Professional Documents
Culture Documents
Unfinished
Business
No one ever thought
implementing Dodd-Frank
would be easy
At Exelis, Defense
Never Rests
Lessons From
JPMorgans
Botched Hedge
FINANCE
TRAINING THE
DELL WAY
THE 2012
WORKING
CAPITAL
SCORECARD
RECIPE
FOR PROFITS
AT POPEYES
In the United States, insurance coverages are underwritten by individual member companies of Zurich in North America, including Zurich American Insurance Company. Certain coverages are not
available in all states. Some coverages may be written on a non-admitted basis through licensed surplus lines brokers. Prior results do not guarantee a similar outcome. Risk engineering services are
provided by Zurich Services Corporation.
contents
Features
July/August 2012
Volume 28, No. 6
38
DoDDk
fran
act
Unnished
Business
Two years after the passage
of the Dodd-Frank Act, the
laws implementation is
far behind schedule, and its
success is still in doubt.
By Randy Myers
46
Too Much Of
A Good Thing
34
People to Watch
34 On the Record
60 Take-Away
Defensive Maneuvers
Mel Hope
Up Front
contents
July/August 2012
Volume 28, No. 6
23 | huMAn cApitAl
Renewed Concerns
About Renewables
26 | risk MAnAgeMent
18 | cApitAl MArkets
Private Equitys
Picky Appetite
PE firms are craving service and healthcare targets, according to a new survey.
By Vincent Ryan
18
21
29 | strAtegy
23
21 | growth coMpAnies
Hands-On Growth
32 | technology
32
Muddling Through
CFOs continue to hire, but are less
optimistic. By Kate OSullivan
The average by
which U.S. CFOs
say they will
expand their
full-time domestic workforce
over the next
12 months.
58 FielD notes
Perspectives from CFO Research
From top to bottom: Miguel Davilla, courtesy Make Meaning, Bloomberg/Getty Images, Gordon Studer
REPAIRED
WRECKED
2012 AT&T Intellectual Property. All rights reserved. AT&T, the AT&T logo and all other AT&T marks contained herein are trademarks of AT&T Intellectual Property and/or AT&T affiliated companies.
from the
editor
dodd-frank at two
leadership
accounting
Edward Teach
Executive Editor
CFO, Vol. 28, No. 6 (ISSN 8756-7113), is published 10 times a year, with combined January/February and July/August issues, and distributed to qualified chief
financial officers by CFO Publishing LLC, 51 Sleeper St., Boston, MA 02210(executive and editorial offices). Copyright 2012, CFO Publishing LLC. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic,
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EdITORS PICkS
global business
Kory Addis
MANAGE MARKET
UNCERTAINTY WITH CONSISTENT
ACCESS TO PRIVATE CAPITAL.
Prudential Capital Group has consistently provided private
capital to middle-market companies for more than 70 years.
As one of the largest buy-and-hold capital providers, we
manage a $60 billion portfolio of private placements worldwide.*
Direct access to $10 billion of senior debt and mezzanine
financing in 2012
1,000 middle-market company relationships locally and
actively managed through all economic cycles
seasoned expertise and local knowledge consistently provided
by senior investment professionals with a 15- to 20-year
average tenure
To learn more about diversifying your sources of
private capital, visit www.PrudentialCapitalGroup.com/Diversify
2012. *As of 3/31/2012. Prudential Capital Group is a unit of Prudential Investment Management, Inc., a registered investment adviser and a Prudential Financial company. Prudential,
the Prudential logo, the Rock symbol and Bring Your Challenges are service marks of Prudential Financial, Inc., and its related entities, registered in many jurisdictions worldwide.
LETTERS
No Dire Straits
For Boomers
In regard to the worry
over baby boomers leaving the workforce, the
institutional-knowledge
challenge is being solved
in many ways, and is creating less turmoil than projected by many business analysts
(When the Boomers Go, June). Many people age 50 and
over are staying on because they need, or want, to continue
working. Jobs, and the skills needed
to perform them, are also changing,
so some jobs are becoming obsolete;
others are having some or all of the
tasks automated; and many jobs have
expanded the use of technology, thus
requiring workers to perform them in
new, and different, ways.
The anticipated drama of the baby
boomers exit hasnt really materialized, thanks in equal measure to the
poor economy, delayed retirement
plans, and unprecedented opportunities for older workers. While the age
wave may be hitting some industries
harder than others, the earlier concerns simply havent come to pass. In
fact, many older workers have fared
better in the down economy than their
younger counterparts.
Dr. Katherine L. Y. Green
Green Consulting Group LLC
Chevy Chase, Maryland
Stephen Webster
w Another Burden
The other burden, besides taxes, that is
even more significant to those affected is audits (Small Businesses Spend
LETTERS
COLI Is A-OK
Your story Key-Person Insurance: A
Cash-Flow Caveat (May) provided
important information on this increasingly popular tactic.
Corporate-owned life insurance
(COLI) has long provided numerous
benefits to shareholders and highproducing, quality executives who
help to maximize shareholder value.
COLI provides nonqualified plan sponsors with a cost-efficient asset that
offsets the liability of the participants
account balances on the plan sponsors
balance sheet. For example, plan sponsors can use COLI policies to mirror
the rate plan that participants earn in
their voluntary nonqualified deferredcompensation plans. As a result, COLI
helps companies reduce future liabilities, with an asset that should consistently grow in value. And with nonqualified retirement plans increasingly
important for many executives earning more than $150,000 annually, COLI
facilitates effective asset-liability management.
Contrary to what is stated in the
articles last two paragraphs, there
was no 2004 regulation that led to the
COLI market being essentially dead
from 2004 to 2010. By contrast, COLI
has continued to grow in popularity
since that time. In 2004, the COLI Best
Practices Provision was first proposed
and later became law as part of the
Pension Protection Act of 2006. The
measure and its high standards were
widely supported by the industrys
leading practitioners.
Mike Powers
Executive Director
The Todd Organization
Cleveland
CFO
chairman & ceo Alan Glass
eVP & Publisher Rob Stuart
Advertising Sales/
Product Development
sVP, chief sales officer Lissa Short
sVP, e-media, marketing, &
audience deVeloPment John E. Pal
sVP, Product deVeloPment Rich Rivera
editorial directors, Product deVeloPment:
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VP, marketing Phillip LoFaso
senior marketing manager Danielle Balestra
online oPerations manager Jerry Xenos
online oPerations coordinator Matt Kopec
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senior webcast Producer Joe Fleischer
webcast Producer Phil Lavanco
CFO Magazine/cfo.com
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Kate OSullivan (kateosullivan@cfo.com)
editor-in-chief, cfo.com
David M. Katz (davidkatz@cfo.com)
executiVe editor Edward Teach (edteach@cfo.com)
dePutY editors, online/mobile:
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managing editor Susan Kron (susankron@cfo.com)
senior editors:
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editorial Production manager, online/mobile
Deana Colucci
contributing editors:
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CFO Research
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editorial director, research Celina Rogers
research director David Owens
associate research directors:
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CFO
OMES
WELC UR
YO
ERS
LETT
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trademarks of IBM or other companies. A current list of IBM trademarks is available on the Web at www.ibm.com/legal/copytrade.shtml. International Business Machines Corporation 2011. All rights reserved.
Prudential retireMent
ITS TIME TO
RETHINK RISK.
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MEET THaT cHallENGE.
pENSION plaN RISKS aRE uNpREdIcTablE. Market risks
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NOW IS THE TIME yOu aNd yOuR advISORS NEEd a
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OvER 135 yEaRS, WEvE KEpT OuR pROMISES through
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strength. For strategies that meet the challenges of
managing pension risk, Prudential is the company more
and more plan sponsors and advisors rely on.
Prudential FinanCial
Currently manages assets for 23 of the
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2012. 1Based on fund sponsor rankings in Pensions & Investments, February 2011. 2Pensions & Investments
2011 annual Money Managers directory. 3liMra Group annuity risk transfer Survey, 1Q12. Guarantees are
based on the claims-paying ability of the insurance company and are subject to certain limitations, terms and
conditions. Products issued by the Prudential insurance Company of america (PiCa), newark, nJ 07102.
Prudential, the Prudential logo and the rock symbol are service marks of Prudential Financial, inc. and its
related entities, registered in many jurisdictions worldwide.
0202597-00001-00
Topline
StatS
of
the
month
369K
health care
Kevin Dietsch/Landov
22%
1.1%
Increase in orders
for durable goods
in May, after two
consecutive monthly
decreases.
Topline
bookshelf
leasInG
the best is
yet to come
in
search
of the
next
big
thing
24%
39%
61%
Yes No
15%
32%
44%
Transformational
Moderate
Incremental
Source:
Duke University/
CFO Magazine
Global Business
Outlook Survey
HuMAn CAPITAl
More
CEOs Go
CFOs looking for a promotion
may take heart from the latest
annual survey of CEO succession from consultancy Booz &
Co. Last year, the percentage of top
bosses who departed the worlds 2,500
largest companies rose to 14.2%
thats 355 CEOs who moved outfrom
11.6% in 2010.
The improved outlook for the economy may be partly responsible for the
acceleration in CEO turnover. Boards
are increasingly seeking new leaders
to help drive growth in a recovering
global economy, the survey authors
write. But theres at least a hard bargain, if not a catch: the need to ride the
upswing places a distinct burden on
those newly elevated CEOs to prove
CASH FlOW
Thinkstock
24%
Topline
retirement plans
Retirement:
A Recalculated Risk
Even employees who have traditional pensions will be working longer than they planned
and their bosses know it.
In a recent survey conducted by CFO Research in
collaboration with Prudential
Financial, about 70% of senior
finance executives said they
believe their companies employees will be forced to delay retirement because of insufficient
savings. (CFO Research and Prudential conducted similar surveys in
2009 and 2010.) The 186 finance executives surveyed work at large
and midsize companies, all with defined-benefit (DB) pension plans
with assets of at least $250 million. Employers also said that employee benefits are critical to attracting and retaining talent, with threequarters agreeing that employee satisfaction with benefits is important to the success of their company.
So whats a CFO to do? The survey suggests that finance executives are exploring new ways to manage those financial risks that
pose threats to both a companys bottom line and an employees
nest egg. This years survey found an increase in the percentage of
companies likely to transfer DB plan risk to a third-party insurer.
Because pension plans are guaranteed, employers have to pay extra
if the investments underperform. With that in mind, we are figuring out a way to move future risks off of our companys balance
sheet, said the CFO of a health-care company. While only 5% of
respondents had transferred DB plan risk to a third-party insurer,
43% said they were likely to do so within two years, up from 30%
in 2010.
Finance executives in the study also said they will explore products that can dampen the markets volatility and encourage employees to keep their own investments in defined-contribution plans
intact. These executives are becoming more interested in exploring
how using strategies such as target-date funds, stable-value products, and guaranteed-income products might help bolster employee
retirement investments. Josh hyatt and david owens
Anticipating
Delays
More than
two-thirds of
CFOs expect
employees to
have to put
off retirement.
80%
A Refreshing
Change
Q: Ive discovered that
some of the underlying
data in my pivot table is
wrong. After I correct a
Bill Jelen
Ask
MrExcel
69%
60
40
20
0%
Yes
17%
14%
No
Dont Know
Thinkstock
accounting
& tax
Renewed Concerns
About Renewables
Key tax credits for investments in renewable-energy projects could
soon begin to expire. By Kathleen Hoffelder
Financing
shortFall
$7.5
billion
Demand for
renewable-energy
project financing
in 2011
$3.6
billion
Multinational CFOs are increasingly looking to avoid the double taxation that can occur from manufacturing a product in one jurisdiction and
selling it in another. Transfer pricing,
the movement of goods and services in
order to allocate profits, has become
a high-ranking concern for finance
chiefs of multinational companies, according to a survey by Alvarez & Marsal Taxand.
Thirty percent of the 60 largecompany senior finance executives
surveyed ranked transfer pricing as
their greatest risk, just behind global
compliance, at 32%. Transfer pricing
Verbatium
Even in
a lower tax
jurisdiction like
Ireland,
they need
tax revenue
just like the U.S. does.
Kent Wisner, A&M Taxand
Thinkstock
capital
Markets
recalls Samuelson; the debt was incredibly inexpensive, and we could get
as much as we wanted. So Infor went
from financing acquisitions almost entirely with equity to a more traditional leveraged-buyout-type capital structure, he says.
The companys pro forma leverage after the 2006 deals was 6.5 times
EBITDA (earnings before interest,
taxes, depreciation, and amortization).
Then the economy nose-dived, and
Infor suffered large declines in EBITDA and profits, pushing its leverage to
10 times EBITDA. Although servicing
debt was never an issue, the ability
to refinance debt certainly at anything
Miguel Davilla/theispot
capital markets
now has a window of six years before any meaningful maturities and
$350 million to $400 million of free
cash flow after debt service. The company is now looking to spend heavily
in international markets in the next 18
months, and going public is also on its
radar screen. With the proceeds of an
[initial public offering], we could pay
down debt and get to a more normalized public-company debt level, says
Samuelson. For Infor, at least, there is
life after debt. CFO
Private Equitys
Picky Appetite
Editors
Choice
80
41%
38%
33%
20
0%
0
Lift from
improving
economy
Reasonable
Plentiful
valuations opportunities to do
deals
66%
60
33%
40
20
22%
0%
Aging
populace
Innovation in Health-care
drugs, treat- legislation
ment, or
diagnostics
Stephen Webster
GROWTH
COMPANIES
Hands-On Growth
The finance chief of Make Meaning says the start-up has what it takes to
bring customers through the door. Can it keep them coming back?
By Marielle Segarra
Growth companies
Shelling out for top talent was critical, says Lipschitz. Obviously, weve
taken a risk by bringing on the best
people, as opposed to growing as a
mom-and-pop, he says. But execution
is about bringing in the right people so
we can grow the concept as quickly as
possible. Where we had a corporate office of a couple of people not very long
ago, we now have an infrastructure
thats ready, willing, and able to support the growth ahead of us.
For now, the company is outsourcing its accounting function, including
bill paying and dealing with vendors,
to a firm that specializes in multiunit
retail businesses. We do not have a big
team, so weve decided to really focus
on what we do best, serving up a customer experience, Lipschitz says. As
the company grows larger, it will bring
accounting back in-house, he adds.
Fundamental Questions
As with any novel, experience-based
concept, keeping traffic and growth
steady could be a challenge for the
company, says Forresters Mulpuru.
The fundamental questions of a business like this are: Can it scale, whats
the frequency of visitation, and whos
going to be their core customer? she
says. It cant be a place where you do
a candle once and never come back.
Its got to keep engaging you.
When it comes to customers, children are a big part of Make Meanings
business, but the company also markets
to an older crowd, Lipschitz says. Our
challenge is to make sure that were offering a lot for adults so that it doesnt
just become a kid concept, he says. To
that end, the company plans to obtain a
Editors
Choice
Build-A-BEAr
At Build-A-Bear stores, customers construct their own stuffed animals, choosing the furry exteriors, adding in sound buttons and
hearts, and stuffing and clothing their new pals.
WinE And dEsign
At locations of this Raleigh, N.C.-based franchise, local artists teach
painting and customers bring their own wine. The stores also offer
programs for children, but BYOJB (bring your own juice box).
AmEricAn girl
At American Girl stores, children go on scavenger hunts, have afternoon tea, and take their dolls to the hair salon.
FAO schWArz
Tourists flock to the FAO Schwarz flagship store in New York to see
the life-size toy soldiers, a giant floor piano, and other interactive
accoutrements.
l.l. BEAn
Customers can take kayaking, archery, and fishing classes at L.L.
Beans flagship store in Freeport, Maine.
lEgO
During monthly in-store events, children learn to build miniature
Lego models for free. They can also create their own custom
minifigures throughout the month.
growth spurts
Private companies average annual sales growth jumped from
7.6% in March to 9.6% at the end of June, according to the Sageworks
Private Company Indicator. Average annual net profit margin also
rose, from 6.6% in March to 7.9% in May and June, its highest point
in at least five years.
Human
capital
Training at Dell:
Here, There, and Everywhere
The computer giants financial-education programs rely on a mix of long-distance
and local learning. By David McCann
Learning Through
Simulations
Bloomberg/Getty Images
educating dell
Financial training at Dell comes in three parts.
1.
stress. They have to deal with time
pressure, limited information, scarce
resources, and divergent opinions from
teammates. When you mix those elements together, observes Conine, it
makes for real-world decision making
under conditions of uncertainty. The
simulator runs the various decisions
made through an econometric model
and spits out hard-number results.
In addition to the simulations, the
FDP calls for participants to rotate
among roles that include segment and
operating-expense analysis, intercompany accounting, cash-management
analysis, pricing, corporate planning,
competitive analysis, financial services,
credit analysis, external reporting, budgeting and forecasting, and logistics.
About 50 employees are enrolled
each year in the entry-level FDP,
which lasts two years. FDP graduates
branch off to internal audit or finance
roles. Within three years, they are eligible for consideration in the Financial
Rotation Program. That lasts for three
years, with three different one-year assignments, many outside participants
home countries. Roles include investor
relations, assistant controllership, procurement (where a person would be an
analyst for a commodity buyer), opex
roles such as supporting the marketing
budget, financial planning and analysis, treasury, foreign exchange, and
cash management.
There is also a tax role, which Davis
calls relatively unique to our rotation,
to understand not necessarily how to
do an accrual but how value-added tax
or transfer pricing works. Participants
dont necessarily choose which assignments they get, she adds, but they can
express a preference.
Editors
Choice
2.
3.
Studying
Financial Excellence
At the third program level, the Global
Financial Excellence Program, participants do benchmarking work at other
companies, which are selected based
on their reputation for maintaining
best practices. The Dell employees
work with the CFO and finance staff to
understand how the issues those companies are dealing with relate to Dell.
In turn, those companies send finance
staffers to Dell for similar learning.
The GFEP participants also work on
a team project; they deliver the results
to Dell chairman and CEO Michael
Dell. Last years project focused on
purpose-driven companiesthose
companies that execute against strategies that are clear, concise, and branded. Key take-aways included how every team member lives the brand at
Coca-Cola, how the business-integration processes at Stanley Works function, and how executives are involved
in recruiting at Goldman Sachs.
Meanwhile, Dell is developing a
program to provide financial educa-
it pays to be public
Three out of four CFOs (74%) received a raise in 2011, according to a survey
by Grant Thornton and the Financial Executives Research Foundation.
The average salary increase was 4%, compared with 3% in 2010. Publiccompany CFOs received an average base salary of $286,500 last year, versus
$197,400 for private-company finance chiefs.
Thinkstock
Allstate protects
employees, too.
Surprised? Allstate Benets is one of the fastest-growing
allstatebenets.com
RISK
MANAGEMENT
The FDICs
Hoenig would
bar commercial banks from
trading securities or derivatives for their
own account.
Thomas Hoenig, vice chair of the FDIC
Editors
Choice
Thinkstock
Restated
May 10
$69
$67
Reported
April 13
4Q
11
1Q
12
120
90
60
$60
$51
$48
2Q
11
3Q
11
30
$0
1Q
11
ESSENTIAL KNOWLEDGE
What skill sets do risk managers need? An intimate knowledge of the
business and industry (cited by 67% of respondents) and a strategic
view of risk and risk managements role (64%) above all, according to
a February survey of C-suite members by the Risk and Insurance
Management Society and Marsh. Only 25% cited insurance knowledge.
SMAL
LL & MIDSIZE BU
USINE
ESS SUMMIT
2&72%(5-:0$55,2770,$0,)/
.$7+/((1:2/)
CFO
Atari Construction
-$0(650&&21(*+<
CFO
Chobani
3/$7,1806321625
5281'7$%/(6321625
-())5,&+$5'
CFO
Safety-Kleen
-())/$6+(5
CFO
Crocs
$77(1'7+(&)23/$<%22.)25
35,9$7(&203$1,(6$1'<28:,//
5(*,67(512::::&)233&&20
strategy
In June, Hawaiian Airlines launched its first daily nonstop flight between New York and Honolulu. That may
not seem like much, yet it contributed to Hawaiian growing
its overall capacity by nearly 25%. Starting a new air route is
always a risk, says CFO Scott Topping, especially in un-
are usually packaged as part of a vacation sold through retail, says Robert
Mann, president of an eponymous airline analysis and consulting firm. This
means Topping must work closely with
the travel trade. Its an indirect ticket
sale with extensive costs: commissions
to retailers, discounts to wholesalHawaiian
uses Airbus
ers, high marketing
A330s, costing
costs, says Mann.
about $200
Hawaiian also
million each, to
partnered with Jetfly nonstop beBlue Airways to get
tween Honolulu
and New York.
its Honolulu flight
off the ground. Hawaiians planes will fly out of JetBlues
JFK terminal, and JetBlue will handle
some of the ground services, including
baggage handling. Hawaiian also has a
code-share agreement with JetBlue, in
which Hawaiian code is on connecting
JetBlue flights. And the airlines have
a reciprocal frequent-flier agreement,
which goes a long way toward mitigating Hawaiians risk.
2011
2010
2009
2008
2007
1,650,459
1,310,093
1,183,306
1,210,865
982,555
(2,649)
110,255
116,720
28,586
7,051
CFOlearning
TRAINING WITH A FINANCE FOCUS.
July 2012
S M T
1 2 3
8 9 10
15 15 17
22 23 24
29 30 31
W T F S
4 5 6 7
11 12 13 14
18 19 20 21
25 26 27 28
LIVE WEBCASTS
JUL 20 3 Hidden State Tax Benefits
JUL 25 3 Decoding the IRS Worker Classification:
Employee or Independent
JUL 30 3 How to Reduce Health Care Costs
While Keeping Existing Coverage
august 2012
S
5 6
12 13
19 20
26 27
T W T F S
1 2 3 4
7 8 9 10 11
14 15 16 17 18
21 22 23 24 25
28 29 30 31
July 2012
S M T
1 2 3
8 9 10
15 15 17
22 23 24
29 30 31
W T F S
4 5 6 7
11 12 13 14
18 19 20 21
25 26 27 28
august
2012
t
1 2 3 4
5 6 7 8 9 10 11
12 13 14 15 16 17 18
19 20 21 22 23 24 25
26 27 28 29 30 31
IN-PERSON TRAINING
JUL 24 3 Washington, DC:
Excel Power User Boot Camp
JUL 26 3 Washington, DC:
Excel Power User Boot Camp
AUG 13 3 New York City:
Accounts Payable Boot Camp
Get more
information about
CFO Learning at
cfo.com/learning
strategy
Editors
Choice
Thinkstock
DIvErSITy DIvIDEND
Companies with more-diverse boards outperform their peers, according
to a recent McKinsey study of 180 publicly traded firms in the U.S., France,
Germany, and the UK. The study found that returns on equity were on
average 53% higher for companies in the top quartile of executive-board
diversity than they were for those in the bottom quartile.
TECHNOLOGY
Carter Malone, vice president of compliance at investment bank Crews & Associates, never leaves his desk,
not even for lunch. Malones job is to review the content and
ensure the proper storage of all electronic communications
that come in and out of Crews pursuant to Financial
Gordon Studer
Digital Landfills
All that data can cause organizations to
accumulate digital landfills that generate significant costs in storage, tax
IT resources, and clog up a companys
information pathways, creating knowledge-management tangles, says Hill.
It can be difficult to gain access to the
data you need, he says, if your companys information systems have become
a digital dump site.
In the age of Big Data, its critical
for companies to have policies for data
disposal as well as retention, says Hill.
However, disposal needs to be done in
light of potential litigation concerns,
he points out, and needs to be suspended if legal matters are pending. In 2010,
for example, FINRA fined investment
bank Piper Jaffray $700,000 for its failure to produce requested e-mails.
Theres a substantial return on investment for businesses in digging out
from under digital landfills by using
new archiving and discovery technologies, says Hill. The return comes not
only in lower IT costs and improved
knowledge management, but also in
the reduced risk of lengthy, costly forensic data reviews prior to and during lawsuits. Preparing adequately for
that alone can have a very significant
ROI, says Hill.
Editors
Choice
Thinkstock
Companies without
a plan for unstructured
data take on a whole lot
of risk, says Kon Leong,
CEO of ZL Technologies. The Securities and
Exchange Commission,
health-care regulations,
[and] the Federal Rules
on Civil Procedure that
weigh digital evidence
equally with physical evidence are all requiring that everything
be kept forever.
As daunting a task as that may
seem, Leong illustrates its importance
by telling a story about using his own
technology to settle a dispute. We
had a trademark, he recalls. We saw
a competitor use it. We sent them a
[cease-and-desist] letter. They sent
one back claiming they used it first. It
took us 35 seconds to search through
the archive for our earliest use of it.
End of that argument.
Leong goes on to make a larger
point: that unstructured datawhat he
calls the sum total of all human communications within an organization,
[representing] your corporate memoryis a potential source of competitive advantage. If you can harness and
extract value from that, youve gone
from gathering unstructured data as a
defensive measure for compliance, recordkeeping, and litigation support to
an offensive position for competitive,
strategic advantage, says Leong.
A Simple Rule
Hill says a number of software providers offer products for searching, storing, archiving, and retaining Big Data.
analyst, Forrester
They range from large enterprise vendors such as Symantec, IBM, and HP
Autonomy to smaller providers such
as ZL Technologies. As is increasingly
the case, their products are offered in
both on-premise and software-as-aservice flavors, with the SaaS offerings
lowering purchase and implementation costs and making this type of software more accessible to smaller businesses.
But prevention may be as effective
as the cure. At Crews, Malone further
mitigates the investment banks risks
by banning instant messaging for his
salespeople, denying them voice mail,
blocking web-based e-mail, and putting the kibosh on Facebook. There
are software providers that offer technological control over social-media
communications; Forresters Hill
cites Actiance as an example. But he
stresses that companies need to train
people on the permissible use of social media. There needs to be a strong
focus on policies.
For Malone, when it comes to policy, theres a simple rule to follow: I
tell all employees that every time they
write an e-mail, they should think about
reading it in front of a jury, he says.
That, he adds, seems to sink in. CFO
STATE-SPONSORED HACKING
UK spy chief Jonathan Evans revealed in June that a British company suffered
lost revenues of about $1.25 billion because of a state-sponsored cyberattack against its computer systems. The loss involved intellectual property
and commercial disadvantage in contractual negotiations. (See State-led
Hacking Cost Company 1 Billion Euros, U.K. Spy Chief Says, CFO.com.)
On the
recOrD
Defensive Maneuvers
Defense contractor Exelis is ready to adjust to an era of reduced
Pentagon spending, says CFO Peter Milligan.
Peter Milligan
Matthew Furman
CFO, Exelis
ON THE
RECORD
Peter Milligan,
CFO, Exelis
ENTS,
A CB UCT YOI D
U C A N SE E
COMPLICAT I ONS COM I NG
A M I L E AWAY.
I N D U S T RY:
M A N U FA C T U R I N G
C U S TO M E R :
FURNITURE DESIGNER
CASE OBJECTIVE:
M A N A G E U N R E L AT E D C O M P L I C AT I O N S
O F AT- W O R K I N J U RY
CASE SPECIFICS:
W O R K E R S C O M P E N S AT I O N
GROUP BENEFITS
@lmbizinsurance
NT PR E DICT
YO U C A
Unfinished
Business
Two years after the passage of the
Dodd-Frank Act, the laws implementation is far behind schedule, and
its success is still in doubt.
By Randy MyeRs
photo-illustration by stephen Webster
Unfinished
Business
No law can prevent incompetent management or fraudulent management, warns Jeffrey Burchill, CFO of insurance company FM Global. You can penalize people for
gross error or gross misconduct, but its very difficult to
prevent that conduct.
Dodd-Frank nonetheless aims to try. The most sweeping regulatory overhaul of the financial services industry
since the Great Depression, the law created several oversight bodies and a deluge of rules for the industry. Yet because the legislation was drafted so hurriedly, and because
the matters it tackles are so complex, Congress left much
of the heavy lifting to regulators, saddling them with nearly 400 rulemaking requirements and calling upon them to
Now, as the third year of implementing Dodd-Frank begins, significant pieces of the legislationsome of them arguably the most controversial and hardest to implement
loom on the agenda. They include the so-called Volcker
Rule, which would bar banks from trading with their own
money; regulating the over-the-counter derivatives market; designating systemically important nonbank financial institutions for greater oversight; and calculating bank
capital requirements.
Signature Accomplishments
ll this is not to downplay the signature accomplishments of Dodd-Frank to date. New regulatory authorities have been created, including
the Financial Stability Oversight Council, the
Federal Insurance Office, and the Consumer Financial Protection Bureau. Publicly traded companies must now give
shareholders a nonbinding say on pay indicating whether they support their companies executive-compensation
packages. Whistle-blowers now have incentives to bypass
internal compliance channels and report potentially illegal
or fraudulent activity directly to the SEC.
Exchange Commission for implementing the Dodd-Frank Act (estimated JulyDecember 2012)
Corporate Governance & Disclosure
Section 952: Report to Congress on study
and review of the use of compensation
consultants and the effects of such use.
Sections 953 and 955: Adopt rules regarding disclosure of pay-for-performance,
pay ratios, and hedging by employees and
directors.
Section 954: Adopt rules regarding recovery of executive compensation.
Credit Ratings
Section 932: Adopt rules regarding NRSRO
[nationally recognized statistical rating
organizations] reports of internal controls
over the ratings process, preventing sales
and marketing activities from influencing the production of ratings, providing
for a report to the SEC and look-back
when an entity subject to a rating employs
a person who previously worked for the
NRSRO.
Section 932: Adopt rules regarding transparency of NRSRO ratings performance.
Section 936: Adopt rules establishing
training, experience, and competence
standards, and a testing program for
NRSRO analysts.
Section 939F: Report to Congress on study
on the rating process for structured finance products and associated conflicts
of interest, the feasibility of an assignment
system, metrics to determine the accuracy
of ratings, and alternative compensation
that creates incentives for accurate ratings.
Derivatives
Section 719(d): Joint report to Congress
(with the CFTC) on study regarding stable
value contracts.
Sections 763 and 766: Adopt rules on trade
reporting, data elements, and real-time
public reporting for security-based swaps.
Section 763: Adopt antimanipulation rules
for security-based swaps.
Section 763: Adopt rules regarding the
registration and regulation of securitybased swap execution facilities.
Section 764: Adopt rules regarding the
registration and regulation of securitybased swap dealers and major securitybased swap participants.
Section 765: Adopt rules regarding conflicts of interest for clearing agencies, execution facilities, and exchanges involved
in security-based swaps.
Market Oversight
Section 210: Jointly with other financial
regulators prescribe recordkeeping requirements that will assist the FDIC when
acting as a receiver.
Section 417: Report to Congress on study
on the state of short selling on exchanges
and in the over-the-counter markets.
Section 619: Adopt rules to implement
prohibition on proprietary trading and
certain relationships with hedge funds
and private-equity funds (the Volcker
Rule).
Section 917: Report to Congress on study
to identify financial literacy among retail
investors.
Municipal Securities
Section 975: Adopt permanent rules for
the registration of municipal
advisers.
Source: SEC (updated 6/20/12). Not all planned activity is listed above. Other regulators are also responsible for rulemaking.
Bob O'Connor
Unfinished
Business
Regulating Swaps
mplementing Dodd-Franks
swaps regulations has
proved nearly as complicated as parsing out regulatory language on the Volcker Rule, with
much of the controversy centered on
whom, and which types of transactions,
should be covered by the new rules. In
addition to instituting regulation of swap
dealers and major swap participants,
Dodd-Frank prohibits those entities from
receiving any federal assistance, such as
advances from a Federal Reserve credit
facility or discount window, that is not
part of a broad-based eligibility program.
Following the JPMorgan Chase loss,
the CFTC began looking into whether the
swaps regulations should be extended
to cover the overseas units of U.S. institutions, a situation U.S. banks have said
would hurt their ability to compete with
foreign-based rivals. The regulation of
swaps is still a work in progress, says
Sten. It may have a bigger impact on the
affected U.S. institutions than the Volcker Rule.
Elsewhere, the SEC headed into summer still needing to issue final guidance
on how companies should go about reclaiming incentive compensation in cases
where companies restate their financial
results due to material noncompliance
with accounting laws. The Sarbanes-
10 years
after:
the
sarbanesOxley act
Unfinished
Business
Keeping
TracK
of doddfranK
Keeping track of
regulatory progress on implementing the
Dodd-Frank Act is no easy
matter. As one attorney
recently confessed, No
one really knows what
the hell is going on with
Dodd-Frank.
But there are study
aids. Law firm Davis Polk & Wardwell publishes a monthly progress
report available on its website at www.davispolk.com/Dodd-Frank-Rulemaking-Progress-Report/. For anyone just being introduced to the acts
intricacies, The Dodd-Frank Act: A Cheat Sheet, published by law firm
Morrison & Foerster, is still helpful. It can be found on the firms website
at www.mofo.com/files/Uploads/Images/SummaryDoddFrankAct.pdf.
Meanwhile, many regulatory agencies are doing their best to keep the
public informed as well. The Securities and Exchange Commission has
more rulemaking requirements than any other agency, and it routinely publishes news on its latest activities. To see the page where
it spotlights its progress on Dodd-Frank, go to www.sec.gov/
spotlight/dodd-frank.shtml. R.M.
Will It Work?
ith so much rulemaking yet to be done, it is
probably unfair to ask if Dodd-Frank has succeeded so far in creating a stronger and more
secure financial system in the United States. I
think weve got a long way to go before we can judge DoddFrank, says Carol Beaumier, an executive vice president
with Protiviti, a consulting and internal audit firm.
Still, skeptics, and outright critics, are abundant. Congressional Republicans, who opposed the law, have submitted numerous bills that would scrap all or parts of
Dodd-Frank, while Presidential candidate Mitt Romney has
vowed to repeal the law if he is elected, though most political analysts consider that little more than campaign bravado. Even if they captured the White House, Republicans
would need to muster 60 votes in the Senate, now controlled by Democrats, to repeal the law.
That hasnt stopped the criticism. I think it [DoddFrank] has done little to solve our problems, says Kevin
Williams, CFO of Jack Henry & Associates, a $967 million
provider of information-processing solutions to community banks. In the two years since the laws passage, Wil-
Roger L. Wollenberg/Landov
The 7 Th annual
SpeaKerS:
DOn
Mulligan
CFO
General Mills
DOuglas
RushKOFF
Author
CNN Commentator
anDRea
FReeDMan
CFO
Method
CuRT
espelanD
CFO
Eastman Chemical
1 -800-772-1119
Too
Much
Of A
Good
Thing
By russ BAnhAm
illustrAtions By dAvid plunkert
the 2012
CFO/rel
Working
CApitAl
sCoreCArd
Its one of the most
important metrics
for gauging a companys efficiency and financial health. So when
a new survey of 1,000 of
the largest public companies in the United
States indicates that
their working capital
continues to be much
larger than is considered prudent, thats
cause for concern.
The annual survey,
conducted by REL
Consulting, reveals an
overall lack of sus-
active phone calls to improve receivables, Drillock says. That took our days
past due from an average of 12 to 15 days
to 5. We then extended terms with vendors from 45 days to 60 days, but promised wed always pay on time. And we decided if a product moves slowly, it should
be made when needed, whereas we could
build inventory for products with a fast
turnover.
Capital Companies
At these companies, working capital is working well.
ix companies top the REL U.S.
1,000 list in terms of sustained
working capital performance:
Colgate-Palmolive, Cubic, Cytec Industries, Deluxe, PH Glatfelter, and Watts Water Technologies. These companies either
improved working capital performance
(days working capital and its three major
elements) or sustained it (performance
did not deteriorate by more than 5%) each
year for three successive years.
Working capital performance is a
critical element of how we define success here, says Bill McCartney, CFO of
Watts Water Technologies, a $1.5 billion
(in 2011 revenues) global manufacturer of
safety and control packages for residential and commercial applications. Half
our growth here has come from acquisitions36 in the last 11 yearsand weve
been able to finance a lot of it through
David Bowman
Deluxe, a $1.42 billion provider of marketing tools and web services for small businesses and financial institutions, also has
what CFO Terry Peterson calls a diligent
accounts-receivable process. After a
certain number of days past due, we send
a letter and follow up with phone calls to
collect the balance, Peterson explains.
We also push customers to receive electronic invoices, which shaves several
days off the payment terms. Were also
more careful in extending credit to small
businesses, we reduced the number of
our SKUs, and we enhanced forecasting
with a new SAP tool to get our inventory
in line.
He adds, Were constantly chipping
away to get another inch of progress.
Like the other top-performing companies, $1.2 billion Cubic keeps close watch
on its key working capital metric: days
sales outstanding plus days inventory
outstanding minus days payable outstanding. Were a systems integrator for
government and transportation, so we
dont have products, but when youre in
the services business its all about performance, says John D. Thomas, Cubics
vice president of finance. You make deliveries on time, you get paid on time.
Cubic also links working capital to senior employee compensation. Our managements incentive pay has been very
good of late because of our high return
on net assets, Thomas says. People are
focused when they negotiate contracts,
building in terms they can meet and getting advance payments where they can,
minimizing the amount of capital used per
transaction.
The CFOs were not surprised their
companies topped the REL U.S. 1,000. But
they cant offer any simple solutions for
their poorer-performing peers. Says Drillock, Theres no magic to improving
working capital management. The key is
not to take your eye off the ball. R.B.
Hoarding Cash
Why arent companies putting more energy into their working capital management? For the most part, they have strong
Making it
Work
To help create long-term,
sustainable working
capital improvements,
REL Consulting recommends the following best
practices:
e Make working capital optimization and cash flow improvement a strategic priority, with visible senior executive backing.
r Link cash-flow performance and working capital management to the compensation structure.
t Make cash flow one of the key metrics for performance
management within operations and finance.
u Invest in improving demand forecasting and deployment
of effective sales and operations planning processes.
i Standardize customer and supplier payment terms, and
control exceptions through an escalation process.
o Segment customers and suppliers according to value
and risk to support a differentiated approach that applies the companys resources to those customers and
suppliers to improve cash flow.
p Automate and eliminate high-volume, low-value transactions to free up resources to focus on high-value customers, suppliers, and transactions.
a Regularly review trade-receivables allowances according to historical experience, creditworthiness, and age of
the trade-receivables balances.
s Create estimates and judgments for age of inventories
and other relevant issues that could affect the salable
condition of products and their estimated selling prices.
R.B.
How
Working
Capital
Works
Year-end trade receivables net of allowance for doubtful accounts, plus financial
receivables, divided by one day of average revenue.
A decrease in DSO represents an improvement, an increase a deterioration.
Some companies have securitized receivables, which improve DSO through
financing alternatives without improving the underlying customer-to-cash
processes such as credit-risk assessment, billing, collections, and dispute
management. The scorecard eliminates this distortion by adding securitized
receivables back on the balance sheet before calculating DSO.
Note: Many companies use cost of goods sold instead of net sales when calculating DPO and DIO. Our methodology
uses net sales across the four working capital categories to allow a balanced comparison.
Companies in the survey are categorized using the Global Industry Classification Standard.
DSO
2011
DIO
1-yr. %
change
2010
DPO
2011
1-yr. %
change
2010
2011
DWC
1-yr. %
change
2010
2011
1-yr. %
change
2010
41
48
66
61
19
49
60
-5%
5%
4%
5%
15%
-7%
0%
43
45
64
58
17
53
60
12
19
5
132
197
216
57
4%
3%
-6%
1%
-10%
-14%
5%
12
19
5
131
219
252
54
20
18
22
35
42
29
27
0%
37%
-1%
29%
8%
-7%
5%
20
13
22
27
39
31
26
33
49
49
158
175
236
90
-5%
-4%
5%
-2%
-11%
-14%
1%
34
51
47
162
197
274
88
7
8
13
9
21
11
10
18%
-49%
-47%
-4%
25%
12%
-8%
6
16
25
10
17
10
11
9
12
6
7
5
13
6
28%
-18%
-17%
-7%
2%
0%
-12%
7
14
7
7
5
13
7
25
22
20
11
18
6
17
11%
-23%
-30%
-9%
-8%
-7%
-10%
22
29
28
12
19
6
19
(8)
(2)
(0)
5
8
19
(1)
-8%
-277%
-106%
3%
230%
9%
19%
(9)
1
4
5
2
17
(1)
48
50
47
63
40
64
51
-10%
-6%
-3%
-1%
-12%
-3%
-4%
54
53
49
63
45
66
54
16
19
30
50
65
66
30
-3%
-2%
-11%
2%
4%
16%
-6%
17
19
34
50
63
57
32
52
52
59
41
32
53
47
-7%
-2%
-8%
5%
-24%
16%
-1%
56
53
64
39
42
45
47
13
17
18
73
73
77
35
-10%
-12%
0%
-2%
11%
-1%
-9%
14
19
18
74
66
78
39
45
39
29
42
47
68
45
3%
-4%
-3%
5%
-13%
-23%
3%
43
41
30
40
54
89
43
38
37
52
54
53
53
45
5%
2%
-6%
20%
-14%
-31%
8%
36
36
55
45
61
76
42
38
28
27
33
27
37
31
28%
4%
22%
-4%
-19%
-30%
-5%
29
27
22
35
34
52
32
45
48
53
63
72
84
59
-10%
-4%
-14%
24%
-12%
-25%
12%
50
50
62
51
82
113
53
Airlines
Southwest Airlines
SkyWest
United Continental
US Airways Group
Hawaiian
Republic Airways
Median
Auto Components
Lear
TRW Automotive
Tenneco
Federal-Mogul
Cooper Tire & Rubber
Exide Technologies
Median
Building Products
Masco
USG
Armstrong World Industries
Owens Corning
Nortek
Griffon
Median
N/M = not meaningful, because DWC moved from a positive to a negative number or vice versa.
Based on financial statements of 1,000 of the largest U.S. public companies (excluding the financial
sector), as reported by Capital IQ. Median shown is for the full industry. Source: REL Consulting
Chemicals
TPC Group
CF Industries
PolyOne
Ecolab
Sensient Technologies
OM Group
Median
DSO
DIO
2011
1-yr. %
change
28
16
41
112
56
51
48
-17%
-27%
0%
88%
-7%
8%
-5%
24
47
59
81
87
90
62
DPO
2011
1-yr. %
change
34
22
41
60
60
47
51
12
18
31
59
106
148
51
-37%
-27%
6%
109%
-2%
65%
1%
0%
-11%
34%
-12%
-14%
18%
3%
24
53
44
92
101
76
61
19
6
9
51
48
41
21
18
38
46
66
53
66
52
-41%
-1%
-1%
3%
2%
1%
13%
31
39
47
65
52
66
47
34
33
49
75
61
90
47
-7%
2%
-4%
85%
-3%
58%
6%
55
39
26
39
39
56
39
DWC
2011
1-yr. %
change
2010
2011
1-yr. %
change
19
25
29
28
108
90
51
23
6
38
44
24
41
29
-21%
-26%
0%
109%
-9%
27%
-5%
29
8
37
21
26
32
31
17
28
35
128
138
158
70
-28%
-27%
5%
90%
-3%
51%
0%
24
39
33
67
142
105
70
6%
194%
92%
-2%
-38%
13%
-3%
18
2
5
52
77
36
21
24
27
35
36
33
28
28
-7%
2%
42%
0%
-44%
1%
7%
25
26
25
36
59
27
26
19
26
32
95
103
103
55
18%
-9%
37%
-11%
-14%
22%
-1%
16
29
24
107
119
85
56
3
8
22
59
57
52
22
-56%
7%
7%
16%
-1%
-8%
7%
6
8
21
51
57
56
21
49
69
59
58
29
35
42
-27%
2%
6%
6%
3%
-7%
2%
67
67
56
55
28
38
42
(29)
(22)
9
67
82
83
32
-6%
7%
-20%
11%
-1%
-1%
26%
(31)
(21)
11
61
82
84
26
36
32
51
41
63
57
45
48
42
37
61
46
55
45
-1%
12%
-11%
59%
-6%
24%
-4%
49
37
42
39
49
44
48
59
36
42
53
17
40
37
-2%
11%
-15%
72%
-22%
112%
8%
60
32
49
31
22
19
34
23
39
44
84
89
105
56
-8%
4%
2%
72%
0%
28%
-4%
25
37
43
49
90
82
58
107%
-21%
10%
-2%
-4%
52%
6%
26
49
23
40
41
37
37
N/M
N/M
N/M
3
3
7
-
N/M
N/M
N/M
-11%
-20%
26%
N/M
N/M
N/M
N/M
4
4
5
-
63
36
14
25
14
25
25
90%
-14%
-8%
13%
2%
69%
62%
33
42
15
22
13
15
16
(8)
3
12
18
28
37
14
22%
-59%
44%
-19%
-9%
38%
-34%
(7)
7
8
22
31
27
21
19
26
22
46
26
24
26
-56%
-1%
3%
2%
38%
15%
1%
44
27
22
45
19
21
26
10
13
15
55
65
167
42
-55%
-1%
8%
-12%
26%
7%
4%
23
13
14
62
52
155
40
12
21
15
30
18
20
23
-65%
-9%
5%
-17%
25%
2%
-14%
35
24
14
36
14
19
26
18
18
22
71
74
171
45
-45%
9%
5%
0%
30%
9%
14%
32
16
21
72
57
157
40
52
45
42
81
68
69
64
-5%
8%
7%
6%
-9%
2%
0%
54
42
40
76
75
67
64
39
46
40
59
71
76
49
6%
-4%
-6%
-5%
-17%
-6%
4%
37
49
42
62
86
81
47
30
27
11
16
16
12
16
-1%
32%
46%
-16%
-26%
5%
-7%
30
21
7
19
22
11
17
61
64
71
123
124
133
97
0%
-8%
-4%
4%
-11%
-3%
3%
61
69
75
119
140
137
94
28
35
37
41
44
70
38
12%
7%
-3%
-21%
-5%
-1%
-1%
25
33
38
52
46
71
39
33
27
29
50
74
51
39
11%
-2%
14%
-34%
8%
-10%
1%
30
28
25
75
69
57
39
35
31
30
35
26
23
30
6%
6%
3%
-21%
-3%
-2%
5%
34
29
29
44
27
23
29
25
32
36
55
92
99
47
21%
0%
5%
-33%
4%
-6%
-3%
21
32
34
83
88
105
49
2010
2010
2010
Communications Equipment
Qualcomm
Juniper Networks
EchoStar
Netgear
Ciena
Tellabs
Median
Food Products
Darling International
Dean Foods
Flowers Foods
Hain Celestial
J. M. Smucker
Seneca Foods
Median
Household Products
Procter & Gamble
Church & Dwight
Clorox
Spectrum Brands
Central Garden & Pet
Energizer
Median
N/M = not meaningful, because DWC moved from a positive to a negative number or vice versa.
Based on financial statements of 1,000 of the largest U.S. public companies (excluding the financial
sector), as reported by Capital IQ. Median shown is for the full industry. Source: REL Consulting
Best in Industry
Worst in Industry
Machinery
Paccar
Deere
Navistar International
Terex
Kennametal
Joy Global
Median
DSO
DIO
2011
1-yr. %
change
23
41
32
66
68
73
56
-3%
-23%
7%
2%
7%
5%
-3%
12
23
21
50
58
57
32
DPO
2011
1-yr. %
change
24
53
30
65
63
70
58
21
71
45
99
94
111
57
-23%
5%
-5%
-18%
14%
40%
1%
27
67
48
120
82
79
57
26
93
56
43
34
38
32
-58%
-17%
-10%
2%
18%
-2%
-9%
28
28
24
49
50
57
35
43
54
40
108
132
149
56
5%
-6%
6%
1%
35%
-9%
-4%
41
58
38
107
98
163
58
N/M
N/M
N/M
4
N/M
68
-
N/M
N/M
N/M
20%
N/M
-11%
N/M
N/M
N/M
N/M
3
N/M
77
-
49
52
48
88
87
40
62
3%
2%
-4%
4%
-1%
4%
-6%
27
15
43
31
47
33
32
12%
2%
3%
-13%
-3%
-18%
-16%
24
14
41
35
48
41
38
35
44
37
52
50
46
45
57
49
40
98
93
58
61
0%
2%
11%
-16%
62%
2%
6%
57
48
36
117
57
56
58
16
27
34
93
101
110
67
14%
-21%
66%
8%
14%
17%
-3%
16
6
6
9
N/M
18
6
40
13
29
57
76
37
40
DWC
2010
2011
1-yr. %
change
-5%
-3%
1%
-9%
39%
24%
1%
28
96
56
47
24
30
32
18
19
22
122
128
146
82
-23%
-23%
-3%
-11%
5%
23%
-1%
23
25
22
137
121
119
83
20
39
23
35
38
37
23
-2%
-3%
9%
-3%
36%
-7%
-6%
21
40
21
36
28
40
24
35
38
39
124
153
168
65
-28%
-16%
-4%
2%
28%
-7%
-7%
49
45
41
121
120
181
69
48
51
50
84
88
38
66
29
26
16
21
14
32
25
-7%
-2%
-3%
5%
21%
-4%
9%
31
27
16
20
12
33
23
20
26
32
70
73
76
37
23%
6%
-5%
5%
-4%
-7%
-14%
16
24
34
67
76
82
43
9%
10%
-4%
-6%
-3%
-24%
-1%
32
40
39
55
51
61
46
23
16
35
25
38
12
24
-17%
11%
-5%
1%
1%
-49%
-9%
28
14
37
25
38
24
26
39
43
45
58
58
67
53
37%
6%
4%
-12%
-6%
-13%
-7%
29
41
43
66
61
77
57
24
17
38
35
71
92
38
5%
-1%
-9%
-8%
10%
4%
-11%
23
17
41
38
65
89
42
45
13
16
35
60
22
21
20%
-18%
39%
-32%
173%
-27%
-3%
37
17
11
51
22
30
22
36
53
62
98
103
128
77
-15%
8%
-6%
-5%
3%
11%
-1%
43
49
66
103
100
116
78
14
34
21
86
89
94
68
N/M
8
8
N/M
N/M
N/M
1
N/M
-30%
-22%
N/M
N/M
N/M
4%
N/M
11
10
N/M
N/M
N/M
1
12
18
23
5
5
5
9
-19%
-14%
155%
-36%
25%
34%
-9%
15
21
9
8
4
4
10
4
17
19
88
96
105
58
-571%
-30%
-13%
13%
13%
16%
-1%
(1)
24
21
78
85
90
59
16%
2%
-15%
-17%
N/M
-16%
11%
14
6
7
11
N/M
22
5
N/M
111
1
88
158
208
52
N/M
-2%
-28%
4%
-3%
8%
-2%
N/M
114
1
84
163
192
53
41
125
13
19
30
11
23
0%
3%
-21%
-12%
-15%
5%
-4%
40
121
17
22
35
11
24
(25)
(7)
(7)
77
128
215
35
-8%
4991%
-25%
5%
1%
6%
1%
(27)
(0)
(9)
73
128
203
34
-18%
14%
-39%
-1%
3%
-13%
-15%
48
11
47
57
74
42
47
51
37
46
65
79
127
56
-29%
1%
-29%
1%
2%
13%
-10%
72
37
65
64
77
112
62
52
10
35
15
32
36
25
17%
-3%
-21%
-21%
0%
2%
1%
45
11
44
19
32
35
24
39
39
41
107
122
128
71
-49%
6%
-40%
4%
3%
7%
-16%
76
37
68
103
119
119
85
2010
2010
2011
1-yr. %
change
2010
Multiline Retail
Family Dollar Stores
Dollar General
Dollar Tree
Belk
Saks
Nordstrom
Median
Pharmaceuticals
Bristol-Myers Squibb
Allergan
Forest Laboratories
Endo Pharmaceuticals
Watson Pharmaceuticals
Hospira
Median
Software
Intuit
Take-Two Interactive Software
Electronic Arts
VMware
Parametric Technology
salesforce.com
Median
Specialty Retail
Aarons
AutoZone
Rent-A-Center
Mens Wearhouse
Zale
Tiffany
Median
N/M = not meaningful, because DWC moved from a positive to a negative number or vice versa.
Based on financial statements of 1,000 of the largest U.S. public companies (excluding the financial
sector), as reported by Capital IQ. Median shown is for the full industry. Source: REL Consulting
77
77
We
asked.
You
answered.
UNCROSSING
THE WIRES
How closely connected
are CFOs and CIOs
when it comes to
understanding the role
technology plays in
supporting business
strategyand whos
really calling the shots?
3 Sponsored by
Cisco Systems
WORKING
WELL
TOGETHER
Companies need
third parties to help
them explore growth
opportunities. But
with every partnership,
they are exposing their
companies to more
and dangerousrisks.
3 Sponsored by
Crowe Horwath
MADE TO
MEASURE
See what it takes to
measure up with the
companies who set
the benchmarks when
it comes to highperforming financial
and administrative
processes.
3 Sponsored by
Genpact
CFO
CFO
research research
CFO
CFO
research research
AUTHORITATIVE.
INDEPENDENT.
FINANCE-DRIVEN.
JUST LIKE YOU.
CFO CFO
Business
Outlook
Muddling Through
CFOs continue to hire but are less optimistic, according
to the latest Duke/CFO Business Outlook Survey.
By Kate OSullivan
2.5%
Taking a Dip
CFOs rate their optimism about their domestic or
regional economy compared with last quarter.*
National/regional economy
Own company
70
70
60
65
50
U.S.
60
U.S.
Europe
Europe
40
Q3 11
Q411
Q1 12
Q2 12
Asia
*CFOs were asked to rate their optimism about the economy on a scale of 0100,
with 0 being least optimistic.
Asia
Europe
US Duke University/CFO Magazine Global Business Outlook
Source for all charts:
Survey of 773 CFOs444 from the U.S., 102 from Europe, and 227 from Asia.
55
Q3 11
Q4 11
Q1 12
Q2 12
Asia
CFOs were asked to rate their optimism about their companies on a scale of
0100, with 0 being least optimistic.
Asia
Europe
US
Business
Outlook
Selective Spending
10%
3.0%
Capital
spending
2.5
Technology
spending
2.0
R&D
spending
Marketing
& advertising
spending
0%
Q3 11
Q4 11
Q1 12
Q2 12
1.5
1.0%
Q3 11
Q4 11
Q1 12
Q2 12
Wages
About the
macro
economy:
R&D
S
TS demand
e Consumer
CS
r Federal-government
agenda/policies
t Global financial
e Ability to maintain
OTheR COnCeRns inCluDe:
national employment outlook
Federal budget deficit
Cost of fuel
Credit markets/interest rates
state/local government
budget deficits
margins
instability
Still Spending
Finance chiefs in the United States
do continue to plan to spend money
in critical areas, however. Technology leads the major spending categories, with CFOs reporting a planned
increase of 8% on tech spending over
the next 12 months, up from 6% last
quarter. CFOs also say their companies will increase capital spending
by 5% on average in the coming year,
down from 7% last quarter. Researchand-development spending and marketing-and-advertising spending will
both rise by 3%, in line with last quarters plans.
As they look for growth, 39% of
finance chiefs say their companies
are spending money on the pursuit of
major innovationinvesting in projects that, if successful, would have a
significant impact on the business. On
average, CFOs say their companies are
Pricing Parity
5%
No. of offshore
outsourced
employees
4
2
No. of domestic
full-time
employees
0
-2%
Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2010
2011
No. of domestic
temporary
employees
1
0%
2012
Q3 11
Is it likely that your firm will begin to deploy its cash reserves
Number of domestic temporary employees
during the next 12 months?
Number of domestic full-time employees
No 52%
Yes 48%
0%
IF YES
20
40
60%
41%
27%
25%
20%
Capital spending
Acquisitions
Pay down debt
Increase hiring
Marketing &
advertising
60
IF NO
80
Q4 11
Q1 12
Q2 12
Inflation
100%
45%
42%
32%
19%
4%
Need cash as
a liquidity buffer
Lack excess cash
to deploy
Holding cash until
economic
uncertainty declines
Few attractive
investment
opportunities
Want to avoid
repatriation tax
Field
Notes
Putting Social
Networks to Work
Companies are finding real economic value in
cooperation and social media.
By Josh Hyatt
Social Studies
Which social-media platforms
are priorities for large
companies?
100%
80
94%
77%
60
42%
40
20
0%
To be effective, you
need to embed the
use of social media
across the fabric of
the company.
Richard Binhammer, director of
social media and community, Dell
Thinkstock
Making Connections
Users of Web 2.0 technologies report the following internal benefits:
77%
began responding to online posts (in
blogs, forums, and so on) about the
computer giant in 2006, when such
posts numbered about 4,000 a day.
Today, that figure is up to 25,000. The
company now offers formal socialmedia training to employees.
We came to a very early realization
that the discussions that go on on the
Web touch every part of the business,
says Binhammer. To be effective, you
need to embed the use of social media
across the fabric of the company.
Chuck Hollis, vice president for
global marketing and chief technology
officer at data-storage company EMC,
says that about six years ago, he realized that you could take just about
any fundamental process you might
care about and you could envision it in
a social-media world and how it might
look different and better. For example, using social-networking tools to
identify the top candidates for a position is cheaper than pursuing traditional routes. And an internal social
network can help new employees get
up to speed much quicker than weeks
of training can.
We do a lot of R&D and project
development, which is basically smart
people working together, says Hollis.
More and more those smart people
are scattered around the world, and
may or may not be badged employees of the company. So how do we
start doing collaborative product development with the very best ideas
out there? This other theme, around
our core business processes, began to
emerge.
Fortifying a businesss value propo-
Editors
Choice
Increasing
speed of access to
knowledge
41%
Increasing
employee
satisfaction
60%
Reducing
communication
costs
52%
Increasing speed
of access to
internal experts
40%
Reducing
operational costs
44%
Decreasing
travel costs
29%
28%
Reducing time
to market for
products/services
Increasing number
of successful
innovations in new
products/services
sition through social-media tools requires patience, flexibility, and adaptability. New applications and tools
are constantly emerging (have you
pinned anything lately?). But by
sharing informationboth internally
and externallya company can tackle
problems more readily, collaborate
more freely, and compete more flexibly.
Does all that teamwork slow things
down? Quite the opposite: Collaboration speeds you up and gets you to
market. It gets you into the race faster
and better and cheaper, says Zachary Tumin, a senior researcher at Harvard Universitys Kennedy School of
Government and co-author of a recent
book, Collaborate or Perish! Working Across Boundaries in a Networked
World. Its always been true that collaboration has given people tremendous advantage. Today that advantage
is really decisive.
Thats because the pace of competition is constantly accelerating. Its
like the [wording] you see on the rearview mirror of your car: Objects may
be closer than they appear, says Joel
Babbit, co-founder and CEO of Mother
Nature Network, which supplies environmental news. Its much closer
than you think, and its coming up right
behind you at a speed much faster than
before. CFO
The full report on which this article
is based, Collaborate to Win, is available for downloading at www.cfo
.com/research.
TAKE
AWAY
Mel Hope
poSITIon
prEvIouS poSITIonS
noTAblE for
interview by
marielle Segarra
Stan Kaady
FINANCIAL ACCOUNTING
RESOURCE CENTER
Analyzing and interpreting financial rules and regulations are challenges you face every day.
Our comprehensive online resource provides access to full-text standards FASB, SEC,
PCAOB, IASB, AICPA, GASB so you have all the regulations at your fingertips. And we
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Looks like those challenges just got a bit easier.
Afascinatingadditiontothestudyof
decision-making.Filealongside
MalcolmGladwell,DanAriely,
JonahLehrer.Kirkus STARRED review
[A]trail-blazingbookexploring
thehiddencranniesandthe
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RogER LowEnSTEin,
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and when genius Failed
FrankPartnoyturnsconventional
wisdomonitsheadwiththis
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decision-making....Waitisagreat
read,chockfulloffascinating
insights.
DAniEL H. PinK,
author of Drive and
A whole new Mind
W
aitisoneofthoserarebooksthat
willchangenotjustthewayyou
think,butthewayyouact.Thebook
isfullofideasthatarefascinating,
usefulandattimesmind-blowing.
Iwascaptivated.
BETHAny McLEAn,
coauthor of The Smartest guys in the
Room and All the Devils Are Here
Formoreinformation,visitwww.frankpartnoy.com
PublicAffAirs
www.publicaffairsbooks.com
Wait ad.indd 1
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