOs fail in companies, which is why recruiters take those elements into account up front.

The trend of CFOs becoming more strategic and analytical is well cemented in recruiters’ handbooks. The need for controllers to be strategic and analytical may not be as widely known, but it’s also becoming a trend. In my view, this trend will accelerate over the next few years. RoseRyan is already taking into account these skills and how the market has moved in our recruiting activities. Candidates need to have technical, strategic, analytical and soft skills to get hired, as our clients smartly demand these in today’s market. This demand is only going to increase.

Looking for a change? Do you have the mix of skills to fit in with the RoseRyan dream team and the fast-growing finance teams around the San Francisco Bay Area? If so, we’d love to hear from you. We’re always on the lookout for top talent—full-time and part-time. Contact Michelle Hickam at [email protected].

Stephen Ambler is a director at RoseRyan, where he oversees the CFO practice area and handles client CFO requests. He has over 30 years of experience helping a wide range of companies with their financing needs. His interim CFO stints at RoseRyan have included a social media company and the management of the financial integration process at a company acquired by Oracle. He previously held the CFO position for 13 years at NASDAQ-listed companies.

 

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What’s your move? The big consideration for data security

RoseRyan VP Pat Voll recently weighed in on a recent CFO.com debate that posed the question “Is your data more secure in a data center or in the cloud?” CFO published her bylined article alongside other data-security experts in one of its monthly Square-Off virtual panels. Pat’s take: Companies need to focus on the “who” rather than the “what” when looking at where they store their information. See below for an excerpt of Pat’s article:

Ultimately, you are responsible for the protection and security of your data, regardless of where it is stored. Where your data is safest depends on your company’s own internal processes, infrastructure, controls, training, and discipline, and those of your cloud provider.

Consider this fact: The most common reason companies suffer from a data breach is because of an employee error. In a recent survey by the Association of Corporate Counsel, 24% of in-house lawyers blamed employee error for a breach at their company. That’s higher than phishing attacks (12%), third-party access (12%) and lost devices (9%).

A mishap by an employee could happen no matter where the data resides—on-premises or in the cloud. To tamp down the risk, it is essential that companies take a hard look at their internal processes, including periodic training for all employees and robust on-going monitoring of controls, to ensure policies and procedures are being followed.

CFOs can’t pass off the responsibility for data security to the IT department and hope it’s getting done. Similarly, you can’t assume the vendor has adequate controls and procedures in place. It’s not only the right thing to do—it’s increasingly becoming an expectation.

To read the article in its entirety, go here.

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Finance’s role in unlocking value for private equity portfolio companies

When private equity firms choose their investments, they see promising potential. The entity that becomes their portfolio company may have hit a roadblock and is in need of a transformation. An entirely new strategy could be in order. Behind that strategy is a strong finance team that plays a pivotal role in helping the PE firm realize the full potential of that new investment.

Over the past 15 years, I have had the opportunity to help PE firms translate strategy into financial decisions for their portfolio companies. It’s a fascinating CFO role, as there are so many unique factors at play with every company—and there is a sense of urgency, a sense of purpose. Every operating plan, every exit strategy is different. All parties (new investors, old investors, the management, the board) have a vested interest in getting the company moving in the right direction. With the right kind of finance guidance, and alignment around a well-thought-out set of objectives, the company can move where it needs to go.

The CFO in this type of scenario—whether it’s outsourced or a full-time position—has responsibilities to investors, the PE firm and the portfolio company, and is entrusted with improving the company’s operating performance, uncovering efficiencies, boosting productivity, executing the game plan and, ultimately, unlocking value.

The following activities are critical:

Setting up a strong governance foundation: Jumping in to lead the finance function at any time requires leadership skills, technical know-how and an action-oriented mindset. There are a lot of moving parts, and it’s important to focus on alignment toward the goal, creating the right set of performance-based metrics and compensation, and setting up the right practical processes to aid in decision-making.

Laying a strong foundation of financial operations: Timely, accurate financials are essential for understanding the state of the business. These are made possible when accounting systems and processes are up-to-date and internal controls are set. A robust finance function will help the company meet its compliance and regulatory requirements, ensuring the private equity firm can stay focused on the overall strategy and feel confident that the company is progressing rapidly. When the pace of business is fast—as it tends to be in the private-equity world—underlying data needs to be accurate for effective decision-making.

Victory lap
Sure, the transactions make the headlines, but what excites me is the transformation of a company to meet the PE firm’s strategic objective. Every journey is different and sometimes the timeline is several years. The wheels put into motion vary considerably based on the situation. If you do it properly, your efforts will be rewarded and your investors and management will have realized significant appreciation, and that’s exciting stuff.

Terry Gibson heads up RoseRyan Private Equity to help PE firms extract more value from their portfolio companies. A founder of Steel Partners Corporate Services, he has been focused on serving the PE industry for over 15 years. He was the CEO of CoSine Communications and BNS Holdings, and he oversaw the finances at Calient Networks and served as controller at Lam Research.

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What CFOs need to know about the new leasing standard

One loud giant thud is the sound you’d hear if you printed out all 485 pages of the new lease accounting standard and threw it on your desk.

Multiple giant thuds. That’s what we’ll all be hearing when trillions of dollars worth of leases land on many companies’ balance sheets in 2019. That’s when public companies will need to bring right-of-use assets and associated obligations onto the balance sheet and out of the footnotes. (Privately held companies get an extra year to comply.) The full effects are yet to be known, but two things are known for sure: balance sheets will get heavier and many questions for CFOs will follow.

In the works for over a decade, the new standard issued by the Financial Accounting Standards Board in February will affect almost every company. Lessees will feel it the most. As I mentioned in a recent article in ComplianceWeek (sub. required), the new standard will be “pretty pervasive.” The rule addresses leases of property and equipment that are 12 months or longer.

Many companies will be bringing their operating leases onto their balance sheets, which will make them appear more leveraged than under historical GAAP. The new guidance will lead to “a more faithful representation of an organization’s leasing activities,” according to FASB Chair Russell G. Golden.

One of the most common examples given while standard-setters ironed out the details of the new rule was the leasing of airplanes. For aircraft leased for several years but not for their entire “life,” airlines did not have to show their ongoing obligation on their balance sheet. Some viewed this allowance of off-balance-sheet reporting as misleading (this is not just an issue for airlines: Amazon will have to factor in the new rule as it moves forward with its reported plans to lease 20 Boeing 767 planes).

Although it will be awhile before we see the full extent of the standard’s changes in publicly filed financial statements, CFOs are going to have to be ready to answer some questions about how it will affect their company and how they’re going to deal with it. For now, companies will need to add it to their new accounting pronouncement disclosures. And then there’s the detailed work ahead in figuring out what leases the company has and evaluating them.

In the months ahead, companies will need to thoughtfully review their current lease agreements and consider whether any will need to be reclassified under the new rule. It may need to be a cross-functional effort. Companies may want to revisit the wording in some contracts. They may notice that some debt covenants could be affected. There’s some time to get ahead of the changes—but only if the work is put into it now.

Feel like 2019 is a ways off? Some long-term leasing agreements you have in play now could be affected as the standard requires modified retrospective adoption. Comparative financial statements will accompany the reports when it comes time to comply with the rule. And by then the time to transition to this new way will seem to have flown by.

Diana Gilbert has been a member of the RoseRyan dream team since 2008 with almost 30 years of professional experience. Frequently tapped for her insights by Compliance Week, Diana excels at technical accounting, revenue recognition, SOX/internal controls, business systems and process improvements.

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By embracing data analytics, CFOs can keep their status as strategists

CFOs’ résumés are getting longer and more complex. Naturally they are the stewards of the company’s finances and the operator of the treasury, financial planning and analysis, accounting and tax functions. Now, they are also embracing being strategists and catalysts. This is according to Kathy Ryan, CEO and CFO of RoseRyan, and Myles Suer, senior manager, CFO solutions, at data integration company Informatica. Ryan and Suer recently tag-teamed as speakers on a webinar about “Analytics and Data for the Strategic CFO.”

“It’s increasingly important for CFOs to be strategists, who help shape the overall strategy and direction of their company, as well as catalysts, who instill a financial approach and mindset throughout the organization to help other parts of the business perform better,” Ryan said during the event. “These varied roles make up a CFO’s job today and make it more complex than ever.”

Successful senior finance executives have made their careers by embracing the tough stuff. They rose to the challenge following the regulatory reforms in the early 2000s and were really able to show off their skills during the Great Recession of 2008, when their expertise was needed to not just keep companies afloat but to get back on track.

Now that the recession continues to fade in the rearview mirror, CFOs need to keep the respect and elevated status they gained in recent years—where their opinion and insights are more valued than ever—intact. “The strategist and catalyst are newer roles that came on very strong during the recession, and CFOs, in my opinion, should not relinquish these roles going forward,” Ryan advised.

A key way to keep the momentum going? Get a better grip on the data that finance teams have at their fingertips. During the webinar, Ryan and Suer emphasized the uphill battle facing CFOs to accomplish that goal. As it is, manual processes still reign at many companies, and many finance organizations lack the skills needed to make sense of all the information. “Data collection is messy,” Ryan said. “A lot of data comes in through separate and distinct sources, in differing formats, and it requires a lot of knowledge to even know how to think about trying to organize the data, much less try to analyze the data.”

The motivation to improve is there, Suer said. He cited a KPMG study reporting that two-thirds of finance chiefs said their enterprise technology platform is duplicative, complex, and the financial information they pull from it for making decisions could be more useful. And three-fourths of CFOs want to do something to fix it.

“When we talk to CFOs, data is really at the heart of everything they do,” Suer said. “They have to be able to control better the integrity of the data. What we found is what was driving CFOs so much toward manual processes was that they didn’t trust the data from each and every source, so they would either manually pull it, condition the data and push it into the next systems if they had multiple GLs, or they’d be constantly massaging it and moving it around.”

The good news: The CFO position can be more gratifying than ever. Finance chiefs are no longer pigeonholed as narrow-minded accountants in the backroom but are more and more being included with other strategic leaders whose observations and analysis can influence future directions. The not-so-good news: it is hard work and it’s not made any easier by increasingly complex business models, changes in accounting rules and regulations, and unwieldy IT systems with data that can’t be fully relied upon. CFOs—those sticklers of data with integrity—are in a tough spot.

Suer suggested that CFOs who want to be considered “data driven” and strategic should:

  • Improve data quality at every source
  • Break down application silos and integrate data across sources
  • Automate the movement and consolidation of financials based on good data
  • Slice granular consolidated financials for better analysis
  • Manage the governance and access to data

“In an ideal world, data should be entered into a system only once and be accessible to address many, many different queries from many people within an organization,” Ryan said. “The more often data is entered in different ways, the more likely it is that the data won’t be consistent, and not having consistent data will quickly undermine the results.”

For more insights on the CFO role today, watch the replay of “Analytics and Data for the Strategic CFO.”

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New report: What high-growth CFOs need to thrive

CFOs at high-growth companies are in a whirlwind. Everything around them is moving fast and the pressure is on to keep the positive figures moving upward and get a hold of the huge amounts of data the company is taking in every day. Unlike the CFOs of yesteryear, they’re not just stewards of their company’s finances but strategic players who have a direct say on how the company will move forward.

The smart ones, the ones who will be successful, will take a moment amid the crazy times to take a breath and figure out how can they live up to the expectations and responsibilities they have taken on. And here’s what they’ll remember: the key to their success are the people behind them. It’s easy to overlook this point when the company is barreling forward with new hires, shifts in strategies and expanding complexities. With a strong finance team that’s empowered by the trust of their superior, the CFO and the company as a whole are poised to make quick decisions that can ensure they stay on the high-growth track.

In a new intelligence report, A guide for high-growth CFOs, RoseRyan hits upon this challenge head-on with an emphasis on developing a hyper-efficient finance team. This involves shaking off silos and encouraging openness and collaboration between finance employees and the rest of the company. The CFO is in a position to cross any divide and push for any changes in technologies or processes to both empower the finance crew and give them access to real-time data to make real-time decisions.

The concept of entrusting employees of various levels in a mid-sized or large organization to make decisions based on their assessments of real-time data is relatively new. In this report, RoseRyan dream team member Jason Barker explains why it’s now possible and crucial for any company that wants to maintain its high-growth status. Download A guide for high growth CFOs to learn more.

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5 qualities every public-company CFO needs

I have seen a wide range of public-company CFOs in my work at RoseRyan and I’ve been one myself, having spent 13 years at Nasdaq-listed companies between 1997 and 2009. So when a RoseRyan client considering an IPO recently asked me what qualities are vital for a public-company CFO, I came up with the following list:

Experience. Nothing beats it. Having a CFO who has gone through the demands of public-company life is so important. This type of CFO knows what he’s getting into and will have the confidence to get started from day one. I don’t mind admitting now that when I first became a CFO of a public company, it was a huge step up. I had been the corporate controller of the company, so I knew the underlying accounting well, but nothing I had done previously could help me with the new experiences of strategic direction, public-company investors, and public-company boards and committees. It was the same company but a new world. It took me a year to get comfortable handling the new responsibilities. The bottom line was that I let the company drive me in that first year as opposed to me helping drive it. In my view, I did not add anything close to the value that a more experienced CFO would have done. I am all for training, but for this key role, you always want someone with experience.

The ability to multi-task. Most of my CFO roles have involved managing finance, IT, HR, operations, investor relations, and legal. You need someone who can juggle many balls in the air at the same time. If your CFO can’t easily switch gears between the different business areas and give a fair amount of attention to her many roles, she will sink and be ineffective – and your business will feel the consequence.

The resourcefulness to work constructively with the CEO. Most chief executives are very driven individuals, with a flair for marketing or product development but not finance. It’s up to CFOs to work closely with the CEO and get their viewpoints heard and inserted into the decision-making process. If they can’t do this, they will fail, critical decisions will not take place, and problems will arise. When I was CFO, I liked to think of the CEO as a peer, not as my boss. I preferred to think of the audit committee chair as my boss.

The resilience for handling investor relations. One key role of the CFO is the ability to market the company. They have to be salesmen, notably when they are on a roadshow or an investor call, but they can’t oversell at the same time. Finding the right balance is a fine art. Investors rely on a CFO’s every word and how it’s said, and they expect a lot. So the CFO has to fully understand the company’s products, market opportunity, and direction, and be able to handle a tough audience. More than any other executive, CFOs get grief when the stock price falls, or executives sell stock, or the company doesn’t meet investors’ expectations or preferences. When this happens, CFOs have to be professional and move on. They should not take it personally – it just comes with the territory. If your CFO cannot market or handle the tough calls, you have the wrong CFO.

The desire to manage the finance function. I have seen CEOs bring in CFOs who want to concentrate only on investor relations–related matters and ignore the finances of the company, the finance team, and the internal controls. That is the worst type of CFO. Finance chiefs are ultimately responsible for the financial integrity of the entire organization, and they should never forget it. Thus, they need to continually understand the numbers and actively manage their finance team. So often you see companies that have to restate their financials or that get dinged for internal control weaknesses because the CFO did not consider either to be important until it was too late. Don’t let that be your company.

Stephen Ambler is a director at RoseRyan, where he manages the development of the firm’s “dream team” of consultants. His interim CFO stints at RoseRyan have included a social media company and the management of the financial integration process at a company acquired by Oracle. He previously held the CFO position for 13 years at Nasdaq-listed companies.

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Bitcoins: should CFOs be willing to take the risk?

You are the CFO of a public company and your CEO suggests you invest in Bitcoins, as their value has gone up a lot over the past few weeks, and he thinks that will continue. He says it will make the bottom line on the income statement look stronger. What should you do?

You’ll first have to do a little explaining. Bitcoins are a very new and highly volatile virtual currency, and should be treated with caution, by both personal investors and companies that decide to invest in them or incorporate them into their payment systems. Here’s an example of their volatility: In early December 2013, Bitcoins were trading at $421 per coin, and just a month later, they were trading at well over $1,000 a coin. So if you had bought some in December, you would have looked like a hero in early January. Unfortunately, if you had bought some in November 2013, you would actually be showing a loss in January, as they were trading at $1,100 back then. You would have been looking really bad when the price dropped to $421 in December. But there’s more of an issue here than how you look.

Bitcoins are an unregulated currency in the U.S. at this time. If the U.S. ever decides to regulate them, expect the price to drop significantly when that regulation is announced. China’s decision to not allow conversion of Bitcoins into local Chinese currency back in December was one of the big reasons for the drop in their price. Will the U.S. decide to regulate? Hard to say, but Bitcoin is associated with money laundering, and that in itself may invite scrutiny of your company should you trade in them, and it may also be the driving force to regulation. In addition, as Bitcoins are not regulated, there is and will continue to be no protection to consumers who buy them and lose money on them, and of course they have no intrinsic value. No government wants its consumers to suffer losses, especially when it’s avoidable. My guess is that at some point soon there will be regulation.

In the meantime, some companies, such as Zynga, are starting to accept Bitcoins as a form of payment. However, most companies are still not having anything to do with them, because of the risk involved. I don’t know what Zynga or the other companies are doing with the Bitcoins when they get receipt of them, but I suspect they are converting the Bitcoins to established currencies as fast as they can, so they can minimize their risk. If they don’t convert, they are holding the Bitcoins as an investment. That raises a whole slew of issues, including whether they can even do it under their investment policy. Nearly all public companies have investment policies that restrict the type of investment they hold to, say, AAA-level investments. I am pretty sure Bitcoins fall outside that classification, so companies would be barred from holding them without changing their policy. It would be a brave board of directors that changed that policy given the downside risk.

So, back to the original question of what should you do? This is a classic case of risk assessment, and I personally suggest you proceed with a tremendous amount of caution. First, you should check your investment policy and see if it allows for such holdings. If it doesn’t, there will need to be a discussion at the board level about that policy and what the company is trying to achieve under its policy. If the policy doesn’t allow for investment and the board wants to invest in them, the board will need to adopt changes. Second, if you do decide to invest and the policy allows for it, consider the downside risk. If you are not willing as a company to stomach the downside, do not invest. If you and your company are tolerant of some risk, limit your investment to that level of risk.

You as the CFO are responsible for the financial actions of the company, and you will get all the attention, whether Bitcoins go sour or they actually soar. I remember a similar situation with mortgage-backed securities in the last decade. Back then, I was a CFO of a public company with $150 million in investments, and investors were screaming at me to buy them because they had great returns. Our returns were 4% whereas others had double-digit returns. I did not authorize buying them, as we had a very cautious investment policy and they were outside the scope, plus their nature just made me nervous and I was not going to recommend we change our policy. When their value crashed in 2008, there was a tremendous backlash on CFOs and companies that had held them. My 4% return suddenly looked very good, and my board was very happy with my actions. Unfortunately, many companies and CFOs paid the ultimate price. You don’t want to be the one in that situation.

So act with caution, and remember that it’s not all about making the income statement’s bottom line look good. It’s actually more about making sure the bottom line does not look bad!

For more information about the many aspects companies need to consider when contemplating the use of Bitcoins, see Compliance Week’s Virtual Currencies Come with Real Accounting Concerns (subscription required), which includes commentary from Stephen Ambler.

Stephen Ambler is a director at RoseRyan, where he manages the development of the firm’s “dream team” of consultants. His interim CFO stints at RoseRyan have included a social media company and the management of the financial integration process at a company acquired by Oracle. He previously held the CFO position for 13 years at Nasdaq-listed companies.

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