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Archive for August, 2009

Have You Defined Your Legal Strategy?

August 28th, 2009 Comments off

            If there’s one thing a CFO hates, it’s surprises. Whether on the revenue, expense, or legal front, we do everything we can on a daily basis to mitigate or eliminate this risk. One of the biggest areas for risk, based on the potential cost impact, are lengthy and costly legal battles. I’ve had to deal with these in detail at the last two companies I’ve been with, from both the Plaintiff and Defendant sides of the table. It’s not only costly, but a complete distraction from running your everyday business.

            I’m not going to spend any time discussing past situations since this would only provide an insight into strategies or my preferred approach. I won’t make it that easy for others. What I have been able to see in past actions is that there are suits that have a definitive merit and the other party needs to cease their actions, or there are those that are more opportunistic and the other party sees the easy buck. The latter are those that are completely infuriating. However, regardless of the legitimacy, you need to ask if your company is taking the necessary steps to mitigate the risk and proactively manage your IP portfolio and integrate your legal team (whether internal or external) into business development on a regular basis. Until you take this step, you’re primarily going to be working in a reactionary state. If you work proactively, then at least when the surprises happen you’re much more prepared to deal with it.

            If we’re to assume the role as the “Regulator of Risk”, then incorporating your legal team in your business development is really no different than paying an annual insurance policy. While there are insurance policies for corporate IP matters, these are reactionary and will not offer you assistance in avoiding unnecessary skirmishes. It’s too exhausting a topic to start covering major points, but where do you stand on….

§  Ensuring your corporate name & logo is protected across major global markets?

§  Ensuring that employees are not utilizing unauthorized software internally or externally?

§  Ensuring that brand or model names are not infringing?

§  Ensuring that your brand or model names have been appropriate registered, even if only used for a single season?

§  Ensuring that specific technologies or software has specific protocols for use and/or distribution?

§  Ensuring that there are protocols in place to assess the creative sources of new product launches?

            Again, these points don’t even scratch the surface, but unless you take a proactive approach to this area you might very well find yourself in a costly legal battle. Cover your bases, keep the communication constant, constantly involve yourself in all areas of the business, and you’ll have a higher knowledge and confidence level when these “surprises” hit.

 

Thanks for Reading. . . .

 

Jeffrey Ishmael

Salaries: Measuring the ROI…NOT the Expense.

August 27th, 2009 Comments off

            I’ve had quite a few conversations recently regarding salary levels and what certain positions are paying. These conversations have ranged from hiring new staff positions to calls on open CFO positions in my regional market. What I continue to be puzzled about, and would like to have more follow-up discussions on, is why the responsible hiring parties are so focused on a salary level and not looking at what value the overall position might bring to the company. I look at every position with this view in mind. Although the approach my change a bit, I’m going to look at the increased productivity I can get from paying more for a higher caliber candidate, or in the case of myself, ensuring that the company receives an exponential return on the investment they are making in me.

            Take the example of an A/P clerk position that was on staff when I arrived at the company. It was clear that this position was not performing to the necessary levels, nor did the incumbent have the bandwidth to take on additional work. Through the course of a restructuring, in all areas of the company, we opted to eliminate the position and expand the role. I needed more back-up than just A/P processing. What I was fortunate enough to find was a great candidate that showed incredible work ethic and a broad range of skills. We brought that candidate on as a Sr. Accountant, and at a rate that was considerably higher than the previous person. Did it increase the payroll cost…absolutely, but we were also able to bolster the Finance area & implement the necessary processes and controls that were previously lacking.

            In my case, the conversation from the outset of our interviews was that I did not view myself as an expense, but an investment by the company. In consideration to the economic climate we were operating in, I discussed that any ROI on my position needed to be immediate (< 6months) and the targeted return created by my hire was not to cover the cost of my position, but to create a return that could be measured in multiples. You can only make this commitment when you are sure of your skill set and you have a good understanding of the situation you are walking into and then you can accurately assess the available resources. Whether you’re talking about an extra 10% at staff level or a higher amount at the senior level, what is the cost to your financial performance when you settle for mediocrity?

 

Thanks for reading . . . .

 

Jeffrey Ishmael

Categories: CorpFin Cafe, CorpFin Careers, H.R. Tags:

Discipline #7 – CFO as the Champion of Change

August 26th, 2009 Comments off

            After covering the first six chapters of Jeremy Hope’s book, Reinventing the CFO, it’s time for the last chapter. As I previously mentioned, this is one of the books that you can continue referring back to for those subtle reminders since I believe his book somewhat transcends whatever “technical” changes may be happening on the Accounting and Finance front. In Hope’s final chapter he discusses the CFO as a Champion of Change.  This is probably the only point in the book where I tend to stray a bit from Hope’s view and believe the role of the CFO should extend further than what Hope suggests.

            Hope’s seventh chapter starts out “The role of transforming the finance operation…” and he then further discusses in detail the case for transforming finance. However, as we continue to see the role of the CFO expand and the CFO is expected to drive the financial results of the organization, it’s necessary for the CFO to be the Champion of Change, in partnership with a CEO or President, for the entire organization. Merely driving change in finance may result in improved reporting, clarity in results, or the establishment of standards, but change needs to be driven throughout the organization to achieve improved financial performance. This is also one of the most difficult challenges for the CFO since it will likely involve modifications, or sometimes entire shifts, in the company culture.

            Hope itemizes a list of suggested action items he believes will support the CFO in this mission:

§  Make a compelling case for change

§  Set some directional goals and get started

§  Gain the support of key people

§  Involve operating people in the change process

§  Avoid more complexity

§  Show some early wins

§  Be patient but maintain the momentum

            The other obvious point is the extent to which the CFO will drive change across the entire organization will depend on the size of the organization. You’re going to be much more hands on with a smaller entity, perhaps < $250 million, than in a larger, perhaps globally diverse operating entity. While I was involved in the planning, and directed significant changes during my time w/ MGE, those accomplishments were primarily focused within our North American operations. No doubt they were coordinated with our HQ in France, the efforts typically did not extend to our LAM or EMEA partners. Those changes, however, crossed over to R&D, Purchasing, Services, and deep within the Finance department. We made incredible changes over the 4-years and it meant maintaining effective communications with each one of those areas, having clear goals, communicating the progress of those goals, and knowing that we had completion windows that extended over Quarters, not weeks.

            For a smaller organization that has been set in its ways for many years, the change comes with more resistance and a slower rate. There needs to be a sensitivity to the change you are trying to implement and it’s likely that your need to communicate in such an environment may need to be more extensive. Many of my peers have commented in their blogs and twitter recently about the changing face of the CFO and this is one area that will demand that change. Change is the biggest challenge for the CFO, and without the proper approach and sensitivity, could result in a CFO starting their next search. You are the Champion of Change, but it’s your approach that will determine your success.

 

Thanks for reading . . . .

 

Jeffrey Ishmael

Optimism in the Retail Sector….?

August 25th, 2009 Comments off

            For so many months I essentially ignored what was happening with stock prices for the Retail sector since they were getting so badly crushed. All you had to do was look across the board and it was nothing but shades of red across the daily pricing action, 50-DMA, as well as the 200-DMA. To put it in perspective, there are 34 Retail stocks that I have in my listing that I peek in on and see what’s happening. However, the mood is definitely changing as many have seen some dramatic reversals from their 50-day and 200-day averages. In fact, it’s now the rare exception for one of these to be showing in the red on this number.

            Previously, there was not a single stock that was trading in excess of 1x Sales. There’s now seven stocks that are trading at a multiple > than 1x sales. I’m also starting to see valuations that are recognizing emerging performance while I see other retailers that are still being hit with low valuations because they have not seen a turnaround in their performance or still have yet to exhibit any consistency with previously stated strategies. Of those still being hit with valuation issues, Pacific Sunwear (PSUN) is currently trading at an 80% discount to sales. Charlotte Russe (CHIC) is trading at a 57% discount, and were it not for the recent buyout offer of $17.50/share, the effective discount on CHIC would be much higher. These are two retailers that can’t seem to stick with a strategy and have lost their way.

            There are still a number of other problem children out there in Retail and Apparel, but the strong players are capitalizing on the weakness. Even for our own small company, we have been buckled down and concentrating on what’s good for our brand, our customer, and not getting caught up with all the negativity. We’re being rewarded for that focus as we continue to see revenue growth as well as great financial results from the restructuring we have put in place over the last year. It’s senseless to get caught up in the sector speculation, negative press, and indecision paralysis waiting to see who moves first. Run your analysis, be familiar with your brand and customer, and capitalize on the opportunities that are sitting in front of you right now….

 

Thanks for reading . . . .

 

Jeffrey Ishmael

CFO’s – Are you an Executive Chef or Line Prep?

August 21st, 2009 Comments off

     For my friends that I tend to spend time with out of the office, they know I have two main areas of interest – my cycling and my appreciation for all things culinary…wine included. Necessary for these interests, and in relation to my career, there’s a correlation between both. All involve having a multitude of tools at your discretion, as well as a multitude of ingredients.  It’s the experience that you accumulate through your career and your knowledge of the ingredients that will dictate whether or not you can create a bit of a masterpiece, or if you’re left fumbling in the kitchen. It’s knowing when you have a quality collection of ingredients that support the ultimate mission or if your left with mediocre quality, or incomplete, ingredients that will result in a less than stellar result.

     Take the analogy of CFO meets Iron Chef. Imagine showing up on the set not knowing what ingredient is going to be served up, but you have a strong enough knowledge to quickly assess and utilize the resources to produce something fantastic.  That’s exactly what the CFO needs to do when moving into a new company. It’s one thing to have an understanding of an Income Statement, Balance Sheet, and Cash Flows, and all the other elements that will be combined to produce superior financial results. However, the key is to understand all the “ingredients” that contribute and make up the results reflected in the key financial statements. Just like a Chef can taste or smell a certain dish and cite the individual ingredients, the CFO needs to have the ability to disect each one of the financial statements to the individual elements and know how much of each ingredient is needed to achieve the results. Or Conversely, quickly determine which of the ingredients is ruining the dish. Just like cooking, it’s about putting in “just enough” of the ingredients. You don’t want to overpower the result, nor do you want it bland and uninspiring.

     In the case of the CFO;

§  How much additional inventory investment will you commit to support revenues?

§  How much additional debt will you incur to drive strategic growth initiatives?

§  What additional staff do you need to support your Budget initiatives?

§  How much risk will you tolerate in your A/R portfolio to support & drive growth?

§  How deep a commitment do you make to vendors before putting your supply chain at risk? 

§  How much will you cut operating expenses or investment before inflicting damage on the Company?

§  Are their modifications that you can make in A/P management to increase discounts or provide additional production funding?

     These are only a handful of the ingredients available to the CFO. No matter your “understanding” of each one of these elements, it’s the experience that you have in deploying these resources, and in the appropriate amounts, that will dictate the success of your “entree”, which in the case of the CFO, is the profitability of the Company you represent and the working capital that is your responsibility.  For myself, the worthwhile question about your kitchen is whether your an Executive Chef or just conducting Line Prep. Which are you?

 

Thanks for Reading. . . .

Jeffrey Ishmael

Revisiting some of those favorite reads . . . .

August 20th, 2009 Comments off

     Found myself wrapping up the day, but not having the necessary amout of time to dive into drafting a full blog posting. I also couldn’t bring myself to spend a significant amount of time on the computer, which seems to have been a non-stop activity. It’s also nice to pull up half a section of couch, kick-up the feet, and enjoy some hardcopy reading.

     Two of my favorite reads are the Harvard Business Review and Strategy+Business. One of the articles that I’ve archived and like to review occassionally is an article titled “The Cat That Came Back” by Gary Neilson and Bruce Pasternack.  The article profiles the corporate reorganization of Caterpillar. Although the company was a $30 Billion entity, it’s a great lesson in how quickly a larger organization can effect change, and ultimately see the benefits of that change in the bottom line results.

The Cat That Came Back

    Hopefully you enjoy the read as much and as often as I have.

Thanks for reading. . . .

Jeffrey Ishmael

Open Positions within my Network . . .

August 19th, 2009 Comments off

I’ve been lucky enough to see many in my network transition into new positions after losing jobs in mergers, layoffs, and bankruptcies. However, I am starting to get more calls for open positions. Please let me know if any of the positions below might be of interest to you or others in your network.

– Internal Audit Manager: Would oversee the US/Latin American markets. Salary of $125k+
– Senior Financial Accountant: Salary of $90-95k plus Bonus.
– Senior Corporate Accountant: Salary of $70-80k plus Bonus.
– Revenue Accountant: Salary of $58-60k.

All of these positions are in Southern California and I am not sure about relocation details, but would be more than happy to put you in touch directly with the Recruiter.

Categories: CorpFin Cafe, CorpFin Careers Tags:

Discipline #6: CFO as the Regulator of Risk

August 14th, 2009 Comments off

     In my last segment on Jeremy Hope’s book, “Reinventing the CFO”, I covered Discipline #5, or the CFO as the Master of Measurement. I had mentioned that this was one of my favorite sections of the book, and the one area I so rigorously incorporate into my day-to-day operations. Not only in a financial perspective, but in an operational perspective. Without measurement, there is no assessing the progress the company is making, not to mention the accountability that measurement can bring into the development of management goals.

     However, there is no more an important role for the CFO than as a Regulator of Risk. Assuming the role of “Regulator” needs to be more than ensuring your producing financial reporting that is compliant with GAAP or that you’ve taken the time to meet with your Sales group to ensure that there is legitimacy to a recently submitted Forecast. If this is the extent of your risk regulation activities then you’re doing nothing more than assuming the role of a Controller or Auditor. In Hope’s book he identifies key areas in the management of risk and uncertainty:

 

         Set the highest standards of ethical reporting and behavior

         Regularly review the key pressure points for excessive risk taking

         Manage risk across the whole organization

         Approach uncertainty with an open mind

         Provide effective feedback controls

 

     Regardless of the size of organization I have been involved with, I’ve always made it my business to be hands-on in the areas where I perceived a material level of risk with the company. Whether this was in the area of A/R for key accounts and the application of credit insurance, management of our IP asset base, order backlog & our outstanding P.O. commitments, legitimacy of an aggressive sales forecast, or any H.R. related issues, I was involved. It doesn’t mean that I was necessarily setting policy or managing the day-to-day in these specific areas, but I did have an understanding of what was happening in these areas and the concerns of the Managers responsible. It also doesn’t mean that we never encountered hiccups in these areas either. However, the flow of information was consistent enough that when it hit the radar we were able to act pretty quickly to mitigate the negative impact to the company.

     This is a great area of Hope’s book and it should be clear to anyone responsible for managing risk that it can’t be covered in a single chapter. But Hope brings up some great points for review. As I’ve heard discussed in the circles of Law Enforcement, the CFO “should respond to the spirit of the law rather than just the letter of the law. Governance and risk management are about more than checking off the boxes.” He also discusses the need to “be uncompromising about ethical behavior. Be the guardian of ethical standards and the last line of defense against unethical reporting.” 

     I do like these points, but again, these tend to be reactionary as opposed to preventative. Prior to my CFO roles, I was fortunate enough to work under some great CFO’s who mentored and included me in their daily regimen. They were all forward looking and instilled the need to look ahead and be wary of that which would derail the ability to meet your results; anything that would have a material impact on the financial results. Trust in nothing and always have your contingencies in place. It’s the approach that I’ve continued to incorporate in my day-to-day routine and in the development of longer term financial plans. As a “Regulator of Risk” you need to ensure that you’ve done more than just make sure your insurance policies are current. Have you done what you need to protect and ensure your results?

 

Thanks for reading . . . . 

Jeffrey Ishmael

IFRS – White Knight or Dark Horse?

August 13th, 2009 Comments off

            With our recent travails in the financial markets, there’s a large number of folks who are starting to point their fingers in the direction of IFRS with claims that this new reporting structure could very well be a solution to all that has happened. Really? Let’s be clear in that IFRS is merely another measurement platform and a basis of financial reporting for a group of nations that are within direct proximity to each that never had a common financial reporting platform.  First, let me qualify my background in addressing this topic in a bit more detail and tabling my opinion on the topic. I spent 4-years working with a France-based manufacturing company and coordinated the North American effort for the company’s IFRS implementation in 2005.  I worked closely with our global finance group in Grenoble, attended numerous coordination meetings in Grenoble, worked with Moss-Adams and Mazars in those efforts, and produced all parallel GAAP/IFRS reporting.  We were working under a very definitive timeline for our company, which was operating under the time mandate of the European Union for implementation.

            Let’s throw a little more history in the mix. The evolution of U.S. accounting standards has been a gradual, almost 7-decade process since the first auditing standards were implemented in 1939. Without going into exhaustive detail, U.S. standards evolved over the next 7-decades to bring us to the point we’re at now. Many of the new standards implemented over the last decade have been a reaction to crises that have been encountered in the open markets. These standards have included the massive Sarbanes-Oxley regulation, Revenue Recognition standards, Reg FD on the disclosure of corporate information, and the list goes on. Let’s keep in mind that full European implementation of IFRS only happened in the last handful of years. While the planning window was longer, it has been in effect for less than 5-years. It was a necessary set of reporting standards that was previously absent for a large number of nations, each with their own stock exchange, and no common set of standards for the average investor to refer to.

            Back to an IFRS versus GAAP consideration. The evolution of the U.S. system has been in reaction to continual developments and introductions of new financial tools introduced into the market, an increasing complexity in the types of companies conducting business over the decades, and the increasing need to maintain integrity within the U.S. financial markets, as well as protect private investors. The U.S. is an absolute rule-based system whereas IFRS is more principals based.  IFRS allows a much higher degree of discretion in applying the IFRS standards.  While I haven’t directly addressed why this is not our white knight for solving the financial reporting issues in the U.S., it’s an intro for the next post I will write.

            In my next posting I’m going to address IAS 36 and the latitude that is given to a company for the reversal of a previously recognized impairment of a tangible asset. Think about the potential dilemma this creates for an investor when they’re trying to compare companies, determine the quality of earnings, yet companies have the ability to write down…and then subsequently, increase the value of an asset. We’ll look at an example where a company can alter their income levels through the revaluation of assets.  I’m certainly not implying that our own U.S.-based system is problem free and doesn’t allow for some level of indiscretion in reporting, but it still appears laughable that we’re going to abandon a system that has been developed over a handful of decades in favor of one that is newly introduced for a group of nations where no standards previously existed.

 

Thanks for reading . . . .

 

Jeffrey Ishmael

Inventory Planning in an A/O Environment….

August 5th, 2009 Comments off

                In some of my previous posts I’ve discussed the diligent efforts our Company has put in place to bring inventory levels down over the last year and the focus put on working capital levels overall.  However, if you are a follower of Retail or Apparel companies, you’ve probably been reading lately the shift of retailers, across all segments, to decrease their pre-book activities and move towards buying on an At-Once (A/O) basis depending on how the current season progresses. We started to see this trend in the Fall selling season, but it has become more pronounced as we moved into Holiday. It’s worth noting though that this trend is primarily occurring within the smaller retail operations, which may have 10 doors or less. This is a much more difficult, and extremely risky, proposition for the larger retail operations which are under pressure for comp performance and risk not getting the product they need to drive their comps.

 

                So what’s a manufacturer to do in such a situation?  What do you do when you’re lead times are 90-days+ out of Asia and you can’t just do a quick ramp-up in a domestic manufacturing facility? Don’t start looking through your B-school textbooks looking for the answer, because you won’t find it. Unfortunately, this is really one of those game-day calls that need to be exhaustively discussed before committing the capital. It’s an especially difficult commitment when you’ve spent the last year right-sizing your inventories, increasing the velocity of your turns, and no longer have that “problem” inventory that’s affecting your gross margin results.

 

          Do you go increase your current inventory buy based on low-volume Holiday bookings?

          Do you bring in an early release of Spring-10 product based on great verbal feedback?

          Do you offer extended dating to prompt retailers to step up to the plate for the season?

          Do you offer discounts to keep make sure you keep that valuable shelf space?

 

                Ultimately, it’s the shelf space we’re all fighting for and don’t want to find ourselves in any situation where that space is jeopardized. Especially when the smaller shops aren’t pre-booking. What are they planning on filling that space with if you don’t order the necessary product to accommodate their A/O needs?  How do you service the needs of your dealer base when they aren’t providing the necessary insights for you to make appropriate inventory decisions?

 

                It’s really a judgment call that involves the entire management team and determining the level of risk that the company is willing to take. Any poor buying decisions will effectively saddle the company with more working capital issues and poor margin performance for at least the following 2-Quarters, if not more. Unless, of course, you take the step of blowing out that inventory through your available close-out channels at a loss. Fantastic, right back in the same place you were previous to this shift in buying mentalities. So what’s your game-day call for inventory planning when you’re customers shift to an A/O purchase mentality?

 

Thanks for reading . . . .

 

Jeffrey Ishmael