Aetna today announced that it expects to incur a fourth-quarter 2009 charge of approximately $60 million to $65 million, after tax.1 This charge is due to the previously announced and completed reduction of approximately 625 positions and real estate consolidation that together are expected to result in a charge of approximately $40 million, after tax, and a similarly sized workforce reduction to be completed by the end of the first quarter of 2010 that is expected to result in a charge of approximately $20 million to $25 million, after tax.
These actions relate to Aetna’s previously announced plan to reduce its workforce based upon the company’s membership outlook for 2010 and in preparation for the impact that health care reform and regulatory changes may have on Aetna’s business. Once the company completes the additional job reductions in the first quarter of 2010, Aetna will have approximately 34,300 employees. Employees affected by the first quarter 2010 job reductions will be notified at a future date to be determined. Eligible employees will receive severance benefits based on length of service as well as outplacement and other support programs. The company is not exiting any markets as a result of this announcement.
1 As Aetna believes this charge neither relates to the ordinary course of its business nor reflects underlying business performance, the company will reflect the charge as an “other item” and exclude it from 2009 operating earnings
Companies can save millions of dollars by managing their commercial real estate leases. Subleasing unused space is not the best solution and does not create a more positive cash position. Cambridge Consulting Group is an advocate for CFOs looking for creative real estate, financial, legal and tax advice. To learn how they are helping Fortune 500 companies please visit their website www.ccgiweb.com
Wednesday, December 30, 2009
Georgia Tech Study Shows Industry Sectors With Improving Cash Flow
Free cash margin, a measure of cash-flow performance, improved for 11 of 20 industry sectors during the 12 months ended in September, according to a new report from the Georgia Tech Financial Analysis Lab. The authors of the report, which was released last week, say the improvement reflects an upward trend that began in the first 3 months of the year.
Collectively, free cash margin for the 20 industries reached 5.36% for the period. That is the highest level recorded by Georgia Tech researchers since they began tracking the metric in March 2000 (see chart at the end of this article). The previous high was 5.14%, reached during June 2004.
But the improvement stemmed primarily from reductions in capital spending, says the report. Indeed, measured as a percentage of revenue, capital spending for the latest reporting period was lower than it had been for any other period since March 2000 (see chart at the end of this article). Capital spending at nonfinancial companies dropped to 3.02% for the 12 months ended in September. By comparison, the metric never dipped below 4.68% during the 2001 recession.
Ultimately, when capital spending does rise again, free cash margin could fall unless other factors compensate, such as reductions in taxes paid, better inventory turns, and more efficient collection of receivables.
Free cash margin is a cash-flow profit margin, derived by dividing free cash flow by revenue. In practical terms, the metric measures what percentage of revenue is left for shareholders in the form of free and discretionary cash flow. The Georgia Tech lab monitors the free cash margin (and its drivers, such as inventory, taxes, operating profit, and cash flow) for 3,704 nonfinancial companies with market caps greater than $50 million.
"What is especially remarkable about the improvement in free cash margin is that it is coming despite a continuing weakness in revenues," says Georgia Tech accounting professor Charles Mulford, director of the lab and co-author of the report. Normally, profit margins, including free cash margins, should decline along with revenue. Mulford says median revenue for the sample companies peaked at $751.1 million for the 12-month period ended in September 2008 and have been declining ever since. Median revenue for the 12 months ended in September 2009 was $528.4 million, a 29.7% decline from a year ago.
"Firms have been quite adept at wringing as much cash flow from operations as possible," says the report. The 11 industry sectors that improved their free cash margins included materials, capital goods, automobiles and components, consumer durables and apparel, retailing, household and personal products, and food, beverage, and tobacco. Eight industries, including energy, transportation, software and services, and utilities, had stable free cash margins, while one industry — pharmaceuticals, biotechnology, and life sciences — had a declining free cash margin.
The report makes special note of several "standout" sectors and companies regarding changes to their free cash margins. For instance, the automobiles and components industry sector improved its free cash margin to 2.94% for the 12-month period ended in September 2009, up 2.17% from a year ago. In particular, Ford Motor Co.'s free cash margin improved significantly, jumping to 5.61% from 0.27% in September 2008, even though its capital spending rose from 4.17% to 4.61% during the same period.
Contributing to Ford's improved free cash margin was a reduction in the company's cash cycle, in which the automaker dropped its inventory days to 21.19 in the third quarter, compared with 27.44 a year earlier. (Inventory days are the average number of days goods remain in inventory before being sold.) Rest of Article at CFO.com
Collectively, free cash margin for the 20 industries reached 5.36% for the period. That is the highest level recorded by Georgia Tech researchers since they began tracking the metric in March 2000 (see chart at the end of this article). The previous high was 5.14%, reached during June 2004.
But the improvement stemmed primarily from reductions in capital spending, says the report. Indeed, measured as a percentage of revenue, capital spending for the latest reporting period was lower than it had been for any other period since March 2000 (see chart at the end of this article). Capital spending at nonfinancial companies dropped to 3.02% for the 12 months ended in September. By comparison, the metric never dipped below 4.68% during the 2001 recession.
Ultimately, when capital spending does rise again, free cash margin could fall unless other factors compensate, such as reductions in taxes paid, better inventory turns, and more efficient collection of receivables.
Free cash margin is a cash-flow profit margin, derived by dividing free cash flow by revenue. In practical terms, the metric measures what percentage of revenue is left for shareholders in the form of free and discretionary cash flow. The Georgia Tech lab monitors the free cash margin (and its drivers, such as inventory, taxes, operating profit, and cash flow) for 3,704 nonfinancial companies with market caps greater than $50 million.
"What is especially remarkable about the improvement in free cash margin is that it is coming despite a continuing weakness in revenues," says Georgia Tech accounting professor Charles Mulford, director of the lab and co-author of the report. Normally, profit margins, including free cash margins, should decline along with revenue. Mulford says median revenue for the sample companies peaked at $751.1 million for the 12-month period ended in September 2008 and have been declining ever since. Median revenue for the 12 months ended in September 2009 was $528.4 million, a 29.7% decline from a year ago.
"Firms have been quite adept at wringing as much cash flow from operations as possible," says the report. The 11 industry sectors that improved their free cash margins included materials, capital goods, automobiles and components, consumer durables and apparel, retailing, household and personal products, and food, beverage, and tobacco. Eight industries, including energy, transportation, software and services, and utilities, had stable free cash margins, while one industry — pharmaceuticals, biotechnology, and life sciences — had a declining free cash margin.
The report makes special note of several "standout" sectors and companies regarding changes to their free cash margins. For instance, the automobiles and components industry sector improved its free cash margin to 2.94% for the 12-month period ended in September 2009, up 2.17% from a year ago. In particular, Ford Motor Co.'s free cash margin improved significantly, jumping to 5.61% from 0.27% in September 2008, even though its capital spending rose from 4.17% to 4.61% during the same period.
Contributing to Ford's improved free cash margin was a reduction in the company's cash cycle, in which the automaker dropped its inventory days to 21.19 in the third quarter, compared with 27.44 a year earlier. (Inventory days are the average number of days goods remain in inventory before being sold.) Rest of Article at CFO.com
Tuesday, December 29, 2009
Inventory Location Not Basis for Lease Termination
Facts: After signing a lease and moving into its new space, a tenant was notified via inspection that its sprinkler system violated several fire code provisions and that it was storing merchandise too close to the sprinkler riser. The tenant asked the owner to correct the sprinkler system deficiencies. The owner responded by giving the tenant a notice stating that it would terminate the lease if the tenant did not move the items away from the sprinkler.
After a second inspection revealed the same problems, the owner served a written notice to the tenant that it had to vacate based on its failure to maintain a safe storeroom. The owner then sued to have the tenant removed. The trial court ruled in favor of the tenant, and the owner appealed.
Decision: The appeals court upheld the trial court's decision.
Reasoning: The appeals court found that the lease required the owner to comply with the fire codes and provided a right to terminate the tenant's lease for only nonpayment of rent. Accordingly, the location of inventory did not constitute a basis for termination of the lease.
Mila Investments, Ltd. v. Family Dollar Stores of Ohio, January 2009
Expert Commentary: Prohibit Safety Violations with Lease Clause
Marie A. Moore, a Louisiana real estate attorney, says that, frequently, courts are unwilling to permit an owner to terminate a lease based on a default that the court views as “technical,” such as in this case. She notes that it appears that this lease made it easy for the court to avoid termination because first, the owner assumed the obligation of complying with fire codes, and second, the lease permitted termination only for nonpayment of rent. Instead, Moore says, the lease should have contained a clear provision stating that if the tenant is not operating in accordance with the law or is causing a violation of fire codes or insurance requirements, the tenant will be in default, and the owner has the right to terminate.
To avoid the unfavorable outcome for the owner in this case, New Jersey real estate attorney Mark Morfopoulos advises owners to make sure that their leases provide that the tenant will not do anything that will cause the premises to violate any “law, statute, ordinance or governmental rule, regulation, or requirement now in force or which may hereafter be enacted, including any building code requirements or the requirements of any board of fire underwriters or other similar body now or hereafter constituted (collectively, Governmental Requirements).” The clause should also state that the tenant will, at its sole cost and expense, promptly comply with all Governmental Requirements “as and when enacted, relating to or affecting the condition, use, or occupancy of the premises,” he adds.
Morfopoulos also says that to be fair, an owner should exclude costs to change the structure of its building unless such changes are required as a result of the tenant's improvements to or particular use of the premises. “If an owner desires additional rights to terminate, it should expressly include them in the lease,” he concludes.
Expert Commentators
Marie A. Moore, Esq.: Member, Sher Garner Cahill Richter Klein & Hilbert, LLC, 909 Poydras St., 28th Fl., New Orleans, LA 70112; (504) 299-2108; mmoore@shergarner.com.
Mark Morfopoulos, Esq.: Meislik & Meislik, 66 Park St., Montclair, NJ 07042; (973) 783-3000; mmorfopoulos@meislik.com.
reprinted from CommercialLeaselawinsider.com
Terminating a Commercial real estate can substantially increase your bottom line. This is a very complicated transaction that demands expertise in commercial real estate, corporate finance and legal issues. One firm that has a successful track record in saving large companies millions of dollars by terminating or buying out their lease obligations is Cambridge Consulting Group. For more information please visit their website- www.ccgiweb.com
AIG and CitiGroup selling Real Estate Investment Groups
Three real estate money managers are up for sale as their owners attempt to deleverage their balance sheets, sources say.
At least two major firms — AIG and Citigroup — are looking to sell their real estate investment businesses. Sources expect these deals would be straight sales, rather than manager buyouts.
Sources say that a third, Bank of America, is selling Merrill Lynch's real estate investment management business. Jackie Fitzgerald, Bank of America spokeswoman, would confirm only that the bank wants to transfer the general partnership interest in the $2.65 billion Merrill Lynch Asia Opportunity Fund, which closed in October 2008.
She declined to comment on whether Bank of America is exploring selling the general partnership interests in any of Merrill Lynch's other real estate funds.
Other firms are jettisoning business segments. For example, Morgan Stanley Real Estate has exited the direct separate account business, confirmed Alyson Barnes, Morgan Stanley spokeswoman. This means it is not seeking new business and has wound down some separate accounts, she said. She would not give the size of the separate account business.
The potential sales illustrate the damage the economic downturn has done to some of the nation's largest real estate investment managers. The business has turned from a revenue source, providing cross-selling opportunities, to an albatross on the parent companies' balance sheets.
American International Group Inc.'s decision to sell its $24.3 billion global real estate business follows the Sept. 5 announcement that the company sold an $88.7 billion portion of its investment management business — covering private equity, hedge funds of funds, equities and fixed income — to Bridge Partners LP for $500 million and a share of profits. In the meantime, AIG is continuing to manage the real estate business and explore options.
In January, AIG announced the business was up for sale but in August, it hired Robert G. Gifford as president and CEO for real estate. Sources say any deal to sell AIG's real estate business could include continued employment for the AIG unit's top executive as it did in the Bridge Partners transaction, in which Win J. Neuger will continue as CEO.
“AIG Global Real Estate continues to evaluate its options with respect to its fund management business,” said Lauren Day, AIG spokeswoman. Sources said AIG could do everything from selling the real estate business in one piece to selling off funds piecemeal.
Rest of article click here
Bank CFOs should look to their branch locations for savings through real estate Lease Terminations or Buyouts. Financial Institutions employing this strategy have saved millions of dollars in lease obligations. An expert in this field is Cambridge Consulting Group. For a white paer onthis subject please go to www.commercialleaseterminations.comDisney CFO Becomes Chairmen of Walt Disney Parks and Resorts
For two decades, Tom Staggs has plotted strategy for the Walt Disney Co., helping steer the entertainment giant through multibillion-dollar decisions ranging from the acquisitions of ABC and Pixar to the construction of new cruise ships and theme parks.
Now, however, Disney's longtime chief financial officer has to do something for the company that he has never done before: actually run one of its businesses.
This week, Staggs formally takes over as chairman of Walt Disney Parks and Resorts, assuming day-to-day responsibility for an $11billion vacation empire with resorts on three continents and nearly 100,000 employees — including 60,000 in Central Florida. He succeeds Jay Rasulo, who is, in turn, taking Staggs' place as CFO in a leadership swap orchestrated by Disney Co.'s president and chief executive officer, Bob Iger.
Although the company has disputed it, the move has been widely interpreted as a sign that Disney is grooming Staggs, 49, to be Iger's eventual successor as CEO. By handing him the keys to its theme parks, Disney is giving Staggs the chance to gain operational experience and plug the one obvious hole in his résumé. But before Staggs can ascend to the top job, he must demonstrate that he can handle a division that generates nearly one-third of Disney's overall revenue.
The challenges are substantial. Profits at Disney's parks have slumped this year amid a recession-driven drop in consumer spending and travel. And the unit is in the midst of its biggest construction spree in years, building a pair of new cruise ships and a Hawaiian resort; expanding parks in Orlando, California and Hong Kong; and planning a new park in Shanghai.
At the same time, Staggs will have to adapt to an unfamiliar role. As CFO, he oversees a relatively narrow circle of financial executives and interacts with Wall Street analysts. As parks chairman, he must rally a global work force that includes everyone from industrial engineers to aspiring actors and must learn the minds of the 118million guests who visit Disney's theme parks each year.
Friends and colleagues say they expect Staggs, a trumpet player with a taste for Italian wine, will succeed.
"I am 100percent confident — 100percent — that he will be fantastic," said Michael Eisner, the former Disney chief executive who promoted Staggs to CFO in 1998.
Disney declined to make Staggs or Iger available for interviews.
Staggs joined Disney in 1990, after the company hired him away from his job as an investment banker at Morgan Stanley. Disney was looking for someone to handle mergers and acquisitions in its strategic-planning department, and it targeted Staggs, who has an undergraduate business degree from the University of Minnesota and an MBA from Stanford University.
He advanced rapidly through strategic planning, which was charged with identifying growth opportunities and scrutinizing the performance of the company's operating divisions. The department was not always well-loved by other Disney managers, some of whom referred to it as "the goon squad," according to the book DisneyWar, which chronicles Eisner's tenure as CEO.
Former executives say Staggs proved a shrewd negotiator who analyzed potential deals carefully and without being clouded by emotion. "He was not a guy who had an ego need to do deals for their own sake," said Larry Murphy, a former chief strategic officer at Disney and Staggs' former boss.
When the company was debating whether to buy the CBS or ABC television networks in 1995, Staggs, according to DisneyWar, argued for the more-expensive ABC deal in part because Disney could gain ABC's 80percent share in the ESPN cable-TV sports network. Disney ultimately bought ABC for $19billion, and ESPN is now one of its most valuable properties.
Former parks-and-resorts executives who worked with Staggs praise him as a financial manager who had the ability to see beyond an idea's bottom-line numbers. Paul Pressler, who was parks chairman before Rasulo, said Staggs supported expanding Disney Cruise Line because he recognized its effect beyond the parks division.
In 1998, Eisner elevated the then-37-year-old Staggs to CFO. The former Disney chief said in a recent interview that Staggs was an invaluable adviser and a "steady force" for the company, particularly through the uncertainty that followed the Sept.11, 2001, terrorist attacks in New York and Washington.
"Every time I had to speak or I had to deal with the finances of the company or I had to appear before an analyst group, my last call before going on stage was always to Tom," Eisner said. The former Disney CEO had such warm feelings for Staggs that he based the family dog in a cartoon show he created for Nickelodeon, Glenn Martin DDS, on Staggs' own dog.
Friends say Staggs' even temperament helped during what may have been the most trying period of his career: the corporate upheaval that erupted in 2003, when the late Roy Disney, nephew of the Walt Disney Co.'s legendary namesake, clashed with Eisner and led a shareholder revolt seeking Eisner's ouster. The prolonged battle ended in 2005, when Eisner stepped down and was replaced by Iger.
It often fell to Staggs to deliver Disney's response to the critical presentations from Roy Disney and others about the company's financial performance, and to defend controversial decisions such as potentially ending the company's relationship with Pixar Animation Studios amid a falling-out between Eisner and Apple Chief Executive Steve Jobs.
"It was incredibly challenging for him," said Richard Nanula, who was Disney CFO before Staggs and who remains close friends with him. But Nanula said Staggs hid the stress well. "Tom never goes too high and never goes too low."
One of the ways Staggs deals with stress: working out, which he does almost daily. "The last time Tom put a carbohydrate in his body was the prior millennium," Nanula said.
Staggs and his wife have three sons, ages 4 through 11. He is said to spend much of his free time with them, including coaching youth basketball. He's also something of an amateur gastronome; Staggs' Beverly Hills home, which is currently being rebuilt, will have multiple varieties of stoves.
People who have talked to him say Staggs was surprised when Iger informed him earlier this year that he wanted him to take over parks and resorts — as were many analysts who follow the company. But Disney has said not to expect overarching strategies to change because of the executive shuffle.
"We all have pretty much bought into the same set of principles as we manage this company," Iger said at an investor conference in New York this month.
Under Rasulo, Walt Disney Parks and Resorts has emphasized growth in international markets and into businesses beyond theme parks, including cruises, time shares and group tours. Rasulo also centralized leadership of Disney's parks, bringing management of Walt Disney World and Disneyland under a single team rather than running them as independent operations.
Staggs already has some familiarity with the business. Because the parks unit sucks up so much of Disney's overall capital spending — building a theme park, after all, is much more expensive than making a movie — Staggs has over the years had to be involved with major decisions at the unit.
"I would characterize Tom as always an enthusiastic supporter of the parks-and-resorts strategy," said Rasulo, who said he has worked closely with Staggs over the years. Rasulo added: "I would think, as you looked back historically, that has not always been the case with" previous financial executives at Disney.
Still, Staggs faces numerous challenges.
In the immediate future, he must engineer a turnaround at Disney's U.S. theme parks by weaning consumers off discounts without sending attendance into a tailspin. Longer term, he will have to successfully incorporate a cruise line that will double in capacity by 2012 and a Hawaiian hotel and time share that will be Disney's first major standalone resort when it opens in 2011.
Staggs also will oversee the development of a new theme park in Shanghai — a vital plank in Disney's overall strategy to build a customer base in the world's most populous country — while maintaining a smooth relationship with the Chinese government and avoiding the early stumbles that plagued Disney parks in Paris and Hong Kong.
Disney theme-park executives are under constant pressure to drive more earnings growth, something that is difficult for a business that is already dominant in its industry and that requires spending hundreds of millions of dollars to make meaningful expansions. And what may be the most tempting response — raising prices and cutting expenses — can have disastrous long-term consequences if guests rebel.
"There's an intuitive side that's important for running the [theme-park] business. You have to be able to step away from the pro forma and the numbers at some point," said Matt Ouimet, a former president of Disneyland in Anaheim, Calif. "I think he has the ability to do it."
Staggs will likely lean on the parks' existing management, at least early on, particularly president of worldwide operations Al Weiss. Weiss, a former Disney World president, has spent his entire 37-year career with Disney's parks division and has long been seen as a potential parks chairman himself.
"The theme-park resort experience, I think, is distinctly different than any other division in the company," said Judson Green, who has been both CFO and parks chairman for Disney. "You must genuinely like other people and empathize with other people. And he's clearly capable of doing that."
In a written statement, Staggs pronounced himself "excited and honored" to take on the new role.
"Having worked with the parks for years and experienced the product as a dad, I know and love this business," Staggs said. "I also know there is a great deal more I can learn, and I am fortunate to have such a strong team in place to help me in that process."
Jason Garcia can be reached at 407-420-5414
or jrgarcia@orlandosentinel.com. ictures of kids crying in Santa's lap.
Now, however, Disney's longtime chief financial officer has to do something for the company that he has never done before: actually run one of its businesses.
This week, Staggs formally takes over as chairman of Walt Disney Parks and Resorts, assuming day-to-day responsibility for an $11billion vacation empire with resorts on three continents and nearly 100,000 employees — including 60,000 in Central Florida. He succeeds Jay Rasulo, who is, in turn, taking Staggs' place as CFO in a leadership swap orchestrated by Disney Co.'s president and chief executive officer, Bob Iger.
Although the company has disputed it, the move has been widely interpreted as a sign that Disney is grooming Staggs, 49, to be Iger's eventual successor as CEO. By handing him the keys to its theme parks, Disney is giving Staggs the chance to gain operational experience and plug the one obvious hole in his résumé. But before Staggs can ascend to the top job, he must demonstrate that he can handle a division that generates nearly one-third of Disney's overall revenue.
The challenges are substantial. Profits at Disney's parks have slumped this year amid a recession-driven drop in consumer spending and travel. And the unit is in the midst of its biggest construction spree in years, building a pair of new cruise ships and a Hawaiian resort; expanding parks in Orlando, California and Hong Kong; and planning a new park in Shanghai.
At the same time, Staggs will have to adapt to an unfamiliar role. As CFO, he oversees a relatively narrow circle of financial executives and interacts with Wall Street analysts. As parks chairman, he must rally a global work force that includes everyone from industrial engineers to aspiring actors and must learn the minds of the 118million guests who visit Disney's theme parks each year.
Friends and colleagues say they expect Staggs, a trumpet player with a taste for Italian wine, will succeed.
"I am 100percent confident — 100percent — that he will be fantastic," said Michael Eisner, the former Disney chief executive who promoted Staggs to CFO in 1998.
Disney declined to make Staggs or Iger available for interviews.
Staggs joined Disney in 1990, after the company hired him away from his job as an investment banker at Morgan Stanley. Disney was looking for someone to handle mergers and acquisitions in its strategic-planning department, and it targeted Staggs, who has an undergraduate business degree from the University of Minnesota and an MBA from Stanford University.
He advanced rapidly through strategic planning, which was charged with identifying growth opportunities and scrutinizing the performance of the company's operating divisions. The department was not always well-loved by other Disney managers, some of whom referred to it as "the goon squad," according to the book DisneyWar, which chronicles Eisner's tenure as CEO.
Former executives say Staggs proved a shrewd negotiator who analyzed potential deals carefully and without being clouded by emotion. "He was not a guy who had an ego need to do deals for their own sake," said Larry Murphy, a former chief strategic officer at Disney and Staggs' former boss.
When the company was debating whether to buy the CBS or ABC television networks in 1995, Staggs, according to DisneyWar, argued for the more-expensive ABC deal in part because Disney could gain ABC's 80percent share in the ESPN cable-TV sports network. Disney ultimately bought ABC for $19billion, and ESPN is now one of its most valuable properties.
Former parks-and-resorts executives who worked with Staggs praise him as a financial manager who had the ability to see beyond an idea's bottom-line numbers. Paul Pressler, who was parks chairman before Rasulo, said Staggs supported expanding Disney Cruise Line because he recognized its effect beyond the parks division.
In 1998, Eisner elevated the then-37-year-old Staggs to CFO. The former Disney chief said in a recent interview that Staggs was an invaluable adviser and a "steady force" for the company, particularly through the uncertainty that followed the Sept.11, 2001, terrorist attacks in New York and Washington.
"Every time I had to speak or I had to deal with the finances of the company or I had to appear before an analyst group, my last call before going on stage was always to Tom," Eisner said. The former Disney CEO had such warm feelings for Staggs that he based the family dog in a cartoon show he created for Nickelodeon, Glenn Martin DDS, on Staggs' own dog.
Friends say Staggs' even temperament helped during what may have been the most trying period of his career: the corporate upheaval that erupted in 2003, when the late Roy Disney, nephew of the Walt Disney Co.'s legendary namesake, clashed with Eisner and led a shareholder revolt seeking Eisner's ouster. The prolonged battle ended in 2005, when Eisner stepped down and was replaced by Iger.
It often fell to Staggs to deliver Disney's response to the critical presentations from Roy Disney and others about the company's financial performance, and to defend controversial decisions such as potentially ending the company's relationship with Pixar Animation Studios amid a falling-out between Eisner and Apple Chief Executive Steve Jobs.
"It was incredibly challenging for him," said Richard Nanula, who was Disney CFO before Staggs and who remains close friends with him. But Nanula said Staggs hid the stress well. "Tom never goes too high and never goes too low."
One of the ways Staggs deals with stress: working out, which he does almost daily. "The last time Tom put a carbohydrate in his body was the prior millennium," Nanula said.
Staggs and his wife have three sons, ages 4 through 11. He is said to spend much of his free time with them, including coaching youth basketball. He's also something of an amateur gastronome; Staggs' Beverly Hills home, which is currently being rebuilt, will have multiple varieties of stoves.
People who have talked to him say Staggs was surprised when Iger informed him earlier this year that he wanted him to take over parks and resorts — as were many analysts who follow the company. But Disney has said not to expect overarching strategies to change because of the executive shuffle.
"We all have pretty much bought into the same set of principles as we manage this company," Iger said at an investor conference in New York this month.
Under Rasulo, Walt Disney Parks and Resorts has emphasized growth in international markets and into businesses beyond theme parks, including cruises, time shares and group tours. Rasulo also centralized leadership of Disney's parks, bringing management of Walt Disney World and Disneyland under a single team rather than running them as independent operations.
Staggs already has some familiarity with the business. Because the parks unit sucks up so much of Disney's overall capital spending — building a theme park, after all, is much more expensive than making a movie — Staggs has over the years had to be involved with major decisions at the unit.
"I would characterize Tom as always an enthusiastic supporter of the parks-and-resorts strategy," said Rasulo, who said he has worked closely with Staggs over the years. Rasulo added: "I would think, as you looked back historically, that has not always been the case with" previous financial executives at Disney.
Still, Staggs faces numerous challenges.
In the immediate future, he must engineer a turnaround at Disney's U.S. theme parks by weaning consumers off discounts without sending attendance into a tailspin. Longer term, he will have to successfully incorporate a cruise line that will double in capacity by 2012 and a Hawaiian hotel and time share that will be Disney's first major standalone resort when it opens in 2011.
Staggs also will oversee the development of a new theme park in Shanghai — a vital plank in Disney's overall strategy to build a customer base in the world's most populous country — while maintaining a smooth relationship with the Chinese government and avoiding the early stumbles that plagued Disney parks in Paris and Hong Kong.
Disney theme-park executives are under constant pressure to drive more earnings growth, something that is difficult for a business that is already dominant in its industry and that requires spending hundreds of millions of dollars to make meaningful expansions. And what may be the most tempting response — raising prices and cutting expenses — can have disastrous long-term consequences if guests rebel.
"There's an intuitive side that's important for running the [theme-park] business. You have to be able to step away from the pro forma and the numbers at some point," said Matt Ouimet, a former president of Disneyland in Anaheim, Calif. "I think he has the ability to do it."
Staggs will likely lean on the parks' existing management, at least early on, particularly president of worldwide operations Al Weiss. Weiss, a former Disney World president, has spent his entire 37-year career with Disney's parks division and has long been seen as a potential parks chairman himself.
"The theme-park resort experience, I think, is distinctly different than any other division in the company," said Judson Green, who has been both CFO and parks chairman for Disney. "You must genuinely like other people and empathize with other people. And he's clearly capable of doing that."
In a written statement, Staggs pronounced himself "excited and honored" to take on the new role.
"Having worked with the parks for years and experienced the product as a dad, I know and love this business," Staggs said. "I also know there is a great deal more I can learn, and I am fortunate to have such a strong team in place to help me in that process."
Jason Garcia can be reached at 407-420-5414
or jrgarcia@orlandosentinel.com. ictures of kids crying in Santa's lap.
CALPERS Commercial Real Estate Strategy Led to Large Loss in 2009
By Arleen Jacobius
Pensions & Investment Age
Behind CalPERS' staggering real estate losses lies a strategy that took on too much risk and lacked adequate oversight.
Once the fund's star asset class, the real estate portfolio of the $201.1 billion California Public Employees' Retirement System lost nearly half its value during the one-year period ended Sept. 30. The fund's real estate consultant, Pension Consulting Alliance Inc., predicts losses will continue for at least another year.
At the heart of the problem is a freewheeling approach that took on massive leverage, gave enormous discretion to staff and experienced poor timing with its investments.
The decision-making process and risk management need to be much more rigorous, acknowledged Joseph A. Dear, who joined CalPERS as chief investment officer earlier this year. The control over leverage was not as robust as it needs to be, he added. The system will focus more on income-producing, less risky core investments in the future, he said.
“We're inclined toward investment vehicles where we have control,” Mr. Dear said. “This does not rule out fund investing,” he added.
“Hindsight suggests that a large number of CalPERS' real estate investments were extraordinarily ill-timed and inadequately underwritten,” said Stuart Gabriel, professor of finance and director, UCLA Ziman Center for Real Estate in Los Angeles. Mr. Gabriel is not connected with CalPERS.
In recognition of the portfolio's problems, the CalPERS board has imposed new limits on staff's independent investment authority, system officials are revamping its $13.5 billion portfolio and they might ax some of the fund's roughly 70 external real estate managers. (Already, MacFarlane Partners has resigned its account after a nearly $1 billion failed land deal.)
What went wrong?
Just more than two years ago, CalPERS' real estate portfolio was valued at $20.1 billion and staff estimated it would grow to $30 billion over the next five years.
What went awry? In the first half of this decade, when the real estate market was soaring, CalPERS began selling off its least risky, higher-income-producing core properties and shifting the portfolio emphasis to non-core, riskier investments. In particular, the system went after value-added real estate, taking on a bit more risk in the major property types, hotels, student and senior housing, and investing in opportunistic transactions, those taking on the most risk and leverage, according to CalPERS' 2007 strategic plan for real estate.
Some 61% of the portfolio now is in non-core investments as of June 30, the most current information available. So far, some of these strategies have been the worst performers. For example, the system's California Urban Real Estate portfolio lost 40.9% for the quarter and 56.7% for the year, ended June 30. Senior housing dropped 68.2% for the quarter and 71.9% for the year. Article continues at
For information on how you can reduce your commercial real estate lease obligations please visit www.commercialleaseterminations.com
Pensions & Investment Age
Behind CalPERS' staggering real estate losses lies a strategy that took on too much risk and lacked adequate oversight.
Once the fund's star asset class, the real estate portfolio of the $201.1 billion California Public Employees' Retirement System lost nearly half its value during the one-year period ended Sept. 30. The fund's real estate consultant, Pension Consulting Alliance Inc., predicts losses will continue for at least another year.
At the heart of the problem is a freewheeling approach that took on massive leverage, gave enormous discretion to staff and experienced poor timing with its investments.
The decision-making process and risk management need to be much more rigorous, acknowledged Joseph A. Dear, who joined CalPERS as chief investment officer earlier this year. The control over leverage was not as robust as it needs to be, he added. The system will focus more on income-producing, less risky core investments in the future, he said.
“We're inclined toward investment vehicles where we have control,” Mr. Dear said. “This does not rule out fund investing,” he added.
“Hindsight suggests that a large number of CalPERS' real estate investments were extraordinarily ill-timed and inadequately underwritten,” said Stuart Gabriel, professor of finance and director, UCLA Ziman Center for Real Estate in Los Angeles. Mr. Gabriel is not connected with CalPERS.
In recognition of the portfolio's problems, the CalPERS board has imposed new limits on staff's independent investment authority, system officials are revamping its $13.5 billion portfolio and they might ax some of the fund's roughly 70 external real estate managers. (Already, MacFarlane Partners has resigned its account after a nearly $1 billion failed land deal.)
What went wrong?
Just more than two years ago, CalPERS' real estate portfolio was valued at $20.1 billion and staff estimated it would grow to $30 billion over the next five years.
What went awry? In the first half of this decade, when the real estate market was soaring, CalPERS began selling off its least risky, higher-income-producing core properties and shifting the portfolio emphasis to non-core, riskier investments. In particular, the system went after value-added real estate, taking on a bit more risk in the major property types, hotels, student and senior housing, and investing in opportunistic transactions, those taking on the most risk and leverage, according to CalPERS' 2007 strategic plan for real estate.
Some 61% of the portfolio now is in non-core investments as of June 30, the most current information available. So far, some of these strategies have been the worst performers. For example, the system's California Urban Real Estate portfolio lost 40.9% for the quarter and 56.7% for the year, ended June 30. Senior housing dropped 68.2% for the quarter and 71.9% for the year. Article continues at
For information on how you can reduce your commercial real estate lease obligations please visit www.commercialleaseterminations.com
Monday, December 28, 2009
Small Banks May Have A Tough Year in 2010
The New Year is shaping up to be a rough one for community lenders.
By Colin Barr
Senior Editor
Fortune Magazine
Dozens if not hundreds of small banks figure to disappear in 2010, as a weak economy and regulatory pressure lead to more failures and mergers.
President Obama met Tuesday with eight community bank executives, including the chiefs of German American Bancorp (GABC) and Monadnock Bancorp. Obama hailed the bankers as playing a "vital function," and cited "enormous opportunities" for economic growth if they keep lending.
The community bankers surely made for a more receptive audience than the big-bank CEOs Obama addressed last week. Small-business lending, after all, is what smaller banks do best. The Independent Community Bankers of America trade group notes that community banks account for almost a third of small business loans under $1 million.
But the smallest banks have been dropping like flies for years, as they labor to master expensive new technologies and regulatory changes -- at a time when giant banks spawned in a rash of megamergers are expanding their reach.
The consolidation trend should only strengthen in the coming year. Dozens of banks will fail as their customers retrench in a weak economy. Meanwhile, regulators will keep pressuring bankers to lend cautiously -- prompting weaker banks to merge into stronger ones as growth remains elusive.
"A lot of the regional and community banks are going to struggle to remain independent," said Terry Moore, a managing director at Accenture. "We're going to see those numbers shrinking."
They have shrunk a lot already. The number of commercial banks with assets of $50 million or less has dropped by more than 3,600 since 1994, to 1,198, according to recent Federal Deposit Insurance Corp. data.
At the same time, the deposits held by the biggest banks have soared, following years of megamergers punctuated by last year's bailouts. The five biggest banks -- Bank of America (BAC, Fortune 500), Wells Fargo (WFC, Fortune 500), JPMorgan Chase (JPM, Fortune 500), Citi and PNC (PNC, Fortune 500) -- held 37% of all deposits at June 30. That's triple the top five's share 15 years ago, according to the FDIC.
Questions about concentration at the top of the industry have been intensified by a steady drumbeat of small bank failures. This year has brought 140 bank failures, and nearly four times as many institutions are now classified by regulators as troubled -- meaning failures in 2010 are likely to reach into triple digits again.
Given those daunting numbers, the FDIC appears to be focusing on closing weak banks rather than luring in new capital from the likes of private equity investors.
Yet at the same time, even troubled megabanks such as Citi have been able to raise staggering sums in the marketplace, in part because it has become clear the government won't let them fail. This apparent disconnect chafes some observers who say private investors could be helping to rebuild small banks.
"What Citi tells you is there are enormous pools of capital willing to take risk, given the right circumstances," said Hal Reichwald, a lawyer at Manatt Phelps & Phillips in Los Angeles who represents investors.
With tens of billions of dollars of souring construction and commercial real estate loans on their books, regional and community banks could use some of that capital. But the weak economy and the wave of bank failures have made it hard for smaller banks to raise new funds.
Of course, economic stress spells opportunity for stronger community banks. Ted Peters, CEO of Bryn Mawr Bank Corp. (BMTC) in suburban Philadelphia, said he sees the wide-open merger landscape in financial services as "a once-in-a-career opportunity" for him and his $1.2 billion firm.
Bryn Mawr agreed last month to acquire First Keystone Financial, a Media, Pa., savings bank, and Peters said he's considering possible tie-ups with investment firms and other financial institutions.
Peters said the fact that community banks didn't help blow up the economy with derivatives has resonated with lawmakers and now creates another selling point with customers.
"Right now, the big banks are being portrayed as the bad guys and the other 8,100 banks are being seen as the good guys," he said.
He expects this perception to enable his bank to continue to grab market share over the next year. But he isn't expecting any miracles.
For instance, Obama pledged Tuesday, in response to complaints from the Independent Community Bankers of America about heavy-handed regulation, to "see if there are possibilities to cut some of the red tape."
But Peters remains skeptical. "I've been a bank president for 25 years, and I'm still waiting for them to cut red tape for the first time," he said.
Bank CFOs should look to their branch locations for savings through real estate Lease Terminations or Buyouts. Financial Institutions employing this strategy have saved millions of dollars in lease obligations. An expert in this field is Cambridge Consulting Group. For a white paer onthis subject please go to www.commercialleaseterminations.com
By Colin Barr
Senior Editor
Fortune Magazine
Dozens if not hundreds of small banks figure to disappear in 2010, as a weak economy and regulatory pressure lead to more failures and mergers.
President Obama met Tuesday with eight community bank executives, including the chiefs of German American Bancorp (GABC) and Monadnock Bancorp. Obama hailed the bankers as playing a "vital function," and cited "enormous opportunities" for economic growth if they keep lending.
The community bankers surely made for a more receptive audience than the big-bank CEOs Obama addressed last week. Small-business lending, after all, is what smaller banks do best. The Independent Community Bankers of America trade group notes that community banks account for almost a third of small business loans under $1 million.
But the smallest banks have been dropping like flies for years, as they labor to master expensive new technologies and regulatory changes -- at a time when giant banks spawned in a rash of megamergers are expanding their reach.
The consolidation trend should only strengthen in the coming year. Dozens of banks will fail as their customers retrench in a weak economy. Meanwhile, regulators will keep pressuring bankers to lend cautiously -- prompting weaker banks to merge into stronger ones as growth remains elusive.
"A lot of the regional and community banks are going to struggle to remain independent," said Terry Moore, a managing director at Accenture. "We're going to see those numbers shrinking."
They have shrunk a lot already. The number of commercial banks with assets of $50 million or less has dropped by more than 3,600 since 1994, to 1,198, according to recent Federal Deposit Insurance Corp. data.
At the same time, the deposits held by the biggest banks have soared, following years of megamergers punctuated by last year's bailouts. The five biggest banks -- Bank of America (BAC, Fortune 500), Wells Fargo (WFC, Fortune 500), JPMorgan Chase (JPM, Fortune 500), Citi and PNC (PNC, Fortune 500) -- held 37% of all deposits at June 30. That's triple the top five's share 15 years ago, according to the FDIC.
Questions about concentration at the top of the industry have been intensified by a steady drumbeat of small bank failures. This year has brought 140 bank failures, and nearly four times as many institutions are now classified by regulators as troubled -- meaning failures in 2010 are likely to reach into triple digits again.
Given those daunting numbers, the FDIC appears to be focusing on closing weak banks rather than luring in new capital from the likes of private equity investors.
Yet at the same time, even troubled megabanks such as Citi have been able to raise staggering sums in the marketplace, in part because it has become clear the government won't let them fail. This apparent disconnect chafes some observers who say private investors could be helping to rebuild small banks.
"What Citi tells you is there are enormous pools of capital willing to take risk, given the right circumstances," said Hal Reichwald, a lawyer at Manatt Phelps & Phillips in Los Angeles who represents investors.
With tens of billions of dollars of souring construction and commercial real estate loans on their books, regional and community banks could use some of that capital. But the weak economy and the wave of bank failures have made it hard for smaller banks to raise new funds.
Of course, economic stress spells opportunity for stronger community banks. Ted Peters, CEO of Bryn Mawr Bank Corp. (BMTC) in suburban Philadelphia, said he sees the wide-open merger landscape in financial services as "a once-in-a-career opportunity" for him and his $1.2 billion firm.
Bryn Mawr agreed last month to acquire First Keystone Financial, a Media, Pa., savings bank, and Peters said he's considering possible tie-ups with investment firms and other financial institutions.
Peters said the fact that community banks didn't help blow up the economy with derivatives has resonated with lawmakers and now creates another selling point with customers.
"Right now, the big banks are being portrayed as the bad guys and the other 8,100 banks are being seen as the good guys," he said.
He expects this perception to enable his bank to continue to grab market share over the next year. But he isn't expecting any miracles.
For instance, Obama pledged Tuesday, in response to complaints from the Independent Community Bankers of America about heavy-handed regulation, to "see if there are possibilities to cut some of the red tape."
But Peters remains skeptical. "I've been a bank president for 25 years, and I'm still waiting for them to cut red tape for the first time," he said.
Bank CFOs should look to their branch locations for savings through real estate Lease Terminations or Buyouts. Financial Institutions employing this strategy have saved millions of dollars in lease obligations. An expert in this field is Cambridge Consulting Group. For a white paer onthis subject please go to www.commercialleaseterminations.com
Thursday, December 24, 2009
New CFO Named at Carrollton Bancorp
Carrollton Bancorp, (NASDAQ: CRRB) the parent company of Carrollton Bank has announced the appointment of Mr. Mark A. Semanie as the Senior Vice President/Chief Financial Officer effective January 4, 2010.
Mr. Semanie brings a wealth of experience in the banking industry to Carrollton Bancorp and Carrollton Bank and will serve as the top financial officer and as a member of the executive team of Carrollton Bancorp and Carrollton Bank.
Mr. Robert A. Altieri, President and Chief Executive Officer, stated that “Mark will be a key member of our team as we continue to work to build a major community banking presence in the Baltimore region.”
Mr. Altieri and Mr. Albert R. Counselman, Chairman of the Board of Directors also extend their deep appreciation to Mr. Francis X. Ryan, member of the board who served as Interim CFO during the latter part of the fourth quarter. Mr. Ryan returns solely to the Board of Directors.
Carrollton Bancorp is the parent company of Carrollton Bank, a commercial bank serving the deposit and financing needs of both consumers and businesses through a system of 11 branch offices in central Maryland. The Company provides brokerage services through Carrollton Financial Services, Inc., and mortgage services through Carrollton Mortgage Services, Inc., subsidiaries of the Bank.
CFO Best Practice Sponsor:Unused or under-utilized Real Estate can be a tremendous drain on cash positions and profits for companies and institutions. CFOs have options beyond subleasing. A Negotiated lease buyout has saved financial institutions millions of dollars. For more information please go to www.commercialleaseterminations.com
Mr. Semanie brings a wealth of experience in the banking industry to Carrollton Bancorp and Carrollton Bank and will serve as the top financial officer and as a member of the executive team of Carrollton Bancorp and Carrollton Bank.
Mr. Robert A. Altieri, President and Chief Executive Officer, stated that “Mark will be a key member of our team as we continue to work to build a major community banking presence in the Baltimore region.”
Mr. Altieri and Mr. Albert R. Counselman, Chairman of the Board of Directors also extend their deep appreciation to Mr. Francis X. Ryan, member of the board who served as Interim CFO during the latter part of the fourth quarter. Mr. Ryan returns solely to the Board of Directors.
Carrollton Bancorp is the parent company of Carrollton Bank, a commercial bank serving the deposit and financing needs of both consumers and businesses through a system of 11 branch offices in central Maryland. The Company provides brokerage services through Carrollton Financial Services, Inc., and mortgage services through Carrollton Mortgage Services, Inc., subsidiaries of the Bank.
CFO Best Practice Sponsor:Unused or under-utilized Real Estate can be a tremendous drain on cash positions and profits for companies and institutions. CFOs have options beyond subleasing. A Negotiated lease buyout has saved financial institutions millions of dollars. For more information please go to www.commercialleaseterminations.com
The IPO Market May Be Back in 2010-CFO.com
As the new year approaches, finance chiefs at young firms are hoping for a revival in the long-depressed market for initial public offerings. There have been some positive signs of late: 32 IPOs have been launched in the current quarter through December 16, more than 10 times the volume of last year's final months. But weakness remains: seven companies pulled their offerings in the quarter because of lack of interest, and five of the six stocks that debuted in December priced below expectations.
In this skittish market, confidence in a company's ability to hit its numbers is more important than ever when thinking about going public, said Benjamin Nye, a managing director at Bain Capital Ventures and one of five dealmakers participating in a recent Directors' Roundtable panel discussion on evaluating IPOs. "Missing your first quarter out of the box sets you up for capital punishment in the market," he said. "If you don't have visibility into the business, don't go public."
John McCarthy, finance chief at biotech company Microbia and a fellow panelist, agreed that managing investors' expectations is "paramount." Yet providing reliable guidance is often challenging for a young business, and has only grown more so in today's volatile market, he added.
Setting reasonable expectations is critical from the earliest stages of the IPO process, concurred the panelists. Bruce Armstrong, a managing director at private-equity firm TA Associates, said it can be challenging to work with management teams to determine a company's value prior to a public offering. "It's easy for people who are very tied up in a business personally to want to believe in a higher valuation, but they're setting themselves up to fail," he said. "If you go out high, it's hard to meet those expectations."
"You're always going to get credit from Wall Street if you underpromise and overdeliver," added Marc Thompson, head of software investment banking at Oppenheimer & Co. "If you forecast 40% top-line growth, you may not necessarily get credit for all of that, but then you're under pressure to deliver it."
Aricle continues at cfo.com- click here
In this skittish market, confidence in a company's ability to hit its numbers is more important than ever when thinking about going public, said Benjamin Nye, a managing director at Bain Capital Ventures and one of five dealmakers participating in a recent Directors' Roundtable panel discussion on evaluating IPOs. "Missing your first quarter out of the box sets you up for capital punishment in the market," he said. "If you don't have visibility into the business, don't go public."
John McCarthy, finance chief at biotech company Microbia and a fellow panelist, agreed that managing investors' expectations is "paramount." Yet providing reliable guidance is often challenging for a young business, and has only grown more so in today's volatile market, he added.
Setting reasonable expectations is critical from the earliest stages of the IPO process, concurred the panelists. Bruce Armstrong, a managing director at private-equity firm TA Associates, said it can be challenging to work with management teams to determine a company's value prior to a public offering. "It's easy for people who are very tied up in a business personally to want to believe in a higher valuation, but they're setting themselves up to fail," he said. "If you go out high, it's hard to meet those expectations."
"You're always going to get credit from Wall Street if you underpromise and overdeliver," added Marc Thompson, head of software investment banking at Oppenheimer & Co. "If you forecast 40% top-line growth, you may not necessarily get credit for all of that, but then you're under pressure to deliver it."
Aricle continues at cfo.com- click here
Saturday, December 19, 2009
Impact of Changes to Lease Accounting
By Sarah Johnson-CFO Magazine
Leasing is one convergence project that some U.S. finance executives are eyeing very warily. All signs are that a revamped global standard, expected in 2011, would require companies to capitalize assets that have traditionally fallen under the operating-lease classification, and hence could be recorded off the balance sheet. The result: companies that lease would appear more highly leveraged.
"The ability to do any financial engineering, which [the Financial Accounting Standards Board and the International Accounting Standards Board] are very afraid of, will be severely diminished," says Bill Bosco, who consults for the Equipment Leasing and Financing Association and sits on the International Working Group on Lease Accounting for the two boards. "All leases will be on the balance sheet."
In a paper released earlier this year, FASB and the IASB indicated that, rather than distinguish between capital and operating leases, companies should instead think about their "right to use" a leased item, be it plant, property, or equipment. Lessees would record that right as an asset, and their obligation to pay future rental installments as a liability.
Lessors would, in turn, record a liability for their commitment to lend an item and temporarily give up their right to use it. The thinking is that lessors need to account for the item because they still retain control of it; their right to receive rental payments would be recorded as an asset.
Executives in certain industries, particularly airlines, railroads, and retail, may be heartened by the boards' recent decision to exclude certain leases from the final standard, an exception that many of those executives pushed for. Lease contracts that are effectively purchases — in which an item is financed for ownership — would be scoped out of the new standard. But the boards have yet to explain exactly how companies would determine how those leases are defined.
The changes apparently won't deter CFOs from using leases. In a survey of more than 800 CFOs and controllers in late September and early October, 59% of respondents told Grant Thornton they would continue to use leases or lease financing the same way they do now.
NexMed, Inc. a specialty CRO and a developer of products based on the NexACT(R) technology, announced that it has signed an agreement to lease its facility in East Windsor, NJ, commencing February 1, 2010. The lease agreement also contains an option to purchase the facility during the term of the lease.
Commenting on the news, NexMed's Chief Financial Officer, Mark Westgate, said, "In light of our announcement earlier this week regarding the closing of the Bio-Quant acquisition, the timing is ideal, as we move our headquarters from New Jersey to San Diego. Additionally, the monthly rental payment will more than cover the existing debt service on our mortgage, thus making this a cash positive transaction. Further, the initial purchase option price which we have negotiated, of $4.4 million, is approximately $1.4 million above the existing debt on our building."
Managing commercial real estate is an important asset for any corporation. Real estate decisions impact the bottom line and a company's ability to re-deploy this capital to align with core company strategies. CFOs should consult with experts who are experienced and independent of landlords and commercial real estate brokers. For more information on the complete range of options you have to monetize your commercial real estate leases and buildings please visit www.commercialleaseterminations.com
Rite Aid CFO Comments on Store Closings
Drugstore operator Rite Aid Corp. has been working to improve store performance and cut debt. The Camp Hill, Pa., company said Thursday it closed 14 stores in its fiscal third quarter, leaving it with 4,801 at the end of November.
Rite Aid has closed 116 stores so far this year and plans to shut 134 in fiscal 2010, which ends in February. CFO Frank Vitrano discussed the closures in a conference call with analysts Thursday.
QUESTION: Do you have a rough number on the amount of stores you plan to close next year? What are your new store plans for fiscal 2011?
RESPONSE: We're still fine tuning that. In terms of the overall store closing, what we closed this year would probably be on the high end of what we would expect to close next year. And on the next call, we'll give some more color around what the new and relocated store program is going to look at.
Copyright 2009 The Associated PressEli Lilly and Co. CFO Gets Expanded Duties
Drugmaker Eli Lilly and Co. said Friday that Chief Financial Officer Derica Rice will take on new management responsibilities as executive vice president for global services.
Rice, who joined the company in 1990, will continue to handle the company's finances and add responsibility for global services, including information technology and quality control.
Prior to becoming Lilly's CFO in 2006, Rice had been a vice president and controller since 2003.
Shares of Eli Lilly added 28 cents to $35.74 in morning trading.
Cost Savings on Office Space Has Some Drawbacks
By Sarah Needleman
Wall Street Journal
The office cubicle is shrinking, along with workers' sense of privacy.
Many employers are trimming the space allotted for each worker. The trend has accelerated during the recession as employers seek to cut costs and boost productivity.
"The majority of our clients are moving in the direction of reducing the amount of personal, or what we like to call 'me' space," says Tom Polucci, group vice president and director of interior design for HOK Group Inc., a global architecture and design firm.
He says new workstations designed by HOK average 48 square feet, down from 64 square feet about five years ago. Partitions between cubicles also are shrinking, to 4 feet high or less, from 5 feet high.
Rivals Stantec Inc., DEGW, Mancini Duffy and M. Arthur Gensler Jr. & Associates Inc. report similar findings. They say companies of varying sizes in multiple industries are reducing per-employee office space by as much as 50%, and their total footprint by as much as 25%.
Some companies are removing cubicle walls to create open floor plans. Others are eliminating assigned workspaces for employees who primarily work off campus or spend most of their time in meetings. At any given time, Gensler estimates that 60% of employees are away from their desks.
In September 2008, MetLife Inc. moved roughly 1,200 employees to a 300,000-square-foot office in Manhattan, 25% smaller than their previous 400,000-square-foot building in Long Island City, N.Y. Cubicles are 40 square feet, down from 64; offices are 100 square feet, down from 150. Common areas such as conference rooms and lounges increased by about 20%, and roughly 300 employees no longer have assigned desks. "We'll find them a place to work and get connected," says John Vazquez, the insurer's vice president of corporate services.
With help from Gensler, MetLife sought to make the smaller workspaces more useful. Mehmet Ozpay, a MetLife assistant vice president, says his new 100-square-foot office feels roomier than his old space because it offers more storage and has glass walls.
"It promotes more interaction," Mr. Ozpay says, adding that mostly solid panels had blocked views in or out of his old office. "If [co-workers] see that you're not immersed in a conference call, they can walk in or make a hand signal to ask if you're busy."
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CFO Best Practice Sponsor:Unused or under-utilized Real Estate can be a tremendous drain on cash positions and profits for comapnies and institutions. CFOs have options beyond subleasing. A Negotiated lease buyout has saved financial institutions millions of dollars. For more information please go to www.commercialleaseterminations.com
Wednesday, December 16, 2009
Recession Creates Opportunity to Negotiate Real Estate Leases
By Rob Reuteman
FOXBusiness
Which came first: the small business or the landlord? More to the point: who needs whom more? Thanks to the recession, today it’s a little too close to call.
Paul Chapman, who owns 14 commercial properties in Las Vegas, put it bluntly.
“Small business is the only customer in commercial real estate today,” Chapman said. “The big names aren’t making any moves, so small business has become our life blood.”
Across the country, commercial real estate prices have dropped 37% since September 2008 and 42% since their peak in October 2007, according to Moody’s investor services company. The commercial property price index hasn't been this low since 2002, and that’s built a lot of room for negotiating between tenant and landlord.
“I am no longer the big, bad landlord,” Chapman said. “This is a mutual relationship. If these tenants don’t succeed, it will take me months to find another. And quite frankly, I do not have the liquid capital to float these properties for months on end with no tenants.”
related links
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Post-Recession Landscape of Small Business-Landlord Relations
"Retention is the key," said Sherman Miller, a regional manager for commercial broker Cushman & Wakefield, which operates 100 U.S. offices. "It's a lot easier to keep a client than to find a new one."
C&W might lower lease rates for existing tenants, or pay for tenant improvements, Miller said.
"If a tenant moves out, you may be looking at a year of down time for the property, and then you have to renovate the space for a new tenant," he said.
Some smaller landlords, dealing with less volume than a big national broker, haven’t been quite as generous.
David Finkel, who owns commercial buildings in North Carolina, Texas and Colorado, said he deals "daily" with tenants who want lower leases and other recessionary givebacks.
"We're offering strong tenant improvement incentives," Finkel said. "But lowering rents - we're fighting it tooth and nail. If we make concessions, we're making sure we build in escalations over the next two to three years. And we're only doing that of a lease is near expiration. If not, we're holding the line."
With new tenants, Finkel is keeping lease rates high in order to improve the valuation of his properties. But he's offering new tenants more improvements and "in some cases -- if it's a great tenant or a really tough lease to get -- some free rent periods."
On the other hand, Howard Ecker + Company, a national tenant representative firm with offices in Chicago, Denver, New York, Charleston, Miami and Detroit, reports seeing “a substantial increase in tenants who are able to renegotiate lease terms on existing leases with as many as five or more years remaining.”
No question, the nationwide credit crunch is putting the squeeze on landlords as well as their tenants.
“Landlords are stressed because they often are not getting the rent receipts required to meet their cash flow requirements,” said Howard Gelt, a real-estate attorney at Polsinelli Shughart, a firm with 470 attorneys in 13 cities. “They are being squeezed like everyone else -- either about to lose or have lost all their equity in the property, ready to file their own bankruptcy.
“Tenants are squeezed because of lower staffing as a result of layoffs, making part of their rental space of no value,” Gelt added. “Some are close to bankruptcy, others are just moving out and letting the landlords try to pursue them.”
In Napa, Calif., downtown rents have dropped an average of 20 percent, estimated Cathy Holmes, a commercial agent with Coldwell Banker.
Rebecca Lee, who owns a half block near Napa Creek, has been trying to fill two vacancies -- one for a year -- in her landmark stone buildings.
“It’s not that people don’t have ideas about what they want to do, but when they go to their banker, they have handcuffs put on,” she told the Napa Valley Register.
So Lee has lowered rents to keep existing tenants. “It’s ‘share the pain,’ I guess. I’d rather have rates lowered than shut the door,” she said.
"Everybody is asking for a rent reduction," said Cal Evans Jr., a loan administrator at AFB&T, an Athens, Ga.-based bank with operations in eight states.
For small-business landlords, Evans said, the rent reductions may the best option to keep tenants from moving to cheaper, vacant space. "It is a renter's or buyer's market," he told the Augusta Chronicle last month.
Mall tenants also are asking for rent reductions, said John Gibson, president of Augusta, Ga.-based mall owner Hull Storey Gibson Co., which owns 17 malls in the Southeast. But his company is adhering strictly to contracts, Gibson said, considering such requests only as a tenant reaches the end of their lease.
In good times, tenants didn’t offer to pay higher rent, he said.
Indeed, every situation is different, said Miller of Cushman & Wakefield: "You're not going to do a negative net deal for anyone. You can't cut a new deal for a tenant if your cash flow is not at least covering your debt service.”
In New York City, Councilman Robert Jackson is stirring controversy with his proposed Small Business Survival Act, a bill that would impose new restrictions to commercial landlords and reshape commercial renting in the city.
Under Jackson’s proposal, all businesses with less than 100 employees -- retail or office -- would have the ability to go to arbitration with their landlords if they feel a proposed rent is unfair. Jackson’s purported aim is to slow the rapid turnover of storefronts in gentrifying neighborhoods, and decrease the number of newly-vacant fronts citywide.
NYC Council Speaker Christine Quinn said she thinks the bill is “not within the Council’s powers” and will be thrown out by the courts, and should not be approved. The Bloomberg administration opposes the measure, as does the real-estate industry, which says that any curbs to the ability of building owners to set market-based rents will be disastrous.
As a countermeasure, Quinn’s staff proposes legislation that would create a tax break for smaller retail tenants and add incentives for landlords to renew leases of small businesses.
Just outside New York City, the tension seems to lessen. Sean O’Neil, who runs the One to One Leadership consultancy in Westchester County, New York, reports an unexpectedly pleasant experience with his landlord.
"When my lease renewed recently, I noticed that my landlord reduced my rent without my ever raising the thought of it,” O’Neil said. “First time I had heard of that. When I thanked him for it, he replied, 'Hey, it’s the right thing to do.'”
But few small businesses can likely match the benevolence shown to Shannon Ninburg, proprietor of Eye Can Art, an arts and crafts studio for kids in Seattle’s Georgetown neighborhood.
“We moved from a partner's basement into our current location in September 2008,” Ninburg said. “When we asked our landlord how much rent would be, he told us we could start paying him when we got on our feet financially.”
Since profitability still eludes Ninburg, she is keeping her landlord happy with a constant stream of cookies and bread she and her partners bake.
Another innovative solution to landlord-tenant tension comes from outside rural Waterford, Ohio, where Susie and Lyndon Little are wholesalers of organic and sustainable products made by a collective of families in the region. (See photo above)
“Our landlord would not give us a break when things got a little tighter, so we went out and bought a building that was in foreclosure,” Susie Little said. “I am so glad we did. We spend less on electricity, gas and rent and will own the building in four years.”
Small business needs to think outside the box, she said.
“There are other options out there and staying with the norm is not necessary in this economy.”
(Rob Reuteman is a freelance journalist based in Denver where he was longtime business editor of the Rocky Mountain News.)For article please go to Fox Business Small Business
CFO Best Practice Sponsor:Unused or under-utilized Real Estate can be a tremendous drain on cash positions and profits for financial institutions. Bank CFOs have options beyond subleasing. A Negotiated lease buyout has saved financial institutions millions of dollars. For more information please go to www.commercialleasetermiations.com
FOXBusiness
Which came first: the small business or the landlord? More to the point: who needs whom more? Thanks to the recession, today it’s a little too close to call.
Paul Chapman, who owns 14 commercial properties in Las Vegas, put it bluntly.
“Small business is the only customer in commercial real estate today,” Chapman said. “The big names aren’t making any moves, so small business has become our life blood.”
Across the country, commercial real estate prices have dropped 37% since September 2008 and 42% since their peak in October 2007, according to Moody’s investor services company. The commercial property price index hasn't been this low since 2002, and that’s built a lot of room for negotiating between tenant and landlord.
“I am no longer the big, bad landlord,” Chapman said. “This is a mutual relationship. If these tenants don’t succeed, it will take me months to find another. And quite frankly, I do not have the liquid capital to float these properties for months on end with no tenants.”
related links
*
Post-Recession Landscape of Small Business-Landlord Relations
"Retention is the key," said Sherman Miller, a regional manager for commercial broker Cushman & Wakefield, which operates 100 U.S. offices. "It's a lot easier to keep a client than to find a new one."
C&W might lower lease rates for existing tenants, or pay for tenant improvements, Miller said.
"If a tenant moves out, you may be looking at a year of down time for the property, and then you have to renovate the space for a new tenant," he said.
Some smaller landlords, dealing with less volume than a big national broker, haven’t been quite as generous.
David Finkel, who owns commercial buildings in North Carolina, Texas and Colorado, said he deals "daily" with tenants who want lower leases and other recessionary givebacks.
"We're offering strong tenant improvement incentives," Finkel said. "But lowering rents - we're fighting it tooth and nail. If we make concessions, we're making sure we build in escalations over the next two to three years. And we're only doing that of a lease is near expiration. If not, we're holding the line."
With new tenants, Finkel is keeping lease rates high in order to improve the valuation of his properties. But he's offering new tenants more improvements and "in some cases -- if it's a great tenant or a really tough lease to get -- some free rent periods."
On the other hand, Howard Ecker + Company, a national tenant representative firm with offices in Chicago, Denver, New York, Charleston, Miami and Detroit, reports seeing “a substantial increase in tenants who are able to renegotiate lease terms on existing leases with as many as five or more years remaining.”
No question, the nationwide credit crunch is putting the squeeze on landlords as well as their tenants.
“Landlords are stressed because they often are not getting the rent receipts required to meet their cash flow requirements,” said Howard Gelt, a real-estate attorney at Polsinelli Shughart, a firm with 470 attorneys in 13 cities. “They are being squeezed like everyone else -- either about to lose or have lost all their equity in the property, ready to file their own bankruptcy.
“Tenants are squeezed because of lower staffing as a result of layoffs, making part of their rental space of no value,” Gelt added. “Some are close to bankruptcy, others are just moving out and letting the landlords try to pursue them.”
In Napa, Calif., downtown rents have dropped an average of 20 percent, estimated Cathy Holmes, a commercial agent with Coldwell Banker.
Rebecca Lee, who owns a half block near Napa Creek, has been trying to fill two vacancies -- one for a year -- in her landmark stone buildings.
“It’s not that people don’t have ideas about what they want to do, but when they go to their banker, they have handcuffs put on,” she told the Napa Valley Register.
So Lee has lowered rents to keep existing tenants. “It’s ‘share the pain,’ I guess. I’d rather have rates lowered than shut the door,” she said.
"Everybody is asking for a rent reduction," said Cal Evans Jr., a loan administrator at AFB&T, an Athens, Ga.-based bank with operations in eight states.
For small-business landlords, Evans said, the rent reductions may the best option to keep tenants from moving to cheaper, vacant space. "It is a renter's or buyer's market," he told the Augusta Chronicle last month.
Mall tenants also are asking for rent reductions, said John Gibson, president of Augusta, Ga.-based mall owner Hull Storey Gibson Co., which owns 17 malls in the Southeast. But his company is adhering strictly to contracts, Gibson said, considering such requests only as a tenant reaches the end of their lease.
In good times, tenants didn’t offer to pay higher rent, he said.
Indeed, every situation is different, said Miller of Cushman & Wakefield: "You're not going to do a negative net deal for anyone. You can't cut a new deal for a tenant if your cash flow is not at least covering your debt service.”
In New York City, Councilman Robert Jackson is stirring controversy with his proposed Small Business Survival Act, a bill that would impose new restrictions to commercial landlords and reshape commercial renting in the city.
Under Jackson’s proposal, all businesses with less than 100 employees -- retail or office -- would have the ability to go to arbitration with their landlords if they feel a proposed rent is unfair. Jackson’s purported aim is to slow the rapid turnover of storefronts in gentrifying neighborhoods, and decrease the number of newly-vacant fronts citywide.
NYC Council Speaker Christine Quinn said she thinks the bill is “not within the Council’s powers” and will be thrown out by the courts, and should not be approved. The Bloomberg administration opposes the measure, as does the real-estate industry, which says that any curbs to the ability of building owners to set market-based rents will be disastrous.
As a countermeasure, Quinn’s staff proposes legislation that would create a tax break for smaller retail tenants and add incentives for landlords to renew leases of small businesses.
Just outside New York City, the tension seems to lessen. Sean O’Neil, who runs the One to One Leadership consultancy in Westchester County, New York, reports an unexpectedly pleasant experience with his landlord.
"When my lease renewed recently, I noticed that my landlord reduced my rent without my ever raising the thought of it,” O’Neil said. “First time I had heard of that. When I thanked him for it, he replied, 'Hey, it’s the right thing to do.'”
But few small businesses can likely match the benevolence shown to Shannon Ninburg, proprietor of Eye Can Art, an arts and crafts studio for kids in Seattle’s Georgetown neighborhood.
“We moved from a partner's basement into our current location in September 2008,” Ninburg said. “When we asked our landlord how much rent would be, he told us we could start paying him when we got on our feet financially.”
Since profitability still eludes Ninburg, she is keeping her landlord happy with a constant stream of cookies and bread she and her partners bake.
Another innovative solution to landlord-tenant tension comes from outside rural Waterford, Ohio, where Susie and Lyndon Little are wholesalers of organic and sustainable products made by a collective of families in the region. (See photo above)
“Our landlord would not give us a break when things got a little tighter, so we went out and bought a building that was in foreclosure,” Susie Little said. “I am so glad we did. We spend less on electricity, gas and rent and will own the building in four years.”
Small business needs to think outside the box, she said.
“There are other options out there and staying with the norm is not necessary in this economy.”
(Rob Reuteman is a freelance journalist based in Denver where he was longtime business editor of the Rocky Mountain News.)For article please go to Fox Business Small Business
CFO Best Practice Sponsor:Unused or under-utilized Real Estate can be a tremendous drain on cash positions and profits for financial institutions. Bank CFOs have options beyond subleasing. A Negotiated lease buyout has saved financial institutions millions of dollars. For more information please go to www.commercialleasetermiations.com
Tuesday, December 15, 2009
CFO Should Consider IT Zero Based-Budgeting
During the economic downturn, companies have trimmed their information-technology spending by holding off on purchases and retooling existing systems to squeeze out extra efficiency. But an additional chunk of savings could be realized merely by revamping the IT-budgeting process.
How much could be saved by better budgeting? In some cases, more than 10% of the pie, according to the CIO Executive Board, a networking and research group run by the Corporate Executive Board.
Related Articles
* CFOs to CIOs: Get Real
* Flat Chance
* Faint Pulse Detected in IT Spending Plans
* Reaching Deeper for Savings
The CIO Executive Board created a model of best budgeting practices, based on a survey of 200 of its member IT executives about their budget planning for this year. It then compared the model with practices employed by companies at the other end of the efficiency spectrum to determine potential savings.
The group estimated that some companies wasted 5% to 9% of their 2009 IT spending in missed cost-cutting opportunities, largely by revising the previous year's budget rather than starting from scratch with a zero-based budget. Freshly scrutinizing every line item tends to unearth significant savings, says Andrew Horne, senior research director for the CIO Executive Board.
Just taking the previous year's budget and marking it up or down by a certain percentage involves making assumptions about how this year will be different from last. Assumptions about how many software licenses will be needed, for example, often prove fairly accurate, Horne notes. But if a company spins off a division or, as happened at many companies this year, lays off employees, the number of licenses needed may be radically different. The many IT projects that were slowed down, put on hold, or canceled in 2009 also curtailed licensing needs.
Of course, it's impossible to fully predict change, the CIO Executive Board noted in its research report. But budgeting should be made more flexible through the use of scenario planning so that IT spending can quickly adapt to new business circumstances.
Read rest of Article at www.cfo.com
How much could be saved by better budgeting? In some cases, more than 10% of the pie, according to the CIO Executive Board, a networking and research group run by the Corporate Executive Board.
Related Articles
* CFOs to CIOs: Get Real
* Flat Chance
* Faint Pulse Detected in IT Spending Plans
* Reaching Deeper for Savings
The CIO Executive Board created a model of best budgeting practices, based on a survey of 200 of its member IT executives about their budget planning for this year. It then compared the model with practices employed by companies at the other end of the efficiency spectrum to determine potential savings.
The group estimated that some companies wasted 5% to 9% of their 2009 IT spending in missed cost-cutting opportunities, largely by revising the previous year's budget rather than starting from scratch with a zero-based budget. Freshly scrutinizing every line item tends to unearth significant savings, says Andrew Horne, senior research director for the CIO Executive Board.
Just taking the previous year's budget and marking it up or down by a certain percentage involves making assumptions about how this year will be different from last. Assumptions about how many software licenses will be needed, for example, often prove fairly accurate, Horne notes. But if a company spins off a division or, as happened at many companies this year, lays off employees, the number of licenses needed may be radically different. The many IT projects that were slowed down, put on hold, or canceled in 2009 also curtailed licensing needs.
Of course, it's impossible to fully predict change, the CIO Executive Board noted in its research report. But budgeting should be made more flexible through the use of scenario planning so that IT spending can quickly adapt to new business circumstances.
Read rest of Article at www.cfo.com
New Arden CFO Named
Arden Group Inc., the parent company of Southern California supermarket chain Gelson's Markets, on Monday named Laura Neumann as its new chief financial officer.
Neumann has worked for Arden for more than 10 years, most recently as the company's senior director of financial reporting and compliance. In the absence of a CFO, Neumann handled many of those duties as the principal financial officer of the company since July 2005.
Shares of Arden rose $1.14 to close at $92.31.
Unused or under-utilized Real Estate can be a tremendous drain on cash positions and profits for financial institutions. Bank CFOs have options beyond subleasing. A Negotiated lease buyout has saved financial institutions millions of dollars. For more information please go to www.commercialleasetermiations.com
Monday, December 14, 2009
New Report on Applying Lean Concepts to Banks
The financial services sector has been a laggard in adopting lean tools and practices, perhaps because of their manufacturing origins. But those attitudes are slowly changing. As more banks discover the benefits of lean operations -- such as lower costs, fewer errors, faster cycle times and far greater efficiency -- wide-scale adoption by the industry is just a matter of time. But old habits often die hard, and slowly.
This article, part of a special report from Knowledge@Wharton and The Boston Consulting Group (BCG) on applying lean concepts to service industries, explores why the industry is dragging its feet, and shows what banks can achieve when they go lean.
Opportunity and Challenges
For process-oriented industries such as financial services, lean holds enormous potential. Lower costs and fewer errors are just the beginning. Banks that take on successful lean programs often see a 15% to 25% improvement in efficiency, BCG experts say. Gains in cycle time can be even more dramatic, with improvements of 30% to 60% possible. Lean thinking can even help management understand which customer groups are most profitable and where service can be enhanced most cost-effectively, says Amyn Merchant, a senior partner in BCG's New York office. The results of lean initiatives can be dramatic:
* An international commercial bank discovered the potential for 30% more efficiency in processing customer transactions - while improving customer satisfaction through more differentiated service.
* A lean audit of one North American asset manager uncovered ways to make product pricing 12%-20% more efficient by carefully identifying and eliminating non-value added activities.
* Analysts using a lean approach in one investment bank reportedly gained 20%-30% in analyst productivity - and a 60% reduction in cycle time -- by redefining credit processes.
Given this potential, why hasn't lean made more inroads in the financial services industry? Christian Terwiesch, a professor of operations and information management at Wharton, argues that human nature blocks progress.
Most service companies tend to be in denial that lean applies to their industry, Terwiesch says. Typically, everyone agrees it's great for manufacturing, and then denies it could work in their business. A few years later -- perhaps after a competitor has shown some success with a lean approach -- some managers concede that lean could work, but only in the back office and other lower-value parts of the operation. Finally, years later, the whole workforce will reorganize. "I can't help but see a pattern here," he says.
In fact, lean for manufacturing and lean for finance are not all that different, says Deepak Goyal, a partner in BCG's New York office. "Finance is just a different kind of factory. It is a processing factory, and there's a lot of waste. The basic philosophy doesn't really change."
Becoming lean involves eliminating the "seven deadly sins" of waste in a process -- overproduction, waiting, poor transportation/logistics, over-processing, sub-optimal inventory control, rework, and unneeded movement. People exposed to lean thinking are trained to see and remove these wasteful practices, he says. As superfluous steps are managed away, the process becomes more efficient. Waste begins to disappear. Speed improves and costs drop.
Article continues at Knowledge@wharton.com
http://knowledge.wharton.upenn.edu/article.cfm?articleid=2373
Unused or under-utilized Real Estate can be a tremendous drain on cash positions and profits for financial institutions. Bank CFOs have options beyond subleasing. A Negotiated lease buyout has saved financial institutions millions of dollars. For more information please go to www.commercialleasetermiations.com
This article, part of a special report from Knowledge@Wharton and The Boston Consulting Group (BCG) on applying lean concepts to service industries, explores why the industry is dragging its feet, and shows what banks can achieve when they go lean.
Opportunity and Challenges
For process-oriented industries such as financial services, lean holds enormous potential. Lower costs and fewer errors are just the beginning. Banks that take on successful lean programs often see a 15% to 25% improvement in efficiency, BCG experts say. Gains in cycle time can be even more dramatic, with improvements of 30% to 60% possible. Lean thinking can even help management understand which customer groups are most profitable and where service can be enhanced most cost-effectively, says Amyn Merchant, a senior partner in BCG's New York office. The results of lean initiatives can be dramatic:
* An international commercial bank discovered the potential for 30% more efficiency in processing customer transactions - while improving customer satisfaction through more differentiated service.
* A lean audit of one North American asset manager uncovered ways to make product pricing 12%-20% more efficient by carefully identifying and eliminating non-value added activities.
* Analysts using a lean approach in one investment bank reportedly gained 20%-30% in analyst productivity - and a 60% reduction in cycle time -- by redefining credit processes.
Given this potential, why hasn't lean made more inroads in the financial services industry? Christian Terwiesch, a professor of operations and information management at Wharton, argues that human nature blocks progress.
Most service companies tend to be in denial that lean applies to their industry, Terwiesch says. Typically, everyone agrees it's great for manufacturing, and then denies it could work in their business. A few years later -- perhaps after a competitor has shown some success with a lean approach -- some managers concede that lean could work, but only in the back office and other lower-value parts of the operation. Finally, years later, the whole workforce will reorganize. "I can't help but see a pattern here," he says.
In fact, lean for manufacturing and lean for finance are not all that different, says Deepak Goyal, a partner in BCG's New York office. "Finance is just a different kind of factory. It is a processing factory, and there's a lot of waste. The basic philosophy doesn't really change."
Becoming lean involves eliminating the "seven deadly sins" of waste in a process -- overproduction, waiting, poor transportation/logistics, over-processing, sub-optimal inventory control, rework, and unneeded movement. People exposed to lean thinking are trained to see and remove these wasteful practices, he says. As superfluous steps are managed away, the process becomes more efficient. Waste begins to disappear. Speed improves and costs drop.
Article continues at Knowledge@wharton.com
http://knowledge.wharton.upenn.edu/article.cfm?articleid=2373
Unused or under-utilized Real Estate can be a tremendous drain on cash positions and profits for financial institutions. Bank CFOs have options beyond subleasing. A Negotiated lease buyout has saved financial institutions millions of dollars. For more information please go to www.commercialleasetermiations.com
Hospital CFOs Looking for Cost Cutting Approaches
Even as they wait to see what impact health-care reform may have on their businesses, CFOs at the nation's hospitals and health-care groups are working hard to streamline their operations and drive costs down as profits slide.
To do that, they are open to any sources of inspiration. When ThedaCare, a four-hospital chain based in Appleton, Wisconsin, cast about for practices that it might emulate, it looked to a nearby company — Ariens, a manufacturer of snowblowers.
Related Articles
* All Eyes on Reform
* Taking a Scalpel to Costs
* Strong Medicine
Ariens had embraced so-called lean techniques as it sought to fend off competition from Asian rivals, a business challenge that would seem to have nothing in common with that faced by hospitals. But ThedaCare found that what worked for Ariens could also work for its business; in fact, Ariens's CEO ultimately assumed a seat on a ThedaCare spin-off devoted to advising health-care systems about operational efficiency.
Reform efforts aside, health-care providers have been under pressure for years. Medicare has been steadily tightening up its reimbursement policies — eliminating payments for some hospital-acquired infections, for example, and inspiring private insurers to do the same. At most, Medicare reimburses hospitals for 80% of their costs — at a time when hospital costs are rising, partly because high unemployment is churning out fresh supplies of uninsured arrivals.
In July, as part of an agreement with the Administration to help pay for reform, hospitals agreed to forgo $155 billion in government reimbursements over the next decade. That translates into $2.7 million of annual cuts for each of the country's 5,700 hospitals.
"Hospitals need to eliminate anything that does not add value to the customer," says Mike Chamberlain, president of consulting firm Simpler North America and general manager of its health-care division. "They can't generate that amount of savings through easy measures. They need to undertake a cultural transformation."
For rest of article at CFO.com please select link below
http://www.cfo.com/article.cfm/14457598/c_14457851?f=magazine_featured
To do that, they are open to any sources of inspiration. When ThedaCare, a four-hospital chain based in Appleton, Wisconsin, cast about for practices that it might emulate, it looked to a nearby company — Ariens, a manufacturer of snowblowers.
Related Articles
* All Eyes on Reform
* Taking a Scalpel to Costs
* Strong Medicine
Ariens had embraced so-called lean techniques as it sought to fend off competition from Asian rivals, a business challenge that would seem to have nothing in common with that faced by hospitals. But ThedaCare found that what worked for Ariens could also work for its business; in fact, Ariens's CEO ultimately assumed a seat on a ThedaCare spin-off devoted to advising health-care systems about operational efficiency.
Reform efforts aside, health-care providers have been under pressure for years. Medicare has been steadily tightening up its reimbursement policies — eliminating payments for some hospital-acquired infections, for example, and inspiring private insurers to do the same. At most, Medicare reimburses hospitals for 80% of their costs — at a time when hospital costs are rising, partly because high unemployment is churning out fresh supplies of uninsured arrivals.
In July, as part of an agreement with the Administration to help pay for reform, hospitals agreed to forgo $155 billion in government reimbursements over the next decade. That translates into $2.7 million of annual cuts for each of the country's 5,700 hospitals.
"Hospitals need to eliminate anything that does not add value to the customer," says Mike Chamberlain, president of consulting firm Simpler North America and general manager of its health-care division. "They can't generate that amount of savings through easy measures. They need to undertake a cultural transformation."
For rest of article at CFO.com please select link below
http://www.cfo.com/article.cfm/14457598/c_14457851?f=magazine_featured
Saturday, December 12, 2009
Bean Counter to Business Leader- A White Paper
Bean Counter to Business Leader a White Paper produced by BPM Partners
While there have been many flavors of the role over the course of business history, the Chief Financial Officer traditionally has been seen as the head of the account- ing department, responsible for adding up the numbers and delivering them to the board of directors and senior management team. The CFO’s job was to make sure the numbers were correct, and served up in a timely fashion. They would have to stand up to auditors,analysts, shareholders, and the IRS. Beyond that, he or she had to deal with accountabilities such as governance and compliance, borrowing and repaying debt, mergers and acquisitions – all complex processes, but still typically in the context of managing the mechanics of a process.
Thanks in large part to today’s technologies, there is now an opportunity for the CFO –and by extension the Finance department – to take on a value added role. Anyone in any area of a company where automation was introduced will tell you that it does not decrease their workload, but what it does is to enable greater productivity and more value added activities. In the Finance area, when a company moves from manual or disjointed processes for budgeting, consolidation, and forecasting, to an enterprise business performance management solution, the result typically is that (a) numbers are turned around more quickly and (b) because of less time spent crunching numbers, more time is available to actually look at the numbers and digest them. Since Finance is the first group to see the numbers, the CFO in an automated environment is in a better position to add value to the business by providing analysis and presenting what-if scenarios.
Factoring in also the faster pace of business nowadays, where an annual budget is generally useless after a quarter and forecasts may be updated weekly or even daily, the CFO has a front row seat in the business performance arena and provides an early
warning system to the business.
Another role for the CFO is as the champion of a performance culture. In order for new performance management technologies to live up to their promise, the organization as a whole, starting from the top, needs to embrace the idea ethic of performance: we set targets, we measure, we judge ourselves by our performance against objectives. The CFO who leads that charge is going to transform the business.
Making a Real Difference: CFO Wizardry
In the legend of King Arthur, his most trusted advisor was Merlin the Magician. According to myth, Merlin was reported to have the ability to see the future and could shape-shift,was known for his sense of humor, was involved in the search for the Holy Grail, was looked to by the king for sage advice, and was expected to perform magic. If you are a CFO, you most likely can relate to Merlin. There many parallels between the CFO role and that of Merlin.Trusted Advisor.
One of the most coveted roles for a CFO is his/her relationship with the
CEO, Board of Directors and other key executives. This critical role cannot be
undermined as a result of other activities in the Office of Finance.
Sorcerer. The CEO has sent you on a quest for the Holy Grail of profitability, and expects that, regardless of the data coming in from the field, you will somehow magically produce reports on demand that show performance in line with analyst expectations.
Prophet.
You are expected to predict the future. The only thing that you can say with
absolute certainty is that you will face uncertainty. So absent perfect knowledge of the future, your job is to figure out how to have planning and forecasting processes that work, aligned with robust enterprise systems rather than spreadsheets.
Governor. In any company, and especially if you are public, it is ever more important thatinvestors can have confidence in the accuracy and validity of the reported results. You are the appointed one in charge of ensuring good governance through visibility, transparency,and accountability.
Shape Shifter.
The challenges that lie ahead are many. In addition to the day-to-day
demands of the business and the market, there are always new regulatory requirements
such as Sarbanes-Oxley, IFRS, and whatever the current economic crisis produces, and
new technical challenges, such as XBRL. You need to be able to seamlessly shift from the roles listed above back to CFO, Regulatory Expert, and the Master of Reports.
To fulfill both the expectations and the exciting possibilities of this expanding role for the CFO will require focus. In a job that involves massive volumes of data, complex systems,management of people, and daily crises, it is easy to get bogged down in detail or spendall your time fighting fires or reacting to board requests. To create something new anddifferent that will make a difference for your organization will take focus, and we suggest that your focus should be on the actions that will have the most impact. In fact when in doubt about where to focus, a good rule of thumb is to consider where you can have themost impact.
Here are five suggested areas for focus to help your company and your
career:
Improve visibility
Create quick wins
Design the right roadmap
Stay ahead of the curves
Empower the organization
We will examine each of these focus areas.
Improve Visibility
Visibility into data means that managers and decision makers can better understand the business. While more volume of data does not necessarily mean better data, having
more depth and the ability to drill down and intelligently navigate through the data stack to find root causes does provide a basis for better decisions.The more people in the organization who have access to good data that is relevant to their
roles, the better the quality of the decisions you will reap.
Part of increasing data visibility is giving more people access to the data, which means having a platform that can extend across the organization and that is adopted by business users.User adoption is vital to the success of a system, and the key to adoption is providing value and ease of use to the users. A system that provides reporting and analysis toolsthat empower managers will be used, providing it is easy to learn and use. Such a systemshould allow managers the flexibility to get the data they need and want, rather than just pushing canned corporate reports out to them. If the system provides self-service access,then IT can be freed from the mechanical task of generating reports and can devote itstime to higher value activity such as improving data quality through data cleansing,integrating source systems, and synchronizing data structures.
Another important aspect of visibility into the data is that it supports requirements for transparency and audit-ability. Visibility means that you can drill down on a number tounderstand where it comes from. This allows auditors to do their job efficiently and can mean that your staff does not spend a month running around trying to find supportingdocumentation during an audit. This is also the kind of transparency that gives confidenceto investors and gives your firm a reputation for solid and reliable financial.
This doesn’t mean that you have to overhaul your entire data warehouse overnight and
embark on a massive visibility project. Take small opportunistic steps first, looking for the measures that will make a noticeable difference. In general it makes sense to follow the 80/20 rule, and focus on the area that will provide 80% of the result with 20% of the effort.Just remember that improving visibility into your company’s data can translate intovisibility for the CFO whose wizardry made it possible. Analysts, investors, and board members will soon take note.
Create Quick Wins
Remember that we are talking about focus, getting the “biggest bang for the buck.” Again, the 80/20 is a good rule of thumb. Pick the low-hanging fruit first. How? Look for the sharpest business pains. Where are the constraints to productivity, profit and growth?
Where can you find an edge over the competition in terms of financial performance?
What business processes are not keeping pace with the speed of your business or the
marketplace? Where will an investment in better systems provide maximum return?
The answers will be different for different companies, but here are some areas to
consider. We already talked about data visibility, and that can be one area where a
modest investment can yield high value to the business. Certainly improving planning and forecasting capabilities is a high-impact opportunity for many companies. Having the righttools and processes – in which plans can be revised and forecasts updated on a regular basis – can make the business more agile and responsive to changing market realities,potentially preventing huge losses if indicators are bad or capitalizing on opportunities that the current trends are suggesting.
Design the Right Roadmap
As the saying goes, if you don’t know where you’re going, you’ll never get there. An
accurate roadmap can help in several ways. First, it helps in making day to day decisions,by making it easy to eliminate choices that are not in line with your future direction. Be sure that the decisions you make now are consistent with your roadmap, and are not simply short term solutions that will become limitations further down the road. Working towards a goal can inspire your team, and the company at large. Be sure to create a goal that is worthy of you, your team, and your company. Anything less will not serve as inspiration, for you or others.
This does not mean that you should sit in your office for months developing a roadmap
before you take actions. Go ahead and start on the quick wins – especially ones where
investment is modest – while you create your roadmap in parallel. Be sure to design a phased roadmap that has concrete, measurable short, medium, and long term goals. For one thing, this gives you the opportunity to show that you are delivering on your promises. It gives you credibility and creates confidence that you are
on track to achieve the long term plan.
Fortunately, you generally don’t need to re-invent the wheel. Seek out the best practices in your industry. Talk to your peers. Explore technologies. Most of the problems you face have been faced by others, and solutions generally exist. Just find the best ones for your needs.
Stay Ahead of the Curves in Technology and Regulations
Regulations, of course, can change overnight, and it sometimes seems as if technology
does the same. But in truth there is generally plenty of warning and ramp-up time for
both. The problem is that many companies wait until the last minute and then scramble to adapt. When a change is on the horizon, begin to take steps to prepare and factor that in to your roadmap. Two of the big changes coming round the bend include IFRS and XBRL.
IFRS
Over 12,000 companies worldwide have already adopted the International Financial
Reporting Standards (IFRS), and U.S. public companies soon will be required to convert to IFRS, including converting two prior years of financials. The IFRS changeover willrequire a number of changes to financial reporting systems, including:
New accounts
Alternate or additional roll-ups
New level of detail in certain areas
Revised calculations
Multi-GAAP reporting and reconciliation
Audit-ability and transparency
Companies whose financial systems lack flexibility and are difficult to change clearly will have a major headache to face, such as those whose systems are based on
spreadsheets, custom coding, or departmental systems. To be in the best position for the transition to IFRS, now might be the time to finally implement a true enterprise business performance management (BPM) system, putting the company on a unified platform forconsolidation and reporting. An enterprise BPM system has the benefit that changes canbe made one time in the central data structure and those changes then flow through allreports and input templates company-wide.
In many companies there may be departmental BPM silos, or BPM systems being used in
a limited way. Perhaps planning at corporate is done in the BPM system, but the
overseas facilities still do their own thing and just send in a spreadsheet which is re-keyed into the system at HQ. Or the BPM solution is used for budgeting but is not being used up to its full potential for rolling forecasts. This is an area where a wave of the wand could make a big difference. A centralized platform for consolidation, planning, budgeting, and forecasting, means that the metadata structure needs to be updated in just one place, notin 20 different systems or on 100 different spreadsheets.
When you know a change is coming, it is never too soon to build that into the roadmap so that the transition and be smooth and orderly, and decisions can be made strategically,rather than in haste to meet a deadline. Also consider in your roadmap that your business process decisions likely will need to be supported by IT decisions. If you are going to need support from outside your own department, be sure to involve all necessary parties so that the plan does not meet roadblocks at a critical juncture in the future.
XBRL
eXtensible Business Reporting Language, or XBRL, provides a way of coding financial
documents such that key data and commentary can be easily found and compared.
Depending on company size, and whether they are reporting using GAAP or IFRS, public
companies in the US will be required to incorporate XBRL into their financial statements between now and 2011.
XBRL isn’t only about transparency and consistency in external reporting, however. Once a company has tagged their financials to support XBRL, finding data will be faster and easier, whether it is the SEC or the CEO that wants it. Still, XBRL encoding is an added requirement that can potentially be a huge burden on already stressed finance staff at period end.To stay ahead of the curve, it would be wise to find ways to automate the XBRL tagging.
BPM software vendors, naturally, are aware of the need for XBRL support, so solutions
are available. A solution that automates XBRL can actually make reporting easier, since once information is tagged in the system, it then will be fed automatically into your reporting package. In one sense the XBRL requirement can be a blessing in disguise, as it can provide the trigger and justification to upgrade financial reporting systems that may have been in need of upgrading anyway.
Empower the Organization
Your biggest opportunity to impact the organization is not by casting powerful spells all by yourself. As a leader, your challenge is to empower the organization. In the final analysis, you have to trust your managers and business users to be able to do their jobs. Most likely, you have very capable people who, if given the tools and information they need to do their jobs effectively, will help to make the company a success. As CFO, you can have a huge impact on performance by distributing information to support decision making at all levels of the organization.
Any company has a blend of centralized control and decentralization. Ideally you will
control what needs to be centrally controlled, and decentralize decisions that are best made at regional or departmental levels. For example, you probably want a common
chart of accounts so that you can meet your reporting needs. But you will never be ableto anticipate every report that will be of value to a manager, so it’s best to give managersthe tools to design and create the reports they need. You may provide targets foroperational or financial goals, but most often your plant managers or sales managers,dispatchers or geeks, will be best equipped to figure out how to attain the targets for theirareas.
You are in a unique position to be able to lead your company forward. By providing tools,providing data, and fostering a culture that supports performance, as CFO you can transform a company. But you can’t do it alone. Leading change requires collaboration across departments and geographies. You will need to bring others on board – the senior executive team, department heads, IT, key business users. It is especially critical to have top executive support for any major initiative if it is to succeed. You will need to convince,negotiate, inspire, and – not to be forgotten – listen closely to the needs and concerns thatyou hear and adapt your plans as necessary so that all constituencies are served. If that sounds like the role of a wizard there is a reason for that.
Conclusions and Next Steps
There is an opportunity, thanks to precedent in the business culture and enabling
technologies, for today’s CFO to move beyond the chief bean counter role to that of
business leader and agent of change – the CFO Wizard. Happily, what’s good for the
company is also good for the CFO’s career.The CFO Wizard’s Vision. The path to becoming a CFO Wizard is first to develop a mindset that transcends the traditional myopic view of the role. They may have hired you to count the beans, monitor the cash flow, manage the investments, validate the financials, and so on, and these are important functions that will always be the role of Finance. But if you can hold out a bigger vision and show people how to get there, no oneis going to complain, and everyone wants to be part of a successful undertaking.
And, ifyou empower the company to be more productive, generate more revenue, and better manage costs, things like cash flow and debt ratios tend to take care of themselves.
Choosing your battles.
The CFO can look like a wizard by seeking out the high impact areas and making a difference in those areas. So the first step is to identify the opportunities -- the pain points, the cumbersome processes, the antiquated systems – and then find a way to solve the problem. Give it some thought, ask questions, learn bestpractices, and look for the right technologies. Remember that you are implementing a solution, not a technology for its own sake.
Planning for success.
To lead the organization down the road to success will require a good roadmap. Set short term goals that will enable you to register early successes and build confidence, medium term goals that address the business pains and begin the
process of culture change, and long term goals that, when the vision is realized, will mark your company as a model business – one that demonstrates a culture of performance.
Bean Counter to CFO is a white paper produced by BPM Partners-BPM Partners is a privately held advisory services firm with an exclusive focus on business performance management (BPM) solutions. The firm's BPM experts help companies solve their most pressing business performance challenges with a comprehensive, rapid, and cost-effective BPM methodology. For more information please visit their website, www.bpmpartners.com
While there have been many flavors of the role over the course of business history, the Chief Financial Officer traditionally has been seen as the head of the account- ing department, responsible for adding up the numbers and delivering them to the board of directors and senior management team. The CFO’s job was to make sure the numbers were correct, and served up in a timely fashion. They would have to stand up to auditors,analysts, shareholders, and the IRS. Beyond that, he or she had to deal with accountabilities such as governance and compliance, borrowing and repaying debt, mergers and acquisitions – all complex processes, but still typically in the context of managing the mechanics of a process.
Thanks in large part to today’s technologies, there is now an opportunity for the CFO –and by extension the Finance department – to take on a value added role. Anyone in any area of a company where automation was introduced will tell you that it does not decrease their workload, but what it does is to enable greater productivity and more value added activities. In the Finance area, when a company moves from manual or disjointed processes for budgeting, consolidation, and forecasting, to an enterprise business performance management solution, the result typically is that (a) numbers are turned around more quickly and (b) because of less time spent crunching numbers, more time is available to actually look at the numbers and digest them. Since Finance is the first group to see the numbers, the CFO in an automated environment is in a better position to add value to the business by providing analysis and presenting what-if scenarios.
Factoring in also the faster pace of business nowadays, where an annual budget is generally useless after a quarter and forecasts may be updated weekly or even daily, the CFO has a front row seat in the business performance arena and provides an early
warning system to the business.
Another role for the CFO is as the champion of a performance culture. In order for new performance management technologies to live up to their promise, the organization as a whole, starting from the top, needs to embrace the idea ethic of performance: we set targets, we measure, we judge ourselves by our performance against objectives. The CFO who leads that charge is going to transform the business.
Making a Real Difference: CFO Wizardry
In the legend of King Arthur, his most trusted advisor was Merlin the Magician. According to myth, Merlin was reported to have the ability to see the future and could shape-shift,was known for his sense of humor, was involved in the search for the Holy Grail, was looked to by the king for sage advice, and was expected to perform magic. If you are a CFO, you most likely can relate to Merlin. There many parallels between the CFO role and that of Merlin.Trusted Advisor.
One of the most coveted roles for a CFO is his/her relationship with the
CEO, Board of Directors and other key executives. This critical role cannot be
undermined as a result of other activities in the Office of Finance.
Sorcerer. The CEO has sent you on a quest for the Holy Grail of profitability, and expects that, regardless of the data coming in from the field, you will somehow magically produce reports on demand that show performance in line with analyst expectations.
Prophet.
You are expected to predict the future. The only thing that you can say with
absolute certainty is that you will face uncertainty. So absent perfect knowledge of the future, your job is to figure out how to have planning and forecasting processes that work, aligned with robust enterprise systems rather than spreadsheets.
Governor. In any company, and especially if you are public, it is ever more important thatinvestors can have confidence in the accuracy and validity of the reported results. You are the appointed one in charge of ensuring good governance through visibility, transparency,and accountability.
Shape Shifter.
The challenges that lie ahead are many. In addition to the day-to-day
demands of the business and the market, there are always new regulatory requirements
such as Sarbanes-Oxley, IFRS, and whatever the current economic crisis produces, and
new technical challenges, such as XBRL. You need to be able to seamlessly shift from the roles listed above back to CFO, Regulatory Expert, and the Master of Reports.
To fulfill both the expectations and the exciting possibilities of this expanding role for the CFO will require focus. In a job that involves massive volumes of data, complex systems,management of people, and daily crises, it is easy to get bogged down in detail or spendall your time fighting fires or reacting to board requests. To create something new anddifferent that will make a difference for your organization will take focus, and we suggest that your focus should be on the actions that will have the most impact. In fact when in doubt about where to focus, a good rule of thumb is to consider where you can have themost impact.
Here are five suggested areas for focus to help your company and your
career:
Improve visibility
Create quick wins
Design the right roadmap
Stay ahead of the curves
Empower the organization
We will examine each of these focus areas.
Improve Visibility
Visibility into data means that managers and decision makers can better understand the business. While more volume of data does not necessarily mean better data, having
more depth and the ability to drill down and intelligently navigate through the data stack to find root causes does provide a basis for better decisions.The more people in the organization who have access to good data that is relevant to their
roles, the better the quality of the decisions you will reap.
Part of increasing data visibility is giving more people access to the data, which means having a platform that can extend across the organization and that is adopted by business users.User adoption is vital to the success of a system, and the key to adoption is providing value and ease of use to the users. A system that provides reporting and analysis toolsthat empower managers will be used, providing it is easy to learn and use. Such a systemshould allow managers the flexibility to get the data they need and want, rather than just pushing canned corporate reports out to them. If the system provides self-service access,then IT can be freed from the mechanical task of generating reports and can devote itstime to higher value activity such as improving data quality through data cleansing,integrating source systems, and synchronizing data structures.
Another important aspect of visibility into the data is that it supports requirements for transparency and audit-ability. Visibility means that you can drill down on a number tounderstand where it comes from. This allows auditors to do their job efficiently and can mean that your staff does not spend a month running around trying to find supportingdocumentation during an audit. This is also the kind of transparency that gives confidenceto investors and gives your firm a reputation for solid and reliable financial.
This doesn’t mean that you have to overhaul your entire data warehouse overnight and
embark on a massive visibility project. Take small opportunistic steps first, looking for the measures that will make a noticeable difference. In general it makes sense to follow the 80/20 rule, and focus on the area that will provide 80% of the result with 20% of the effort.Just remember that improving visibility into your company’s data can translate intovisibility for the CFO whose wizardry made it possible. Analysts, investors, and board members will soon take note.
Create Quick Wins
Remember that we are talking about focus, getting the “biggest bang for the buck.” Again, the 80/20 is a good rule of thumb. Pick the low-hanging fruit first. How? Look for the sharpest business pains. Where are the constraints to productivity, profit and growth?
Where can you find an edge over the competition in terms of financial performance?
What business processes are not keeping pace with the speed of your business or the
marketplace? Where will an investment in better systems provide maximum return?
The answers will be different for different companies, but here are some areas to
consider. We already talked about data visibility, and that can be one area where a
modest investment can yield high value to the business. Certainly improving planning and forecasting capabilities is a high-impact opportunity for many companies. Having the righttools and processes – in which plans can be revised and forecasts updated on a regular basis – can make the business more agile and responsive to changing market realities,potentially preventing huge losses if indicators are bad or capitalizing on opportunities that the current trends are suggesting.
Design the Right Roadmap
As the saying goes, if you don’t know where you’re going, you’ll never get there. An
accurate roadmap can help in several ways. First, it helps in making day to day decisions,by making it easy to eliminate choices that are not in line with your future direction. Be sure that the decisions you make now are consistent with your roadmap, and are not simply short term solutions that will become limitations further down the road. Working towards a goal can inspire your team, and the company at large. Be sure to create a goal that is worthy of you, your team, and your company. Anything less will not serve as inspiration, for you or others.
This does not mean that you should sit in your office for months developing a roadmap
before you take actions. Go ahead and start on the quick wins – especially ones where
investment is modest – while you create your roadmap in parallel. Be sure to design a phased roadmap that has concrete, measurable short, medium, and long term goals. For one thing, this gives you the opportunity to show that you are delivering on your promises. It gives you credibility and creates confidence that you are
on track to achieve the long term plan.
Fortunately, you generally don’t need to re-invent the wheel. Seek out the best practices in your industry. Talk to your peers. Explore technologies. Most of the problems you face have been faced by others, and solutions generally exist. Just find the best ones for your needs.
Stay Ahead of the Curves in Technology and Regulations
Regulations, of course, can change overnight, and it sometimes seems as if technology
does the same. But in truth there is generally plenty of warning and ramp-up time for
both. The problem is that many companies wait until the last minute and then scramble to adapt. When a change is on the horizon, begin to take steps to prepare and factor that in to your roadmap. Two of the big changes coming round the bend include IFRS and XBRL.
IFRS
Over 12,000 companies worldwide have already adopted the International Financial
Reporting Standards (IFRS), and U.S. public companies soon will be required to convert to IFRS, including converting two prior years of financials. The IFRS changeover willrequire a number of changes to financial reporting systems, including:
New accounts
Alternate or additional roll-ups
New level of detail in certain areas
Revised calculations
Multi-GAAP reporting and reconciliation
Audit-ability and transparency
Companies whose financial systems lack flexibility and are difficult to change clearly will have a major headache to face, such as those whose systems are based on
spreadsheets, custom coding, or departmental systems. To be in the best position for the transition to IFRS, now might be the time to finally implement a true enterprise business performance management (BPM) system, putting the company on a unified platform forconsolidation and reporting. An enterprise BPM system has the benefit that changes canbe made one time in the central data structure and those changes then flow through allreports and input templates company-wide.
In many companies there may be departmental BPM silos, or BPM systems being used in
a limited way. Perhaps planning at corporate is done in the BPM system, but the
overseas facilities still do their own thing and just send in a spreadsheet which is re-keyed into the system at HQ. Or the BPM solution is used for budgeting but is not being used up to its full potential for rolling forecasts. This is an area where a wave of the wand could make a big difference. A centralized platform for consolidation, planning, budgeting, and forecasting, means that the metadata structure needs to be updated in just one place, notin 20 different systems or on 100 different spreadsheets.
When you know a change is coming, it is never too soon to build that into the roadmap so that the transition and be smooth and orderly, and decisions can be made strategically,rather than in haste to meet a deadline. Also consider in your roadmap that your business process decisions likely will need to be supported by IT decisions. If you are going to need support from outside your own department, be sure to involve all necessary parties so that the plan does not meet roadblocks at a critical juncture in the future.
XBRL
eXtensible Business Reporting Language, or XBRL, provides a way of coding financial
documents such that key data and commentary can be easily found and compared.
Depending on company size, and whether they are reporting using GAAP or IFRS, public
companies in the US will be required to incorporate XBRL into their financial statements between now and 2011.
XBRL isn’t only about transparency and consistency in external reporting, however. Once a company has tagged their financials to support XBRL, finding data will be faster and easier, whether it is the SEC or the CEO that wants it. Still, XBRL encoding is an added requirement that can potentially be a huge burden on already stressed finance staff at period end.To stay ahead of the curve, it would be wise to find ways to automate the XBRL tagging.
BPM software vendors, naturally, are aware of the need for XBRL support, so solutions
are available. A solution that automates XBRL can actually make reporting easier, since once information is tagged in the system, it then will be fed automatically into your reporting package. In one sense the XBRL requirement can be a blessing in disguise, as it can provide the trigger and justification to upgrade financial reporting systems that may have been in need of upgrading anyway.
Empower the Organization
Your biggest opportunity to impact the organization is not by casting powerful spells all by yourself. As a leader, your challenge is to empower the organization. In the final analysis, you have to trust your managers and business users to be able to do their jobs. Most likely, you have very capable people who, if given the tools and information they need to do their jobs effectively, will help to make the company a success. As CFO, you can have a huge impact on performance by distributing information to support decision making at all levels of the organization.
Any company has a blend of centralized control and decentralization. Ideally you will
control what needs to be centrally controlled, and decentralize decisions that are best made at regional or departmental levels. For example, you probably want a common
chart of accounts so that you can meet your reporting needs. But you will never be ableto anticipate every report that will be of value to a manager, so it’s best to give managersthe tools to design and create the reports they need. You may provide targets foroperational or financial goals, but most often your plant managers or sales managers,dispatchers or geeks, will be best equipped to figure out how to attain the targets for theirareas.
You are in a unique position to be able to lead your company forward. By providing tools,providing data, and fostering a culture that supports performance, as CFO you can transform a company. But you can’t do it alone. Leading change requires collaboration across departments and geographies. You will need to bring others on board – the senior executive team, department heads, IT, key business users. It is especially critical to have top executive support for any major initiative if it is to succeed. You will need to convince,negotiate, inspire, and – not to be forgotten – listen closely to the needs and concerns thatyou hear and adapt your plans as necessary so that all constituencies are served. If that sounds like the role of a wizard there is a reason for that.
Conclusions and Next Steps
There is an opportunity, thanks to precedent in the business culture and enabling
technologies, for today’s CFO to move beyond the chief bean counter role to that of
business leader and agent of change – the CFO Wizard. Happily, what’s good for the
company is also good for the CFO’s career.The CFO Wizard’s Vision. The path to becoming a CFO Wizard is first to develop a mindset that transcends the traditional myopic view of the role. They may have hired you to count the beans, monitor the cash flow, manage the investments, validate the financials, and so on, and these are important functions that will always be the role of Finance. But if you can hold out a bigger vision and show people how to get there, no oneis going to complain, and everyone wants to be part of a successful undertaking.
And, ifyou empower the company to be more productive, generate more revenue, and better manage costs, things like cash flow and debt ratios tend to take care of themselves.
Choosing your battles.
The CFO can look like a wizard by seeking out the high impact areas and making a difference in those areas. So the first step is to identify the opportunities -- the pain points, the cumbersome processes, the antiquated systems – and then find a way to solve the problem. Give it some thought, ask questions, learn bestpractices, and look for the right technologies. Remember that you are implementing a solution, not a technology for its own sake.
Planning for success.
To lead the organization down the road to success will require a good roadmap. Set short term goals that will enable you to register early successes and build confidence, medium term goals that address the business pains and begin the
process of culture change, and long term goals that, when the vision is realized, will mark your company as a model business – one that demonstrates a culture of performance.
Bean Counter to CFO is a white paper produced by BPM Partners-BPM Partners is a privately held advisory services firm with an exclusive focus on business performance management (BPM) solutions. The firm's BPM experts help companies solve their most pressing business performance challenges with a comprehensive, rapid, and cost-effective BPM methodology. For more information please visit their website, www.bpmpartners.com
Friday, December 11, 2009
New CFO Promoted at Premier Healthcare
Craig McKasson, the Premier healthcare alliance's vice president of finance and corporate controller, will be promoted to senior vice president and chief financial officer (CFO) effective January 1, 2010. As CFO, McKasson will join Premier's executive leadership team and will report directly to Susan DeVore, Premier's President and CEO. McKasson will replace Ann Rhoads, who is resigning her position after 11 years of service, following a recently announced office consolidation that is expected to be complete by February 2011.
During Rhoads' tenure, the volume of Premier's supply chain business increased to more than $32 billion with revenues doubling to more than $600 million. She has been instrumental in Premier's strategic decisions as to business acquisitions and divestitures.
"With extensive experience managing Premier's financials under Ann Rhoads, Craig is the ideal candidate to serve as CFO. His promotion is a testament to Ann's leadership and Premier's internal succession planning," said DeVore. "Ann was a valued member of our executive team and we will regret her departure, but I am confident that Craig will follow her legacy to provide sound financial strategy to Premier and members of our alliance." As CFO, McKasson will have responsibility for the financial affairs of Premier, including strategic financial planning, internal and external financial reporting, corporate forecasting, tax compliance and planning, treasury services and investor relations. He will also oversee Premier's corporate information technology division. McKasson will also manage the transition of San Diego-based employees to Premier's Charlotte headquarters.
McKasson has served as vice president of finance and corporate controller since 1997. In this capacity he has overseen Premier's accounting department and managed corporate financial reporting. Before joining Premier, McKasson was a licensed Certified Public Accountant (CPA) and a consulting manager at Ernst & Young LLP, providing audit, tax and consulting services for various privately held development companies, as well as multi-state publicly traded organizations. McKasson holds master's and bachelor's degrees in accounting from San Diego State University.
Kellogg Finds New CFO Inside the Company
Kellogg Co. said on Tuesday that Ronald Dissinger has been promoted to the position of chief financial officer, effective Jan. 3, 2010. Dissinger, who was previously chief financial officer of Kellogg North America, will report to John Bryant, who had held the dual role of Kellogg's chief financial officer and chief operating officer. "Ron will ensure that Kellogg continues its disciplined focus on results and financial integrity while John focuses on the broader elements of the COO role to continue to strengthen our sustainable growth model," David Mackay, Kellogg's CEO, said in a statement. Kellogg, the world's largest cereal maker, has benefited from higher prices and consumers eating more meals at home instead of at restaurants during the recess
ion.
Career Strategies Post Recession
Talk about silver linings: thanks to the recession, the core skill set of the CFO has been highlighted like never before. From working-capital management to cost control to scenario planning, the CFO's expertise has proven to be the critical factor in corporate survival. Finance chiefs across the country have also taken the lead in explaining the economic crisis to skittish workers, fielding questions about everything from vendor and customer viability to ravaged retirement accounts. They have strengthened risk-management policies, identified a host of supply-chain vulnerabilities, and found ways to navigate in an environment in which forecasting is virtually impossible. As a result, the CFO role has arguably never been more important, more visible, or more respected.
But will the spotlight continue to shine as brightly as the economy begins to recover? Has the hard-won experience of the past two years permanently raised the profile of the finance chief, and will that translate into rosier career prospects? Most important, perhaps, will CFOs who made the tough calls on layoffs and budget cuts during the recession be able to change gears and help drive growth, be it at their current company or their next employer?
Rest of article at www.cfo.com
FASB Rules Will Impact Bank Off Balance Sheet Assets
A minuet playing out now is showing that the answer is yes — but not in the way the banks want us to believe.
The issue is a couple of new accounting rules that are forcing banks to put back on their balance sheets some strange creations that bad accounting rules had allowed them to shunt aside in the past.
The banks have accepted the inevitability of that change. But they are asking the bank regulators to make the rules easier to live with by phasing them in. Otherwise, the banks say, they would need to raise more capital or cut back lending.
The logic of the off-balance sheet treatment of such things as structured investment vehicles, or SIVs, which banks created in order to get assets off their books, was that the bank did not control them, and so did not have to show the SIV assets, and liabilities, on its own books.
Sponsor: Banks can improve their cash position by reviewing their commercial real estate leases. Cambridge Consulting Group has saved financial institutions millions of dollars by consolidating or eliminating lease obligations. For more information please call 678-372-5656 or visit www.commercialleasetermination.com
That fiction evaporated early in the financial crisis. Some SIVs were among the first structures to fail, when they could not roll over loans to finance assets that had lost value. The banks chose to, or had to, rescue the SIVs. Maybe they did so to guard their reputations, or maybe they feared they would have been vulnerable to fraud allegations from those who lent to the leaking SIVs. In either case, it turned out there was a black hole that the regulatory rules had ignored in assessing how much capital the banks needed to hold.
Rest of Article at www.nytimes.com
The issue is a couple of new accounting rules that are forcing banks to put back on their balance sheets some strange creations that bad accounting rules had allowed them to shunt aside in the past.
The banks have accepted the inevitability of that change. But they are asking the bank regulators to make the rules easier to live with by phasing them in. Otherwise, the banks say, they would need to raise more capital or cut back lending.
The logic of the off-balance sheet treatment of such things as structured investment vehicles, or SIVs, which banks created in order to get assets off their books, was that the bank did not control them, and so did not have to show the SIV assets, and liabilities, on its own books.
Sponsor: Banks can improve their cash position by reviewing their commercial real estate leases. Cambridge Consulting Group has saved financial institutions millions of dollars by consolidating or eliminating lease obligations. For more information please call 678-372-5656 or visit www.commercialleasetermination.com
That fiction evaporated early in the financial crisis. Some SIVs were among the first structures to fail, when they could not roll over loans to finance assets that had lost value. The banks chose to, or had to, rescue the SIVs. Maybe they did so to guard their reputations, or maybe they feared they would have been vulnerable to fraud allegations from those who lent to the leaking SIVs. In either case, it turned out there was a black hole that the regulatory rules had ignored in assessing how much capital the banks needed to hold.
Rest of Article at www.nytimes.com
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