Category: CFO Folklore

Writing Skills of Ivy-League-Educated Executives


Get-attachmentIt has always been my firm opinion that the quality of education depends on a person not the school he or she attended.  I even mentioned it in a hiring-advice chapter of my book, "CFO Techniques".  And I am always very objective about this issue, giving everyone the same treatment regardless of their educational background.

That said, I am absolutely convinced that one thing the Ivy-League alumni with business degrees do not receive for the price of $220,000 undergrad, plus $130,000 graduate tuition, is an ability to express their thoughts in writing.  Maybe it's because the curriculum is so concentrated on molding the future captains of industry, or maybe it's assumed that with their connections and parental support they don't need to be very eloquent…  Who knows?  But I am telling you, they cannot write to save their lives. 

I must admit, though, that this conclusion is purely empirical, based on my personal experience of written communications with business owners, corporate executives, bank officers, hedge-fund bigwigs, private-equity investors and such.  Ever since emailing became the predominant method of business interactions, the volume of the evidentiary material that supports my theory increases daily. 

And I am not even talking about Columbia MBA's who cannot spell or construct a proper sentence.  Those are extreme cases and I entertain people at parties quoting their pearls.  No, I mean an average, fairly literate Ivy-Leaguer who cannot make himself clear or understand what others write to him.  You know what?  Let me just provide you with a couple of examples.

I explained to my client (Brown + Harvard) that it is not recommended to keep excessive credit-risk coverages for inactive customers because the overall creditability of a particular customer is a finite amount and premiums are affected by your share in the overall limit.  For example, if underwriters established an overall credit power of a customer at $2 million and you keep a $1 million of that, your share is 50%.  Simple, right?  This is what he wrote to his credit clerks to explain the issue.

"We need to review our coverage of each account to make sure they are all appropriate; neither too little nor too much credit. We all understand the former need, as we want to be fully protected while maximizing our sales to each customer. However, the latter is important too, as the insurance company will charge us for asking for lots of insurance for a company and then not selling them anywhere close to that amount. The reason is that we are not the only client insuring our customers and the insurance company have a specific credit limit for each company. This reduces their revenue from their other relevant custs who are restricted in their sales to that company."

Sounds like he was trying to digest the information and make sure that he got it right himself rather than give instructions to employees: what to do and (MOST IMPORTANTLY!!!) how to go about it – which criteria to choose in reviewing the coverages, etc.  And why all these convoluted details?

Sometimes, they don't understand what they read either.  I represented this client (Dartmouth + Yale) in a bank's due diligence audit.  During the process the auditor wrote to him (with a copy to me) the following email:

" G&A was listed separately since we expect to include a detail supplementary schedule of G&A with our conclusions, but we normally do not opine on the supplementary schedules." [underline is by the Frustrated CFO]

This was the CEO's reply (I was copied again):

"…if what you are saying is that you will provide an analysis on the G&A, Marina will certainly be happy."

Well, I am certainly not happy, because that it not what the auditor said at all!  As I frequently say, it would be funny, if it wasn't so sad.

CFO Folklore: Defensiveness and Excuses


Coyote-Canis-Latrans-Puppy-28811856-0 It's funny how we, humans, manage to degenerate powerful natural instincts into regressive psychological traits. Look at that little coyote pup.  Something has attracted his attention.  He is in full alert, assessing the situation, deciding if its dangerous; ready to fight or flight – a perfect display of a healthy defense mechanism crucial for survival.  

People are granted the same insitincts.  Of course, those of us living in "civilized" conditions are rarely presented with real danger.  On the other hand, mentally we are constantly put to test.  The instincts are pushed into psyche, and there, they deteriorate into Freudian ego defense mechanisms, which can get neurotic and pathological.

CFOs and Controllers deal with defensiveness and rationalization (aka making excuses) all the time.  People become defensive at the slightest hint of criticsm, which frequently exists only in their imagination.  They don't understand that instead of helping them to survive, this degenerated mechanism makes them more vulnerable by exposing their insecuruty, fearfulness and anxiety.

A few years back I had an employee who was the best expert of trade finance documentation I've ever met.  At the same time, he was an incredibly difficult person.  Eventually I found out that this guy had a misfortune of being raised by an extremely critical adoptive father.  As unlikely as it sounds, in the early 80s, just 20 years old, he got hitched to a woman who hated everything about him.   As the result, he developed a severe case of defensiveness. 

Just invinting him to my office to discuss a business issue was enough to put him into a state.  Walking into my door, he already looked like an angry animal forced into a corner and ready to bite.  It would usually take me at least ten minutes of casual small talk to bring him back into normality, before I could address the matter at hand.

Of course, on few occasions I needed to point out a mistake or an inaccuracy.  What a nightmare! He wouldn't let you finish the first sentence: "I am swamped!  You gave me too much work!  It is impossible to deal with that bank!  I will not let you blame me for this!  " he would shriek, even though it was never about the blame.  His desire to shield himself from the imaginary threat was so strong – like a child, he would cover his eyes with his hand, avoiding your eyes.  He looked helpless, pitiful, and guilty.  Most importantly, the problems remained unresolved.  It was really painful.

Here is my advice: don't get defensive when you are criticised, justly or unjustly.  Listen.  Think.  Evaluate.  Maybe you will hear some constructive insights.  Maybe you could have done something differently and achieve better results.  Recognizing that will give you an opportunity to (1) disarm your opponent by owning up to your mistake and (2) find ways to avoid this situation in the future.  At the very least, you will save yourself from an emotional sparring match that cannot resolve anything.  Trust me.  I've been there – on both sides.

Am I Cursed?


Well, it's definitely feels like I am. Throughout my entire career, every time I start a new job or a long-term consulting project, no matter how exciting and successful the business seems, it takes me under 4 weeks (sometimes less than 2) to uncover hidden losses, cash flow deficiencies, operational problems, strategic mistakes, distortion of accounting principles and policy violations. There has not been a single exception to this rule.

Of course, I devoted my career to dealing with privately-held small and mid-size companies. Frequently their CEOs are entrepreneurs with limited understanding of corporate governance, let alone the makeups of quality accounting and finance functions. These companies develop in a haphazard manner and the staff is usually composed of people who are eager and hardworking, but not necessarily highly qualified. The conceptual thinking, I am always so keen on finding, is rarely present.

I've been studying my current client for exactly three weeks now. Oh boy! The company is a wholesaler, but the operating software they bought for a lot of money was created for manufacturers, and it's so rigid, it will require major re-programming to adapt it to their needs. The principle feature of this type of businesses – the lot-driven operations that require lot-specific data tracking and analysis, cannot be accommodated by the software and, therefore, needs to be performed at a great time-cost in Excel. The chart of accounts is completely screwed up and there is no hope to adjust it properly since they already started making entries. There is an endless duplication (and triplication, and quadruplication) of data in different files kept on their local drives by individual employees… And so on and so forth. They don't even have a backup system in place, let alone business intelligence.

But most remarkably, NOBODY (not the co-owners who buy and sell the product internationally for years now, not the logistics managers, not the internal accountants, nor independent auditors) understands the principles of Incoterms. As the result, the revenue, costs, and inventory recognition is royally fucked up. I restated their 9-months 2011 results to proper values and found… you got it – losses!

Sometimes, it makes me wonder, what would happen if I got a chance to dissect a huge belly of some public mammoth. Would the same rotten bullshit pour out of them? The fact that big-time public companies constantly underperform and require bailouts makes me kind of suspicious.

The truth is I don't believe that I am cursed. I think that the majority of companies manage for some time to ride on the wave of a particular product/service demand, or some market twist, or accidental economic development, or novel idea. Yet, they are drowning in small and large errors affecting every facet of their existence. And when the shit hits the fan in the form of financial or operational problems, their chances for survival are minimal because there is no quality back-office structure to sustain them. Moreover, frequently they don't even see it coming, because they operate blindly in the absence of informational support.

The problems may come to light before the downfall if a perfectionist like me appears on the horizon. Such a person may be either hired as a permanent employee, or come along as a part of a consulting team (an option frequently unaffordable for small and midsize companies). So, this client of mine got lucky – one way or another I will correct all their problems. Others out there… it's scary to think about them. Is it surprising that with this poor quality of back office, lack of informational reporting, and all the errors they commit along the way, the companies are going out of business left and right, and the economy has gone to shitters?

I do have a solution that can help many of the companies precariously hanging on the verge of extinction due to the deficiencies in their policies, procedures, controls, and reporting functions – an affordable and easily accessible electronic consulting solution that covers all these areas of expertise and puts a multitude of tools at the fingertips of executives and financial professionals. Let's hope that I will be able to attract investors to back my ideas and bring this revolutionary development to the millions of small and mid-size companies.

CFO Folklore: The Home Front


Images-1 I touch on the gender inequality among financial execs once in a while – an obligatory topic for a female CFO/author/blogger.  I mean, everyone writes about it.  Entire institutions and organizations compile sociological studies dealing with these issues.  None of it seems to be creating any changing momentum, but hey, at least someone is willing to pay the researchers their salaries. 

The interesting thing, though, that most of the time these topics (including my earlier posts) deal with the social, rather than practical, aspects of the phenomenon.  People talk about advancement rates, compensation levels, female-to-male executives proportions, etc.  In a very scientific way, we say: all things being equal (education, achievements, intelligence, etc.), women still don't get a fair shake.   And nobody talks about the fact that, on a practical level, things are never equal between men and women, who strive for, or already achieved, top job positions.

First of all, women by nature are more conscientious and responsible than men.  That is why we have higher percentage of female straight "A" students both in high schools and colleges (yet, there are more male valedictorians!).  Secondly, women know only too well that they are at disadvantage due to the simple fact that they are not men.  That makes them work ten times harder than any man in their position would.  So, in truth they get rewarded at lower rates not for the equally good work, but for the job done much better.

But the biggest practical inequality occurs on the executive's home front.  I remember having a friendly airplane conversation with my CEO, on our way to a meeting in Germany.  At one point he said that I was the hardest working person he knew besides him – he honestly believed that he worked as hard as I did.  Of course, he was talking about the job itself.  Well, I thought that even at that I worked much harder (I did not take Friday's off during summers), but I chose to turn to more obvious facts of life.

I asked, " Who prepares your suit, shirt and tie for tomorrow every evening?"  "My wife," he said.  "We frequently work until 9 or 10 pm, is the dinner ready, when you come home?" "Yes."  "Who writes checks?  Who deals with repairmen?  Who talks to teachers?  Who buys groceries? Who takes kids to the doctors'?"  "The wife" was the answer to all the questions.  "Now, who do you think does all that in my home?"  

He knew the answer, of course.  So, every day I was working my executive job, let's say, just as hard as he did, plus his wife's job.  And that's true for most of female CFOs, whether married or single, with or without children. 

Look, how many unmarried male CFOs or Controllers you know?  I don't know any.  Even if their wives leave them, they get remarried very quickly – someone needs to take care of the home front.

On the other hand, a woman expected either to give up her personal life for the career, or hide it away, as if she does not have any.  It is especially true for those female executives who work in small and midsize companies – the salaries are not large enough to afford a Mr. Mom of a husband.  So, we are talking inequality cubed: the majority of women work harder, plus cover the home front (or give up life outside of the job), and still get paid and promoted on a much smaller scale. 

Here is the funny part.  At the end my boss asked, "How come you still read more than I do and go to the theater all the time?"  "Because I don't sleep," I answered.

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!