Month: August 2011

New CFO’s Essential Knowledge Prerequisites


When you start as a CFO, the first thing to do is to get your bearings – to assess your position relative to your surroundings.  As quickly as you can you must grasp general ideas about typical characteristics of your environment, your own role and purpose, expectations of others, as well as primary routes for channeling your talents and efforts.  But as soon as you are done with that, comes the time to get down to the level of firsthand details and study the specific aspects of the business.   You need to draw a detailed map that will help you on your journey as a financial leader.

This is a mandatory activity for a recently hired head of finance, new to the company.  It is a good idea for someone who has been with the company for a while in a lower position and just been promoted – new vantage point may provide you with the better vision of your company.  Even if you’ve held the top post for a few years, but never got around to do this and feel that incomplete picture prevents you from excelling, maybe now is a good time to go back to the drawing board.

This is your R&D stage, necessary for proper functional design.  Your research will help you to improve future performance.  Every CFO and controller must acquire an exhaustive understanding of his employer’s business. There is no doubt, that compilation of, what I call, the big picture is the key element in your strategic responsibilities. However, it is just as important for day-to-day hands-on management.  In the absence of thorough knowledge of all operational and organizational features, it is impossible to construct budgets, define tasks, or determine reporting requirements.

At the very least, your information-gathering activities should be focused in the following four areas:

Study of Corporate Structure

Economic complexity pushes businesses into multiple levels of diversification – wider product ranges, additional services, new geographical and demographic markets, related industries, outsourcing, foreign productions, etc, etc.  As companies pave new ways, their corporate structures adapt accordingly: branches are created, subsidiaries are formed, and satellite offices are opened.  Today, a $10 million service company may turned out to be a surprisingly complicated organism.  This affects nearly every accounting and financial function: local taxation, inter-company transactions, principles of consolidation, financial statements disclosures, banking facilities – just to name a few.

Study of Operational Flow and Value Chain

During your orientation stage this study has immediate practical applications.  It is a prerequisite to identifying accounting cycles, classifying assets and liabilities, pinpointing cost centers, determining analytical and financing needs, etc., etc.  There are transactions happening at every stage of the operational flow that give rise to accounting events.  Without full comprehension of the value chain you run a danger of oversights and errors.

Study of Organizational Chart and Functional Distribution

If the previous section is about processes, in this one we survey people and their positions.  I don’t have to convince anybody that it is important to figure out the chain of command and designation of responsibilities within your employer’s organization – you just need to know who’s who.  It goes beyond just knowing your peers with whom you discuss company-wide issues and inter-departmental relationships.  You have to know people along the value chain – those, who are in charge of cost and profit centers, have relationships with suppliers, vendors and customers, maintain your facilities and receive your mail.   

Study of Existing Policies and Procedures

If you became a CFO or a controller in a company that already has policies in writing and documented procedures in place, even if they are deficient, consider yourself very lucky.  You can study the existing papers, outline blind spots and pinpoint weak or erroneous steps. It is easier to enforce changes, if employees are already comfortable with an idea of adhering to a recorded set of rules.

On the other hand, you must be prepared to deal with a complete lack of anything in writing.  Important thing to remember is that it does not mean policies and procedures don’t exist.  They are there like an oral folklore of an ancient tribe, passed from generation to generation.  It would be a big mistake just to ignore the traditions and try to impose a new order.  You have to uncover and learn them first.   

Excerpted from my forthcoming book "CFO Techniques: A Hands-on Guide to Keeping Your Business Solvent and Successful" (Apress, December 2011)

CFO’s Performance Focus


I frequently talk about psychological trends and general attitude patterns in a broad sort of sense.  Yes, large groups of people share similar traits due to comparability of their backgrounds, environments, occupational qualifications, etc.  The very reason I write for the audience of financial professionals is because I believe that our experiences have common points and the topics would be understood and accepted; that our expert qualities unite us; that metaphorically speaking we all "have been in each other shoes."  I write about our bosses, small business owners, entrepreneurs as a group of people with very strong and easily recognizable idiosyncrasies.  But I never go too far with it.  I acknowledge and value individuality and uniqueness of each person and each situation.  That is why sometimes I describe experiences of specific people, including my own.

This separates me from organizational behaviorists, especially those who popularize their science for digestion by the masses.  In their zealous attempt to fit the entire universe into a simplistic, easily explainable system, they go as far as dividing everything and everyone into 3-4 categories.  And so, they manage to divide all possible motivations, intentions and impulses that guide employees' task performance focus, into just four categories (they even claim that it applies to "any given situation"):

(1) getting the job finished, which supposedly results in speeding up, being aggressive, and careless;

(2) getting the job right, which translates, according to this theory, into nearly OCD-ish fear of making a mistake and slows people down – they are just checking and re-checking everything over and over again;

Note that these two categories are placed on the opposite sides of the matrix.

(3) get along with people – I cannot offer any comments on this motivation nor its behavioral interpretations.  Honestly, I don't know what the hell is that all about;

(4) be appreciated – Ah, this one all executives understand very well, that's what we strive for.   But why is it associated with "being heard, being assertive, contribute to others;" moreover, why is it separated from 1 and/or 2?

This is laughable!  I don't know what kind of subject group the scientists studied to draw these conclusions.   Maybe these are just empirical deductions.  Then, how many personal observations were accumulated to form these opinions?  One thing I can say for sure  – they are definitely not based on hard-working financial professionals like us – CFOs, Controllers, VPs of small and mid-size businesses. There is no possibility for us of separating "getting it done" and "getting it right."  You don't become a CFO by accomplishing either one or another. 

And it has nothing to do with the time frame, as some suggest.  Other humans maybe can switch between the two, depending on how much time they have on their hands.  Us?  We live under constant pressure to get everything done yesterday and there is no room for errors.  Of course, the good news is that if you are for real, if your expertise is not phony, if you got where you are through hard work and exceptional abilities, you cannot do it any other way.  Your qualities and professionalism carry you through and that how you get to be appreciated.  All at the same time!        

Life’s Mind Tricks


When I was a senior in high school and it became apparent that I will not be allowed to become a theater theorist, a cultural critic, or an art historian, and would have to settle for something more practical like finance or engineering, I went to see my history teacher to pour my frustration on her metaphorical shoulder.  And it was just that – a metaphor: I was upset, but I was not going to cry.  The roots of the tough Frustrated CFO that I am now were already forming then.  No, I was not planning on shedding a tear over it.

I wasn't, but the teacher cried.  This hard core, no bullshit lady couldn't stop crying.  I made tea, put it in front her, and asked, what made her so upset.  She replied that these were tears for my mind.  She got me slightly worried, not for my mind, but for hers.  What was she implying?  That the forced career choice will make me crazy?

When she calmed down, she explained her empirical theory that, regardless of your natural intellectual inclination, your occupation (note the key word – it occupies you!) little by little changes your brain; reshapes it comply with the job requirements.  She said, "If you are going to count money and look at numbers 60 hours a week, it will change you forever.  Your mind will never be able to respond to a movie, a play, a piece of music or art, the same way it can now."

"It will never happen to me!!!" – that was my answer.  And I can proudly say, it didn't.  Through MBA, PhD in Economics, and over 20 years in accounting and finance, somehow, I retained my ability of unadulterated absorption of any artistic expression.  Don't get me wrong – my profession affected many sides of my personality, and not in a good way, but somehow I retained the sensitivity to the arts.  Maybe I subconsciously resisted the alteration of the mind because I was warned?  Who knows?  But, I am a rare exception.  Years of observing other people proved to me that my old history teacher's theory was correct.  Life does play tricks with most people's intellect. 

A month or so ago I attended a philanthropic event headlined by Andrew Bird.  I really love his eclectic music that combines classical technique with rock-n-roll melodic structure and folky stylistics.  It always has a tremendous emotional impact on me.

I was there with a group of people, some of them big time art philanthropists, including one hedge-fund guy, who supports many art organizations in NYC and around the country.  In his youth he was a follower of the Great French Mime and a member of a street performing group, but then Life called him away to become a multi-millionaire.  He never saw Andrew Bird before and after the concert talked to me about him.

The first thing he said was, "What a technical range!"  Considering that my heart was just shredded into pieces by the beauty of the performance, I was secretly taken aback by such cold, mechanistic assessment.  Then he picked my brain about the artist's career, and I relayed how he was classically trained as a child, but lost all his fancy scholarships as soon as he made a shift to rock.  The response was, "I'd say, he's done well for himself, regardless."

And that's how I was reminded about my old history teacher's theory again.  Youthful artistic endeavours – that was all in the past.  Now, the cold mind of the big-money-maker cannot absorb the emotional outpouring of the musician he just heard!  He reacts with "Professional skills!  Career achievement!"  His mind is twisted towards that train of thought and there is nothing anybody can do about that.