Category: CFO Folklore

An Aggravated Case of “The Servant of Two Masters”, or Working for a Married Couple


250px-Lucille_Ball_and_Desi_ArnazThey say (oh, those mysterious "they" of English language conventions – they do talk a lot), that there is nothing more expensive than a free advice.  I believe so too.  It's impossible to provide good advices without looking into particularities of each case, and nobody would do that for free.  That's why within these free-for-all posts I usually go with sharing of knowledge; if it's appropriate – with suggestions; and only if a statement can be safely generalized, I call it an advice. 

With that in mind, I am confidently offering the following as a friendly advice: never say that you "wrote the book on" whatever it is you think you know through and through.  It's never true.  None of these proverbial books of expert knowledge are ever finished.  Just when you think that you can close it and send it to the printers, there is a need to insert a new blank page and relate a freshly unique, never before experienced tale. 

One of such areas of expertise for me deals with typical characteristics and behavioral quirks of the entrepreneurial executives - those to whom I simply refer as "bosses."  My career allowed me to observe many of them in different situations – as my employers, clients, business and social relations, even charity connections.  I honestly thought that, based on this experience, I can predict the behavioral patterns of most business owners, including those sharing power and governance as partners. 

Alas, my anthropological study of bosses did have a gaping hole, which I would have never discovered if my life didn't expose me to peculiar antics of a married couple as business partners.  As it turned out, all regular characteristics of executive co-existence described in my previous post  "The Servant of Two Masters" still apply, but with some very specific aggravating additions. 

No matter how hard they try to keep it professional, they can never completely eliminate marital undertones.  While they usually manage to control the urges of affection, it becomes more difficult for them to rise above the intimate knowledge of each others' weaknesses when conflicts flare up.  I am not necessarily talking about full-blown battles of Lucy-and-Desi magnitude with hammer injuries.  But take my word for it – witnessing spousal tiffs and spats cause extreme discomfort; to the point that members of the executive board wish they were Hogwarts graduates with apparition licenses.  You just want to disappear.

One of my biggest complains about dealing with multiple owners always was that, unless you get them all in the same room, you must work with an assumption that what you explained to one is unknown to another.  You will need to repeat everything to each partner individually.  Well, don't assume that the situation is different just because the execs belong to the same household. It's even more unlikely that they will share your info at home.      

And then there are those very special casual dismissals husbands and wives reserve for each other – shrugging-offs and waving-offs, which are frequently more harmful to one's ego than verbalized insults.  The shit gets especially intense when the issues of personal value to the business or equitable compensation come up. 

All you can do is to pretend that you have gone momentarily blind, deaf, and inattentive – didn't see, hear, or notice anything.  More importantly, don't take sides: eventually your allegiance will be discussed at their kitchen table, or in bed, and both of them will hate you.

    

Sometimes You Get Lucky and See a Spark of Intelligence


I always complain about the general population's low level of intelligence heightened by inertia and group mentality. The gray matter deficit upsets me in its many manifestations: the music that tops the charts (Justin Bieber!), the books that become uber-bestsellers ("Fifty Shades of Grey," judging by the synopsis, didn't really stray too far from 1919 "The Sheik"), the movies that break box-office records ("Pirates of the Caribbean, part XX"), the TV shows that attract most viewers (American Idol – over 6 million watching every airing!), the celebrities who get the most hype (Angelina Jolie, who has not shown us a glimpse of decent acting since 2001 "Original Sin"), etc. Even dear to my heart nerdy world of independent filmmaking is degrading (more about this in another post). Some say, "Stop oppressing people with your judgements! Why do you care anyway?"

I'll tell you, why I care. Only a small group of people can construct their lives in isolation from the world. The rest of us are forced to interact with surrounding individuals, frequently in a very direct manner. The general population is where those unbearable customer service representatives come from, those waiters who screw up your orders, those cab drivers who don't know where to go, those doctors who throw random diagnosis at you and prescribe the most expensive procedures, and so on, and so forth.

Most importantly for the frustrated CFO, this murky pond spews out the job applicants as well as auditors, field examiners, bankers, investors, etc. – people that have an impact on our professional lives. Most are so dull and limited, dealing with them quickly turns an intelligent and composed CFO into the frustrated one.

Once in a blue moon, though, you may get lucky – the wave of professional activities may land on your shore someone with a spark of genuine intelligence in his or her eyes.

I have a client with a trade finance line provided by one of the major banks. Among lender's requirements are periodic field exams of the client's books and records. All banks conduct these reviews from time to time. That doesn't mean, however, that they employ departments full of highly-paid auditors. Instead, they outsource and make the clients bear the cost. There are large and small consulting companies and CPA firms that have built their practices specializing in this type of work.

I've helped this particular client to go through their first field exam. The examiner flew to New York from a medium-size firm in Chicago. My expectations were pessimistic (what else is new?): I was preparing myself for days of explanations about the nature of the business, the accounting principles and pronouncements that apply, the international trade conventions, etc.

But this guy was different. Five minutes after the introductions I knew this was a kindred spirit: someone who is not just smart, intellectually quick, logical, and absorbent, but also a person with the same high standards for the quality of work as I have; someone who doesn't allow garbage to come off his desk. Just like me, he has developed his own analytical tools and instruments that set him apart from everybody else.

Working with him was a gift, an unexpected pleasure. In 3.5 days we have completed the field exercise. Of course, both of us understood that such meeting of professional minds is quite rare, so we felt compelled to share our future aspirations. I genuinely hope that our paths cross again soon.

When he concluded his work and was ready to leave my client's office, I asked him how many other associates in his firm were as good as he was. He said, "Just one other guy." And here you have it, ladies and gentlemen, the real-life statistics on the proportion of professional intelligence in the general pool of employees: 2 to 58, or 3%.

CFO Folklore: You Can’t Teach an “Old” Boss New Tricks


Sleeping-old-dog-thumb6130250It has nothing to do with age. Notice, I adorned OLD with quotation marks. It's rather related to obstinateness, which frequently becomes a distinct mark of business ownership.  Many CEOs deliberately focus themselves on certain  commanding tasks and stunt the expansion of their knowledge in any other areas.  For example, your CEO could be a 30-year-old venture capital hot shot, or a 55-year-old veteran entrepreneur; most likely both possess mere basic computer skills.

Of course, they love electronic chotchkies, especially those that bring their huge mailboxes wherever they go. Then again, it's mostly just reading and writing emails, but not necessarily organizing. Most of them can use Word and Excel. Some can even create their own documents, but formatting, formulas, data manipulation, graphs and somesuch fancies are usually beyond them. Leave alone PowerPoint, Visio, Publisher and so on. God forbid they need to look up a customer's contact information in your ERP system – brace yourself for barrage of slander against "your choice" of software.

Obviously, the founders of high-tech startups don't count – everything "computer" comes natural to them. But I had a CEO only a few years ago who called his secretary into the office every time he needed to insert a column in a chart.  And the funniest thing happens to these people every time you send them a spreadsheet set for printing on a legal-size paper. It's like a fucking stumbling block – they will spend at least 30 minutes trying to reset the printing area to fit the letter size before crying out for help.

For those employees who don't deal with execs on a regular basis this is somewhat perplexing, considering that most of entrepreneurs are quite capable, and sometimes even brilliant, people. But for those of us who daily interact with these semi-savants, the situation is absolutely clear. The limitations have nothing to do with their natural abilities. Their responsibilities lie in developing the business and creating jobs to fill them with people, who can produce pretty reports and fancy presentations. They don't need to occupy themselves with learning new tricks.

And that's absolutely fine. In fact, if I have to choose I'd prefer them perpetuating the business than learning how to create a pivot table. Yet, some situations are simply maddening.

I've been working on a fairly complicated customer-commitment program with one of my client's owner. Now, all steps developed and all kinks worked out, the project is supposed to culminate in an Agreement document.  I drafted the first version and sent it out in the Word format for the boss's review.  

An email comes back – no attachment.  Instead, in the body of the message, there are multiple paragraphs of my document copied and pasted in black followed by his version of the same paragraphs in blue.  The crazy thing is that on the first glance they look exactly the same, but somewhere in the middle there are several words altered.  And it's like a half of the document is there.  Basically, I have to visually compare both versions of each paragraph line by line to find the damn changes.

I was like, "What the fuck?!" and picked up the phone, "Adam, what are you doing?  It seems like you've adjusted only a handful of minor points, but it will take hours to fish them out.  Why didn't you make those adjustments directly in the document?"  He is perplexed (probably thinks that I've gone momentarily stupid),"How would you know what I've changed then?  You would have to comb through the entire document."  The truth dawned on me, "You've never used Track Changes or Compare Documents functions before?"  "I've never even heard of them."

Maybe I should've been ready for this after so many years of dealing with these people.  I was somewhat stunned, nevertheless, and, in stupor, offered a training session free of charge.  "Great," he said, "I am very excited.  I will let you know when."  

I am still waiting. 

Overhead! – Every CEO’s First Response to Subpar Performance Results


Profit DropOf course, it would be obnoxious to generalize my observations to include the entire class of business owners and chief executives (maybe they are not all the same), but every single CEO, with whom I've ever dealt, displayed the same behavioral pattern at the first sound of "bad news."

It's one of the most unpleasant experiences many financial professionals go through from time to time. The fiscal period (month, quarter, year) is closed and you look at the bottom line that is way below the company's target, or worse – the numbers are in red. You cannot help feeling singly responsible, simply because you are the first person to stare in the face of this unfortunate reality.

Yet, while it's true that a holistic CFO, the rightful member of an executive team, shares the P&L responsibility with the rest of the decision-making crew, unless she uses extravagantly expensive capital resources, her direct responsibility for the poor performance is highly unlikely. In fact, she probably anticipated this outcome and was doing everything in her power to prevent it: fought for better informed procurement decisions, higher efficiency, sensible distribution methodology, more selective sales, and so on.

Nevertheless, here are the results. The gross profit is too low, eaten away by sub-par sales. Some of new products couldn't make any money at all due to the lack of marketing and distribution efforts. There is a delinquent debt write-off on an account blessed by the boss for open terms. All these operational losses that you tried so hard to thwart.

And now it's time to present the results to the CEO. Frustrated by the company's poor performance, worrying about the impact the loss may have on the cash-flow, formulating the bullshit you will have to feed to the bankers to spin the disappointing news, you go through the established reporting protocol, whatever it is in you company: KPI tables, graphic dashboards, formal financial statements. As I said, in my experience the delivery of the news causes the same reaction: "We have to reduce our OVERHEAD!!!"

Overhead? We've kept our general and administrative expenses (G&A) stable for years! While we doubled our volume (triple, quadruple – whatever is your case), we managed to do so with a mere 10% increase in non-operating expenses. It's the gross margin we should be discussing. Alas, your reasonable arguments will break against the wall of stubborn conviction that overhead is the source of all evil.

Afterwards, the useless exercise of scrutinizing every single category of G&A will commence. You will have very expensive meetings with highly paid executive staff, including yourself, devoting their valuable time to discussions of $5,000 monthly Federal Express charges and $500 spent on various subscriptions. While you do that, another transaction bound to lose $250,000 will materialize, and then another, and another…

Why does it always happen like this? The answer is simple: only a handful of people are capable of facing their own failures without flinching away. It is very difficult for chief execs , who are frequently involved in operational management, sales, and business development, to admit that they don't really handle their side of the business too well. So, instead of dissecting the real causes, they jump on something they rarely control. And it's really funny, because a significant portion of the overhead is created by them. You know – travel, dinners, drinks, limos, perks, etc.