Category: Professional Recommendations

CFO Folklore: “The Servant of Two Masters”


440940251img1_mediumTwo-headed bosses are common when people work for businesses founded by relatives, which, I am sure, can be a source of fascinating undercurrents and rivalries.  I invite my readers to share relevant stories.

I, on the other hand, worked (more than once) for equal partners who were not related.  Each of the duos consisted of individuals so different, it was a miracle they stayed in business together.  As a CFO, forced into the middle of the co-owners dynamics, I was able to observe common behavioral tendencies in the bosses themselves and people around them.

Business partners' alliances are usually symbiotic.  One is an idea generator, the other is an implementer.  One is brains, the other is money.  One can close a deal in seconds, the other makes sure the company performs.  They always complement each other, or they wouldn't be in the trenches together. 

Either will squeeze all juices out of you, and yet their personalities differ just as much as their abilities.  One is usually more diplomatic, better with people, logical, frugal.  The other is brash, careless, erratic, a lavish spender.  They don't see eye to eye about the majority of business issues and frequently talk to their CFO or Controller separately, presenting contradictory positions.

260 years ago, in "The Servant of Two Masters," Carlo Goldoni depicted the delirium of working for two employers who try to find each other without knowing they live in the same hotel.  Sounds familiar?  Poor Truffaldino is so anxious, he develops a stutter.  Imagine the hilarity!  Well, at least he got double wages.  When your single-salary job depends on maneuvering two conflicting bosses, you don't feel like laughing. 

Most people end up aligning themselves with one of them.  Sometimes, it works out in a natural way: if one owner oversees Production, while another spearheads Sales and Marketing, it is obvious where VP of Ops and VP of Sales allegiances will lie.  

Even when it's not clear-cut, people have a tendency to navigate with their issues toward the boss who is perceived to be "nicer," regardless of his preparedness to make relevant decisions.  As the result, you may end up with a wrong solution, or the issue is brought to the other owner's attention anyway; only now he knows that you tried to bypass him.   Either way, you are screwed.

CFOs and Controllers should not form any alliances when they work for two partners.  When monetary matters are concerned, both must be kept in the loop.  In super-important cases, get them into the same room, whether they like it or not.  I am known for bringing bosses into the office from their summer residencies in the middle of July, when I had to.

Of course, you have to earn your right to do so with hard work and authoritative success.  You also need to be very diplomatic with both of them – either must think you prefer deal with him and inform the other out of courtesy.  It takes Machiavellian skills to boss the bosses.  Otherwise, you will end up stuttering, like poor Truffaldino.

“The Social Network”: A Case of a Failed CFO


Social_network_Andrew_Garfield_04 It's the Oscars week.  You cannot escape the promotional hype unless you cut yourself off from all media. 

The movie leading in the preliminary rounds (Golden Globes, various Guilds, etc.) is "The Social Network."   It's not surprising – the popularity of this movie is rooted in public's preoccupation with sudden success and overnight rise to riches.

Well, the reason for me to write about this film is that I cannot miss the opportunity to discuss a character, who in 2004 thought of himself as a CFO of Facebook. 

When Mark Zuckerberg appointed Eduardo Saverin to be his CFO, it was a logical step for the 20-year-old code-writing CEO.  Saverin was a close friend; appeared to be versed in business matters; more importantly, he had personal funds, having just made $300K through savvy oil investments.  Is this enough to make somebody an acting CFO?  Of course, not.  However, one could have learned how to be one.   It was not the case here.

If nothing else, the movie provides vivid illustrations to what a real CFO should NEVER-EVER DO.

1.  The first thing that Mr. Saverin did wrong was not taking his appointment seriously. He did not bother to define his role, his functions, his practical responsibilities.  If you are not creating the product itself, you should be doing other things that make you irreplaceable.

2.  When you accept CFO position, you become your CEO's partner.  That means you develop common vision, you define company's mission.  When it's finalized, you shove your disagreements aside and you do your best to facilitate the success on the chosen path.

3.  You NEVER separate from the company.  All experienced CFOs know that things can happen behind your back even if you seat in the next-door office.  If you are on the opposite coast and out of touch, consider yourself out.

4.  With startups, you should always try to utilize your company's growth potential to the fullest and then capitalize on it.  If Mr. Saverin wasn't so arrogant and argumentative, he most likely would realize that  online advertising brings real money only on a big scale.  Hence the right strategy was to look for more investors for the company growing with an astronomical speed.  Instead, he wasted his time setting up appointments with advertisers.

5.  If you want to stay with the company, you shoud NEVER do anything to damage it out of spite: closing accounts, calling the cops – that's just wrong.

6.  And you ALWAYS, not just read, but study every single legal document you sign.

Following the film's paradoxical leitmotif of an awkward kid creating the largest social network on this planet, the filmmakers suggest that Mark Zuckerberg pushed Mr. Saverin out of Facebook, because Eduardo got accepted into The Phoenix Club at Harvard.   

"You may say that I'm a dreamer," but I want to believe that Mr. Zuckerberg and people around him realized they have no use for someone who couldn't contribute into the exploding enterprise's development.  Just screaming all the time, "I'm the CFO," doesn't make you one.             

 

CFO’s Ode to Gross-Profit-Based Commissions


Commissions (in all possible forms, including percentage-base bonuses and even royalties) are curiously contradictory – they are revenue-driven expenses.  Unlike other costs in the value chain, they don’t precede, but follow commercial transactions of converting products and services into business returns.  These incentives are basically wages calculated as a percentage of one or another base.  And it is the selection of the base that, unfortunately, hurts most of the companies using this type of remuneration.

In many industries commissions are traditionally based on volume – sales, purchases, collections, etc.  Employing a system like that stimulates the race for big numbers – the more you sell (procure, collect), the higher are your commissions.  The sales force, or procurement team, runs down every single order without any concern for its contribution into the company’s bottom line.  Of course, returns, allowances, price discounts are all accounted for in the calculations, but otherwise volume-based payees don’t care whether the company looses or makes money on their deals.

This eats away profits of many organizations.  Even if a company consistently doing well, even if you have a system of pre-approving deals by projecting their profitability, there are always some transactions that will end up loosing money for one or another reason: the freight rates, for example, have a tendency of  suddenly going up all the time due to the spikes in oil prices.   Yet, the commissions on those sales will be paid anyway, further deteriorating the bottom line.

Of course, some good CFOs and controllers try to absorb the possibilities of losses into their calculations and fight for reduction of rates.  But the truth is that most of the time, especially in smaller businesses, the companies stick to industry standards and you need a revolution to change them.

The only way to avoid this multiplication of losses is switching your company to commissions paid based on the transactional gross profit.  The reason I use the term "transactional" here is because, unless you have one person receiving commissions for the entire volume, you will have to enter the world of segmenting your business into portions that correspond to all recipient's sectors: countries, regions, products, and even transactions.    

I will not deny the fact that it is a pain: there is a lot of work involved into all that, including the process of allocating shared expenses and overheads.  Moreover, I can guarantee you that your calculations will be severely scrutinized by all interested parties. 

Over the years of my career I was able to implement such systems in two companies.  The matters were further complicated by the fact that procurers and sales people cooperated on different transactions, in different combinations.  Can you imagine dividing all those shared credits?!  Both times I had a dedicated analyst assigned to the task and personally dealt with complaints from the traders.  But the benefits to the businesses were undeniable – no commissions were ever paid on loosing deals.   Think about it.        

New CFO, Same Staff: Inheritance Problems


Ok, let's leave our bosses alone for the time being.  Let's talk about us as bosses.  In our multi-functional lives as CFOs and Controllers we frequently end up with more direct reports than CEOs/owners.  There are accounting managers, finance directors, budget and analysis groups leaders, PR, AP, AR, IT, and so on.

Let's say you are making a career move and just accepted a position with XYZ, Inc., replacing a departing CFO.  In a dreamy corporate fairy tale you should be able to do what our newly elected presidents do – form your own cabinet and move in with your faithful acolytes. In real life… you inherit somebody else's staff.  Moreover, you have to quickly immerse and keep the business going.

The subsequent events can play themselves out in three possible scenarios:

1.  Without giving the existing operations a real dissection under a microscope, you simply learn how everything functioned under your predecessor, decide not to change anything even if you find the old ways inadequate or wrong, and continue in the same fashion.  The effect: good for the staff – no changes, no new things to learn, no old habits to break; bad for the company, your employers and ultimately yourself – inheriting diseases without attempting to treat them will assure your failure.

2.  If you are a responsible and knowledgeable person with an impressive background and enthusiasm for your new job, you will study all aspects of functions under your control, diligently, but without prejudice; find errors, shortcomings and blind spots; apply your expertise, and develop improvements and innovations plan.  And then you will face incredible resistance from your inherited staff.  It is very natural: humans are resentful of changes.  They will give you very hard time, no help and mountains of frustrations.  Just because you are great at finance and accounting, it does not mean that you are good at managing and educating people.  If you don't have patience and sufficient skills to overcome the resistance in a positive way, you will end up firing a third of the stuff and another third will leave on their own.  The rest will stay, but you will never gain their trust and support.  The worst part – by replacing former employees with new ones, you will loose the continuity of the departmental knowledge.  

3.  Under the best case scenario, your professional and managerial skills are equal.  While you sifting through processes, functions, policies and procedures, you must study the people.  What motivates them? Do they know their jobs well? Are their duties properly matched with their abilities?  Psycho-profiling is one of the most important managerial skills.  Try to discern the personality traits of your employees.  The personnel strategy should be part of your improvement plan.  Find people who are interested in positive progress, explain to them how the new developments will benefit them, show them the big picture (for more on this subject see my post Big Picture and Staff Training) and make them your agents of change.  Then you can claim the successful transition.    

Job Search: Prestige and Compensation


It happens very rarely, but this time I am in absolute agreement with yet another installment from "You Are Better Than Your Job Search" – previously referenced book from The Ladders' CEO Marc Cenedella: Title vs. Salary.  And I strongly advise everyone to click on the link and read the excerpt very carefully.

It is true that a good title looks pretty on our resumes, but it cannot be at the center of your decision to accept a job offer.  If the title comes as a part of a good deal completed with new professional challenges and attractive compensation package, then great, you are doing the right thing by taking the job.  However, if its just a title and everything about the job makes you unhappy, depressed and economically strapped, there is no point in making such sacrifices. 

And you cannot fool anybody with that line on your resume either.  All experienced recruiters and the majority of hiring execs know that if you held the Controller position in a $10 million a year, known to nobody company, it means you had no staff, can claim no sophisticated accomplishments, nobody asked your strategic advice and your salary was around $80K.  At best, you were a glorified full-charge bookkeeper.

As the matter of fact, I frequently say that I don't care about my title.  As far as I am concerned, they can call me "hey you," or a "firefighter," or a "cleaning lady" on the organizational chart as long as I can continue impact the business in the most profound way, implement ideas of highest sophistication,  keep all functions in full control and receive compensation that reflects my influence on the company.

Another very valuable point concerning inflated titles brought up in the article/excerpt is the artificial promotion.  In the companies with flat management structure, people keep carrying out the same responsibilities year after year with minimal salary increases and title changes that reflect not a professional growth but rather simple seniority.  After 10 or 15 years with the same company a person who started as a catch-all office girl becomes the Controller.  And it is fine if she actually grew into the Controller's responsibilities together with the company's development (this is what I call an "in-the-chair" career ladder), but most of the time that is not the case.  Hence, taking the Controller's job replacing that person would not be a great professional achievement.  

Of course, when we are stuck in the rut of a long job search, we become desperate and dispirited.  Then even an inflated title may seem like a sweetener of whatever position we are ready to grab to "put the food on the table."  However, desperation is a poor adviser.  Please, think long and hard before you take that step.