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2000 Excellence Awards: Jeffrey O. Henley

By keeping customers happy, Oracle pleases investors as well.

1Oct

On any given day at Oracle Corp.'s Redwood Shores, California, headquarters, you can count on seeing customers in Jeff Henley's office. Oracle's CFO meets with as many as three a day, giving each an hour of his time. Henley calculates that he spends more than 50 percent of his day talking with customers and analysts, although he is quick to add, "I end up spending much more time with customers than I do with analysts."


Analysts, figures Henley, should appreciate the fact that customers get the lion's share of his attention. "We have to grow the company and make money. That's what shareholders really care about," he says. "If I can help leverage sales and grow the business, shareholders should be happy."


These days, shareholders are very happy with Oracle. Within the past two years, the split-adjusted price of Oracle's stock has risen from less than $10 to more than $90 per share. Profit margins have grown from 21.2 percent at the end of May 1999 to 30.3 percent at the end of May 2000. During the last 10 quarters, claims Henley, the software giant has not missed one earnings-per-share estimate.


Underpinning the stock's stellar performance--and the number- one topic of Henley's customer meetings-- is the claim that the software giant has saved more than $1 billion since June 1999 by installing Web- based versions of its own business applications. That effort resulted in a twofold treat for investors: margins improved as the Web applications helped cut costs, and license revenue improved as customers bought into the idea that Oracle was eating its own dog food and enjoying it.


Analysts disagree about how much of Oracle's profit margin improvement can be attributed directly to the software and how much to old- fashioned cost cutting and better head- count discipline, but they all agree that Oracle's message has been powerful and consistent. "They've done a masterful job of consistently hammering home this [Internet] theme, and they jumped on it earlier than their competitors," says Charles Phillips, an analyst with Morgan Stanley Dean Witter.



Birth of a Salesman

Henley's ability to straddle the worlds of customers and investors is the main reason he is the recipient of this year's CFO Excellence Award for Managing External Stakeholders. Although Oracle has a history of inconsistent marketing messages, its investor relations (IR) has received top marks from analysts throughout Henley's nine-year tenure. "Henley is a straight shooter," says Andrew Brosseau, an analyst with SG Cowen Securities Corp., who recalls sales and accounting abuses before Henley joined Oracle, as well as Henley's willingness in recent years to own up to missed earnings results. "For a company that has had a somewhat checkered past, Henley has been a huge asset in giving Wall Street confidence that what they hear from the company is what's really going on."


Being a straight shooter is particularly important, since Oracle's founder and CEO, Larry Ellison, is better known for shooting from the hip. "Jeff is a CFO who has to deal with a famously mercurial founder and provide some balance for the rest of the world," notes Phillips.


"We have a colorful CEO, and I play a more conservative role," agrees Henley. That role is not only appropriate, he says, but also one that he carefully cultivates.


"You only get credibility over time," he notes. "If analysts don't find you credible, it gets [reflected] in the price of your stock." Henley still winces about the February 1997 quarter, when the company missed earnings by a couple of cents. "The market whacked us hard, which was probably deserved," he recalls. "That's the only time we've missed a quarter in the nine years I've been here, and I sure hope I never see it again."


Although Henley talks about working to regain his credibility after that experience, analysts say it never really suffered. Says Morgan Stanley's Phillips, "When things haven't gone well, Jeff has said that quickly and directly-- even when it made investors nervous." In fact, Oracle's stock rose more than two points the day after the peak of the spring dot-com crisis, and continued to rise as investors stampeded toward more stable tech stocks.


And while Oracle investors may occasionally be nervous, they're rarely uninformed. "Oracle has the best IR program on the Street," says Phillips. "In fact, when we take a company public, I usually send them a stack of material from Oracle on how it reports its numbers and conducts an analyst meeting."



Internet Speed

Henley says his salesman role is a common one for finance executives at leading high-tech firms, citing fellow CFO Excellence Award winner Larry Carter of Cisco Systems Inc. and Sun Microsystems Inc.'s Mike Lehman as other examples of CFOs who spend a substantial amount of time with customers. "I never spent this kind of time with customers in my former life [at Pacific Holding Co.]," he adds, "but it makes sense at Oracle. Because we use our own technology, it is just a natural thing for me to do."


It also seems natural that Oracle's CFO is a big fan of the Internet, and that the company's IR group relies heavily on the Web to disseminate investor materials. In addition to SEC filings, press releases, financial analyses, and investor presentations, its Web site allows users to receive E-mail alerts whenever new data is posted to the site.


Much of the information is geared to individual investors, who tend to be the primary users of Oracle's IR information on the Web. "We recognized early on that individual investors were going to be an important influence on the stock," says Stephanie Aas, senior director of IR. "We provide individuals with the same information professionals have access to." That policy is serving Oracle well now that Securities and Exchange Commission chairman Arthur Levitt has turned up the heat on selective disclosure. In fact, Henley's earnings conference calls--which are open to the public--have also been recorded and posted as audio files on Oracle's Web site for more than a year and a half. Aas says she plans to make recordings of analyst days available on the site as well.


While the 28 analysts that cover Oracle are still more likely to pick up the phone than click on the Web site, they give the site high marks. "I use Oracle's Web site every week, although not for investment data," notes Morgan Stanley's Phillips. "The enormous amount of product information, news, and information about the broader Oracle community is a must-read for analysts following the company."


Henley says the Internet makes equal disclosure among analysts and individuals possible. "The Internet gave us a way to [share investor information] inexpensively," says Henley, who strongly favors the SEC's recent Regulation FD, designed to eliminate selective disclosure. "We have nothing to hide," he says. "The more people know about Oracle, the better our stock will do."


So far, he's been right. The company's most recent analyst meeting took place on April 4--the same day the dot-com devaluation hit its nadir. By early afternoon, Nasdaq had plummeted to a record intraday loss of nearly 575 points. Henley was unfazed. "We didn't change a bit of content," he says. "We are all used to the volatility in this industry. I can't control the market; all I can control is what we do."


Despite the fact that many new dot-coms are Oracle customers, Henley says the ongoing market correction was long overdue and doesn't worry him. "It is weeding out the bad practices and sloppiness that was going on," he says. Indeed, while dot-coms dropped like flies that day, one analyst at the meeting reported that Henley was "almost giddy" about Oracle's future. That description seems to make Henley uncomfortable, presumably because CFOs are supposed to be more reserved. But his reaction to the market downturn shows that successful CFOs ultimately put their trust in sound financial practices--no matter how customer-friendly they may be.

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