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Keep Your CFO Job Ten Keys to Success

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By Allan Tepper, Co-founder and Senior Managing Partner, CFO Consulting Partners LLC

January 27, 2011

CFO Consulting Partners  is often retained to “fix” broken Accounting and Finance functions.  I am often asked what critical elements, or success factors, are needed for the CFO to be successful. If the CFO does not do lots of things right, then his or her job may be at risk.  I believe being a CFO is one of the most important, and yet one of the most short-lived jobs in corporate America. Articles I have read list the average tenure for a CFO at just 3 to 5 years. This turnover is due to many reasons – sale of company, new CEO wants his own CFO, CFO leaves for a better opportunity, bankruptcy, etc. But at least some of the reasons for turnover relate to how the CFO is perceived by the CEO and by the peers of the CFO.

To help the CFO evaluate his or her chances of long-term success, I have developed the following ten questions. While there are no guarantees, a good number of YES answers may be an indication of longevity with one’s present company. Alternatively, these questions could be viewed as a roadmap to success. These questions are addressed directly to the CFO.  A note of caution – To get a meaningful result, be really truthful when answering.

1. Are you an active and respected member of your Senior Management Team?
2. Can you and do you talk frequently and fluently to the senior management team about the key drivers of your business (i.e. volumes, ratios, pricing, and so forth), and about the external variables affecting the business (i.e. about the economy, and the industry trends, the competitors, the risks and so forth)?
3. Is your department adequately staffed with high quality people, and is the staff viewed as efficient and internally client driven?
4. When you report bad news, are you criticized? Another side of the same question is, Have you put practices in place to identify and mitigate risks, so that when bad news happens, it is a reported as one of the identified risks that went south?”
5. Is your day-to-day department well managed? A corollary to this is, Do you provide your services quickly and in a quality manner? Another, Is your own office neat and well organized? Yet another, Do you consistently work more than 10 hour days?
6. Do you feel like more like a guiding light to growth and profitability than a policeman in your company?
7. Do you or your Senior Management Team ever lose track of the fact that internal and external customer satisfaction is Job Number 1?
8. Do you think your boss would say you think like a business person – growth, profitability, ROE, empowerment, motivation, a prudent amount of risk taking, etc.? A corollary would be, Would your boss say you strike the right balance between the big picture and the details?
9. Have you implemented a sound planning, budgeting and forecasting process? If so, do you have monthly or quarterly meetings with the profit center leaders to review results and identify risks?
10. Is your audit completed within three months after the end of your fiscal year?

A Day in the Life of an Interim CFO

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Marc Palker, director at CFO Consulting Partners LLC in Princeton, NJ, has been working as an interim CFO since 1996. He is a CMA and member of the Institute of Management Accountants, and his company provides interim CFO, part-time, CFO, and CFO consulting services to a variety of businesses. “What we provide are services to companies of all different shapes, sizes, industries, public, non-public, not-for-profit,” said Palker.”

Palker’s particular niche area is small to medium-sized publicly-traded companies, and in working for these companies on an interim basis, he can draw on his experience as a CFO for four different companies. In addition to more than 30 years of experience, Palker relies on some of his favorite tools to help get the job done.

The CFO needs to have access to Securities and Exchange Commission rules and regulations having to do with financial reporting and filings by public companies. “This is tool you have to have a click away,” said Palker. “Same thing with the new accounting regulations or rules that have been codified. The codification came out in July 2009, and that is the authoritative U.S. Generally Accepted Accounting Principles. Knowing how to use that and having that a finger click away is very important.”

Palker’s favorite part of the job is the relationships he has formed with CFOs. “I have become their trusted advisor, not only on strictly accounting issues but all other issues that may come upon their desk,” he explained.

A typical assignment for an interim CFO depends on the function, but usually lasts from three to nine months. “You’re there to bridge the gap between the CFO who was there and the CFO that will be there.”

“We go in and we stabilize the company, as far as its financial departments, and its financial reporting. We improve anything that we see that can be improved, and then at some point in time after everything has leveled out, and become calm, we begin the search for our replacement to become the permanent CFO at the company. ”

On a typical interim CFO workday, Palker says first thing he is concerned about is cash, where all the bank accounts stand, what’s the status of moneys that are supposedly coming in, and what bills need to be paid.

After working with cash, the next typical assignment is to turn to an analysis of the transactions that have occurred and determining what information you as the CFO have to relay to the president, CEO, or other operating managers so they can proceed with their own tasks.

“Finally, you’re going to always deal with the phone call, the emergency, special project, depending on what’s going on with the company at the time. It may be an audit from the accounting firm, it may be an acquisition in progress, it may be strictly working on lease of a building that the company’s going to be renting. That’s a typical day,” said Palker.

Palker finds the most annoying part of his job is the never-ending parade of people who come to the CFO’s office with questions and problems that they ought to be able to solve for themselves. It’s easier to just walk into the boss’s office and get the answer, he explains. These interruptions can create a break in concentration that is frustrating.

The biggest challenge the interim CFO faces is keeping the company from stopping. Palker’s job is to make sure that everything keeps moving in the proper direction.

Palker advises that the interim CFO should not be afraid to admit that he alone doesn’t have all the answers. He prides himself on knowing what he doesn’t know and taking advantage of the tools that are available to him to help solve problems in the proper time frame. “There is so much information available now because of the Internet, and there are so many experts out there that you can tap into if you’ve developed a good networking group that you can rely on.”

If you were to rank Palker’s desk on a range from 1 to 10, with 1 being an empty desk and 10 being a desk that looked like a tornado swept through, Palker’s desk would be a 2 or 3. “You have to have your desk organized for when that phone rings, to be able to get your hands on what you need. Part of our filing system now is no longer paper; it’s knowing where to get it in your computer so you can access it that way. I would say that if I went back 10-15 years, my desk was like a 10, but technology has cleaned it up quite a bit.”

Palker’s advice for someone starting out in this business is to network, network, network, and network. His clients come from referrals and his referrals come from his network, and primarily from accountants and attorneys. “Everybody knows an accountant and everybody knows an attorney, and that’s where your referrals are mostly going to come from.”

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Speech about Ethics in Banking by Eileen Xethalis

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FEI (NYC Chapter) Professional Development session November 18, 2008 By Eileen Xethalis

When Al Clapp, a leader for professional development seminars for Financial Executives International’s New York Chapter, first asked me to speak at a forum on ethics and to spike the speech with my view from the trenches as the former CFO of a Mortgage Bank & brokerage firm, I thought we have traveled so far from ethical behavior that the best course of action was to revisit the definition of Ethics.

The American Heritage dictionary defines Ethics as a set of principles of right conduct. For our lawyers in the room the very definition is fodder for discussion! I also discovered a cynical quote from Mason Cooley, a U.S. Aphorist, “In ethics, prudence is not an important virtue, but in the world it is almost everything”

And we don’t want to go down the path of defining a prudent man, that’s a 108 page legal definition! Let’s suffice it to say that Ethics is the balancing act that tempers greed in the prudent man. And, when that doesn’t work we have regulation.

During the inflation of the mortgage bubble, we had neither Ethics nor regulation. The codification of regulations was well known within the industry, but the recognition of why the regulations were necessary started to slip away. Soon we found that the due diligence normally done on appraisers by a staid banking system slipped away. Many real estate appraisers maintained their standard of conduct but, where there is opportunity to make extra money, the dishonest prevail. The loan processing departments of the past would not accept appraisal from appraisers with shoddy reputations. As the market heated up, many firms including Country wide, Indy MAC and to a lesser extent, WAMU did not reject questionable appraisals or appraisers. Hugh loan volume also contributed to lesser scrutiny. You may recall Indy MAC lost 80 million dollars on a group of loans that had a two tier fraud; inflated appraisals and owners (straw buyers) that were duped into signing mortgage documents for homes outside their state.

Add to this process the misuse of products, such as Stated Income, the “liar’s loan”, or Stated Stated, now you get to embellish both income and assets! A stated income loan requires only that you declare how much income you earn. Reputable lenders asked that you sign an IRS form 4506 for verification; but even reputable lenders rarely checked. Stated Stated loan is no verification on assets or income. The really problematic loan, in my opinion, is the Interest only loan ( IO). Many borrowers were sold this type of loan in conjunction with 80/20 loan, and many IO were ARMS. An 80/20 loan is actually a first and second mortgage, the second being a HELOC with a sustainably higher interest rate. With an 80/20 loan the property is 100% financed! From day one the buyer is in a negative equity position of roughly 5%.

However, with rapidly appreciating values in the 20% appreciation range, within a year they were no longer in a negative position. Borrowers were encouraged to take an IO because the rates were falling. While many people could qualify for a 5% fixed 30 year mortgage, they were routinely advised to take the IO, the rates will go down some more, or use the IO Loan on an 80/20 and use what would have been a principal payment to pay down the HELOC, the 20% loan. (The reasoning went, you could invest the down payment at higher rates or instead of buying the traditional starter house, skip starter and buy the second house) The IO was the favored loan in a rapidly appreciating housing market. Many speculators entered the market with an IO loan. Many a family, whose house is their biggest asset missed the opportunity of their life time to lock in a 5 or 6% fixed rate for thirty years. Prudence did not prevail!

It was not uncommon to see the same borrowers from the same branches cashing out the equity in their homes on the dual premise that the house would continue to appreciate and the rates would continue lower. The practice created a constant income stream for lenders, just as the IO’s were creating another constant income stream. In the pre- hot market, multiple refinancing within short periods of time would have been viewed as not only as a questionable practice, but also a red flag for the banking department auditor.

The sub-prime market, because of all of these lending practices, enveloped more than people with credit scores lower than 620; when the market stopped appreciating borrowers with IO’s & 100% financing were also caught in the sub-prime net. In late 2004 early 2005, I estimated that somewhere between 25 – 28% of the loans written by the small mortgage bank I was associated with fell into this precarious category. During this same period, the press was touting Sub-Prime at only 5%. That was true if you defined Sub-Prime as loans with borrower’s credit scores of 620.

Many a consumer was playing Russian roulette with the cash value in their homes, constantly refinancing, mostly to pay down credit card debit in the range of 25,000 to 45,000, each refinancing increasing the amount of money borrowed. The press liked to refer to this as the piggy bank. (You may remember the front page of the business section of the NY times with a house, a slit in its roof to swipe the credit card the credit card sticking out of the roof.) The press had, in a back handed way, made this practice look chic. And not unlike the Dot.com Bubble, the press is equally culpable in inviting the speculators to the block party!

Where homeowners duped? Some, however many went down the yellow brick road with their eyes wide open unable to understand their own money psychology. Where financial institutions blindsided by greed? Yes. And the practice of securitization left no one interested in the long term value of paying the loan off. The originator had the loan off their books and would most likely generate more fees from the same borrower within the next 13 months. No one was responsible.

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