Category: CFO Folklore

The Frustrated CFO Is Looking for a Litigator to Defend an Employee – Part I


Let me say right away that it is impossible to even come up with a short definition for an attorney who would act on behalf of an employee.  That is why I had to devise such an expository title for this post.  But I am trying to help my fellow financial professional and a good friend MJ who has a very unique and quite a complicated case against her former employer.  What happened to her is strikingly unfair (there are details below) and I figured I would try to put a word out there through my blog in hopes of may be receiving some legal referrals from my readers.   

It appears that 99% of the lawyers listed as "labor litigators" work for the other side (the one with the deeper pockets), defending corporations against employees in court and advising them on preventative measures to make sure that they don't get sued in the first place.  Of course, there are plenty of injury specialists ready to jump on a work-related-accident case and civil rights defenders on a lookout for sexual harassment claims.  But apparently it is difficult to find somebody to stand on the side of an employee with a less obvious case.

I am pretty confident that MJ's case is one of a kind combination of various legal matters and an intelligent attorney may find it to be an interesting challenge.  It would possibly require ten posts to cover all details, and I don't find it necessary or productive.   Instead, I will try to stick to main facts only and present them in two consecutive installments.

The employer in question was a consumer debt management entity, which consisted of multiple collection agencies with a national law firm at the head of the structure.  Two business partners helmed the operations – an attorney (senior partner at the law firm) and a shrewed businessman who handled all operational and commercial activities.  Remarkably they have managed to ride the wave of debt securitization and succeeded, in spite of themselves, without any executive support - growing into an organization that employed over 500 people in 10 states, while all their accounting and financial functions were "handled" by an outside service of a one-person CPA firm!!!

By the end of 2007, though, the company started experiencing difficulties.  In the absence of budgets, cash flow projections, profitability analysis, and, more importantly, an insight of a seasoned expert, they couldn't even understand what was going wrong.

That was when MJ got hired as a Chief Financial Officer.  Putting all the necessary functions and instruments in place, dissecting the business's performance and fixing incorrectly kept books, allowed her to discover the weakest links in their falling apart system.  She suggested drastic restructuring, shut down the sectors that were bleeding money and got them out of disadvantageous financing relationships – in other words, saved their assess from going under several times over.

To be continued…

Cautionary Tale About Artificial Intelligence Progress


Don't you worry, dear readers, I am not planning on retelling "The Terminator" plot.  As the matter of fact, the two technological developments I want to discuss are related to the CFOs' and Controllers' supervisory responsibilities.  On the surface (!), they seem to serve a good purpose and could be attractive solutions to some of our common problems.

Every exec with subordinates communicating with financial institutions, investors, key vendors and customers, is vulnerable to their emotional whims, diplomatic abilities and verbal skills.  This is especially true with out favorite mode of communication – emails, which remove the recipients' faces and voices thus making the expression of aggression easier.

I have a list of actual stories to be told about relationship damage caused by employees' spiteful writing.  And it is not like I don't employ prevention strategies.   I give training talks.  I impose a sense of supervision by requesting to be copied on all important communications.  I even write Post-Its and stick them on the worst offenders' monitors, "Please re-read ALL your emails three times before sending them out."  Still, once in a while something happens that requires damage control.

Lo and behold!  In NY Times Year in Ideas I read about ToneCheck – "an e-mail outbox filter that works as a sort of emotional spell-check, offers typists a chance to reconsider their words before" sending their missive.  I watch the cute animated video attached and my first reaction is like "Finally!!! Hooray!!!" 

Then I read further and I forget that I am a CFO with unruly subordinates who require monitoring.  I remember that I am a Person and that Freedom of Speech is an important issue for me.  Yeah, it's useful in the office environment, but this dangerous program has a capacity to be tuned to ANY CONTENT.  I imagine it being installed without my knowledge by my ISP and checking my personal emails for "inappropriate" content as defined by… whoever has the power to do so.  How do you feel about it now?

Here is another common problem and even scarier solution for it.  How many times we catch our employees attending to their personal business or even playing online games during working hours?  We wonder about the hours they waste the costs of it.  Frustrated, we think we should like to watch them.  So, here you go Computers That See You and Keep Watch Over You.  This "wonderful" program sees you and analyzes your facial expressions.  And it can be installed on your personal computer without your knowing it. 

You know what?  I don't want these "solutions." Not even in my office.  Let me work harder with my employees on their work attitude, verbal skills and aggression management.  If boycotting these products means that we can keep them away from invading our personal privacy, then be it.  I hope you click on the links, read about it and agree.    

It's like what Benjamin Franklin said,"Those who would give up essential liberty to purchase a little temporary safety, deserve neither liberty nor safety."

CFO Folklore: My “Favorite” Questions


Ah, the Holidays!  They put you in the mood for remembrance.  Families get together and stories of past times and lives start pouring out.  My grandfather was a brilliant man of the WWII generation.  He died when I was a baby.  Hence, I cannot remember this myself, but I've been told quite few times about his main pet peeve: he couldn't stand what he called "idiotic" questions.   Apparently, I've inherited this familial trait.

His being the times way before the political correctness permanently  stifled us, he had the luxury to call things as he saw them.  Nowadays, I use more neutral words.  I call them nonsensical questions.  I even trained myself to ignore stand alone occurrences.  However, there are two questions that pervade my professional life.  As all pet peeves do, they cause undue frustration.

The first question is consistently asked by my subordinates and peers.  You see, unless I attend to a confidential business matter, I always keep my office door opened.  I believe it is good for employees' morale to see a CFO working as hard as I do. 

So, these people see me all day long attending to my scheduled tasks, addressing issues, solving problems.  I am consumed by work.  Yet, EVERY TIME one of them needs me and comes to my door, they ask me THE SAME question, "Are you busy right now?"  In response I want to scream, "Of course, I am busy.  Can't you see?" 

It doesn't mean that I am not available to discuss their problem if it is of higher priority, or scheduling them for a later time slot if it can wait.  But why do they have to ask that question?  At staff meetings, I teach them to approach this situation in a more sensible manner: come, don't ask the damn question, instead state your issue and let me decide if it requires immediate attention.  Some learn, but the rest just cannot help themselves.

The second question is similar but essentially different in its nature.  It's usually asked by the boss.  And, as we already discussed, there is nothing you can do, but to bite your tongue.  He has something on his mind, so he comes to your office.  Here it comes, "What are you doing right now?" 

The involuntary first reaction is, "What do you think?  I am doing nothing.  Just sitting here enjoying myself."  But he does not imply you are not working.  This is how their minds work: whatever is on his mind is the most important thing to him right now and in his opinion should be to you as well (even though you don't even know yet what it is).  This attitude renders your current preoccupation irrelevant.  Now, it is up to you to navigate the situation properly into the safe harbor.  Over the years, I've developed an arsenal of methods.  I am sure you have too, but if you need my help, please, don't hesitate to email.

The Curse of Private Business: Nepotism


My friend, a fellow career CFO and frequent correspondent, MJZ urges me to write on nepotism. Her acute sensitivity to the subject is understandable: over the years, she's had more than a few encounters with this practice and I intend to use some of those shared with me as examples.

The dictionary gives a definition of nepotism as "the practice among those with power or influence of favoring relatives or friends, especially by giving them jobs." Nowadays, a lot of people confuse nepotism with networking. Let me correct them. Circulating a resume of someone you know because you can attest to their professional achievements is not nepotism, but a favor to those seeking good people to hire. If you do the same for someone who is a poor worker and a nitwit, it's not nepotism either, it's just your own stupidity. Merit is the key.

The people who mistake networking for nepotism also miss an important element of the definition – "those with power." In monarchical states and dictatorships (such as Kim dynasty's North Korea) the passage of power from parents to children is a given. And in my post on The Distortion of the Bill of Rights in closely-held businesses, I have pointed out that these companies are not democracies, but absolute monarchies. Yet many of us, who still crave the illusion of meritocracy, still cringe at the unfairness of the "family" business arrangements.

It's not always that nepotism has a poor impact on business. For example, it would be a great relief for the media world if strangely progressive Lachlan Murdoch, son of Rupert, got a chance to  overhaul his father's empire. His departure from News Corporation has only deepened the company's regress. However, that's a rare exception: 99.99% of nepotism cases are bad both for commerce and morale.

In her early career, MJZ held a Controller position in a manufacturing and distribution company. She was responsible for all accounting, trade finance, and credit functions. As the matter of fact, she was the one who transitioned them from manual into computerized accounting. She was revered by the business owner. But when his daughter with a marketing degree hit the ceiling in her career at now defunct telecom company, MJZ's job went to her. The company went out of business within a year.

At her more recent job, MJZ had to suffer an onslaught of owners' children (all recent college graduates) being appointed as Presidents of the company's subsidiaries. As the conglomerate's CFO, she was forced to educate them, tolerate their shortcomings and listen to her peers and middle managers complaining about the kids' laziness, time in the office they spent on personal matters, and unlimited PTO. These stupid people made a terribly destructive impact on the business.  Yet, MJZ was unable to voice her opinion, because, say it with me, there is no such a thing as Freedom of Speech in a place of one's employment.

Curiously enough, the industry where nepotism is the most prevalent is the one that suffers the most from the lack of fresh talent – the entertainment business. But that's a subject for other posts.

CFO Folklore: The Mathematical Wisdom of Economic Triangles


Triangles

Optimization of resources is one of the most crucial tasks in business and every day life.  The larger the variety of resources we have at our disposal, the more complicated the task of their optimization becomes. There are mind-blowing models developed with very sophisticated technology trying to approximate the complexity of, let's say, genetic engineering. 

However, there is a fundamental  optimization problem associated with any type of job we undertake.  Whether you are a business owner, a financial exec, a manufacturing manager, a movie producer, a janitor, or a cook, you have to joggle these three basic properties of production: Time, Cost and Quality.

When we want to optimize these three resources we want to accomplish the job at hand with the highest quality, over the shortest time, and at the lowest cost.  Unfortunately, both logical and empirical observations show that one cannot achieve all of these targets at the same time.   

In practice, the dynamics within any economic system characterized by the presence of these resources can be described by three right triangles in the illustration above, in which the shorter the line representing one or another property, the closer we are to the desirable level of that resource.

As Pythagorean theorem shows, the hypotenuse (the side opposite to the right angle) is always larger than either of the catheti (the legs).   So, what do those triangles show us?

You can accomplish something as quickly as possible and at the lowest cost, but the quality will be far from the desirable level (triangle 1).  I can give a task of creating a profitability model for a new line of business to my junior analyst and give him one day to do so.  Do I even have to describe what I will get from him, if anything, tomorrow morning? 

On the other hand, you can strive for the highest quality achieved at the shortest possible time, but then it will not be cheap (triangle 2).  I can drop everything else on my agenda and outline detailed specification for the model myself, and then hire a team of highly paid developers to design it.  The result – outstanding functionality available for use within 2-3 days, if you can afford it.

Finally, you can keep the quality standard on the level and cost at a reasonable low, but it is going to take a long time to achieve the desired result (triangle 3).  I can give the task to my VP of Financial Planning & Analysis, who is very good at creating this sort of models, but has another 15 ongoing and new projects I already assigned to him.  So, I  instruct him not to spend more than 1 hour a day on this one to keep the cost relatively low.  When will I see the model ready?  Who knows?  

Simple?  They teach Pythagorean Theorem in 8th grade AP Math.  Now go and try to explain this to your boss.  Good Luck!