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CFO

The best mentor


relationships are
authentic relationships.
ii Diane Morefield,
EVP and CFO of Strategic
Hotels & Resorts
CONCERNS OF
SMALL-CAP CFOs
HOW ADP
TURNS PAYROLL
INTO CASH
MAY 2013 | WWW.CFO.COM
Weathering
Climate Change
Special Report On
HR Technology
The
Art Of
Mentoring
How women finance
chiefs are preparing
tomorrows CFOs
WOMEN IN FINANCE
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ongoing analysis.
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ongoing analysis.
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Cover by Bob Stefko. This page, clockwise from top left: Matthew Furman,
Getty Images, Neil Webb
34
iiOn The Record
Other
Peoples Money
Paycheck-processing king ADP
has a lot of spare cash on hand,
and CFO Jan Siegmund knows
what to do with it.
Interview by David McCann
38
The Art
Of Mentoring
Five female CFOs tell how mentors
helped them succeedand
how they are returning the favor.
By Marielle Segarra
42 iiFemale CFOs
in the Fortune 500
The women at the top of
Americas largest companies.
44
Weathering
The Weather
In the face of extreme weather
and natural disasters, companies
are reengineering their supply
chains for added reliability.
By Russ Banham
48 iiWholl Stop the Rain?
As extreme-weather events
increase, so do the costs.
FEATURES
W
O
M
E
N

IN
F
IN
A
N
C
E
I feel a responsi-
bility to mentor
anybody who wants
to be successful in
their career.
ii Jennifer Hill, CFO
of Global Banking
and Markets at Bank
of America
38
50 iiSpecial Report:
Human Resources Technology
Software For
The People

Baffled by the ever-increasing
variety of HR applications?
Heres how to choose the right
ones for your company.
By David McCann
May 2013
Volume 29, No. 4
1 cfo.com | May 2013 | CFO

Extreme-
weather events
like the 2011
floods in Thai-
land can wreak
havoc on sup-
ply chains
From top: Mark Stephen/theispot, Getty Images,
Thinkstock, courtesy of Dunhams Sports
CONTENTS
Up Front
4 iiFrom the Editor
7 iiLetters
10 iiTopline CFOs press for visa reform Z SEC OKs social media disclosures
Z the PCAOB proposes a makeover for audit standards Z FASB gets a
new chairman Z Excel shortcuts Z and more.
May 2013
Volume 29, No. 4
58 iiFIELD NOTES
Perspectives from CFO Research
Where Are Your
Travel Dollars
Going?
Following your companys travel
expenses is a trip woth taking.
By Matt Surka and Josh Hyatt
By the Numbers
18 | ACCOUNTING & TAX
Profit Shifters Face Global
Crackdown
A new tax plan from the OECD could
eventually hinder multinationals from
moving profits overseas.
Z By Kathleen Hoffelder
Should Your Audit
Firm Do Your Taxes?
New research shows that investors
welcome the double duty.
Z By Kathleen Hoffelder
22 | CAPITAL MARKETS
Do Leaks Pay?
In theory, a seller and a buyer can
benefit from prematurely disclosing
an M&A deal. But the reality can be di-
sastrous. Z By Vincent Ryan
24 | GROWTH COMPANIES
Small Companies May Have
To Offer IRAs
A new proposal would require small
businesses to automatically enroll
some workers into individual retire-
ment accounts. Z By David McCann
Will VC Firms Join the Crowd?
How crowdfunding and venture
capital can coexist. Z By Marielle Segarra
26 | HUMAN CAPITAL
Execs Prefer
Homegrown CFOs
A majority of company executives
favor internal candidates for the job.
Z By David McCann
Employee Pay Surges
Salary levels have risen nationwide
for four consecutive quarters.
Z By David McCann
32 | STRATEGY
Japan Easing Heightens
Yen Exposures
The Bank of Japans more aggressive
monetary policy may deepen losses
for unhedged U.S. companies.
Z By Vincent Ryan
IMF Criticizes Easy
Money Policies
What will happen when central banks
pull back on their monetary easing?
Z By Vincent Ryan
26
56 iiDEEP DIVE
CFO Takes the Pulse of U.S. CFOs
Public Knowledge
For small-company CFOs, the
rewards of being public dont
always outweigh the headaches.
By Kate OSullivan
24
22
60
2 CFO | May 2013 | cfo.com
60 iiTake-Away
The Game
Plan
To compete with
larger sporting goods
chains, Dunhams
Sports is stepping up
its square footage,
says CFO Al Blazek.
Interview by Marielle
Segarra
CFO, Vol. 29, No. 3 (ISSN 8756-7113), is published 10 times a year, with combined January/February and July/August issues, and distributed to qualified chief
financial officers by CFO Publishing LLC, 51 Sleeper St., Boston, MA 02210 (executive and editorial offices). Copyright 2013, CFO Publishing LLC. All rights
reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electron-
ic, mechanical, photocopying, recording, or otherwise, without the prior permission of CFO Publishing LLC. Requests for reprints and permissions should
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TER: Send address changes to CFO, P.O. Box 1233, Skokie, IL 60076-8233. CFO is a registered trademark of CFO Publishing LLC. SUBSCRIBER SERVICES: To
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are $15 per copy, prepaid, and VISA/MasterCard orders only. Mailing list: We make a portion of our mailing list available to reputable firms.
CAPITAL MARKETS
Collateralized debt obliga-
tions, the securities that
brought you the global
financial crisis, have returned,
with firms like Deutsche
Bank issuing CDOs this year.
Is it time to be afraid again?
To find out, read CDOs
Are Back: Will They Lead
to Another Financial Cri-
sis? in Knowledge@Whar-
ton, at http://knowledge.
wharton.upenn.edu/article.
cfm?articleid=3230.
LEADERSHIP
CFOs Corporate Performance
Management West conference
will be held in San Francisco
on June 46. On the agenda are
sessions on big data, finance
transformation, economic val-
ue, supply chain analytics and
more. For more information,
see www3.cfo.com/cpmw13/
home.
FROM THE
EDITOR
EDITORS PICKS
women in the CFO chair, and they
want to help younger women, just as
they themselves were helped. At the
same time, they are equally willing to
guide men in their careers. After all,
much of the wisdom they have to im-
part isnt gender specific.
Some of a mentors best advice may
be Zen-like in its simplicity. A mentor,
says Karen McLoughlin of Cognizant,
can say something very simple but
profound that really makes you think
about how you conduct yourself. Both
McLoughlin and Bank of Americas
Jennifer Hill still recall gratefully the
simple but profound advice their men-
tors gave them years ago.
In our other feature story this
month, Weathering the Weather
(page 44), Russ Banham reports on the
efforts of companies to come to grips
with climate change, particularly as it
affects their supply chains through se-
vere storms and hurricanes, increased
flooding, rising temperatures, and so
on. People may doubt the reality of
global warming, but businesses cant
take any chances. Thats why compa-
nies like Kimberly-Clark, Royal Carib-
bean Cruises, and ATMI are building
more redundancy into their supply
chainsmoving from just-in-time to
just-in-case. And according to the Car-
bon Disclosure Project, 83% of S&P
500 companies are integrating climate
change into their enterprise risk man-
agement processes.
Even federal agencies like the De-
partment of Defense are planning for
the effects of climate change on their
operations. When it comes to extreme
weather, organizations with far-reach-
ing supply chains can no longer afford
to just let it be.
Edward Teach
Executive Editor
ii
Schools out this month for many teachers and stu-
dents, but education never stops for finance mentors
and mentees. In our cover story on women in finance, The
Art of Mentoring (page 38), Marielle Segarra profiles five
female CFOs for whom mentoring has played a significant
role. These finance chiefs are aware of the shortage of
Seeking
Words Of

Wisdom
4 CFO | May 2013 | cfo.com
Kory Addis
CPG Energy & Utilities Financial Services Government Healthcare Higher Education Industrial Life Sciences &
Pharmaceuticals Media & Entertainment/Communications Retail Tourism, Hospitality & Leisure Transportation
2013 The North Highland Company. All Rights Reserved. North Highland is a registered trademark of The North Highland Company.
northhighland.com/youfirst
CON
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ZEyes on the
Earnout
In the article Eyes on
the Price (March), it was
very interesting to get
different perspectives on
CFO strategies in evalu-
ating various purchase-
price considerations.
Specific to the section on
hedging the deal, utilizing
a contingent-payments
strategy, while absolutely important
for certain prospective acquisitions, is
not appropriate in every situation.
My experience is that the board of
directors and operating management
are generally strong advocates of an
earnout strategy if it is acceptable to the
target. However, the future accounting
consequences of entering into an ear-
Senior Vice President,
CFO and Treasurer
Cantel Medical
Little Falls, NJ
ZTax and Consequences
Great tax updates (The New Tax
Landscape, March). As money leaves
the pockets of American consumers,
we will definitely see the profitability
of small businesses declining. We will
not see prolific growth of small busi-
nesses as we have seen in the past.
This is probably due to the changing
financial landscape of our country.
Articles such as these are great sourc-
es of information to keep up-to-date
with the latest changes in the tax code.
Great article, CFO.
Johnathon Candelario
Via E-mail
nout are important and
can create significant
future judgments re-
garding achievability
of the earnout targets
and earnings volatility,
as well as other poten-
tial accounting com-
plexities.
Furthermore, ana-
lyst and investor reac-
tions to future earnout
adjustments impacting profitability
can be mixed. Consequently, the CFO
needs to be a voice of reason in en-
suring that accounting considerations
relative to earnouts are properly evalu-
ated and discussed with the entire ac-
quisition team as an important part of
the deal evaluation.
Craig A. Sheldon
Cover by Evan Kafka

Chief financial officers invariably praise


their finance teams in public, giving them cred-
it for all kinds of accomplishments. That isnt
surprising; CFOs arent known for having CEO-
sized egos, and finance staffers do perform
critical corporate tasks. But in private, CFOs
find their staffers wanting, reported David
McCann in Finance Leaders Bemoan Talent
Shortage (April 24).
CEB, a research and consulting outfit, inter-
viewed 673 finance managers at 78 global companies, asking
them to rate their direct reports on dozens of technical and
soft skills. One result: finance workers are more skilled in
the areas that have the least positive impact on value cre-
ation.
Even in those areas, which include the more technical
parts of their jobsskills that should be regarded as table
stakes for finance positions, said CEB senior director Kruti
Bharuchaonly 28% of staffers were rated effective by the
CFOs. But when it came to strategic competencies, such as
analyzing financial performance in terms of key value drivers,
the judgment was far harsher: just 7% were rated effective.
And even fewer, 5%, were considered effective persuaders.
Bharucha told McCann that CEB wasnt particularly sur-
prised that finance chiefs were so dissatisfied with their
staffers. There is simply a shortage of finance talent avail-
able in the market, she said. We hear it in every single con-
versation we have with CFOs. The firm suggests a number
of ways that companies can improve finance recruiting and
employee development.
THE
BUZZ
ON
CFO.
COM
LETTERS
7 cfo.com | May 2013 | CFO
But CFO.com readers had their own opinions why finance
staffers arent up to snuff. Too many finance organizations
are focused on efficiency and specialization, which leads to
isolation and a narrow view of the function and how it sup-
ports the business, said one. Rotations are essential to
broaden employees experience, but if management does not
challenge our young professionals with projects that allow in-
novative thinking, nothing will change.
Another reader wrote that the stra-
tegic and communicative talents seen
as particularly lacking in finance staff-
ers are also talents in short supply in
every aspect and at every level of every
business. This commenter pinned some
of the blame on management, suggest-
ing ignoble motives at work: The status
quoand here I mean middle and upper
management who lack these talents
have a certain level of comfort where they are. They do not
want to see up-and-coming workers developing the skills
that they lack.
Indeed, managements culpability was a common theme.
The fault, dear Brutus, is not in our [staff] but in ourselves,
wrote a third reader. It is noteworthy that, while the article
speaks largely to the deficiencies in the staff resource from
the management perspective, its recommendations speak to
actions which management can and, I would contend, must
take to correct them. The reader spoke from experience:
Continued on page 8
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CFO, Motorola Inc.
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Powerwave Technologies Inc.
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ZFrank R. Gatti, CFO & SVP, ETS
ZJames C. Johnston, President, Johnston Co.
ZStephen Payne, Americas Working Capital Leader,
Ernst & Young LLP
ZAlbert A. Pimentel, CFO & COO, McAfee Inc.
ZEllen B. Richstone, Former CFO, Rohr Inc.,
Sonus Networks, and Luminus Devices Inc.
ZKenneth J. Sanginario, Founder, Corporate
Value Metrics LLC
ZDebra Smithart-Oglesby, Former CFO,
First America Automotive
Editorial Offices
C
FO
W
ELC
O
M
ES
Y
O
U
R

LET
T
ER
S
8 CFO | May 2013 | cfo.com
When I first entered public account-
ing, I had the good fortune of working
with a group of professionals who [had]
the expectation that, if they were to
advance, they must first train me to be
able to take their place.
Unfortunately, that experience was
the exception, not the rule. I have
worked for many organizations and in
many cultures since then, but none as
exceptional as that one, the reader
concluded. And that is the problem.

If CFOs perceive their direct reports


as lacking in essential skills, a major-
ity of executives say their companys
finance chief is not qualified to take on
operating responsibilities. That was the
finding of an exclusive survey done for
CFO by recruiting firm Korn/Ferry, as
reported by McCann in Many Execs See
CFOs as Poor Operators (March 25).
Seventy-one percent of the 145 ex-
ecutives surveyed said their compa-
nys CFO is involved in running opera-
tions, but 51% thought the finance chief
wasnt up to the job (12% said may-
be). Among the reasons for the skepti-
cism? CFOs lack the softer people skills
needed to come across as an effective
COO who is leading and managing an
organization, conjectured Korn/Ferrys
Joshua Wimberley.
A couple of readers thought the fi-
nance chief was getting a bum rap for
being a good soldier. I would be curi-
ous to know how many of those CFOs
in operational roles have chosen the
additional role, as opposed to those on
whom the additional role was forced,
said one. A second reader wrote, At a
former employer I was asked to as-
sume the COO role on a temporary
basis, and while he thought he did a
decent job, it would not be an additional
role I would choose for myself.
But a third reader dismissed the
survey results. Ive heard all this non-
sense before, he wrote. I ignored it,
and went on to serve with distinction
as CEO, president, CFO, COO, CIO and
general manager. Never let the preju-
dices of small minds hold you back from
achieving your goals and realizing your
potential.
CFO
invested in
the world

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Finance chiefs at small and midsize
companies are hoping new immi-
gration legislation will help them
compete with larger companies for
high-skilled talent. In particular, they say
Congress should raise the limit on H-1B vi-
sas, which allow companies to employ for-
eign workers with specialized skills, such as
scientists and software engineers.
The cap on H-1B visas is currently set
at 65,000 people per year, with an added
exemption for up to 20,000 highly skilled
workers with advanced degrees. A Senate
bill released April 16 raises the visa cap to
110,000 workers for the first year (plus an
increased exemption), with a possible ceil-
Topline
HIRING
STATS
OF
THE
MONTH
-5.7%
Fall in durable-
goods orders in
March. Civilian
aircraft (orders fell
48.2%) and defense
goods (33.2%)
accounted for much
of the decrease.
-0.4%
Drop in retail sales
in March. Depart-
ment-store sales
fell 1.2%.
76.4
Thomson Reuters/
University of
Michigan Consumer
Sentiment Index
in April, a three-
month low
Sources: Commerce
Department, Thomson
Reuters/University of
Michigan
FALL IN
THE SPRING
Finance
Chiefs Call
For Visa
Reforms
The current system favors
large companies, say CFOs at
smaller firms.
ing of 180,000. Impending legislation in the
House of Representatives will likely also
propose raising the cap, but it is unclear how
high, says Madeleine Sumption, senior poli-
cy analyst at the Migration Policy Institute.
Demand for H-1B visas is on the rise. On
April 5, for the first time since 2008, the
H-1B program hit its cap within five days af-
ter the filing period opened. As a result, U.S.
Citizenship and Immigration Services used
a computerized lottery system of applica-
tions to determine which workers got the
visas. That means all employers that applied
for the visas through April 5, regardless of
company size, had an equal chance of se-
curing them. But finance chiefs at small and
midsize companies say the overall system
favors large companies.
Brent McClure, CFO of service contrac-
tor Offshore Inland Marine and Oilfield
Services, says his company doesnt have the
staff to complete the visa application paper-
work before the program hits its cap. While
larger companies have workers who special-
ize in visa applications, at Offshore Inland
the responsibility would fall on McClure.
The [visa] pool is so low that we dont even
bother, he says. Theres no point. It would
take someone like myself an insurmount-
able amount of time.
Offshore Inland, which has about 250
employees, does not currently sponsor any
foreign workers through H-1B visas. But Mc-
Clure says an increase in the visa cap would
help the firm compete with larger compa-
nies for engineers. The talent pool would
increase, so we would have a better oppor-
tunity of [hiring] some of them, he says.
Thinkstock
10 CFO | May 2013 | cfo.com
The [visa] pool is so low that we
dont even bother.
ii Brent McClure, CFO of Offshore Inland Marine and
Oilfield Services
tor of the social business
practice at Protiviti. CFOs
need to understand that the
infrastructure around ap-
proval and governance of
social media usage is not
there, Hedges says. Com-
panies could try to apply
governance policies they
have for websites to
social media, but
this channel is much
more fluid and is po-
tentially in the hands
of all employees, all
appearing to be of-
ficial spokespeople,
he says.
Now more than
ever, companies
need to make sure
they follow social media and
communication policies, says
Jeremy Mishkin, Internet priva-
cy attorney at Montgomery Mc-
Cracken. If Im a CFO, I need to
know not just whats on my com-
panys Facebook page or Twitter
feeds, but also what my execu-
tives pages look like, so I dont
have a situation in which a per-
son issues a statement that the
SEC might view as a material an-
nouncement. Z TAYLOR PROVOST
investors to its use
of the social media
channel, its commu-
nications could con-
stitute selective dis-
closure and therefore
violate Reg FD rules
requiring companies
to distribute material
information broadly
and non-exclusively.
The SEC did not name
specific social media
channels that would
be acceptable plat-
forms for communications.
The SECs Division of Enforce-
ment launched its investigation
into Netflix and Hastings after
the CEO disclosed possible mate-
rial information on his personal
Facebook page in July 2012.
The announcement is likely to
heighten concerns about social
media governance within compa-
nies, making it more of a priority
for risk managers and CFOs, says
Greg Hedges, managing direc-
11 cfo.com | May 2013 | CFO
Unless Congress raises the visa cap significantly, small
and midsize companies may see little benefit from reform,
says Sumption. If there were so many visas that they were
available almost all year, that would mean that the system
would be open for the smaller employers year round, she
says. But if you had only a slight increase in the visas, it
doesnt seem like it would necessarily change things.
On its own, the proposed 110,000 visa limit will probably
not prevent the visas from being exhausted in short order
in the next few years, she says. The bill would also, how-
ever, impose hefty fees (up to $10,000 per worker) on heavy
users of the H-1B visa system, such as IT companies. That
change could open up the visa pool to other employers, in-
cluding small companies, says Sumption.
Z MARIELLE SEGARRA
DISCLOSURE
Source: U.S. Citizenship and Immigration Services
Z Number of days before the 65,000-visa cap was reached
0
50
100
150
200
250
300
350
13 12 11 10 09 08 07 06 05 04 03
2
323
184
132
56
1
264
300
235
73
5
Here One Day, Gone the Next
The H-1B visa program has not hit its cap
this fast since 2008.
Dont tweet tidbits about your
companys first-quarter earnings
just yet.
The Securities and Exchange
Commission announced in April
that companies can use social
media outlets such as Facebook
and Twitter to disclose key infor-
mation in compliance with Regu-
lation Fair Disclosure. But inves-
tors have to be alerted which
social media channel a company
will regularly use to disseminate
such information, and the SEC
says each case will be evaluated
on its own merits.
The announcement, contained
in a report of the investigation
into a Facebook posting by Net-
flix CEO Reed Hastings, says that
Reg FD applies to social media
the same way it applies to cor-
porate websites: companies can
disclose possible market-moving
information on a platform only
if they tell investors to look for it
there.
If a company does not alert
If Im a CFO, I
need to know not
just whats on my
companys Facebook
page or Twitter
feeds, but also what
my executives pages
look like.
ii Jeremy Mishkin,
attorney, Montgom-
ery McCracken
SEC OKs Social
Media Disclosures

Auditing standards could get a


whole new look if the Public
Company Accounting Oversight
Board chooses to enact a new pro-
posal. The boards plan, currently in
the public comment period, would
reorganize existing standards into
one integrated, numbered system.
Under the plan, four-digit num-
bers would replace the current
hybrid method of labeling PCAOB
audit standards. The new system
would eliminate the classification
of interim standards, though the
board would continue to update or
improve interim standards it is cur-
rently working on. The proposal
does not change the existing re-
quirements for performing and re-
porting on audits.
It should come as no surprise
to any professional person that
auditing literature is extensive. As
printed, these standards run to over
2,000 pages, said PCAOB chairman
James Doty at a board meeting in
March. Navigating the audit stan-
dards in their current form, he not-
ed, can prove daunting.
The current hybrid classification
structure is not very easy to use or
navigate, added Martin Baumann,
chief auditor and director of pro-
Topline
12 CFO | May 2013 | cfo.com
If you would like to submit a question
to Bill MrExcel Jelen, e-mail him at
billjelen@cfo.com.
Q: Is there a complete list of Excel
keyboard shortcuts?
A: There are many lists floating
around on the Internet, but the easiest
source is right in Excel help.
Click the blue question mark at the
top right corner of Excel. Search
Excel help for Keyboard Shortcuts.
The resulting article lists all of the
keyboard shortcuts. If you want to
have a hard copy of the list, use the
Print icon at the top to print them.
Ask
MrExcel
Bill Jelen
ALL THE EXCEL SHORTCUTS
This Excel help article lists all
Excel keyboard shortcuts.
Figure #1
Having a Keyboard Shortcuts file on hand
can save a lot of time in the long run.
Figure #2
AUDITING
MAKEOVER FOR
AUDIT STANDARDS
fessional standards at the PCAOB.
This project will create an orderly
classification of our standards.
Under the proposal, all PCAOB
standards would be grouped ac-
cording to whether they fall under
general auditing standards, auditing
procedures, auditor reporting, mat-
ters related to filings under federal
laws securities laws, or other audit-
associated matters. If more audi-
tors find it easier to read the PCAOB
standards and to consult them more
frequently, this framework for reor-
ganization will . . . have fulfilled an
important purpose, Doty noted.
The proposal should also have
more appeal with instructors, ac-
cording to board member Jeanette
Franzel. She hopes better categoriz-
ing will make the standards easier to
use as a common reference guide.
Baumann also believes the plan
would help audit professionals who
may have been confused about the
distinction between standards man-
dated by the PCAOB and those that
are merely recommended by the
American Institute of CPAs. Like
the PCAOB, the AICPA also uses an
AU abbreviation when describ-
ing the use of its standards, which
are called Statements on Auditing
Standards and go by a SAS tag.
The PCAOB is seeking feedback
on whether the approach makes
sense or whether other changes
need to be considered to improve
audit quality. Comments are due on
the proposal by May 28.
Z KATHLEEN HOFFELDER
Proposed Framework for Auditing Standard Reorganization
ii General Auditing StandardsStandards on broad auditing principles,
concepts, activities and communications
iiAudit ProceduresStandards for planning and performing audit
procedures and obtaining audit evidence
ii Auditor ReportingStandards for auditors reports
ii Matters Relating to Filings under Federal Securities LawsStandards
on certain auditor responsibilities relating to SEC filings for securities
offerings and reviews of interim financial information
ii Other Matters Associated with AuditsStandards for other work
performed in conjunction with an audit of an issuer or a broker or dealer.
Source: PCAOB
Or, copy and paste the article to
Excel. After adjusting column
widths, you will have a worksheet
of the shortcuts.

2
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Topline
An Obama administration
proposal to eliminate the tax
deduction for reinsurance
premiums paid by U.S.-based
insurance companies to their
foreign affiliates would boost
prices for property-casualty
and terrorism coverage, cor-
porate risk managers say.
As a result of the provi-
sion, which is part of the
administrations 2014 bud-
get, coverage would be more
expensive and harder to find,
particularly in urban areas
INSURANCE
subject to terrorism risk and
areas prone to natural disas-
ters, John Phelps, president
of the Risk and Insurance
Management Society, wrote
in a letter to the U.S. House
Ways and Means Commit-
tees International Tax Re-
form Working Group.
The letter was unfortunate-
ly delivered on April 15, just
before two explosions killed
three people and injured more
than 200 at the Boston Mara-
thon. In a briefing, President
Obama called the bombings
an act of terror.
Currently, the U.S. tax code
enables U.S.-based insurance
carriers to take deductions
for ceding reinsurance pre-
miums to foreign affiliates. In
reinsurance arrangements,
the insurance company cedes
parts of a larger potential risk
to the reinsurance company.
In exchange, the reinsurer
gets part of the premium dol-
lars the insurer was paid to
take on the risk.
Citing a 2010 study backed
by insurers and reinsurers in
the United States, Bermuda,
and Europe, Phelps wrote that
removing the tax deduction
would reduce the overall sup-
ply of reinsurance available
to the U.S. market by 20%.
That drop in supply would
increase corporate consumer
prices by $11 billion to $13 bil-
lion annually, he wrote.
A common practice in the
property and casualty indus-
try, the use of foreign rein-
surance by domestic carriers
is an efficient mechanism
to pool risks, diversify expo-
sures, reduce the volatility of
losses, and as a result, en-
hance availability of coverage
and reduce prices for con-
sumers, the RIMS president
wrote.
Throughout the recent
series of natural catastrophic
events, and the terrorist at-
tack on 9/11, foreign reinsur-
ers have filled gaps in cover-
age where domestic insurers
either discontinued or se-
verely curtailed coverage or
significantly increased rates,
Phelps added. Z DAVID M. KATZ
14 CFO | May 2013 | cfo.com
Russell G. Golden, a member of the
Financial Accounting Standards
Board since September 2010, will become FASBs next
chairman on July 1. He will replace current chairman
Leslie Seidman, whose second term expires in June.
Goldens appointment was announced in April by
the Financial Accounting Foundation, FASBs overseer.
Before becoming a board member, Golden served for
six years on FASBs staff in various positions, including
technical director. He also chaired FASBs Emerging Is-
sues Task Force.
As chairman, Golden plans initially to focus on con-
verging accounting standards globally, he said during an
April press call. I am looking forward to working with
the IASB [International Accounting Standards Board]
to try to arrive at improved converged conclusions, he
said. Although FASB and the IASB have made progress
in accounting convergence, they still differ on several
issues, such as accounting for credit losses and revenue
recognition. Under Goldens guidance, the board will
concentrate on those issues as well as accounting for
leases and insurance contracts.
Of the outstanding issues, changes to the way com-
panies account for revenue recognition could be on tap
soon, according to Golden. We are close to issuing a
very important converged solution on revenue recog-
nition, which I have been working on for a number of
years and believe will be a good success, he said.
FASB will also look to continue its efforts on improv-
ing private-company accounting through its work with
the FAFs Private Company Council, which Golden says
is doing an absolute fantastic job. In April FASB and
the PCC jointly asked for comments on an updated pri-
vate-company decision-making framework.
Before coming to the accounting board, Golden was a
partner at Deloitte & Touche in its National Office Ac-
counting Services department. His term as FASB chair-
man extends to June 30, 2017. Z K.H.
Golden
FASB CHOOSES
INSIDER AS NEW
CHAIRMAN
ACCOUNTING
Budget
Proposal
Could Hike
Property,
Terrorism
Rates

Coverage would be more expensive, particularly in urban


areas subject to terrorism risk and areas prone to natural
disasters, according to RIMS president John Phelps.
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IS YOUR DATA PROTECTED?
ENTERPRISE DATA CENTERS.
Part of Windstreams Managed
Services portfolio.
U.S. multinational companies that routinely allocate
their profits to other countries to benefit from low-tax
jurisdictions may soon need to change their tactics. The
Organisation for Economic Co-operation and Development is
developing a global tax action plan, scheduled to be released
in July, that targets transfer pricing aimed at tax avoidance.
ii
ACCOUNTING
& TAX
want to make sure that their tax base is
at least stable.
The U.S. government has a lot to
gain from such a plan if it helps pre-
vent companies from moving profits to
lower-tax jurisdictions. Transfer pric-
ing has enabled U.S.-based companies
such as Apple, Google, and General
Electric to pay less taxes in the United
States.
To date, the OECDs suggestions
have been accepted by most industrial-
ized nations. The U.S. is likely to back
the OECDs action plan when it is pub-
lished. I think there could be changes
in the U.S. rules to accommodate the
view of the OECD, says Foley.
During a lecture at New York Uni-
versity in April, Danielle Rolfes, in-
ternational tax counsel in the Office
of Tax Policy for the U.S. Department
of the Treasury, said that although
we may not agree with other jurisdic-
tions on all of the solutions that have
been put forward, a starting place is
that there is something wrong with the
status quo in terms of how our interna-
tional tax rules have evolved and how
our domestic policy implementing
those rules has evolved.
Eventually, finance chiefs of mul-
tinational corporations may
have to adjust their current
transfer pricing practices. I
am on calls every week with
CFOs of Fortune 50 and For-
tune 250 companies asking,
Where do we think this is go-
ing? What should we be doing
now? says Foley. When the
report comes out in July, everyones
going to have to be all over this and
see what the implications are.
Thinkstock
be done through an exit
charge. The current
transfer pricing guide-
lines, which were last up-
dated in 2010, do not have
specific details on com-
pensation for the country
that loses tax dollars.
Theres a tension
point, comments Hamada, because
shareholders really want the effective
tax rate to be lower, but tax authorities
Prot Shifters Face

Global Crackdown
A new tax plan from the OECD could eventually hinder multinationals
from moving prots overseas. By Kathleen Hoffelder
18 CFO | May 2013 | cfo.com
In February, the Group of
20 nations urged the OECD,
which comprises 34 coun-
tries including the United
States, to develop the plan
to help solve some of the
tax inequities that exist
globally.
Sean Foley, principal in
charge of KPMGs global
transfer pricing servic-
es practice in the United
States, says the plan is sig-
nificant. Its the first time
the G20 asked the OECD to
give them an action plan,
he says. Thats never hap-
pened before.
According to the OECD,
the action plan will con-
sist of comprehensive,
coordinated strategies for
countries concerned with BEPS [base
erosion profit shifting]. (BEPS is the
OECDs term for the problem.)
While it is unclear what specif-
ic strategies the plan may contain,
Michiko Hamada, senior director at
accounting advisory firm BDO, says
it could include more-detailed infor-
mation about the home country (or
the one with higher taxes) being com-
pensated for the loss when a tax base
moves to another country. This could
There could
be changes in
the U.S. rules to
accommodate
the view of the
OECD.
ii Sean Foley,
principal, KPMG
Thinkstock
As Hamada notes, there are efficien-
cies that can be realized through trans-
fer pricing, but transfer pricing should
never be the tail that wags the dog.
The OECD is also expected to com-
mit to further analysis on the topic of
profit shifting and to put out additional
reports and recommendations over the
next year. CFO
20 CFO | May 2013 | cfo.com
Should Your Audit
Firm Do Your Taxes?
New research shows that
investors welcome the
double duty.
Z
Although many companies use
their audit firm to perform tax
services, the practice runs counter to
regulators professed preference for
maintaining auditor independence.
New research, however, shows that in-
vestors welcome the practice.
On average, investors feel that the
benefits of auditor-provided tax ser-
vices outweigh the risks that the audit
will not be performed independently
enough, according to a study published
in the spring edition of the Journal of
the American Taxation Association, Do
Auditor-Provided Tax Services En-
hance or Impair the Value Relevance of
Earnings?
The study (written by professors
Gopal V. Krishnan of American Uni-
versity, Gnanakumar Visvanathan of
George Mason University, and Wei Yu
of the University of Tennessee) looked
at how the interaction between two
variablesearnings, and the ratio of
tax fees over total fees paid to the audi-
toraffected the stock prices of U.S.
publicly traded companies between
2000 and 2008.
After 28,000 observations of com-
pany audits, the authors noted that the
higher the ratio of tax fees to total audi-
tor fees paid, the more pronounced the
effect of earnings on a companys stock
price. Further, the authors found that
when firms switched their tax-services
business away from their auditors, the
effect of earnings on stock price was
lower in the year of the switch.
Typically, companies that have their
auditors do their taxes benefit from
discounted auditor fees. They also get
a boost in overall audit effectiveness
via better communication between the
audit and tax sides, according to the
study. Investors seem to like that.
For firms currently using their au-
ditor for tax services, our findings in-
dicate that investors are supportive of
their decision, Krishnan tells CFO.
The Advantage of Spillover
Some companies give their audit and
tax business to different firms to add
credibility to their financial state-
ments, notes Krishnan, even if doing
so may cost more. But the study found
that when companies decoupled the
audit function from the tax-service
function, investors did not view that as
a positive. This finding is consistent
with the potential loss of knowledge
spillover when tax services are provid-
ed by someone other than the auditor,
noted the study.
Other research on this topic also
shows evidence that more company
knowledge is shared between the tax
and audit functions when one firm is
used. The spillover of knowledge that
an auditor can receive from a tax pro-
fessional working on the same com-
pany, according to Krishnan, is an
important advantage to companies and
auditors alike. By doing the books
and tax return, [auditors can] see the
whole picture, he explains.
Krishnans study raises important
questions about the benefits and risks
that further restrictions or outright ban-
ning of auditor-provided tax services
can bring to companies and their share-
holders. More limitations might have
unintended consequences, he says.
Under Sarbanes-Oxley, a company
is permitted to hire the same audit firm
to perform both audit and tax services
if the audit committee approves. But
regulators like the Public Company
Accounting Oversight Board have cre-
ated some limitations for the practice
over the years. Auditor-provided tax
services are barred, for example, when
confidential tax transactions are de-
ployed by a company merely to avoid
taxes; when an audit firm acting in a
financial oversight role provides tax
services; and when an audit firm pro-
vides tax services for which it receives
a commission or contingent fee based
upon a particular finding in their tax
evaluation.
The European Union, meanwhile,
has openly expressed its disfavor of
auditor-provided tax services and may
ban the practice. Z K.H.
ACCOUNTING & TAX
By doing
the books
and tax
return, [auditors can] see
the whole picture.
ii Gopal V. Krishnan, professor,
American University
LEASING BY THE NUMBERS
Seventy-eight percent of businesses hold leases, according to a recent
survey of 3,450 businesses in 44 economies by Experian for Grant Thornton.
The average company holds 20 leases. The average per business is highest
in Sweden (68 leases), followed by Japan (49 leases), Finland (39 leases)
and Australia (25 leases).
Editors
Choice
We have more than 1,000 investment
professionals across the globe.
Prudential brings over 138 years of
asset management experience.
Disciplined risk management has long
been our hallmark.
Our 301 portfolio managers average
14 years tenure with Prudential.
We hold strong market positions across
asset classes.
All of which supports our Top 10 ranking
among all 693 asset managers tracked
by Pensions & Investments.
*
We manage 23 of the 25 largest
corporate pension plans.
Weve maintained 100 client
relationships for more than 20 years.
115 clients invest over $1 billion with us.
Worldwide, we manage over $1 trillion
in client assets.

TOP 10 REASONS
WERE TOP 10
IN ASSET
MANAGEMENT.
To learn more,
contact your investment consultant
or Christopher Rowe, SVP,
Prudential Investment Management at 973-367-1563.
Or visit www.prudential.com/pim
2013 Prudential Investment Management, a Prudential Financial, Inc. company. Prudential, the Prudential logo, the Rock symbol and Bring Your Challenges are service
marks of Prudential Financial, Inc. and its related entities, registered in many jurisdictions worldwide. Prudential data as of 12/31/2012. Pensions & Investments is a registered
trademark of Crain Communications, Inc. *As of 12/31/2011, Prudential Financial was ranked the 9th largest institutional manager, which includes the assets managed
by Prudential Investment Management. Prudential Financial, Inc. of the United States is not affiliated with Prudential plc. which is headquartered in the United Kingdom.
CP2013-0036
Anthony Bradshaw/Getty Images
CAPITAL
MARKETS
other buyer. The first bidder then may
be able to walk away without paying a
breakup fee.
Some M&A practitioners also think
that leaks from either a buyer or seller
can drive a deal forward by pressur-
ing the other party. A leak from a seller
can force a prospective buyer, for ex-
ample, to formally declare its interest.
But the consensus of M&A practitio-
ners is clear: prematurely
talking about a deal or let-
ting information slip out is
too risky.
A High Cost
For almost any company,
leaking a deal is a terri-
ble idea, says Andrew M.
Levine, a partner in the
M&A practice at Jones Day.
Not only would the indi-
vidual or the company (or
both) potentially end up
violating federal securi-
ties laws, it would also be
breaching confidentiality
agreements with the other
party and violating internal
company policy that any
such disclosures have to be
authorized by the board of
directors, Levine says.
We rarely see [leaking]
nowadays, even among pri-
vate companies, says How-
ard E. Johnson, managing
director of Veracap M&A
International. Aside from
the potentially severe legal
ramifications, divulging a deal before a
formal announcement is made comes
at a high cost, he says. If [a company]
is going to use that as a tactic, they
Last February, a merger deal was prematurely leaked.
The Securities and Exchange Commission froze
the Goldman Sachs account of a Swiss trader who alleg-
edly bought a large number of Heinz call options the day
before Berkshire Hathaway and 3G Capital agreed to buy
Heinz. But such leaks, intentional or not, are becoming less
frequent. Leaks involving mergers and acquisitions have
ii
maturely, the second
bidder gains valuable
information and time.
On the buyers side,
its advantageous for an
acquirer to leak a bid
when it wants to derail
a deal or speed it up,
investment bankers in-
terviewed by Cass said. A leak can be
a way to extend a deals completion
time, frustrating a seller and causing
it to end negotiations to look for an-
dropped in the past four years, falling
from a high of 11% of deals during 2008
to 2009, to 7% during 2010 to 2012, ac-
cording to the M&A Research Centre
at Londons Cass Business School.
One reason, at least in the case of
intentional leaks, is a subdued deal-
making environment. The target is
less likely to be able to stoke up a bid-
ding war and will therefore focus on
getting the initial deal done, says a
new report from Cass. But there is an-
other reason: What was once a more
common practice may now be judged
as too risky.
A report of 4,000 transactions from
2004 to 2012 released in April by the
Cass Business School and data-room
company IntraLinks did find some evi-
dence that M&A leaks can help a deal.
(The study used heavy preannounce-
ment share trading as an indicator of
a leaked transaction.) In the past eight
years, deals in which there was signifi-
cant preannouncement trading (SPAT)
achieved higher bid premiums over the
targets undisturbed share price, ac-
cording to the Cass study. From 2010
to 2012, targets in leaked transactions
got a 53% bid premium on average,
versus 30% for unleaked deals.
That may be because the initial bid
sets a floor price and premium for the
target, the Cass report says. In addi-
tion, when an initial bid is leaked pre-
Do Leaks Pay?
In theory, a seller and a buyer can benet from prematurely disclosing an M&A deal.
But the reality can be disastrous. By Vincent Ryan
22 CFO | May 2013 | cfo.com
The group of advis-
ers and people in
the know on a deal
has rapidly expand-
ed in the last 10 to
15 years.
ii Andrew M. Levine,
partner at Jones Day
need to be very carefulthey have to
have a good story behind the leak be-
cause it may have unintended conse-
quences.
Its also a poor way to find another
bidder, Johnson points out. Any com-
pany that intentionally leaks news of a
possible deal probably hasnt shopped
the deal well, he says.
Unintentional leaks are just as
damaging. Experts say companies can
mitigate the risk of them by drafting
proper nondisclosure agreements and
having strict policies and practices for
document and data security. They can
also try to limit the number of people
informed about the potential transac-
tion and to complete the merger as fast
as possible.
But new avenues for unintentional
disclosure keep popping up, and deals
get leaked. Despite efforts to keep
them small, the group of advisers and
people in the know on a deal has rapid-
ly expanded in the last 10 to 15 years,
Levine says, especially in cross-border
deals. Information technology advanc-
es also make it harder to keep a deal
quiet.
Social Blunders
The latest kind of leak comes from
mistakes involving social media. Po-
tential buyers have been searching
the LinkedIn profiles of employees of
target firms without realizing the em-
ployees can see that a competitor has
viewed their information. When this
happens to more than a few employees
at a target firm, rumors start to spread,
says Johnson. If customers and em-
ployees get wind of a deal early, it puts
not just the deal but the company at
risk, he says.
No matter what kind of leak, it
just leads to all kinds of distractions,
says Levine. The buyer or seller may
want to slow down the deal to discover
where the leak came from, and figure
out what the leak could do to the share
price of the target company.
The premium that leaked M&A
deals earned in the Cass analysis could
be because leaked deals tend to be of
high quality. A target in high demand
and likely to attract bids from a range
of parties has more incentive to leak
information than a low-quality target
with limited takeover interest, the re-
port notes.
But other data points from Cass
show that a deal leak is harmful. Since
2008, deals that displayed lots of pre-
announcement trading had no high-
er probability of attracting a second,
higher bid than unleaked deals, Cass
found. And since 2004, deals with
significant preannouncement trad-
ing activity have taken longer to com-
plete124 days versus 116 days for
those with no SPAT. Whats more,
in the past two years deals display-
ing SPAT were completed 80% of the
time, compared with 88% when no
SPAT was found.
In the past, while perhaps counter-
intuitive, leaks led to more deals falling
apart, Levine says.
Laws against market manipulation
and insider trading around M&A deals
have diminished such activity in the
United States. In cross-border deals,
however, companies have to be espe-
cially vigilant to protect against and
even prepare for leaks. About 7% of
the deals in North America showed
significant preannouncement trading
from 2004 to 2012, but in the United
Kingdom 19% of deals did.
The Cass report attributes the high
number of incidences in the U.K. to a
previous lack of regulatory enforce-
ment and monitoring. Since 2007,
however, the U.K.s Financial Services
Authority has spoken out about stra-
tegic M&A leaks and counseled senior
management of companies that they
must establish a culture that actively
discourages leaks. Two years ago, the
U.K. Takeover Panel also introduced
new requirements concerning the
time frame in which the names of bid-
ders have to be disclosed. U.K. deals
displaying preannouncement trading
have thus dropped to 13% of deals.
The analysis by the M&A Research
Centre at Londons Cass Business
School and IntraLinks looked at more
than 4,000 global transactions between
January 1, 2004, and October 16, 2012. A
Cass spokesman says the average deal
value was $1.9 billion, and the sample
set was created so that the minimum
equity value for the target was $100
million. This was done to exclude
small-company targets with illiquid
stock. CFO
23 cfo.com | May 2013 | CFO
Loose Lips Rock Ships
Average number of days
it took to complete an M&A
transaction*
*Based on a study of 4,000 transactions in the
eight-year period.

Leaked deals were defined as those in which


the target companys shares showed signifi-
cant pre-announcement trading activity.
Source: M&A Research Centre at the Cass
Business School of City University, London
Q Deals
showing
evidence of
a leak

Q Deals
showing no
evidence of
a leak
132
0
30
60
90
120
150
10-12 08-09 04-07
115
118
121
112
110
If [a company] is going
to use [leaking] as a
tactic, they need to be
very carefulthey have
to have a good story
behind the leak because
it may have unintended
consequences.
ii Howard E. Johnson, managing director
of Veracap M&A International
The fiscal 2014 federal budget
plan unveiled in April includes a
proposal to require that small em-
ployers (defined as those with less
than $20 million in annual payroll)
automatically enroll employees in
an IRA, though workers could opt
out. The measure would apply to
companies that offer 401(k) pro-
grams and employees who dont
participate in those plans.
The purpose is to stimulate re-
tirement savings through the auto-
matic-enrollment feature. About
half of American workers have no
workplace retirement plan, the
budget proposal states. Yet fewer
than 1 out of 10 workers who are
eligible to make tax-favored con-
tributions to an [IRA] actually do
so, while nearly 9 out of 10 workers
automatically enrolled in a 401(k) plan
continue to make contributions. Small
Small companies could be required to set up individ-
ual retirement accounts funded by pretax deductions
from participating employees pay, if the federal govern-
ment gets its way. Several present and former finance chiefs
contacted by CFO say they support the idea, though in some
cases with reservations.
ii
Thinkstock
GROWTH
COMPANIES
companies would receive tax credits
to partially defray the costs of admin-
istering the new retirement-savings
option.
When asked about the proposal,
small-company finance chiefs general-
ly express strong concern for their em-
ployees retirement savings, but some
voice reservations about a mandated
program. Im in favor of any proposal
that fosters more retirement savings,
says Hank Funsch, former longtime
CFO and now president of Dayton T.
Brown, a $40 million defense contrac-
tor. Social Security will be challenged
in the decades ahead and cannot re-
main the primary source of retirement
income for younger generations. This
proposal could help.
To Paul Remington, who runs fi-
nance at document management soft-
ware vendor Westbrook Technolo-
gies, the proposal makes a lot of sense.
Most employees will not miss the
funds invested in their IRAs, but
if they do they can opt out. Its
a great way to get individuals to
save for retirement.
But Don Doherty, a veteran
CFO and now chief executive at
Fleetwood Fixtures, a provider
of fixtures for retail stores, says
he favors the proposal in theory
only. I am philosophically op-
posed to it being a government
mandate or in any way regulated,
since it will inevitably cost more
than it needs to if done that way,
he says.
Should the rule be mandatory,
Doherty would prefer that the
government carve out a portion of
the FICA tax and deposit it into an
IRA-like plan on behalf of the employ-
ee. The funds would be placed in trust
for the employee and inaccessible for
general use by the federal government.
Kathleen Wolf, finance chief at At-
ari International Contracting, a small
construction company, says that offer-
ing the IRA plan should be optional.
I think this is a good thing, because
so many people have so little saved
for retirement, she says. But forcing
it is like adding another layer of So-
cial Security. She also frowns at the
costs that small companies would in-
cur. Its like when the minimum-wage
24 CFO | May 2013 | cfo.com
Small Companies May

Have to Offer IRAs
A new proposal would require small businesses to automatically enroll some
workers into individual retirement accounts. By David McCann
Social Security will be
challenged in the decades
ahead and cannot re-
main the primary source
of retirement income for
younger generations. This
proposal could help.
ii Hank Funsch, president, Dayton T.
Brown
Thinkstock
jumps. You have to balance that out
with something, she says. Generally
speaking, its probably going to reduce
someones compensation.
Fiduciary Concerns
There are other potential concerns
for CFOs besides having to set up the
plans and absorbing incremental costs.
For one, they may be liable for mis-
takes made with regard to the plans.
The proposal as stated in the budget
plan is silent on that count.
This proposal is very lacking in
detail, says Gregory Marsh, vice presi-
dent and corporate retirement plan
consultant at Bridgehaven Financial
Advisors, whose clients are mostly
small and midsized companies. Funds
will be deferred out of payroll to an in-
vestment vehicle, so there has to be a
fiduciary. Whos that going to be? The
CFO? What happens, for example, if the
company fails to automatically enroll
someone whos eligible to participate?
Marsh also finds it problematic that
there are no laws at present governing
employer-run IRA programs. With
401(k) plans we have a strict exist-
ing body of law, ERISA [the Employee
Retirement Income Security Act], that
CFOs and others who make decisions
on how to offer the plans must follow
to make sure they dont breach their
fiduciary obligations, he says.
25 cfo.com | May 2013 | CFO
Will VC Firms Join
The Crowd?
How crowdfunding and
venture capital can coexist.
Z
Approved by the Jumpstart Our
Business Startups Act in April 2012,
equity-based crowdfunding has be-
come an increasingly popular vehicle
for funding young companies, although
the Securities and Exchange Commis-
sion has yet to issue rules governing its
use. But some venture capitalists worry
that the practice of issuing shares over
Risks and Rewards
There are obvious chal-
lenges to using venture
capital and crowdfunding
in tandem, experts say. Ive
heard from [venture capital-
ists] some trepidation about
the possibility, because you
would have situations where
companies are coming to the VC round
with thousands of shareholders if they
had a successful crowdfunding offer-
ing on the Internet, says David Lynn,
partner at Morrison & Foerster. That
certainly complicates the capital struc-
ture, particularly for the VCs who want
to have a priority position.
The VC firm has got to be really
stringent in making sure that the sourc-
es of capital that the crowdfunding
platform represents are credible, adds
Loucks. Not just that theyre accredit-
edthat goes without sayingbut that
they can support the company through-
out the lifecycle.
Once the JOBS Act rules are final-
ized, firms will be able to raise up to
$1 million from nonaccredited inves-
tors via crowdfunding. They will also
be able to market Regulation D Section
506(c) private placements broadly, as
long as they only sell equity to accred-
ited investors, such as hedge funds.
Because it has no dollar limit, the lat-
ter form of equity-based crowdfund-
ing would be more useful to companies
that want to combine crowdfunding
with VC financing, experts say.
Under this model, a VC firm might
list a company on its website. If enough
accredited investors were interested in
investing, it would create a fund to col-
lect money from participants. Current-
ly, VC firms have to hide their solicita-
tions behind a paywall. As this rule
gets written, well probably see things
that look more like crowdfunding,
where venture capital investments in
companies are made through websites
or platforms where accredited inves-
tors go, says Lynn.
Z MARIELLE SEGARRA
the Internet to small investors could
disrupt their industry and choke off
a source of valuable capital to young
companies.
Others, however, say that business-
es seeking both seed and later-stage
funding can potentially use crowd-
funding and venture capital in tandem.
Crowdfunding, they argue, can supple-
ment venture capital and help compa-
nies raise money faster.
David Loucks, CEO of boutique in-
vestment bank Healthios, says venture
capital and equity-based crowdfund-
ing can be complementary. We see
it as a sequence, where crowdfunding
plays a role and then venture capital
plays a role, Loucks says. But crowd-
funding would not be limited to the
seed stage, he says. Rather, companies
could use it at a later stage to help ce-
ment a deal.
Lets say you have a venture capi-
talist who is considering an investment
in a midstage biotechnology company.
Fifteen million is already being invest-
ed, but theres another $5 million of
capital needed, says Loucks. Crowd-
funding could be a very effective way
of attracting the extra funding that
enables that transaction to [close]. The
company achieves its financing, and
the investors capitalize on the oppor-
tunity.
Crowdfunding could also help a
firm raise the equity needed to ac-
quire, say, a new technology without
taking on an entire acquisition, says
Loucks. Rather than going to the
capital markets on their own, compa-
nies can look to crowdfunding to help
them organize capital around a specif-
ic initiative, he says.
We see it as a
sequence, where
crowdfunding plays
a role and then ven-
ture capital plays a
role.
ii David Loucks,
CEO, Healthios
Corporate executives generally think its better to
fill a vacancy in the CFO position by promoting from
within than hiring externally, new research shows. Finance
executives support internal CFO hires even more strongly
than the overall group, according to a top financial-officers
recruiter. Among 583 executives of all stripes who partici-
pated in a survey conducted exclusively for CFO by Korn/
Ferry, 59% preferred the internal-promotion option, versus
ii
HUMAN
CAPITAL
41% for the external-hire course.
Joshua Wimberley, head of the re-
cruiting firms North America fi-
nancial officers practice, says that
breakdown is consistent with his
anecdotal experience. But he specu-
lates that among finance executives,
preference for the homegrown
choice would probably be more
like 80-20 than 60-40.
Bringing a CFO in from the out-
side can be discouraging and de-
moralizing, says Wimberley. A
companys finance staffers, he says,
want to know that if they take on
various roles in finance, and then
move out to the business, and later
come back into finance, there will
be an opportunity for them to one
day ascend to the top job.
Of course, there are good rea-
sons why companies might prefer
to put an outsider in the CFO chair,
Wimberley acknowledges. But
all things being equal, promoting
someone can be inspiring and can
Mark Stephen/theispot
Execs Prefer Homegrown CFOs
A majority of company executives favor internal candidates for the job.
By David McCann
26 CFO | May 2013 | cfo.com
help create a succession-planning and
leadership culture.
Among executives who prefer in-
ternal candidates for CFO, more than
half (52%) said that the best candidate
would be a controller or vice president
of finance, followed by a divisional fi-
nance chief (42%). Only 2% said that
the treasurer would be the right per-
son for the job. (See Whos the Next
CFO? page 28.)
These results show that most
executives still hold to the legacy
view that the CFO should foremost
be strong in accounting and con-
trols, Wimberley says. But a CEO
looking for a more strategic finance
chief may prefer someone instead
with strong first-hand experience
in business units and operations, he
notes. When we do CFO searches
for large-cap companies, CEOs and
boards love to see that type of ex-
perience, even if it doesnt exist as
much as we would like, says Wim-
berley. Such a CFO would have a
strong controller and thereby be
freed up to focus on forward-look-
ing functions like capital budgeting
and strategic planning and analysis,
he says.
In fact, Wimberley says that the
survey participants preference for
promoting a controller or vice pres-
ident of finance over a divisional
CFO is backward; divisional finance
chiefs are in fact more likely to
get the call. The responses to this
question underrate the reality of
what CEOs are looking for, he says.
Wimberley also finds the paucity
of support for treasurers as poten-
tial CFOs to be out of step. The
treasurer is often a very bright,
Most executives still hold
to the legacy view that
the CFO should foremost be
strong in accounting and
controls.
ii Joshua Wimberley, Korn/Ferry
From pharmacy services to worksite health centers to health testing,
WALGREENS IS FILLING SO MUCH MORE than prescriptions.
Find out more at WALGREENSHEALTH.COM/BUSINESS
1
Frazee, SG, Raulerson, WW, Schwab, H, Broome, R, Davis, J, Patwardhan, A, Murphy, P (2010). Improving health outcomes and reducing cost in chronic disease
management: Impact of a pharmacist led diabetes education program at a workplace pharmacy. Health and Productivity Management, 8 (1-2), 32-36. http://www.ihpm.org/
2
Ernst FR, Grizzle AJ. J Am Pharm Assoc. 2001;41(2):192-199.
With 10 percent of all healthcare spending due to non-adherence to prescription medication,
2
Walgreens is committed to providing personalized consultation and supportwhich in turn helps
employers reduce absenteeism, improve productivity and reduce costs.
Consultation with a Walgreens
pharmacist creates average cost
savings of
$
1,367 to
$
1,839 per
patient, per year.
1
Thinkstock
strategic person, he says. Some of
the brightest minds in finance rotate
through treasury.
CFO
HUMAN CAPITAL
28 CFO | May 2013 | cfo.com
Employee
Pay Surges
Salary levels have risen
nationwide for four
consecutive quarters.
Z
The unemployment rate, though
edging down, is still higher than
most economists consider consistent
with a fundamentally healthy econo-
my. But by another measure of fiscal
healththe level of compensation for
those who are employedthese are
boom times.
Average total cash compensation
among employed people, which was
generally stagnant from 2009 through
2011, surged in 2012 and is showing
no signs of slowing down, according
to PayScale, a compensation research
firm. The rate of increase has been
greater in the past two quarters than
at any time since the index was estab-
lished at the beginning of 2007.
Increases in 2012 from the year-ago
period were 0.7% in the first quarter,
Whos the Next CFO?
Internal promotion of a finance executive
QQQQQQQQQQQQQQQQQQQQQQQQQQQQ 48%
External hire of a finance executive
QQQQQQQQQQQQQQQQQQQQQ 36%
Internal promotion of an operations or
business-line leader
QQQQQQQ 11%
External hire of an operations or
business-line leader
QQQ 5%
If your companys CFO resigned, what
(in your opinion) would be the most
likely source of the best replacement?
Source: Korn/Ferry International, exclusive survey
for CFO of 583 high-ranking corporate executives
with a variety of titles.
If the company filled the CFO seat in-
ternally, from what role would the best
candidate be promoted?
Controller or VP finance
QQQQQQQQQQQQQQQQQQQQQQQQQQQQQQQ 52%
Divisional CFO
QQQQQQQQQQQQQQQQQQQQQQQQQ 40%
Business-unit leader
QQ 3%
Treasurer
Q 2%
Operational leader
Q 2%
Other
Q 1%
The firm keeps the index consistent
by applying a compensation model
based on how the workers whose data
was used in setting the indexs base
level at 100 were distributed by years
of experience, geography, industry,
and company size.
PayScale believes the recent salary
explosion was driven by overall bet-
ter economic performance and pent-
up pressure to increase compensation
following the limp 20092011 period,
says Tim Low, a vice president at the
firm. Indeed, over a four-quarter pe-
riod beginning with the second quar-
ter of 2009, the salary average actually
decreased each quarter.
Fracking Pays
Salaries are rising faster in some indus-
tries than in others. In the first quarter
of 2013, mining/oil-and-gas explora-
tion led the way, soaring 5.2% higher
than in the first quarter of 2012, driven
largely by a boom in fracking for natu-
ral gas. Financial services came next, at
4.7%. The lowest increase among the 15
industry sectors tracked was transpor-
tation/warehousing/storage, at 2.5%.
Aside from the national upward
trend in salaries, another notable shift
that has emerged is that salaries are
growing faster at small employers (up
to 99 employees) than at large ones
(1,500-plus employees). This trend,
which began in the first quarter of
2012, was pronounced in the most re-
cent quarter: a 5.5% pay increase at
small companies versus 2.5% at large
ones. The only other quarter when
small companies outstripped large
companies was the first quarter of
2007, when the index began.
PayScale attributes this change of
circumstance to a fundamental shift
in the job economy and talent market,
whereby small companies are increas-
ingly competing in the same playing
field for talent as large companies and
must come to the table with compara-
ble offers, says Low. Z D.M.
2% in the second quarter, 2.6% in the
third quarter, and 3.5% in the fourth
quarter. For the first quarter of 2013,
the increase was again 3.5%.
That doesnt exactly mean that the
people who filled out PayScales online
survey a year ago have received a 3.5%
raise. The index does not follow sal-
ary increases for specific people, says
Katie Bardaro, PayScales lead econo-
mist. Rather, it tracks the market
prices for jobs. The database is con-
stantly refreshed; PayScale gets about
4 million unique visitors to its website
each month, and the salary index uses
recently input data.
Another notable
shift that has
emerged is that
salaries are
growing faster
at small employers (up to
99 employees) than at large
ones (1,500-plus employees).
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I am the agent of change.
I am exercising wisdom.
I am managing resources.
I am looking for the
unexpected advantage.
I am on the ball.
On the money.
And on the hook.
I am the CFO.
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banks April announcement that it
would inject $1.4 trillion into the Jap-
anese economy means foreign-ex-
change rates could move drastically
in the other direction. Indeed, the yen
weakened beyond 99 to the U.S. dol-
lar in April, revisiting levels not seen
since 2009.
Firms with revenue streams from
Japan that are not protected against
yen volatility have a tough choice
of whether to hedge now and try to
minimize further losses or hope the
yen strengthens. On the other hand,
the prospect of more yen weakening
could tempt well-hedged companies
to take profits on in-the-money hedg-
es that they entered into when the yen
Courtesy Bank of Tokyo
STRATEGY
Companies with exposure to the yen-U.S. dollar
exchange rate have possibly had a wrench thrown
into their hedging plans this year as a result of the Bank of
Japans new, more aggressive policy of monetary easing.
After a period of yen strengthening, the Japanese central
ii
their currency holdings, he explains;
China, in particular, had been a big
buyer. But that stopped six months ago.
There are also forces from the other
direction, however. In particular, the
United States own monetary policy
has the same aim as Japans and is un-
likely to cause any strengthening in the
dollar versus the yen.
To Hedge or Not?
In the short term, currency markets
contain a lot of noise, much more so
than other markets, says Ohanissian.
True economic fundamentals take a
long time before they actually exert
themselves on currency rates, he says.
For nonfinancial companiesalmost
all of which are not speculating in for-
eign exchangethe aim of hedging is to
avoid any earnings hits from currency-
pair volatility arising from the noise.
Its not just the economic gains and
losses but also the effects on the per-
ceptions of the quality of the business
and its revenues, notes Ohanissian.
Right now, companies that have al-
ready hedged their yen earnings expo-
was as strong as 80 to the dollar.
The yens first-quarter weakening
in relation to the dollar has already hit
U.S. companies first-quarter earnings.
Firms that did not hedge their yen ex-
posure, whether from sales in Japan or
financial investments held in yen (in-
cluding U.S. company pension funds),
are likely to show losses. But further
yen depreciation is a question.
The central banks move would ar-
gue for a further weakening of the yen.
And indeed, the reality is that at 80 yen
to the dollar, the currency was trading
at a significant premium to fair value,
points out Andre Ohanissian, a prin-
cipal at Forex Capital Advisors. Cen-
tral banks were buying yen to diversify
32 CFO | May 2013 | cfo.com
Japan Easing Heightens
Yen Exposures
The Bank of Japans more aggressive monetary policy may deepen losses
for unhedged U.S. companies. By Vincent Ryan
Source: S&P Capital IQ
The Yen Weakens
75
80
85
90
95
100
105
Apr Mar Feb Jan Dec Nov
2012 2013
Bank of Japan, Tokyo
Yen/U.S. dollar
Courtesy The IMF
sure would be wise to continue rolling
over their in-the-money hedges, says
Ohanissian. On the other hand, U.S.
companies that are not hedged have
taken a beating, and the question is
whether or not to put on a hedge now.
Those companies may be reluctant to
put on a hedge because they think it
too expensive. But the yen could drop
further, amplifying the estimated 17%
mark-to-market losses such companies
have absorbed to date.
One way to cheapen the cost of
hedging yen exposure would be to use
a structured strategy with options,
says Ohanissian. That would involve
combining the sale and purchase of
yen options at different strike prices
to establish a floor and ceiling on the
price movements.
Complicating the picture, of course,
U.S. companies may not have a good
forecast of their revenues from Japan.
With a weakening yen, goods from
companies outside Japan become more
expensive to Japanese businesses and
consumers. So a company could over-
hedge and take a hit to earningsand
if it is a loss the CFO would have to
explain that action to the board. Some
CFOs, therefore, find underhedging or
not hedging worth the risk, and would
rather just call themselves the victim
of larger market forces. CFO
33 cfo.com | May 2013 | CFO
IMF Criticizes Easy
Money Policies
What will happen when
central banks pull back on
their monetary easing?
Z
When the major central banks in-
evitably try to end their aggressive
monetary stimulus, the casualty could
be financial stability, according to a re-
port released in April.
The report, from the International
Monetary Fund, echoes some of the
rising voices expressing concern about
the smooth withdrawal of what the
Federal Reserve Board of
Governors calls monetary
accommodation.
The IMF says that po-
tential consequences to
a pullback from ultralow
interest rates and quantita-
tive easing could include
capital losses for banks and
adverse effects on liquid-
ity and prices in bond mar-
kets. A disruption to the
long-term liquidity that
some major central banks
are supplying to support credit creation
also poses a danger.
Even if one central bank times its
exit right, uncoordinated tightening
across the central banks studied
those of Japan, the United Kingdom,
the United States and the European
Unioncould lead to potentially dis-
ruptive financial flows between mar-
kets and countries, the IMF says.
A Host of Risks
The Federal Reserve and the other
central banks will inevitably need to
raise interest rates to safeguard price
stability. But rising rates present a host
of risks, especially if they come rapidly
and are not well telegraphed by the
central banks, the IMF says.
For banks and their borrowers, an
ill-timed increase in rates could be
damaging. While banks welcome high-
er rates because they boost income,
higher rates also cause capital losses
on fixed-rate securities (weakly capi-
talized banks could particularly suf-
fer, says the IMF). In addition, the
performance of banks loan books
could weaken measurably if rates rise
quickly.
Financial institutions that hold large
portfolios of government bonds could
be hurt the most from rate jumps. Japa-
nese banks, for example, hold so much
domestic sovereign debt that a 100-ba-
sis-point increase across the yield
curve would lead to mark-to-market
losses of 10% to 20% of
precious Tier 1 capital,
according to the Bank of
Japan. Similarly, in Italy, a
200-basis-point increase
in rates would shave 7.7%
off the capital of domestic
banks, the IMF says.
A shift to tightening
will presumably also cause
central banks to end quan-
titative easingasset pur-
chases that have boosted
credit markets and low-
ered long-term rates. The uncertainty
over whether central banks will sell
those large portfolios back to the mar-
kets could cause instability, especially
if central banks asset buying has been
masking market dysfunction, the
IMF says.
In addition, generally loose mon-
etary policy and ample liquidity could
be propping up weaker borrowers,
says the IMF: Central banksare giv-
ing banks an incentive to evergreen
[roll over] nonperforming loans in-
stead of recording losses in their profit
and loss accounts.
But international economist Bill Ad-
ams of PNC Financial Services Group
thinks the IMFs analysis is painting
only a partial picture of how the exit
from loose monetary policies will play
out. In looking at linkages between
unconventional monetary policies and
financial stability, the IMF is ignoring
the positive effect of those policies on
the macro economy, he says.
Macro performance is incredibly
important to financial stability, Ad-
ams says. If the economy does bet-
ter, then financial stability tends to
improve, and [U.S. monetary policy]
has definitely played a big role in the
recovery of the economy, particularly
the housing sector.
Adams says he is confident that as
the Fed engineers its exit from quanti-
tative easing, it can be expected to man-
age the size of its balance sheet to keep
interest rates on a stable path. Z V.R.
Rising rates pre-
sent a host of
risks, especially if
they come rapidly
and are not well
telegraphed by the
central banks, ac-
cording to the IMF.
At the end of your most recent
fiscal year you were holding $21.5
billion of your clients cash. What
do you do with it?
We have a sophisticated investment
strategy that generates interest in-
come, which is an important part
of ADPs earnings. Were earning
a 2.2% to 2.3% return. The strategy
has several priorities. But number
one, its our clients money, so we
have only very safe investments that
could be liquidated at any moment if
we had to.
We also borrow against those
investments. We have a hold-to-ma-
turity and borrowing strategy that
maximizes the overall yield. The
2.2% comes from investing longer
and borrowing to balance out liquid-
ity needs that may arise due to fluc-
tuations in the fund balances.
And then we have similar busi-
ness models, where, for example, if
you use our 401(k) solution, we col-
lect company contributions and hold
them for the few days between the
issuance of paychecks and when the
money shows up in employees ac-
counts. We also have some workers
compensation offerings that work
like that.
What are you doing with the $1.5
billion of your own cash on your
balance sheet?
Our business has very good free
cash flow. Thats a very important
value proposition to our investors.
Its a low-capital-intensive business,
but we spend $150 million to $200
million a year on capital investments
and maybe $400 million on acquisi-
tions. And we have a dividend yield
between 2.5% and 3%. We also have
a continuous share-buyback pro-
gram. The outstanding shares of
common stock have been reduced by
about 10% over the last five years in
order to offset dilution from employ-
Automatic Data Processing,
the provider of seemingly ubiq-
uitous human-resources sys-
tems and services, processes
paychecks for about one in six
American workers. At any mo-
ment the company is holding
$20 billion to $25 billion worth of
its customers payroll funds be-
fore disbursing them to the cus-
tomers employees. Even in this
age of ultralow interest rates,
the company manages to gen-
erate a fairly healthy return on
investing customer cash, says
Jan Siegmund, who took over as
CFO in November.
ADP generally has on its bal-
ance sheet about $1.5 billion
of its own cash, which it uses
to pay dividends and make an
average of about eight acquisi-
tions per year. (Shareholders
have received a payout from
ADP for 38 straight years.) Free
cash flow is especially strong
these days, according to Sieg-
mund. Its why ADP is one of
only four U.S. companies to have
a triple-A credit rating from
both Standard & Poors and
Moodys Investors Service (the
others are Exxon Mobil, Johnson
& Johnson, and Microsoft).
Historically, ADP mainly pro-
vided core HR technology for
payroll processing, payroll tax
compliance, and benefits ad-
ministration. But over the past
few years it has been acquiring
its way toward competitiveness
in the talent-management soft-
ware space.
About two-thirds of the com-
panys 600,000 or so clients have
fewer than 50 employees. Most
of the rest have up to a few
thousand workers, but at the
high end ADP has an offering
called GlobalView that provides
an integrated payroll and HR
solution for the largest multina-
tional companies.
Recently, Siegmund talked to
CFO about ADPs strategies and
the HR technology market.
Other
Peoples
Money
As Corporate Americas paycheck-
processing king, ADP has a lot of spare
cash on hand.
ON THE
RECORD
AN INTERVIEW WITH
JAN SIEGMUND
CVP and CFO, Automatic Data Processing
R
o
c
e
r


H
a
g
a
d
o
n
e
35 cfo.com | May 2013 | CFO
ee stock-compensation programs and
to increase earnings per share.
What has ADP been doing with re-
gard to talent management?
We see talent management as hav-
ing five major components: recruiting,
performance management, succession
planning, compensation management
and learning. Those are all part of our
talent-management suite.
We started with a recruiting solu-
tion about seven years ago. Five years
ago we formed an alliance with Cor-
nerstone on Demand to distribute its
talent-management product. About
three years ago we acquired a com-
pany called Workscape, which had a
benefits-administration system and
was also a market leader in compensa-
tion management, and we added three
modules to make it our suite.
How did your payroll customers re-
spond as you introduced your tal-
ent-management modules?
Clients today more often than not
want to buy products that are avail-
able as an integrated suite. Thats been
the driver of our strategy, to transform
ourselves from a more silo type of
company with best-of-breed applica-
tions to the suite concept.
Youve been trying to catch up in
talent management, but according
to your most recent annual report
your research-and-development
spend was only about 6% of rev-
enue. Some software companies are
spending three times that much on
R&D. How do you arrive at an ap-
propriate level of development?
Well, as CFO I face a lot of demands
for spending money, and our R&D
folks are not short on new ideas!
ADP has always stood for service
with our payroll solutions and strength
in regulatory compliance. Our new
CEO, Carlos Rodriguez, who came on
board a year and a half ago, has really
made it a point to emphasize that we
Jan Siegmund,
CVP and CFO, ADP
ON THE
RECORD
also care about in-
novation and techno-
logical competence. So
we have made a lot of
investment in devel-
oping better product
faster.
But we have done
so while keeping the
ratio of R&D to rev-
enue roughly in the
same area. We didnt even take it down
during the economic downturn. Now
we are focusing on reducing the com-
plexity of our product portfolio, which
grew out of all the acquisitions we
have done. So we have fewer products
but are increasing the R&D dollars
available for them.
When you see 6% [spent on] R&D,
its a little misleading. We are invest-
ing far, far more than that on our tal-
ent-management suite. But in payroll,
in absolute-dollar terms we already in-
vest four times what our nearest com-
petitor does, so we dont have to think
about having a certain percentage of
revenue in the product.
What are your observations about
the HR technology product market?
There have been a lot of changes in
the past couple of years.
Yes, its a dynamic market space, with
SAP acquiring Success Factors, Oracle
buying Taleo as a consequence and
Cornerstone going stronger to market.
Workday is being very active in the
large-company ERP market. So ADP
is playing in a very attractive market,
and its a market where weve obvi-
ously shown that you can make good
margins.
People ask me whether we face
increased competition and how its
changing our world. And my answer
is, we always have faced competition.
Fifteen and 20 years ago it was People-
Soft that was transforming the upper
end of the market, and today theres
a lot of talk about Workday and Ulti-
mate. So weve always
had a slew of competi-
tors and have always
had to be on our toes.
I take it as a good chal-
lenge for us.
How does the busi-
ness that ADP is in,
HR automation, in-
fluence what you as a
CFO do day to day?
Everything I do aims to drive the
growth of our business and make sure
we are executing against our strate-
gic growth initiatives. I was the chief
strategy officer prior to this role and
for many years I ran one of our busi-
nesses. So I dont come with a financial
background. Im a PhD economist, but
I dont have a CPA-type background.
Well, youre the CFO. Youre re-
sponsible for the accuracy of the
financials, and youve got to sign
off on them. Where do you get the
confidence that the financials are
on the money?
Financial management and financial
controls are a bedrock of ADP. Were
in the payroll business, and we do ac-
counting stuff for clients. So its in our
culture to have a very strong finance
team. I do spend a good deal of time
reviewing and overseeing the process.
Z INTERVIEW BY DAVID McCANN
36 CFO | May 2013 | cfo.com
ON THE COMPETITION:
People ask me whether
we face increased competi-
tion. Fifteen years ago
it was PeopleSoftand
today theres a lot of talk
about Workday and
Ultimate. So weve always
had a slew of competitors
and have always had to be
on our toes.
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Hill doesnt limit her
mentoring to women.
I feel a responsibility
to mentor anybody who
wants to be successful
in their career.
JENNIFER HILL, CFO,
GLOBAL BANKING AND MARKETS
AT BANK OF AMERICA
39
cfo.com | May 2013 | CFO
{ }
By Marielle
Segarra

JENNIFER HILL was a managing director at
Goldman Sachs in 2006 when she got the opportunity to
take a job as CFO of Tisbury Capital Management, a
hedge fund in London. During the decision-making
process, Hill called up a former mentor. His advice has
stuck with her ever since. He said, You always want your
rsum to tell a story. Whats the next thing you want
your rsum to say about you? she recalls.
The
Art Of
Mentoring
Five female
CFOs tell
how mentors
helped them
succeedand
how they
are returning
the favor.
}
{ }
Women In
Finance
Above, Matthew Furman; right, Bob Stefko
40 CFO | May 2013 | cfo.com
Five years later, when
Hill considered accepting her current
position as CFO for Global Banking
and Markets at Bank of America, I
asked myself the same question, she
says. I will never forget his words on
that. Her mentor, she says, helped
me shape what my story looked like
over time.
Today, Hill is helping other young
women shape the stories of their pro-
fessional lives. In March, for example,
she returned to her alma mater, Ham-
ilton College in upstate New York, to
talk to female students about careers
in business. But she doesnt limit her
assistance to women. I feel a responsi-
bility to mentor anybody who wants to
be successful in their career, she says.
That feeling is shared by many wom-
en in the top finance role. According to
a study by Catalyst, a research organi-
zation working to advance women in
business, 65% of women who received
support in their careers are helping de-
velop younger staffers, compared with
56% of men who received support.
Mentoring is really important to
increasing the number of women CFOs, says Lorraine Hack,
partner at executive recruiting firm Heidrick & Struggles.
Its an added perspective from someone who maybe has
been there and done it. But a good mentor doesnt have to be
female, she adds. It could be men mentoring women, help-
ing them navigate through some things that are seemingly
more female-centric, whether it is balancing work with fam-
ily or trying to break through for a promotion if someone
feels stuck.
CFO recently spoke with female finance chiefs like Jen-
nifer Hill to find out why and how they mentorwhat ad-
vice they give, what they look for in a mentee, what they
gained from their own guides, and how women in corpo-
rate finance can approach mentorship strategically. Their
stories follow.
Authentic Relationships
{DIANE MOREFIELD}
Every step of the way in my career, at every single company,
Ive had mentors, says Diane Morefield, executive vice pres-
ident and CFO of Strategic Hotels & Resorts, a publicly trad-
ed real estate investment trust based in Chicago. Ironically,
when she graduated from college, networking and mentoring
were two concepts that I never had really heard about, she
says. But building a network and seeking out mentors came
naturally to Morefield, who describes herself as a raging
extrovert.
You have to be proactive, says Morefield, who has been
mentored by both men and women and has mentored junior
employees throughout her career. You have to take the ini-
tiative to reach out [and ask], Maybe we could have lunch
once or twice a year, just one-on-one, she says. At the same
time, you dont want to be a pest or impose, because by defi-
nition, mentors are people who are executives and senior in
their career stage who are very, very busy, she says.
Aspiring CFOs should look for professionals either outside
their company or not in their direct reporting line who can
give them objective, independent advice on career matters,
work issues, and even office politics, says Morefield. Chem-
istry is crucial. The best mentor relationships are authen-
tic relationships, she says. Theyre not because someone
is simply trying to get ahead and theyre only using [a men-
tor]. A lot has to do with chemistryyoure similar types of
people, or you have a similar sense of humor, whatever. Such
connections are often rooted in gender, but they do not have
to be: I personally think its important to have both men and
women mentors, she says.
Today, Morefield is open to mentoring both women and
men in early stages of their careers, as long as she knows
them in some way, whether they work for her company or
one of her previous companies. Of course, she has to be selec-
Sage advice that has stuck with me for prob-
ably about 20 years now: Give your people
enough rope to try new things, but not enough
to hang themselves. Karen McLoughlin, CFO, Cognizant
41 cfo.com | May 2013 | CFO
tive. If I met with everybody who reached out to me, I would
never be able to get my job done, she says.
Does she feel a responsibility to mentor women in par-
ticular? Absolutely, she says. We can all read the statsthe
percent [of women] that have C-level jobs, the percent that
are partners at law firms and accounting firms. There are a
lot fewer of us, and I want to help support younger women
who really want to advance their careers and balance their
lives, particularly if they have children. I know how difficult
that is, she says, noting that she has three children herself.
But Morefield adds that she would never limit mentor-
ing to just younger women. I can name a lot of young men
that have worked for me over the years that Ive tried to help
and advance.
People with a Passion

{KAREN MCLOUGHLIN}
For Karen McLoughlin, CFO of Cognizant Technology So-
lutions, mentorship has long been a two-way street. Ive
always had the mind-set that if I want to move on and be
promoted and do the next thing in my career, I need to en-
sure that I have the right team in place to do what Im do-
ing today, she explains. And so I think by definition, that
creates an environment where youre constantly looking to
mentor people.
Such an environment can benefit junior employees who
may want to be mentored but are reluctant to make the first
approach. Recently, says McLoughlin, she noticed a female
director-level member of her team who she thinks has a lot
of potential. Given my title in the organization, that person
might be afraid to reach out to me on her own, and so some-
times I have to take the first step and say its OK that we can
continue this dialogue and have this relationship, she says.
Looking back on her own career, McLoughlin says she
had at least 10 to 12 people that I had a strong mentoring
relationship with. Such relationships were formal and in-
formal, involving mentors inside or outside her company
who I thought I could learn something from, be it techni-
cal skills or thought skills, how they conducted themselves,
or thought about their business.
Like Hill, McLoughlin received a sage piece of advice
from one mentor that has stuck with me for probably about
20 years now. She quotes: Give your people enough rope
to try new things, but not enough to hang themselves. A
mentor, she says, can say something very simple but pro-
found that really makes you think about how you
conduct yourself.
At Cognizant, mentoring for McLoughlin isnt
about women per se, but about people who I
think have good, long-term opportunities to be
successful. In particular, she looks for mentees
who have a passionsomebody who can really
contribute within the company. But it is a lot of
fun if I can find young women to mentor, she says.
Learning to Take Charge

{SHERRY BUCK}
When junior employees give a presentation at Lib-
bey, the glass tableware maker, CFO Sherry Buck
often gives them constructive feedback. I will
reach out to them and say, Hey, you did this really
well, says Buck, a former finance chief at Whirl-
pool. Or, This is something that might help im-
prove your confidence. When I reach out, some-
times that makes people more comfortable to have
ongoing conversations and ask for a mentor rela-
tionship.
Buck herself has had quite a few mentors
during her career, formal and informal, male and
female, most of them colleagues. I try to sur-
round myself with what I call my personal board
of directors, she says. She looks for a diverse
group of mentors with different personalities
who work across all the business units. Being a
A lot has to do with chemistry
youre similar types of people, or
you have a similar sense of humor,
whatever.
DIANE MOREFIELD, EXECUTIVE VP AND
CFO, STRATEGIC HOTELS & RESORTS
}
Women In
Finance
{
}
Women In
Finance
{
The most important advice:
Advocate for yourself. Never let
anyone tell you that you cant do
something. Sherry Buck, CFO, Libbey
Photo courtesy Juniper Networks
finance leader, to be very effective,
I need to understand all the piec-
es of the business, she says. Buck
also looks for advisers with differ-
ent leadership styles, people who
may be more aggressive or have different approaches than
I would have.
Not that shes a shrinking violet. One thing I learned
early on is not to be shy, says Buck. Like the other finance
chiefs profiled here, Buck mentors employees without re-
gard to gender. I will mentor people whether theyre male
or female, she says. Having said that, I do try to make a
conscious effort to reach out to female colleagues and give
them feedback and coaching to help them get to their full-
est potential.
The most important piece of feedback she gives? Advo-
cate for yourself, says Buck. Never let anyone tell you that
you cant do something. In her experience, she says, men are
usually much more aggressive about what they want and
what theyre driving toward. For some of the women that
she has mentored, Im coaching for them to take charge of
what they want.
Female
CFOs
in the
Fortune
500
Ranking in the Fortune 500
Company CFO
3 CHEVRON PATRICIA E. YARRINGTON
8 FANNIE MAE SUSAN R. MCFARLAND
10 HEWLETT-PACKARD CATHERINE A. LESJAK
16 J.P. MORGAN CHASE MARIANNE LAKE
35 HOME DEPOT CAROL TOM
53 BEST BUY SHARON MCCOLLAM
68 MORGAN STANLEY RUTH PORAT
75 SUPERVALU SHERRY M. SMITH
82 ORACLE SAFRA A. CATZ
88 TIAA-CREF VIRGINIA M. WILSON
110 MACYS KAREN M. HOGUET
111 INTERNATIONAL PAPER CAROL L. ROBERTS
114 STAPLES CHRISTINE T. KOMOLA
122 OCCIDENTAL PETROLEUM CYNTHIA L. WALKER
135 FREEPORT-MCMORAN COPPER & GOLD KATHLEEN L. QUIRK
140 UNITED STATES STEEL GRETCHEN R. HAGGERTY
142 TIME WARNER CABLE IRENE M. ESTEVES
167 SOUTHWEST AIRLINES TAMMY ROMO
173 MARATHON OIL JANET F. CLARK
185 GAP SABRINA SIMMONS
186 DUKE ENERGY LYNN J. GOOD
(MERGED WITH PROGRESS ENERGY)

214 GENUINE PARTS CAROL YANCEY
220 SARA LEE MARIA HENRY
(NOW HILLSHIRE BRANDS)

234 AVON PRODUCTS KIMBERLY A. ROSS
235 AON CHRISTA DAVIES
240 PUBLIC SERVICE ENTERPRISE GROUP CAROLINE DORSA
246 XCEL ENERGY TERESA S. MADDEN
264 WHOLE FOODS MARKET GLENDA FLANAGAN
270 CDW ANN E. ZIEGLER
280 KBR SUE CARTER
283 BLACKROCK ANN MARIE PETACH
286 PROGRESS ENERGY LYNN J. GOOD
(MERGED WITH DUKE ENERGY)

301 FAMILY DOLLAR STORES MARY A. WINSTON
306 GILEAD SCIENCES ROBIN L. WASHINGTON
309 HERTZ GLOBAL HOLDINGS ELYSE DOUGLAS
311 KINDER MORGAN KIMBERLY ALLEN DANG
315 RELIANCE STEEL & ALUMINUM KARLA R. LEWIS
323 STEEL DYNAMICS THERESA WAGLER
326 COMMERCIAL METALS BARBARA R. SMITH
327 HORMEL FOODS JODY H. FERAGEN
370 MASTERCARD MARTINA HUND-MEJEAN
374 WEYERHAEUSER PATRICIA M. BEDIENT
390 CORN PRODUCTS INTERNATIONAL CHERYL K. BEEBE
(NOW INGREDION)

393 CORE-MARK HOLDING STACY LORETZ-CONGDON
398 COGNIZANT TECHNOLOGY SOLUTIONS KAREN MCLOUGHLIN
408 EASTMAN KODAK REBECCA ROOF (INTERIM)
429 AUTO-OWNERS INSURANCE EILEEN FHANER
430 SANDISK JUDY BRUNER
433 SEALED AIR CAROL P. LOWE
441 KELLY SERVICES PATRICIA LITTLE
450 LIVE NATION ENTERTAINMENT KATHY WILLARD
460 INSIGHT ENTERPRISES GLYNIS BRYAN
465 GANNETT VICTORIA D. HARKER
475 FMC TECHNOLOGIES MARYANN T. SEAMAN
477 CVR ENERGY SUSAN M. BALL
486 SUSSER HOLDINGS MARY E. SULLIVAN
488 EL PASO KIMBERLY ALLEN DANG
(ACQUIRED BY KINDER MORGAN)

492 CELGENE JACQUALYN A. FOUSE
497 ERIE INSURANCE GROUP MARCIA A. DALL
Photo courtesy Juniper Networks
43 cfo.com | May 2013 | CFO
A Community of Peers

{ROBYN DENHOLM}
As with many women in finance, most of Robyn Denholms
mentors have been male. I came up through the ranks at a
time when there were very few women leaders, says Den-
holm, executive vice president and CFO of Juniper Net-
works, a networking equipment maker. And like the other
finance chiefs interviewed here, it doesnt matter to her
whether a mentor or mentee is male or female. Its really
about the experiences that person has hadwhat you can
learn from them, how comfortable you are with that per-
son, she says. [Its the same with] the people that Ive men-
tored individually. Mentoring is more important than gen-
der, says Denholm, and mentoring the next generation of
CFOs [is] the primary responsibility.
That said, I do get asked to mentor a lot of women these
days, and I think role models are important, says Denholm. I
must admit, having grown up without a lot of role models in
my career, I understand the importance of that. She adds, I
get as much out of the relationships as I put into the relation-
ships. Over the years, Ive mentored many different individu-
als. I think Im a better person because of it.
Denholm also participates in Vital Voices Global Partner-
ship, a month-long internship program for aspiring female
leaders. For two to three weeks each year, Juniper welcomes
one of these women to its offices in Sunnyvale, Calif. The men-
tee attends meetings, shadows executives like Denholm and
meets other women in the program throughout Silicon Valley.
The company took on its fourth mentee, a software engineer
and start-up founder from Uruguay, last month.
Junior staffers can learn from their peers as well as their
senior colleagues, notes Denholm. She is one of four female
executives on the companys leadership committee, and
whenever they visit a company location, they convene infor-
mal gatherings for women employees at different levels of se-
niority. At the companys global sales conference in Las Vegas
last January, the executives held a breakfast for all the women
in attendance. Such forums enable senior and junior staffers
to mingle and talk about career journeys, work/life balance
and how they can get involved in other business units.
Fostering a community of peers is one of the most im-
portant things a mentor can do, says Denholm. Get people
together and they can solve anything, whether theyre male
or female.
CFOs Need Mentors, Too
{JENNIFER HILL}
At Bank of America, Jennifer Hill believes its important for
mentees to choose their mentors. You need to know what you
need from the relationship, otherwise its not going to work,
she says. Throughout her career, Hill has looked for mentors
who have qualities she lacks.
I look for somebody who has that something that Id like
to have, whether its a personality trait, a way of dealing with
a situation or the capacity to build a team that can go through
difficult situations, says Hill. Some people are great moti-
vational speakers. Some people can rally the troops. Some
people are very good at managing complex detail. Theres
something that somebody has to offer, and only you know
that when youre looking for a mentor.
Aspiring CFOs can also find ways to build more-organic
relationships with executives they admire, says Hill. Some-
times its volunteering for things, she says. Some of the
closest connections Ive made are people who offered to help
with something. For instance, after a writer for the Financial
Times gave a book discussion to a large group of women at
the company, one junior attendee organized a book club for
a smaller group of employees, including Hill. I was struck
by her initiative, she says.
Once the junior employee created that connection, she
asked if Hill had a few minutes for some career questions.
She created a natural opportunity to have a further discus-
sion about her career, Hill says. Sometimes seeking out op-
portunities to get to know somebody a little bit better on a
slightly more personal level, which is often outside of peoples
comfort zone, is the way you will connect with somebody.
When looking for mentors, would-be mentees should ap-
proach people who already know them, advises Hill. I do a
lot of work with my undergrad college [Hamilton], and when
people send a blind e-mail following a talk or something, that
doesnt forge a connection necessarily. I think a small net-
work of very close friends who you trust and who can be
honest with you is far more effective.
Such networks can be useful throughout a persons career.
Even CFOs can use mentors, points out Hill, who still keeps
in touch with hers. When youre at a senior level, you dont
get a lot of praise. You dont come in and get a hug every
day, she says. Sometimes you need somebody to reinforce
the things that you know youre good at and remind you why
youre in the chair. CFO

Z MARIELLE SEGARRA IS ASSOCIATE EDITOR AT CFO.
Over the years Ive mentored
many different individuals.
I think Im a better person for it.
ROBYN DENHOLM, CFO, JUNIPER NETWORKS
Weathering
Weather
IN THE FACE OF EXTREME WEATHER AND
NATURAL DISASTERS, COMPANIES ARE
REENGINEERING THEIR SUPPLY CHAINS FOR
ADDED RELIABILITY. BY RUSS BANHAM The
Since Hurricane Katrina devastated New Orleans in 2005, catastrophes
like the massive floods in Thailand and Pakistan, a prolonged drought
in the Southwestern United States, and the one-two punch of hurricanes
Irene and Sandy seem to be occurring with more frequency, with expen-
sive consequences for many companies. Leaving aside the political
rhetoric over climate change and global warming, such extreme-weather
eventsalong with natural disasters like the Japanese earthquake
and tsunamiare exposing potentially risky supply chain practices
predicated on cost-effectiveness. For more than a generation, companies
have pursued lean manufacturing and just-in-time production models,
outsourcing much of their manufacturing to trusted sole-source suppli-
ers. Now, these popular practices are increasingly colliding with Mother
Nature, who is doing her best to expose the fragility of these models.
44 CFO | May 2013 | cfo.com
Thomas Jackson/Getty Images
In response, companies like ATMI, Kimberly-Clark, Roy-
al Caribbean and Ford Motor have elevated climate change
in their enterprise risk management methodologies. Indeed,
according to a September 2012 survey by the independent
Carbon Disclosure Project, 83% of S&P 500 companies are
integrating climate change into ERM processes.
Insisting on these efforts in many companies are CFOs
acutely cognizant of the need to balance the efficiencies of
the supply chain against the risks posed by severe weather
and other business disruptions. The last thing we want to
do is take our customers down, says Tim Carlson, CFO of
publicly traded ATMI, a classic B2B intermediary, which
sources supplies to provide process solutions to the semi-
conductor and life-sciences industries.
Other enterprises share this concern. According to an
April survey by APQC of senior-level executives at 196 di-
verse companies, 77% stated that their organizations experi-
enced at least one unexpected supply chain disruption in the
past 24 months. The key word is unexpected, comments
Mary Driscoll, senior research fellow, financial management,
at APQC, a nonprofit business process research firm.
More than half (56%) of the respondents said the disrup-
tion was serious enough to draw their sustained attention
and intervention. Ninety-two percent of these expressed
levels of concern ranging from somewhat concerned to
extremely concerned. They were more worried about
extreme weather than they were about political turmoil,
Driscoll says.
Why such worry? Precious few companies have mod-
eled the impact of extreme-weather risks on their global
supply chains, says Brendan LeBlanc, assurance leader in
Ernst & Youngs U.S. climate change and sustainability ser-
vices practice. These threats arent scored in the risk regis-
ter, theyre not monetized, and theyre not acted upon.
EXPOSING THE PROBLEM
Two recent disasters that particularly compelled companies
to review their supply chain practices were Japans earth-
quake/tsunami/nuclear meltdown and the Thailand floods
of 2011. Both caused extraordinary contingent business in-
terruption problems arising from sidelined suppliers unable
to provide expected manufacturing capacity.
CFOs suddenly realized how exposed their supply
chains were, says Carlos A. Alvarenga, managing director
in operations consulting at Accenture. The Thai flooding
alone created significant shortages in the hard disk drive
market, generating hundreds of millions of dollars of losses
for many electronics manufacturers. What I hear constantly
from clients are questions over how volatile these events
may become in the future and their potential economic
costs, which for the most part have not been quantified.
Theyve not been quantified for a simple reason: the
availability of insurance to absorb the business-disruption
risks. Companies assumed they
could simply insure their way out
of the problem, but after Thai-
land and Japan insurers are more
wary about extending coverage,
says Robert Muir-Wood, chief re-
search officer at RMS, a disaster-
risk modeling company servicing
the insurance and reinsurance
industries.
After the events of 2011, there was definitely a tighten-
ing of terms and conditions, affirms Paul McNamee, divi-
sion president, North American property and casualty spe-
cialty lines, at insurer ACE USA. Underwriters excluded
contingent business interruption coverages emanating from
critical catastrophe perils, particularly internationally. Since
then, there has not been any additional tightening. A lot of
this depends on the quality of companies supply chain risk
management.
RISK VS. COST
The increasingly severe weather-related disruptions and
greater difficulties acquiring broad insurance coverage are
forcing major manufacturers to rethink their sole-sourcing
and global supply strategies.
For years, Toyota depended on its long-term trusted re-
lationships with sole-source suppliers that were responsive,
innovative and cost-effective, says Charles Fine, professor
of operations management and engineering systems at the
MIT Sloan School of Management. The tsunami not only
46 CFO | May 2013 | cfo.com
After Japans earth-
quake/tsunami/nucle-
ar meltdown and the
Thailand floods of 2011,
CFOs suddenly real-
ized how exposed their
supply chains were.
ii Carlos A.
Alvarenga, managing
director in operations
consulting at Accenture
WEATHERING THE WEATHER
Landov
47 cfo.com | May 2013 | CFO
called that strategy into question, it also made Toyota real-
ize that it needed to be more geographically diversified in
its supplier base, says Fine. Losing one [supplier] factory
is a medium-sized disaster. Losing an entire region with
multiple suppliers is a major problem.
Alvarenga says that companies may not have fully com-
prehended the risks of global supply chains. Many compa-
nies switched from local suppliers to distant suppliers on
the basis of cost optimization, without considering the total
cost of risk, he says. The extended global supply chain has
many additional points of potential failure, encompassing
natural disasters, epidemics and political instability. Com-
panies that formerly had backup inventory, manufacturing
facilities and proximate multiple suppliers are exposed to
additional risks.
Seventy percent of the respondents to the APQC survey
say their organizations pruned their lists of suppliers over
the past five years, with the intent to reduce costs. Near-
ly three-quarters (74%) of the companies over the period
added suppliers physically distant from their facilities, with
63% acknowledging that their suppliers are located in ar-
eas of the world known for high-impact natural disasters,
extreme-weather events or political turmoil. The situation
doesnt look great, says Driscoll.
Fortunately, the situation appears to be improving. One
promising trend is the return of supply chain localization.
Companies that sourced supplies in China because of the
low costthat position is evaporating in some sense, with
Apple now saying it will build more in the U.S. and others
saying that as well, Fine says. When you factor in the risk
and benefits of shorter supply chains, you have less invento-
ry and thus less risk of inventory obsolescence. In the event
of a weather disruption, shorter supply chains give you
more flexibility to quickly change orders in transit.
Also, 69% of respondents to the APQC survey say that in
the past 24 months their organizations have taken steps to
reach a better balance between sole-source suppliers, which
reduce cost, and multisource suppliers, which reduce risk.
Most (62%) state that their companies are conducting for-
mal risk assessments of key suppliers on a semiannual or
annual basis, and nearly half (44%) are assessing the resil-
iency of the extended supply chain against disruptions.
These assessments then become part of the ERM process
determining total cost of risk. Companies need to address
the impact of extreme weather on a holistic basis, says Al-
varenga. The supply chain is systemic in nature, hence a
problem in one area can easily affect the entire enterprise.
Risks must be balanced against the cost-effectiveness
of sole-source suppliers and far-flung supply chains. A
company needs to determine how much risk it is taking by
working with a single individual supplier, and then compare
this to the costs of having alternative redundant suppliers,
says Jeff Burchill, CFO at FM Global, a provider of property-
loss engineering services and business property insurance.
FROM JUST-IN-TIME TO JUST-IN-CASE
Redundant suppliers are a critical necessity at Freeman
Health System, a 517-bed, three-hospital system providing
comprehensive health-care services throughout Missouri,
Arkansas, Oklahoma, and Kansas. Weve had five major
tornadoes over the past six years, explains Steve Graddy,
CFO of Joplin, Mo.-based Freeman. We have redundancy
through every one of our supply needspreestablished or-
ders with suppliers of implantable medical devices, medi-
cines, food and water, in case our customary suppliers are
knocked out by a blizzard or a windstorm.
Making matters worse during such events is a sharp
increase in patients afterwards. In May 2012, a tornado
ripped through Joplin and sent 750 victims to Freemans
Level 2 trauma center within a matter of hours. Within a
week, more than 1,700 people were treated by the health
system, some dispatched from nearby St. Johns Hospital,
which had been destroyed. We had everything we needed,
thanks to the redundancies, Graddy says.
Royal Caribbean Cruises also has precontracted with
multiple just-in-case suppliers. We have built in a lot of
redundancy, says Brian J. Rice,
vice chairman and CFO of the
cruise-ship operator. We have
about 6,000 containers of goods
that meet up with our ships around
the world. Last year, fewer than 10
were problematic.
The company attributes the suc-
cess to its Marine Group, which is
responsible for monitoring global
weather patterns and analyzing
the impact on ships at sea, as well
as its Incident Response Group, in
charge of alerting redundant sup-
pliers in the event of a disruption.
If a hurricane is headed toward the
western Caribbean, for instance,
the Marine Group will direct a cruise ship in the area to
change its itinerary and sail toward the eastern Caribbe-
an instead. The Incident Response Group simultaneously
alerts backup suppliers.
The biggest thing is to expect the unexpected, Rice
says. While we can follow the weather, something like that
volcanic-ash cloud [from the 2010 eruption of Icelands Ey-
jafjallajkull volcano] that shut down parts of Europe can-
not be predicted. We have to have redundancies in place.
Redundant suppliers ready to fill voids are also con-
tracted at Irving, Texas-based Kimberly-Clark. Weve
experienced disruption in our supply chain from severe-
weather events, and have taken steps in the last three years
to do some things differently, says Scott DeGroot, direc-
tor of supply chain strategy at the personal care product
manufacturer. Weve now ensured that our key suppliers
Weve had five ma-
jor tornadoes over
the past six years,
says Graddy. We
have redundancy
through every one of
our supply needs.
ii Steve Graddy,
CFO, Freeman Health
System
have contingency plans in place in
case their suppliers are disrupted.
When North Carolina was hit by
a hurricane two years ago, one of
our key suppliers reliant on capac-
ity in the region informed us that
backup components were available
from its redundant suppliers.
Kimberly-Clark also has worked
with its transportation group to
ensure dedicated capacity in the
event that extreme-weather events
affect shipping patterns. Just
hours after the Japanese tsunami,
our transportation Center of Excel-
lence in Knoxville [Tenn.] reported the impact on our in-
coming demand stream to our crisis response center, De-
Groot says. Within minutes, they were on the phone with
our ocean shipping carriers to provide secured, incremental
capacity.
ATMI has also identified and qualified alternate sources
as backup suppliers and touts a supply chain map and alert
system focused on its top revenue-generating products.
We know where everything is coming fromnot just the
48 CFO | May 2013 | cfo.com
There has been no dearth of unusual
weather in recent years. Here is a sam-
pling:
Z Since 2000, the world has experienced
nine of the 10 warmest years on record
since 1880.
Z More than 15,000 daily heat records
were shattered across the United States
in March 2012.
Z Texas experienced record drought
conditions this year, while the North-
eastern United States had record bliz-
zards.
Z Two 100-year hurricanes (Irene and
Sandy) hit New York in consecutive
years, 2011 and 2012.
Whether or not these events were
caused by global warming is not mate-
rial (although the vast majority of sci-
entists believe that climate change is
under way). What is material is the risk
of these events and their consequent
costs. In 2011 alone, droughts, floods,
hurricanes and other extreme-weather
events combined to cost the U.S. econo-
my roughly $55 billion, according to the
National Oceanic and Atmospheric Ad-
ministration.
Meanwhile, a recent study by insurer
FM Global indicates that the impact of
natural catastrophes and man-made
disasters has almost tripled since the
early 1980s, as more people have moved
into harms way. Over this period, in-
sured losses have exploded from less
than $10 billion annually to more than
$100 billion.
Ninety-one percent of Americans
now live in places at a moderate-to-high
risk of earthquakes, volcanic eruptions,
wildfires, hurricanes, flooding and other
disasters, a study by the Hazards and
Vulnerability Research Institute indi-
cates. Nearly 60% of the worlds popula-
tion, or about 3.9 billion people, are ex-
pected to concentrate in urban areas by
2030, according to the United Nations.
Where there are people there are busi-
nesses. And most urban areas are near a
major body of water at greater risk from
storm surge.
James Lawrence Powell, a former
president of Franklin and Marshall Col-
lege who served on the National Sci-
ence Board for 12 years, is among the
many scientists who expect the miser-
able weather to stay, if not worsen. The
accumulation of these rare events tells
you there is a new normal, and it isnt
pretty, says Powell.
The earth is warming, which cre-
ates more moisture and evaporation,
resulting in more energy in the atmo-
sphere, he adds. This, in turn, leads
to more-ferocious storms. It also con-
tributes to higher sea levels that create
greater storm surges and wider inland
flooding, as well as higher precipitation
in some areas and much less in others.
Even if you flipped a magic switch and
no more carbon dioxide was emitted,
global temperatures would still rise and
cause all this havoc. Z R.B.
WHOLL STOP THE RAIN?
suppliers we buy from but who they buy from, too, says
Rick Eklund, ATMI director of supply chain management.
The tool goes very deep, recording the geographic coordi-
nates of each supplier. The system processes data from the
National Earthquake Information Center and weather pre-
diction facilities worldwide, so we know when a disruption
is occurring.
When the Japanese earthquake and tsunami occurred,
ATMI was able to quickly assess the impact on suppliers
and subsuppliers in the region. We knew exactly the ones
that were affected, Eklund says. We were able to burn
through some safety stock as we waited for our redundant
suppliers to expedite materials.
CFO Carlson says supply chain risk management has be-
come as important to ATMI as supply chain cost efficiency.
The Japanese tsunami had both upstream and downstream
implications for us, impacting what we needed from our
manufacturing base, as well as what was in the pipeline
from a customer standpoint, he explains. Fortunately,
with our map and alert system, we could quickly enact a
contingency plan.
Take that, Mother Nature. CFO

Z RUSS BANHAM IS A CONTRIBUTING EDITOR OF CFO.
The biggest thing is
to expect the unex-
pected. Something
like that volcanic-ash
cloud that shut down
parts of Europe can-
not be predicted.
ii Brian J. Rice,
CFO, Royal
Caribbean Cruises
www.truphone.com/CFO
888-99-MOBILE
business.us@truphone.com
STAY CONNECTED.
GLOBALLY.
INTERNATIONAL MOBILE
ROAMING DOESNT HAVE TO
BE COSTLY OR COMPLEX.
Software For
The People
Bafed by the ever-increasing variety of HR applications? Heres how
to choose the right ones for your company. By David McCann
But maybe you dont ask
those questions. The people
sitting in your guest chairs are
the companys leading experts
in HR and technology, after all.
Still, how comfortable will you
be when it comes time to sign
off on the buying decision?
In either scenario, it isnt
easy to pull the trigger on an
HR technology purchase.
In part thats because there is
no perfect solution. No soft-
ware firm can or will provide
all the tools a company might
want, with all the capabilities
being the best on the market,
and all tightly integrated down
to the core design level.
Yet take heart: there is prob-
ably a solution that makes sense
for your company, even if its on
the small side. I just talked to
a guy whos got a new product
coming out targeted at compa-
nies with fewer than 100 em-
ployees, says Naomi Bloom, a
40-year veteran of the HR tech-
nology space who runs con-
sulting firm Bloom & Wallace.
Theres no way that would be
appropriate for large, complex
companies.
Until recently, Bloom adds,
the technology challenge has
been in the awkward middle
ground of companies with, say,
500 to 5,000 employees. But
todays cloud computingbased
tools have finally provided a
pricing model that lets those
companies pay a rate for the
software based on their head
count of 500 or 5,000, rather
than 10,000 or more.
DOING IT RIGHT
There is a right way and a
wrong way to go about buying
HR technology. The right way
is to familiarize yourself with
your companys strategic plan,
appraise the gap between your
existing technological capabili-
ties and what the plan says you
need, and begin to replace or
add the necessary components
in a systematic, prioritized,
bang-for-the-buck way.
The wrong way, which is far
more common, is by simply re-
sponding to pain points. That
never gets you to the right
place, says Bloom. When you
hear, Were running version
seven of this system, and our
maintenance contract expired,
and we cant do anything with
mobile devices, and so we have
got to buy this new system,
you have to respond with your
broad, strategic plan.
Say the plan calls for the
company to grow revenues
from products less than five
years old from 20% of total
revenues now to 60% within
three years. What will you
have to do from a people per-
spective to achieve that?
asks Bloom. Double the sales
force? Find better salespeople?
Train them better? Have bet-
ter incentive compensation
plans? The answers to such
questions should lead you to
51 cfo.com | May 2013 | CFO
Human Resources Technology
Special
Report
Being the CFO and strategist that you are,
when your human-resources and information-
technology leaders show up at your office
proclaiming a need to upgrade your companys
HR technology, you no doubt have some pointed
questions: Why now? What will we be able to do
that we cant do currently? What value does that
have? How much is it going to cost?
Neil Webb
When customers are looking at
new applications, one of the biggest
drivers is the need to manage talent
around the world, says Kim Billeter,
a consultant at Towers Watson. If you
want to open a plant in Thailand, for
example, talent-management software
can help you find out who in the com-
pany speaks the language, is mobile
enough to go work there, and has the
needed skills. But even the large com-
panies Billeter consults for are not yet
taking advantage of such capabilities.
Many of our clients cannot do that to-
day, she says.
Talent-management applications
Human Resources Technology
Special
Report
the products that can help you fulfill
the strategic plan.
FINDING THE HIDDEN COSTS
CFOs often evaluate HR technology
based on direct costs, as in, Well
save a bunch of money if we move to a
cloud HR system because its the ven-
dor that has to maintain the hardware
and the network, and do the mainte-
nance and the upgrades.
But there are problems with bas-
ing the decision solely on hard-dollar
savings from running the software. A
cheaper cloud-based system may lack a
good recruiting application, for exam-
ple, and as a result there may be oppor-
tunity costs or other indirect cost hits.
If it takes 60 days to fill a sales posi-
tion, and the revenue target for that
role over that time period is $100,000,
that actually matters, says Bloom.
The same applies to scheduling
technology. Consider a manufacturing
plant: if a worker calls in sick, someone
else has to take that shift. But that per-
son has to be certified to use the equip-
ment pertaining to that job, and cant
have already worked beyond a certain
number of hours that week or month.
Any number of variables may apply.
So [the] supervisor is out to din-
ner with his family and gets a call
from the sick guy, Bloom says. Well,
today there is technology that can run
a million reshufflings of the schedule
instantaneously. He can do what he
has to do from his smartphone within
seconds. Without such technology,
though, the supervisor would have
to do what he used to do: go back to
the office and pore over spreadsheets
while the shift [loses] an hour of pro-
duction time.

GAINING AN ADVANTAGE
Among the many possible business
goals facilitated by HR technology, one
that is increasingly common concerns
global staffing.
SCHEDULE ADJUSTMENT:
So the supervisor gets a call from the sick guy,
says Bloom. Today there is technology that can
run a million reshufflings of the schedule instan-
taneously. He can do what he has to do from his
smartphone within seconds.
Naomi Bloom, Bloom & Wallace
52 CFO | May 2013 | cfo.com
Worldwide
Average Large Medium Small
Administrative 95% 97% 97% 92%
Service delivery 49% 61% 48% 42%
Workforce management 45% 52% 47% 39%
Talent management 55% 72% 53% 44%
Reporting/visualization 53% 58% 52% 49%
BI tools 39% 46% 43% 31%
Workforce analytics/planning 15% 21% 13% 13%
Social media tools 26% 31% 24% 23%
Source: CedarCrestone, 2012-2013 HR Systems Survey of 1,246 employers
Application Adoption Level by Company Size
System Deployment Approach
0%

10

20

30

40%
Q2012 Q 2013 (projected)
Outsourced
(process
and
software)
Other
including
in house/
bespoke
Hybrid SaaS
(subscription
based)
Licensed
software
(hosted)
Licensed
software
(on premise)
38%
33%
18%
14%
23%
35%
10%
11%
9%
4%
3% 3%
Download these reports now at cfo.com/research
You
answered.
77
We
asked.
7 7
PROTECTING
FRONT-LINE SERVICES IN
AN ERA OF SHRINKING
PUBLIC BUDGETS
With their funding slowing down,
the nance chiefs of public sector
organizations need to identify fast,
new sources of income.
But can they even hope to do so
in time to maintain the quality
and range of their services?
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MAXIMIZING
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INFORMATION
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Learn how nance teams
can help their companies make
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spending less on
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IMPROVING
CONTROL
OF TRAVEL SPEND
In a departure for
nance executives,
controlling travel expenses
is now ascending to
a higher priority. But are they
up to the challenge?
3 Sponsored by SAP
Intelligence for Smarter Decision Making
At CFO Research, we conduct detailed surveys and interviews with senior
nance executives from around the world. Combining their insights with our in-depth
knowledge, we produce the intelligence you need to make better decisions.
AUTHORITATIVE.
INDEPENDENT.
FINANCE-DRIVEN.
JUST LIKE YOU.
CFO
research
saving time for managers, Cook says:
Can I measure that? Im not going to
spend the time to measure it. I know
theres an impact just by talking to
people. When you multiply what a few
people tell youthat they can focus on
building and managing product instead
of spending time on [general and ad-
ministrative] stuffit doesnt need to
be quantified.
In fact, Cook doesnt think there are
great standard ROI measurements
for HR software in general. Most of
the benefit is on the intangible side,
he says.
Steve Armond, CFO for technolo-
gy-services firm T-Systems, agrees. I
dont know of a good way to track that
ROI, he says. ROI implies that theres
going to be some revenue created or
costs avoided. The way I approach
these products is to focus on deliver-
ing the capability we need for the busi-
ness at the lowest cost.
WHATS OUT THERE
The HR technology product market
traditionally consisted of core HR
can address another common goal with
the potential for indirectly hitting the
bottom line: identifying who among
your companys top-performing and
high-potential employees are flight
risks.
Every organization has its one or
two superstars at every level, and ev-
erybody knows about them. But those
ranked three through five are going to
be very attractive candidates for other
employers, observes Richard Johnson,
an associate professor at the State Uni-
versity of New York at Albany who fo-
cuses on HR technology. Talent-man-
agement software can look at all the
HR data available to the company and
create profiles of the types of employ-
ees who have left previously and their
reasons for doing so.
Similarly, such software can help
identify candidates who are likely to
be successful, based on the traits of
those who have succeeded previously.
When recruitment goes online, ap-
plications go up dramatically, which
creates additional overhead, notes
Johnson. But with keyword-scanning
software you can eliminate many rsu-
ms immediately.
And by automating various HR pro-
cesses, like putting in a requisition for
a new hire, completing performance-
review forms, or documenting devel-
opmental plans for employees, com-
panies can free up time for managers.
Time is money, and we can save our
executives, directors, and other man-
agers a ton of time in doing those pro-
cesses, says Jim Cook, CFO of Mozil-
la, maker of the Firefox web browser.
WHATS THE RETURN?
But how well can the impact of such
technologies be quantified? Although
proving return on investment is what
gets CFOs out of bed in the morn-
ing, they tend to be skeptical when it
comes to HR technology.
Continuing the discussion about
systems that manage employees per-
sonal information, payroll, taxes, and
benefits. Most CFOs are familiar with
these.
Recent years have brought a bum-
per crop of newer talent-management
applications and suites that handle
such functions as recruiting, perfor-
mance management, succession plan-
ning, compensation management,
learning and onboarding (helping new
employees acclimate to a company).
Grasping the value those provide is a
more nuanced undertaking.
There are big, comprehensive sys-
tems aimed mostly at large companies
that offer both core and newer types
of HR technology. Some are based on
technology developed in the 1990s that
required (and still require) complicat-
ed physical installations and heavy up-
front capital costs. Most of the newer
tools are cloud-based, with a pay-as-
you-go pricing model.
Other systems are designed for
smaller companies. At the same time,
there is a raft of software designed to
perform one or two specific tasks. A
company could invest in the former
or cobble together a collection of the
latter, which may include some best-
of-breed solutions not found in the big
systems.
PATCHWORK QUILTING
One option is to hire a third-party
systems integrator to stitch together
a handful of disparate tools. Thats
quite doable, says Josh Bersin, princi-
pal and founder of Bersin by Deloitte
(until recently Bersin & Associates),
a research and analysis firm focused
on talent management, learning and
leadership development. So much of
todays technology is in the cloud, and
the interfaces are fairly open, so you
dont have to upgrade the software ev-
ery year with a whole new release.
Rather, the cloud vendor performs
the updates for you. And there are
BANG FOR THE BUCK:
There are not great
standard ROI measure-
ments for HR software
in general. Most of the
benefit is on the intan-
gible side.
Jim Cook, CFO, Mozilla
JIM COOK
54 CFO | May 2013 | cfo.com
Human Resources Technology
Special
Report
Photo courtesy of Mozilla
55 cfo.com | May 2013 | CFO
usually several updates per year, as
opposed to one every year or two for
installed systems, so the technology
can get much more sophisticated very
quickly.
Even if you dont have every-
thing right away that you eventually
will want, by looking at a vendor road
map and understanding where theyre
going, you might be able to pick up
something that, first, will get you
where you need to be now, says Scott
Bolman, a principal at Mercer who
focuses on HR service delivery. And
then maybe in 18 months it will satisfy
all your needs, at a cheaper price than
if youd gone the other way and had
an overpowered system for what you
needed on Day One.
On the other hand, systems integra-
tors are not cheap, nor are they neces-
sarily miracle workers. It always costs
more than you think it will, and you
will still have data synchronization is-
sues, says Billeter.
For large companies, says Billeter,
if youre staying with the big, broad
vendors that have more-unified so-
lutions, youre probably going to be
better off from a cost standpoint, a
user-experience standpoint and a lon-
gevity-in-the-marketplace standpoint.
For smaller companies, the formula for
satisfaction is likely to be different. At
T-Systems, Armond says his strategy
has been to buy best-of-breed solu-
tions that have enough integration
capability that I dont have to create
a whole bunch of manual processes
to get the core underlying data from
point A to point B.
BELLS AND WHISTLES
Another aspect of the buying decision
relates to waste. Is it an inefficient pur-
chase when the software has way more
capabilities than you need?
If you asked 100 people who use
HR technology, whether core or talent
management, what percentage of the
overall functionality they actually use,
Id be shocked if the average was more
than 50%, says Bruce McDonald, vice
president of BPO governance at media
company E.W. Scripps and a longtime
HR technology buyer.
But it may not be helpful to think
about a buying decision with that in
mind, McDonald adds. It means youre
evaluating the softwares overall ca-
pabilities rather than whether it meets
your needs.
Still, for Armond, the potential
for buying more than he needs is a
concern. T-Systems formerly used a
third-party software tool for certain
HR-related transaction processes and
reporting needs, but only needed 20%
of its capabilities. It wasnt a flexible
model such that we could simply con-
sume what we needed as opposed to
buying the whole, Armond says.
Now, he says, if a vendor offers X, Y
and Z, and were only looking for X and
Y, then we want to buy those at a price
point that reflects a reduction in capa-
bility. If we cant, well keep looking.
Finally, if you are considering a
stand-alone solution from a smaller
vendor, be careful, says Bloom. Two
bad things could happen: They will ei-
ther be purchasedin which case the
buyer could morph the software into
something you dont wantor they
wont have the resources to keep up, so
youll be at an evolutionary dead-end,
she says. There are lots of those [ven-
dors] out there. CFO
Source: CedarCrestone, 2012-2013
HR Systems Survey of 1,246 employers
Financial Impact
Of Talent Management
Software Integration
$0
100,000
200,000
300,000
400,000
$500,000
Q Net Income per employee
Q Revenue per employee
No
Integrated
TM
Integrated
TM
$489,866
$32,990
$25,473
$348,738
$0
100
200
300
400
500
600
$700,000
Q Net Income per employee
Q Revenue per employee
No Yes
$607,989
$52,498
$26,918
$457,898
Z When applications are
integrated with one another
Z When applications are
integrated with one another
on same platform as HRMS
COST CREEP:
Systems integrators are not
cheap, nor are they necessar-
ily miracle workers. It always
costs more than you think it
will, and you will still have data
synchronization issues.
Kim Billeter, Towers Watson
Note: Numbers may not add to 100% due to rounding
Source for all charts: CFO/Investor Group Services
The public markets are a chal-
lenging place for CFOs, whose
lists of tasks grow even longer
with the introduction of curious
and impatient investors and height-
ened regulatory scrutiny. Indeed, the
CFOs role may change more than that
of any other corporate officer in the
transition from private to public. And
for small-cap companies, the increased
responsibilities that come with trading
publicly are not always accompanied
by the same level of valuation, atten-
tion and access to capital awarded to
their large-cap peers.
In this quarters Deep Dive survey,
CFO polled finance chiefs at publicly
Public Knowledge
For small-company CFOs, the rewards of being
public dont always outweigh the headaches.
By Kate OSullivan
i
42%
of small-cap companies
have no analyst coverage,
31% are followed by just
one or two analysts and
only 8% are followed by
more than five analysts.
Deep
Dive
while 31% are followed by just one
or two analysts. Just 8% are followed
by more than five analysts. In con-
trast, at large-cap companies, more
than half of respondents say they are
followed by more than five analysts,
while 19% have no coverage. Not
surprisingly, nearly 60% of small-cap
CFOs say they are not satisfied by
their companys coverage level.
Generally, CFOs give mixed re-
views to the analysts they do have:
28% say analysts dont understand
their industry, while 37% say analysts
dont understand their companys
specific strategy. Sixty percent of
respondents say analysts misconcep-
tions affect their companies valu-
ations. Respondents cite a lack of
comprehension of their companies
business models, market dynamics,
competitive set, and future growth
prospects.
Finance chiefs are equally luke-
warm about their relationships with
investment bankers. While 42% of
respondents interact with an invest-
ment banker at least monthly, CFOs
traded companiesa majority with
market capitalization under $500 mil-
lionto learn more about the state of
smaller public companies today and
the role of the CFO at these firms.
While results varied across the sam-
ple of 84 respondents, the smaller the
business, the more concerns the CFO
tended to have about the companys
level of coverage and degree of access
to capital.
JUST A MISUNDERSTANDING
More than 40% of respondents at
small-cap companies, defined as those
with market caps of less than $500 mil-
lion, have no analyst coverage at all,
CFO Takes the Pulse of U.S. CFOs
56 CFO | May 2013 | cfo.com
Analyst Coverage and Satisfaction
Q More than 10 | Q6-10 | Q3-5 | Q1-2 | QNone
Number of Analysts:
0% 100%
Large Cap
29% 14% 33%
5%
19%
0% 100%
Small Cap
19% 42% 31%
4%4%
Q Yes | QNo
Satisfaction with coverage:
Large Cap Small Cap
0% 0% 100% 100%
35% 57% 65% 43%
57 cfo.com | May 2013 | CFO
score their bankers level of under-
standing of their business at a decided-
ly average 3.2 on a scale of 1 to 5.
David Johnson, CFO of Johnson
Outdoors, an outdoor recreational
equipment retailer with 2012 revenues
of $415 million, says being publicly
traded has its challenges for the Wis-
consin-based company. The company
is followed by one equity analyst and
has an investor relations team of two,
including the CFO. It would be nice
to have three analysts instead of just
one, says Johnson. I dont want to
have 10, but it would be nice to have
more coverage.
To raise the companys profile with
investors, Johnson says he tries to go
on the road two or three times a year,
to investor conferences or to meet
with investors in various cities. He
also invites investors to the compa-
nys headquarters. We have to be fo-
cused, he says. We cant have a scat-
tershot approach.
SARBOX STRUGGLES
Entering the public markets requires
compliance with Sarbanes-Oxley, a
daunting task for many smaller firms.
Companies must also prepare their an-
nual and quarterly financials in accor-
dance with generally accepted account-
ing principles and submit to annual
outside audits. At LocalMediaLink,
a business-directory publisher and a
division of publicly traded Gladstone
Equity Group, CFO Bob Nolan says one
of his biggest challenges is meeting the
deadlines for all of the companys many
reporting requirements. Our finan-
cial reports have to be in to the parent
within a few days after our close each
month, he saysa quick turnaround
for a small finance staff.
For about half of the CFOs sur-
veyed, Sarbox compliance has had a
significant impact on their businesses.
One respondent notes the need to hire
additional staff and the added cost of
outside auditors, while another points
to the significant paperwork burden.
The most time-consuming part of
being a public-company CFO, however,
is managing short-term investor ex-
pectations, according to 66% of survey
respondents. Another 19% cite spend-
ing time with analysts, while 15% say
quarterly conference calls present the
biggest time-management challenge.
Slightly more than half of respondents
say they would run their businesses dif-
ferently were they not public. Says one,
If we were private, we would remove
the insane focus on forecasting and
planning and focus on top-line growth
with measured profit increases.
WHAT GAIN?
Despite the work involved in keeping
the books in order at a public com-
pany, many finance chiefs at small-
cap companies say they dont feel that
they reap the reward of improved
access to capital. More than 40% of
respondents report that they do not
have access to debt and equity at what
they consider to be reasonable terms
and pricing. Still, once they do choose
to access the markets, the vast major-
ity say the process is smooth and they
have not encountered significant road-
blocks.
The best way to get the markets
attention as a small public company,
says Johnson, is by posting strong re-
sults. When we grow and increase our
profits on a consistent basis, we get
noticed. Still, he adds, Weve found
investors have a very short attention
span, so we have to act fast to get the
story out. CFO

Most Significant Time Constraints
Q Managing short-term expectations of investors
QAnalyst interaction
QQuarterly conference calls
0% 100%
66% 19% 15%
Analyst Coverage and Satisfaction
Q Yes | QNo
Understand
industry?
Understand
strategy?
Misconceptions
impact valuation?
28%
37%
40%
72% 63% 60%
Investment Bank Interactions
Frequency of interaction
About once per year 19%
A few times per year 14%
Every few months 19%
Bimonthly 6%
Monthly 25%
Weekly 17%
Understanding of business
(on a one-to-ve scale, with ve
being very well)
Five 11%
Four 31%
Three 31%
Two 19%
One 8%
to make sure they are spending effi-
ciently to support their goals. As one
finance executive told CFO Research
in a global study of business spend-
ing and investment in 2012, Its not so
much about spending more or less. Its
about spending differently.
But thats nowhere as simple as
it sounds. For employers, managing
employee travel expenses represents
an ongoing challenge to gain control
and impose accountability, requiring
them to persistently nudge employees
to comply with corporate guidelines.
Their efforts to gain visibility into
employee spending and track where
their travel dollars are going tend to
be slowed by inefficient processes.
For instance, companies that rely on
many sources of travel-expense data
in many formatsas contrasted with
companies that consolidate that data
into a single, unified formatmust
work harder to obtain robust, timely
and comprehensive information on
travel expenses. Two-thirds of survey
respondents say they still rely on many
sources of travel-expense data.
But despite both the technological
and human challenges they face, com-
panies arent about to ground their
efforts to cut costs and improve op-
erational performance in their travel-
spending programs.
So concluded a study that CFO Re-
search conducted earlier this year, in
collaboration with software giant SAP.
Fielding an online survey, CFO Re-
As companies scour the reviving
economy for growth opportuni-
ties, employees cant help but
grow enthusiastic over the pros-
pect that they are finally going some-
whereliterally.
Increased business-travel activity,
after all, serves as an informal barome-
ter of economic growth. Employees are
likely booking more plane flights, rent-
al cars and hotel rooms in an effort to
serveor attracta growing number
of customers. But before their employ-
ees hit the road, companies would be
wise to scrutinize their travel spending
Where Are Your
Travel Dollars Going?
Following your companys travel expenses is a trip
worth taking. By Matt Surka and Josh Hyatt
i
Field
Notes
Perspectives from CFO Research
search collected responses from 173
senior finance executives at large and
midsize companies in North America
and Europe. The questionnaire focused
on the tools and practices that finance
teams use to set and enforce travel-
spending policies, pinpoint patterns
in their employees spending behav-
ior and improve their ability to man-
age travel expenses. (The full report,
Improving Control of Travel Spend,
is available for download at cfo.com/
research.)
Survey respondents emphasize that
they are indeed seeking tighter control
over travel spending. But while finance
executives are clearly aware of the long
journey they face, there are hints that
they remain less than confident about
their ability to reach their ultimate
destination. The difficult piece is get-
ting people to adhere to certain [travel]
policies, says the director of finance at
a midsize nonprofit company.
A LONG WAY TO GO
Only about 12% of finance executives
rate their company as excellent in
terms of achieving employee compli-
ance with travel-related spending poli-
cies. More than 85% of respondents
say that theres some room for im-
provement when it comes to employee
The difficult piece is
getting people to ad-
here to certain [travel]
policies, says one
finance chief.
Thinkstock
FIGURE 1
To improve travel-expense management
over the next two years, my company
will focus on .
Q Optimizing the level of control over
travel-related spending
Q Maximizing the value of travel-
related spending
Q Minimizing the administrative
burden of travel-expense management
58 CFO | May 2013 | cfo.com
42%
30%
22%
59 cfo.com | May 2013 | CFO
yield a meaningful financial benefit
for their companies. The top barriers
they face in that regard are difficulty
enforcing employee compliance and
difficulty consolidating enough pur-
chasing volume with a given vendor to
gain negotiating leverage, which were
cited with the same frequency (see
Figure 3).
Educating employees, however, is
likely to prove more challenging than
consolidating data. Frequent fliers, for
instance, often find existing systems
for travel booking too time consuming.
And each employee has his or her own
reason for seeking a policy exception.
But once employees feel heard, they
may be more willing to listen. The bur-
den then falls on management to pro-
vide them with tools that explain the
logic underlying the policies and make
it easier for them to comply.
complianceand a third of those go so
far to say that theres substantial room
for improvement.
Not surprisingly, then, retaking the
reins is where a plurality of respon-
dents (42%) plan to focus over the next
two years. Much smaller proportions
of respondents say they will spend that
time maximizing the value of travel-
related spending (30%) or minimizing
the administrative burden of managing
travel expenses (22%) (see Figure 1).
But optimizing their level of control
over travel spending requires finance
executives to achieve a delicate bal-
ance, steering clear of any collision
between the companys need for con-
trol and its strategic mandate to ag-
gressively pursue growth. The CFO
of a financial-services firm explains
that we have significantly increased
the restrictions we place on employee
travel such as requiring the use of
specific hotels or airlines. But, he adds,
the volume of restrictions makes it
more difficult for us to police excep-
tionsas there are so many.
PLAYING FAVORITES
Such preferred-vendor policies
proved to be astoundingly popular
among the finance executives who
answered the survey. Three-quarters
of respondents make extensive use of
such relationships. Nearly the same
proportion of survey-takers (68%)
most frequently cite better prices as
the top benefit they receive from culti-
vating such links (see Figure 2).
That said, 77% of respondents
agree that making better use of such
preferred-vendor relationships would
CFO Research is the research affiliate of CFO magazine, CFO.com,
and CFO Conferences. We conduct detailed surveys of and interviews
with senior finance executives from around the world. Combining
their insights and our knowledge, we produce the intelligence you
need to make better decisions. A complete archive of CFO Research re-
ports is available at CFO.com/research.
More
From
CFO
Research
Having done so, companies will find
that the benefits arent hard to see, the
study suggests. The treasurer at a large
chemicals/energy firm says simply
that standardizing around a limited set
of travel providers has made it easier
to negotiate preferred rates and evalu-
ate spending trends. Such steps will
ultimately lead to better places. CFO
FIGURE 2
Better prices
\ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 68%
Better visibility into/control over
employees travel behavior
\ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 39%
Better customer service
\ \ \ \ \ \ \ \ \ \ \ \ \ \ 25%
Better selection of products
\ \ \ \ \ \ 11%
Faster delivery
\\\\ 7%
Difficulty consolidating enough
purchasing volume with a given
vendor to gain negotiating leverage
\ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 30%
Difficulty enforcing employee
compliance with travel-spending
policies
\ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 30%
Lack of overall travel-purchasing
volume
\ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 20%
Difficulty establishing relationships
with vendors that employees are
comfortable using
\ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 16%
The cost of documenting spending
volume and negotiating concessions
outweighs the benefits
\ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 16%
Lack of timely access to compre-
hensive information on travel-relat-
ed spending
\ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 15%
FIGURE 3
is among
the top benefits my company has real-
ized through preferred-vendor relation-
ships for travel.
is among
the greatest barriers to my companys
ability to make better use of preferred-
vendor relationships for travel-related
purchases.
0% 20 40 60 80%
0% 10 20 30 40%
Note: Respondents were asked to select up to two.
Note: Respondents were asked to select up to two.
HIS TAKE-AWAY: I spend about a third of
my time on strategy questions. Right
now were in a growth mode, so Im
looking at where it will make the
most sense to expand. Were based
in Michigan and we still have a third
of our stores there, but now were in
16 states, and I anticipate well be in
more than 20 states in a few years.
Should we open larger stores? His-
torically, weve had stores as small as
7,000 square feet. By comparison, a
Dicks Sporting Goods store will usu-
ally be 60,000 or 80,000 square feet.
If you have a 10,000-square-foot store
and Dicks opens a 60,000-square-
foot store right next to you, that
pretty much wipes you out. But if we
open bigger stores, we can hold our
own. We wont get the same rate of
return on the dollar, but we can still
get well beyond our hurdle rate and
cost of capital, even if it costs a little
more money up front. Going forward,
the stores we are opening average
50,000-plus square feet.
Z INTERVIEW BY MARIELLE SEGARRA
TAKE
AWAY
Courtesy of the Dunhams Sports
The Game Plan
NAME ii Al Blazek
POSITION iiCFO of Dunhams Sports
PREVIOUS POSITIONS iiDirector of sales and marketing finance
at Whirlpool; director and divisional CFO at Circuit City.com;
loss forecaster at Capitol One; manager of corporate finance
at Wal-Mart; internal consultant for Columbia Energy Group
NOTABLE FOR iiHis focus on strategy.
60 CFO | May 2013 | cfo.com
Dunhams
Sports CFO
Al Blazek
1
3
1
6
6
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3
2
6
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